As filed with the Securities and Exchange Commission on July 13 , 2016
 
 
Registration No. 333-


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM S-1
 
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
AZURRX BIOPHARMA, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
2834
46-4993860
(State or other jurisdiction of
incorporation or organization)
(Primary standard industrial
classification code number)
(I.R.S. employer
identification number)
 
760 Parkside Avenue
Downstate Biotechnology Incubator, Suite 217
Brooklyn, New York 11226
(646) 699-7855
 
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
 
Johan M. (Thijs) Spoor, President and Chief Executive Officer
AzurRx BioPharma, Inc.
760 Parkside Avenue
Downstate Biotechnology Incubator, Suite 217
Brooklyn, New York 11226
(646) 699-7855
 
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
 
Copies to:
 
Fran Stoller, Esq.
David J. Levine, Esq.
Loeb & Loeb LLP
345 Park Avenue
New York, NY 10154
Tel: (212) 407-4000
Fax: (212) 937-3943
Martin T. Schrier, Esq.
Christopher J. Bellini, Esq.
Cozen O’Connor
277 Park Avenue
New York, NY 10172
Tel: (212) 883-4900
Fax: (212) 986-0604
 
 
 

 
 
     Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
 
     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.  o
 
     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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer        ¨
Accelerated filer                        ¨
Non-accelerated filer          ¨
(Do not check if smaller reporting company)
Smaller reporting company      x
 
 
CALCULATION OF REGISTRATION FEE
 
Title of Each Class of Security Being Registered
 
Proposed Maximum Aggregate Offering Price (1)(2)
   
Amount of
Registration Fee (3)
 
Common Stock, $0.0001 par value
  $ 15,000,000     $ 1,510.50  
 
(1) 
Includes common stock that may be issued upon exercise of a 45-day option granted to the underwriters to cover over-allotments, if any.
(2) 
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(3) 
Paid herewith.  Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.
 
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 Commission, acting pursuant to said Section 8(a), may determine.
 

 
 



 
 
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
PRELIMINARY PROSPECTUS   SUBJECT TO COMPLETION DATED JULY 13, 2016
 

                                              Shares
 
Common Stock
 
AZURRX BIOPHARMA, INC.
 
 


This is our initial public offering of common stock.  No public market currently exists for our common stock.  We anticipate the initial public offering price will be between $             and $             per share.
 
We are selling             shares of common stock.
 
We have applied to list the common stock on The NASDAQ Capital Market, or NASDAQ, under the symbol “AZRX.”
 
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and, as such, may elect to comply with certain reduced reporting requirements after this offering. See “Prospectus Summary—Emerging Growth Company Status.”
 
Investing in our securities involves a high degree of risk.  You should carefully consider the risk factors beginning on page 6 of this prospectus before purchasing shares of our common stock.
_______________________
 
   
Price to Public
   
Underwriting Discounts and Commissions (1)
   
Proceeds to Us
 
Per Share
  $       $       $    
Total
  $       $       $    
_______________________________________
(1) See “Underwriting” for additional information regarding underwriting compensation.
 
We have granted the underwriters the right to purchase an additional              shares of our common stock to cover over-allotments.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
_______________________
 
The underwriters expect to deliver the shares of common stock to purchasers on             , 2016.
 
 
WallachBeth Capital, LLC   Network 1 Financial Securities, Inc.
 
 
The date of this prospectus is              , 2016

 
 

 
 
TABLE OF CONTENTS
 
    Page
     
 
1
 
4
 
5
 
6
 
23
 
24
 
24
 
25
 
26
 
27
28
 
35
 
48
 
50
 
53
 
58
 
59
 
60
 
62
64
 
65
 
69
 
69
 
69
 
F-1
 

 
SUMMARY
 
This summary highlights certain information appearing elsewhere in this prospectus. For a more complete understanding of this offering, you should read the entire prospectus carefully, including the information under “Risk Factors” and our financial statements and the related notes included elsewhere in this prospectus before investing in our common stock.
 
In this prospectus, unless otherwise stated or the context otherwise requires, references to “AzurRx,” “Company,” “we,” “us,” “our,” or similar references mean AzurRx BioPharma, Inc. and its subsidiaries on a consolidated basis. References to “AzurRx BioPharma” refer to AzurRx BioPharma, Inc. on an unconsolidated basis. References to “AzurRx SAS” refer to AzurRx BioPharma SAS, AzurRx BioPharma’s wholly-owned subsidiary through which we conduct our European operations.

Our Company
 
AzurRx is engaged in the research and development of non-systemic biologics for the treatment of patients with gastrointestinal disorders. Non-systemic biologics are non-absorbable drugs that act locally without reaching the systemic circulation, i.e. the intestinal lumen, skin or mucosa.  Our current product pipeline consists of two therapeutic proteins under development:
 
 
MS1819 - an autologous (from the same organism) yeast recombinant lipase for exocrine pancreatic insufficiency (EPI) associated with chronic pancreatitis (CP) and cystic fibrosis (CF). A recombinant lipase is an enzyme that breaks up fat molecules, which is created from new combinations of genetic material in yeast.
 
 
AZX1101 - a recombinant β -lactamase combination of bacterial origin for the prevention of hospital-acquired infections by resistant bacterial strains induced by parenteral administration of β-lactam antibiotics, as well as prevention of antibiotic-associated diarrhea (AAD). A recombinant β -lactamase is an enzyme that breaks up molecules with a beta-lactam ring as is often seen in antibiotics, which is created from new combinations of genetic material in yeast.
 
Our initial product, MS1819, is intended to treat patients suffering from EPI who are currently treated with porcine pancreatic extracts, or PPEs, which have been on the market since 1938.  The PPE market is well established and growing with estimated sales of $880 million in the U.S. in 2015 (based on a 20% discount to IMS Health’s 2015 prescription data) and has been growing for the past five years at a compound annual growth rate of 22% according to IMS Health 2009-2014 data. In spite of their long-term use, however, PPEs suffer from poor stability, formulation problems, possible transmission of conventional and non-conventional infectious agents due to their animal origins, possible adverse events at high doses in patients with CF and limited effectiveness. We believe that MS1819, if successfully developed and approved for commercialization, can address these shortcomings associated with PPEs.
 
Phase I/IIa testing of MS1819 was completed in March 2011 and we anticipate initiating a phase IIb clinical trial during the middle of 2016.  We expect to use a substantial portion of the proceeds of this offering to conduct the necessary formulation work and validation and stabilization testing on the MS1819 capsules that will be used in future clinical studies, as well as to conduct the trial. While enrollment criteria and statistical considerations for the phase IIb clinical trial will be dependent on the outcome of discussions we expect to have with the U.S. Food and Drug Administration ("FDA"), we expect enrollment in this trial to last for up to 18 months depending on a number of factors, including but not limited to the number of clinical trial sites and local patient demographics. The trial is expected to have both an open-label and randomized component and we anticipate having initial results from the open-label, dose-escalation arm of the trial available approximately six months following the initiation of the trial.


Our second non-systemic biologic product under preclinical development, AZX1101, is designed to protect the gut microbiome (gastrointestinal (GI) microflora) from the effects of certain commonly used intravenous (IV) antibiotics for the prevention of C. difficile infection (CDI) and antibiotic-associated diarrhea (AAD).  CDIs are a leading type of hospital acquired infection (HAI) and are frequently associated with IV antibiotic treatment. Designed to be given orally and co-administered with a broad range of IV beta-lactam antibiotics (e.g., penicillins, cephalosporins and aminogycosides), AZX1101 is intended to protect the gut while the IV antibiotics fight the primary infection. AZX1101 is believed to have the potential to protect the gut from a broad spectrum of IV beta-lactam antibiotics. Beta-lactam antibiotics are a mainstay in hospital infection management and include the commonly used penicillin and cephalosporin classes of antibiotics. AZX1101’s target market is significant and, according to IMS Health and CDM Hospital 2012 databases, represented by U.S. hospitals’ purchases of approximately 118 million doses of IV beta-lactam antibiotics annually, which are administered to approximately 14 million patients. Currently there are no approved treatments designed to protect the gut microbiome from the damaging effects of IV antibiotics.
 
We intend to use a portion of the proceeds of this offering to fund the additional preclinical studies needed to file an Investigational New Drug Application, or IND, with the FDA.
 
Emerging Growth Company Status
 
We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, which we refer to as the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements that are applicable to other companies that are not emerging growth companies. Accordingly, we have included detailed compensation information for only our three most highly compensated executive officers and have not included a compensation discussion and analysis, or CD&A, of our executive compensation programs in this prospectus. In addition, for so long as we are an “emerging growth company,” we will not be required to:
 
 
engage an auditor to report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes–Oxley Act of 2002, or the Sarbanes–Oxley Act;
 
 
comply with any requirement that may be adopted by the Public Company Accounting Oversight Board, or the PCAOB, regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);
 
 
submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay,” “say-on-frequency,” and “say-on-golden parachutes;” or
 
 
disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparison of the chief executive officer’s compensation to median employee compensation.
 
In addition, the JOBS Act provides that an “emerging growth company” can use the extended transition period for complying with new or revised accounting standards.


We will remain an “emerging growth company” until the earliest to occur of:
 
 
our reporting $1 billion or more in annual gross revenues;
 
  
our issuance, in a three -year period, of more than $1 billion in non-convertible debt;
 
 
the end of the fiscal year in which the market value of our common stock held by non-affiliates exceeds $700 million on the last business day of our second fiscal quarter; and
 
 
March 31, 2021.
 
Our Corporate Information
 
We were incorporated on January 30, 2014 in the State of Delaware. In June 2014, we acquired 100% of the issued and outstanding capital stock of AzurRx BioPharma   SAS (formerly ProteaBio Europe SAS), a company incorporated in October 2008 under the laws of France that had been a wholly-owned subsidiary of Protea Biosciences, Inc., or Protea Sub, in turn a wholly-owned subsidiary of Protea Biosciences Group, Inc., a publicly-traded company.  Our principal executive offices are located at 760 Parkside Avenue, Downstate Biotechnology Incubator, Suite 217, Brooklyn, NY 11226. Our telephone number is 646-699-7855. We maintain a website at www.azurrx.com. The information contained on our website is not, and should not be interpreted to be, a part of this prospectus.

 
 
Common stock being offered by us
 
 ____ shares
Common stock to be outstanding immediately after this offering
 
 ____ shares
Over-allotment option
 
 ____ shares
Use of proceeds
We intend to use the net proceeds from this offering to continue clinical development and testing of MS1819, to advance our preclinical AZX1101 program and for working capital and other general corporate purposes.
 
Proposed NASDAQ trading symbol
 
“AZRX”
Risk factors
The securities offered by this prospectus are speculative and involve a high degree of risk and investors purchasing securities should not purchase the securities unless they can afford the loss of their entire investment. See “Risk Factors” beginning on page 6.
 
The number of shares of our common stock to be outstanding immediately after this offering excludes:
 
 
_____ shares of common stock issuable upon the exercise of outstanding options and warrants at a weighted average exercise price of $___ per share; and
 
 
_____ shares reserved for issuance under our equity incentive plans.
 
Unless otherwise stated, all information in this prospectus assumes:
 
 
the conversion of our outstanding shares of preferred stock into ______ shares of common stock immediately prior to the closing of this offering;
 
 
the conversion of our outstanding convertible notes into __________ shares of common stock immediately prior to the closing of this offering based on the assumed initial public offering price of $______ per share, the midpoint of the price range set forth on the cover page of this prospectus;
 
 
no exercise of the underwriters’ over-allotment option to purchase additional shares; and
 
 
the filing of our amended and restated certificate of incorporation upon the completion of this offering.

 
SUMMARY FINANCIAL AND OTHER DATA
 
The following table presents our summary historical financial data for the periods presented and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and notes thereto included elsewhere in this prospectus. The statements of operations data for the fiscal years ended December 31, 2014 and 2015 are derived from our audited financial statements included elsewhere in this prospectus.  The summary consolidated statements of operations data for the three months ended March 31, 2016 and 2015 and the consolidated balance sheet data as of March 31, 2016 have been derived from our unaudited interim consolidated financial statements included elsewhere in this prospectus.
 
   
01/30/14 (Date of Inception) through 12/31/14
   
01/01/15 through 12/31/15
    Three Months Ended March 31,  
           
2016
   
2015
 
               
(unaudited)
   
(unaudited)
 
Statements of Operations Data:
                       
Operating expenses
 
$
2,329,106
   
$
4,728,808
   
$
1,347,216
   
$
1,072,416
 
Loss from operations
   
(2,329,106
)
   
(4,728,808
)
   
(1,347,216
)
   
(1,072,416
)
Total other expense
   
(36,042)
     
(1,201,428
)
 
 $
      (644,104)
     
(118,891
)
Net loss
 
$
(2,365,148)
   
$
(5,930,236
)
 
$
(1,991,320
)
 
$
(1,191,307
)
Net loss per share, basic and diluted
 
$
    (0.67)
   
$
(1.63
)
 
$
(0.42
)
 
$
(0.33
)
 
             
As of March 31, 2016
   
As of
December 31, 2015
   
As of
December 31, 2014
 
Pro Forma (1)
 
Pro Forma
As Adjusted (2)
             
(unaudited)
   
Balance Sheet Data:
                 
Cash
  $ 94,836     $ 581,668        
Total assets
  $ 6,575,753     $ 6,685,682        
Total current liabilities
  $ 2,430,855     $ 8,815,512        
Total liabilities
  $ 3,930,855     $ 10,315,512        
Total stockholders’ equity (deficit)
  $ 2,644,898     $ (3,629,830 )      
 
(1) 
The pro forma balance sheet data as of March 31, 2016 reflects (i) the conversion of our outstanding shares of preferred stock into ______ shares of common stock immediately prior to the closing of this offering, and (ii) the issuance of __________ shares of common stock immediately prior to the closing of this offering upon the conversion of notes we issued in August 2015 (based on the assumed initial public offering price of $______ per share, the midpoint of the price range set forth on the cover page of this prospectus.
 
(2) 
The pro forma as adjusted balance sheet data as of March 31, 2016 reflects the pro forma adjustments described in footnote (1) above as adjusted to give effect to receipt by us of the estimated net proceeds from this offering, based on an assumed initial public offering price of $__________ per share, the midpoint of the range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
 
 
RISK FACTORS
 
You should carefully consider the risks described below and elsewhere in this report, which could materially and adversely affect our business, results of operations or financial condition. Our business faces significant risks and the risks described below may not be the only risks we face. Additional risks not presently known to us or that we currently believe are immaterial may materially affect our business, results of operations, or financial condition. If any of these risks occur, the trading price of our common stock could decline and you may lose all or part of your investment.
 
Risks Related to Our Business and Industry
 
We are a development stage company and have a limited operating history upon which to base an investment decision.
 
We are a clinical development stage biopharmaceutical company. Since inception, we have engaged primarily in research and development activities, have not generated any revenues from product sales and have incurred significant net losses. As of March 31, 2016, we had an accumulated deficit of approximately $10.3 million. We have not demonstrated our ability to perform the functions necessary for the successful commercialization of any products. The successful commercialization of any of our products will require us to perform a variety of functions, including:
 
 
continuing to undertake pre-clinical development and clinical trials;
 
 
participating in regulatory approval processes;
 
 
formulating and manufacturing products; and
 
 
conducting sales and marketing activities.
 
Our operations to date have been limited to organizing and staffing our company, acquiring, developing and securing the proprietary rights for, and undertaking pre-clinical development and clinical trials of our product candidates. These operations provide a limited basis for our stockholders and prospective investors to assess our ability to complete development of or commercialize any products and the advisability of investing in our securities.
 
Our product candidates are at an early stage of development and may not be successfully developed or commercialized.
 
Our two product candidates, MS1819 and AZX1101, are in the early stages of development and will require substantial further capital expenditures, development, testing, and regulatory clearances prior to commercialization. The development and regulatory approval process takes several years and it is not likely that either of such products, even if successfully developed and approved by the FDA or any comparable foreign regulatory authority, would be commercially available for at least four to five years or more. Of the large number of drugs in development, only a small percentage successfully completes the regulatory approval process and is commercialized. Accordingly, even if we are able to obtain the requisite financing to fund our development programs, we cannot assure you that our product candidates will be successfully developed or commercialized. Our failure to develop, manufacture or receive regulatory approval for or successfully commercialize any of our product candidates, could result in the failure of our business and a loss of all of your investment in our company.
 
 
Any product candidates we advance into clinical development are subject to extensive regulation, which can be costly and time consuming, cause unanticipated delays or prevent the receipt of the required approvals to commercialize our product candidates.
 
The clinical development, manufacturing, labeling, storage, record-keeping, advertising, promotion, import, export, marketing and distribution of our product candidates are subject to extensive regulation by the FDA in the United States and by comparable health authorities in foreign markets, including Health Canada’s Therapeutic Products Directorate, or the TPD, the European Medicines Agency, or the EMA. In the United States, we are not permitted to market our product candidates until we receive approval of a New Drug Application, or NDA, or Biologics License Application, or BLA, from the FDA. The process of obtaining such approval is expensive, often takes many years and can vary substantially based upon the type, complexity and novelty of the products involved. In addition to the significant clinical testing requirements, our ability to obtain marketing approval for these products depends on obtaining the final results of required non-clinical testing, including characterization of the manufactured components of our product candidates and validation of our manufacturing processes. The FDA may determine that our product manufacturing processes, testing procedures or facilities are insufficient to justify approval. Approval policies or regulations may change and the FDA has substantial discretion in the pharmaceutical approval process, including the ability to delay, limit or deny approval of a product candidate for many reasons. Despite the time and expense invested in clinical development of product candidates, regulatory approval is never guaranteed.
 
The FDA, the TPD and/or the EMA can delay, limit or deny approval of a product candidate for many reasons, including, but not limited to:
 
 
disagreement with the design or implementation of our clinical trials;
 
 
failure to demonstrate to their satisfaction that a product candidate is safe and effective for any indication;
 
 
failure to accept clinical data from trials which are conducted outside their jurisdiction;
 
 
the results of clinical trials may not meet the level of statistical significance required for approval;
 
 
we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
 
 
such agencies may disagree with our interpretation of data from preclinical studies or clinical trials;
 
 
failure to approve the manufacturing processes or facilities of third-party manufacturers with which we or our collaborators contract for clinical and commercial supplies; or
 
 
changes in the approval policies or regulations of such agencies may significantly change in a manner rendering our clinical data insufficient for approval.
 
Any delay in obtaining, or inability to obtain, applicable regulatory approvals would prevent us from commercializing our product candidates.

 
If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
 
We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons.  The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the trial until its conclusion.  The enrollment of patients depends on many factors, including:
 
 
the number of clinical trials for other product candidates in the same therapeutic area that are currently in clinical development, and our ability to compete with such trials for patients and clinical trial sites;
 
 
the patient eligibility criteria defined in the protocol;
 
 
the size of the patient population;
 
 
the proximity and availability of clinical trial sites for prospective patients;
 
 
the design of the trial;
 
 
our ability to recruit clinical trial investigators with the appropriate competencies and experience;
 
 
our ability to obtain and maintain patient consents; and
 
 
the risk that patients enrolled in clinical trials will drop out of the trials before completion.
 
Our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates.  This competition will reduce the number and types of patients and qualified clinical investigators available to us, because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors or clinical trial sites may not allow us to conduct our clinical trial at such site if competing trials are already being conducted there.  Since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials in such clinical trial site.  We may also encounter difficulties finding a clinical trial site at which to conduct our trials.
 
Delays in patient enrollment may result in increased costs or may affect the timing or outcome of our planned clinical trials, which could prevent completion of these clinical trials and adversely affect our ability to advance the development of our product candidates.
 
Because the results of preclinical studies and early clinical trials are not necessarily predictive of future results, any product candidate we advance into clinical trials may not have favorable results in later clinical trials, if any, or receive regulatory approval.
 
Pharmaceutical development has inherent risk. We will be required to demonstrate through well-controlled clinical trials that our product candidates are effective with a favorable benefit-risk profile for use in their target indications before we can seek regulatory approvals for their commercial sale. Our principal product candidate, MS1819 has only completed a phase I/IIa clinical trial, while our second product, AZX1101 has only been tested in a pre-clinical setting.  Success in pre-clinical studies or early clinical trials does not mean that later clinical trials will be successful as product candidates in later-stage clinical trials may fail to demonstrate sufficient safety or efficacy despite having progressed through initial clinical testing. We also may need to conduct additional clinical trials that are not currently anticipated. Companies frequently suffer significant setbacks in advanced clinical trials, even after earlier clinical trials have shown promising results.

 
Any product candidate we advance into clinical trials may cause unacceptable adverse events or have other properties that may delay or prevent their regulatory approval or commercialization or limit their commercial potential.
 
Unacceptable adverse events caused by any of our product candidates in clinical trials could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in the denial of regulatory approval by the FDA or other regulatory authorities for any or all targeted indications and markets. This, in turn, could prevent us from commercializing the affected product candidate and generating revenues from its sale.  We have not yet completed testing of any of our product candidates for the treatment of the indications for which we intend to seek product approval in humans, and we currently do not know the extent of adverse events, if any, that will be observed in patients who receive any of our product candidates.  If any of our product candidates cause unacceptable adverse events in clinical trials, we may not be able to obtain regulatory approval or commercialize such product or, if such product candidate is approved for marketing, future adverse events could cause us to withdraw such product from the market.
 
Delays in the commencement or completion of our clinical trials could result in increased costs and delay our ability to pursue regulatory approval.
 
Although we intend to use the proceeds of this offering to commence a Phase II clinical trial for MS1819 in the middle of 2016 and to complete the preclinical work necessary to file an IND for AZX1101 by the first quarter of 2017, the commencement of clinical trials can be delayed for a variety of reasons, including delays in:
 
 
obtaining regulatory clearance to commence a clinical trial;
 
 
identifying, recruiting and training suitable clinical investigators;
 
 
reaching agreement on acceptable terms with prospective CROs and trial sites, the terms of which can be subject to extensive negotiation, may be subject to modification from time to time and may vary significantly among different CROs and trial sites;
 
 
obtaining sufficient quantities of a product candidate for use in clinical trials;
 
 
obtaining Investigator Review Board, or IRB, or ethics committee approval to conduct a clinical trial at a prospective site;
 
 
identifying, recruiting and enrolling patients to participate in a clinical trial;
 
 
retaining patients who have initiated a clinical trial but may withdraw due to adverse events from the therapy, insufficient efficacy, fatigue with the clinical trial process or personal issues; and
 
 
availability of cash.
 
Any delays in the commencement of our clinical trials will delay our ability to pursue regulatory approval for our product candidates. In addition, many of the factors that cause, or lead to, a delay in the commencement of clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate.
 
Once a clinical trial has begun, patient recruitment and enrollment may be slower than we anticipate. Clinical trials may also be delayed as a result of ambiguous or negative interim results or difficulties in obtaining sufficient quantities of product manufactured in accordance with regulatory requirements.
 
We may be required to suspend, repeat or terminate our clinical trials if they are not conducted in accordance with regulatory requirements, the results are negative or inconclusive or the trials are not well designed.
 
Regulatory agencies, IRBs or data safety monitoring boards may at any time recommend the temporary or permanent discontinuation of our clinical trials or request that we cease using investigators in the clinical trials if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements, or that they present an unacceptable safety risk to participants.  Clinical trials must be conducted in accordance with current Good Clinical Practices, or cGCPs, or other applicable foreign government guidelines governing the design, safety monitoring, quality assurance and ethical considerations associated with clinical studies.  Clinical trials are subject to oversight by the FDA, other foreign governmental agencies and IRBs at the study sites where the clinical trials are conducted.  In addition, clinical trials must be conducted with product candidates produced in accordance with applicable Current Good Manufacturing Practices, or cGMPs, which are the FDA's regulations governing the design, monitoring and control of manufacturing processes and facilities.  Clinical trials may be suspended by the FDA, other foreign governmental agencies, or us for various reasons, including:

 
 
deficiencies in the conduct of the clinical trials, including failure to conduct the clinical trial in accordance with regulatory requirements or clinical protocols;
 
 
deficiencies in the clinical trial operations or trial sites;
 
 
the product candidate may have unforeseen adverse side effects;
 
 
deficiencies in the trial design necessary to demonstrate efficacy;
 
 
fatalities or other adverse events arising during a clinical trial due to medical problems that may not be related to clinical trial treatments;
 
 
the product candidate may not appear to be more effective than current therapies; or
 
 
the quality or stability of the product candidate may fall below acceptable standards.
 
If we elect or are forced to suspend or terminate a clinical trial of any other of our product candidates, the commercial prospects for that product will be harmed and our ability to generate product revenue from that product may be delayed or eliminated.  Furthermore, any of these events could prevent us or our partners from achieving or maintaining market acceptance of the affected product and could substantially increase the costs of commercializing our product candidates and impair our ability to generate revenue from the commercialization of these products either by us or by our collaboration partners.
 
Because we in-licensed our product candidates from third parties, any dispute with our licensors or non-performance by us or by our licensors may adversely affect our ability to develop and commercialize the applicable product candidates.
 
Some of our product candidates, including related intellectual property rights, were in-licensed from third parties. Under the terms of our license agreements, the licensors generally have the right to terminate such agreements in the event of a material breach by us. Our licenses require us to make annual, milestone or other payments prior to commercialization of any product and our ability to make these payments depends on our ability to generate cash in the future. These agreements generally require us to use diligent and reasonable efforts to develop and commercialize the product candidate. In the case of MS1819, Laboratoires Mayoly Spindler SAS, or Mayoly, licenses MS1819 from a third party and, accordingly, our rights to MS1819 are also subject to Mayoly’s performance of its obligations to its licensor, any breach of which we may be required to remedy in order to preserve our rights.
 
If there is any conflict, dispute, disagreement or issue of non-performance between us and our licensing partner regarding our rights or obligations under the license agreement, including any conflict, dispute or disagreement arising from our failure to satisfy payment obligations under such agreement, our ability to develop and commercialize the affected product candidate may be adversely affected. Similarly, any such dispute or issue of non-performance between Mayoly and its licensor that we are unable to cure could adversely affect our ability to develop and commercialize MS1819. Any loss of our rights under our license agreements could delay or completely terminate our product development efforts for the affected product candidate.

 
We may form or seek strategic alliances or enter into additional licensing arrangements in the future, and we may not realize the benefits of such alliances or licensing arrangements.
 
From time to time, we may form or seek strategic alliances, create joint ventures or collaborations or enter into additional licensing arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to our product candidates and any future product candidates that we may develop.  Any of these relationships may require us to incur non-recurring and other charges, increase our near and long-term expenditures, issue securities that dilute our existing stockholders or disrupt our management and business.  These relationships also may result in a delay in the development of our product candidates if we become dependent upon the other party and such other party does not prioritize the development of our product candidates relative to its other development activities.  In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex.  Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for our product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our product candidates as having the requisite potential to demonstrate safety and efficacy.  If we license products or businesses, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture.  We cannot be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction. We rely completely on third parties to manufacture our preclinical and clinical pharmaceutical supplies and expect to continue to rely on third parties to produce commercial supplies of any approved product candidate, and our dependence on third party suppliers could adversely impact our business.
 
We rely completely on third parties to manufacture our preclinical and clinical pharmaceutical supplies and expect to continue to rely on third parties to produce commercial supplies of any approved product candidate, and our dependence on third party suppliers could adversely impact our business.
 
The proprietary yeast strain used to manufacture MS1819 API is located in a storage facility maintained by Charles River Laboratories in Malvern, PA and such manufacturing is conducted by DSM Capua SPA in Italy.  We are completely dependent on these third parties for product supply and our MS1819 development programs would be adversely affected by a significant interruption in our ability to receive such materials.  Furthermore, our third-party suppliers will be required to maintain compliance with cGMPs and will be subject to inspections by the FDA or comparable regulatory authorities in other jurisdictions to confirm such compliance. In the event that the FDA or such other authorities determine that our third-party suppliers have not complied with cGMP, our clinical trials could be terminated or subjected to a clinical hold until such time as we are able to obtain appropriate replacement material.  Any delay, interruption or other issues that arise in the manufacture, packaging, or storage of our products as a result of a failure of the facilities or operations of our third party suppliers to pass any regulatory agency inspection could significantly impair our ability to develop and commercialize our products.
 
We do not expect to have the resources or capacity to commercially manufacture any of our proposed products, if approved, and will likely continue to be dependent upon third party manufacturers. Our dependence on third parties to manufacture and supply us with clinical trial materials and any approved products may adversely affect our ability to develop and commercialize our products on a timely basis or at all.
 
We rely on third parties to conduct our clinical trials. If these third parties do not meet our deadlines or otherwise conduct the trials as required, our clinical development programs could be delayed or unsuccessful and we may not be able to obtain regulatory approval for or commercialize our product candidates when expected or at all.
 
We do not have the ability to conduct all aspects of our preclinical testing or clinical trials ourselves. We intend to use CROs to conduct our planned clinical trials and will rely upon such CROs, as well as medical institutions, clinical investigators and consultants, to conduct our trials in accordance with our clinical protocols. Our future CROs, investigators and other third parties will play a significant role in the conduct of these trials and the subsequent collection and analysis of data from the clinical trials.


There is no guarantee that any CROs, investigators and other third parties upon which we rely for administration and conduct of our clinical trials will devote adequate time and resources to such trials or perform as contractually required. If any of these third parties fail to meet expected deadlines, fail to adhere to our clinical protocols or otherwise perform in a substandard manner, our clinical trials may be extended, delayed or terminated. If any of our clinical trial sites terminate for any reason, we may experience the loss of follow-up information on patients enrolled in our ongoing clinical trials unless we are able to transfer the care of those patients to another qualified clinical trial site. In addition, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, the integrity of the data generated at the applicable clinical trial site may be jeopardized.
 
We will face intense competition and may not be able to compete successfully.
 
We operate in highly competitive segments of the biotechnology and biopharmaceutical markets. We face competition from many different sources, including commercial pharmaceutical and biotechnology enterprises, academic institutions, government agencies, and private and public research institutions. Our product candidates, if successfully developed and approved, will compete with established therapies, as well as new treatments that may be introduced by our competitors. Many of our competitors have significantly greater financial, product development, manufacturing and marketing resources than us. Large pharmaceutical companies have extensive experience in clinical testing and obtaining regulatory approval for drugs. In addition, many universities and private and public research institutes are active in cancer research, some in direct competition with us. We also may compete with these organizations to recruit management, scientists and clinical development personnel. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. New developments, including the development of other biological and pharmaceutical technologies and methods of treating disease, occur in the pharmaceutical and life sciences industries at a rapid pace. Developments by competitors may render our product candidates obsolete or noncompetitive. We will also face competition from these third parties in recruiting and retaining qualified personnel, establishing clinical trial sites and patient registration for clinical trials and in identifying and in-licensing new product candidates.
 
Our success will depend upon intellectual property, proprietary technologies and regulatory market exclusivity periods, and we may be unable to protect our intellectual property.
 
Our success will depend, in large part, on obtaining and maintaining patent protection and trade secret protection for our product candidates and their formulations and uses, as well as successfully defending these patents against third-party challenges. Under our license agreement with Mayoly, enforcement of patents relating to MS1819 is the responsibility of Mayoly. If we or our licensors fail to appropriately prosecute and maintain patent protection for our product candidates, our ability to develop and commercialize these product candidates may be adversely affected and we may not be able to prevent competitors from making, using and selling competing products. This failure to properly protect the intellectual property rights relating to these product candidates could have a material adverse effect on our financial condition and results of operations.
 
The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that we or our partners will be successful in protecting our product candidates by obtaining and defending patents. These risks and uncertainties include the following:
 
 
patent applications may not result in any patents being issued;
 
 
patents that may be issued or in-licensed may be challenged, invalidated, modified, revoked, circumvented, found to be unenforceable, or otherwise may not provide any competitive advantage;
 
 
 
our competitors, many of which have substantially greater resources than we or our partners and many of which have made significant investments in competing technologies, may seek, or may already have obtained, patents that will limit, interfere with, or eliminate our ability to make, use, and sell our potential products;
 
 
there may be significant pressure on the United States government and other international governmental bodies to limit the scope of patent protection both inside and outside the United States for disease treatments that prove successful as a matter of public policy regarding worldwide health concerns;
 
 
countries other than the United States may have patent laws less favorable to patentees than those upheld by United States courts, allowing foreign competitors a better opportunity to create, develop, and market competing products; and
 
 
we may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time consuming and unsuccessful.
 
In addition to patents, we and our partners also rely on trade secrets and proprietary know-how. Although we have taken steps to protect our trade secrets and unpatented know-how, including entering into confidentiality agreements with third parties, and confidential information and inventions agreements with employees, consultants and advisors, third parties may still obtain this information or come upon this same or similar information independently. We may become subject to claims that we or consultants, advisors or independent contractors that we may engage to assist us in developing our product candidates have wrongfully or inadvertently disclosed to us or used trade secrets or other proprietary information of their former employers or their other clients.
 
We intend to rely on market exclusivity periods that may not be or remain available to us .
 
We intend to rely on our ability to obtain and maintain a regulatory period of market exclusivity for any of our biologic product candidates that are successfully developed and approved for commercialization. Although this period in the United States is currently 12 years from the date of marketing approval, reductions to this period have been proposed. This exclusivity period in Europe is currently 10 years from the date of marketing approval by the EMA. Once any regulatory period of exclusivity expires, depending on the status of our patent coverage and the nature of the product, we may not be able to prevent others from marketing products that are biosimilar to or interchangeable with our products, which would materially adversely affect us.
 
In addition, United States patent laws may change which could prevent or limit us from filing patent applications or patent claims to protect our products and/or technologies or limit the exclusivity periods that are available to patent holders. For example, on September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law, and includes a number of significant changes to United States patent law. These include changes to transition from a “first-to-invent” system to a “first-to-file” system and to the way issued patents are challenged. These changes may favor larger and more established companies that have more resources to devote to patent application filing and prosecution. The United States Patent and Trademark Office is currently developing regulations and procedures to administer the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act will not become effective until one year or 18 months after its enactment. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will ultimately have on the cost of prosecuting our patent applications, our ability to obtain patents based on our discoveries and our ability to enforce or defend our issued patents.

 
If we are unable to establish sales and marketing capabilities or fail to enter into agreements with third parties to market, distribute and sell any products we may successfully develop, we may not be able to effectively market and sell any such products and generate product revenue.
 
We do not currently have the infrastructure for the sales, marketing and distribution of any of our product candidates, and must build this infrastructure or make arrangements with third parties to perform these functions in order to commercialize any products that we may successfully develop. The establishment and development of a sales force, either by us or jointly with a partner, or the establishment of a contract sales force to market any products we may develop will be expensive and time-consuming and could delay any product launch. If we, or our partners, are unable to establish sales and marketing capability or any other non-technical capabilities necessary to commercialize any products we may successfully develop, we will need to contract with third parties to market and sell such products. We may not be able to establish arrangements with third-parties on acceptable terms, if at all.
 
If any product candidate that we successfully develop does not achieve broad market acceptance among physicians, patients, healthcare payors and the medical community, the revenues that it generates from their sales will be limited.
 
Even if our product candidates receive regulatory approval, they may not gain market acceptance among physicians, patients, healthcare payors and the medical community. Coverage and reimbursement of our product candidates by third-party payors, including government payors, generally is also necessary for commercial success. The degree of market acceptance of any approved products will depend on a number of factors, including:
 
 
 
 
 
 
 
 
 
 
 
 
 
the efficacy and safety as demonstrated in clinical trials;
 
the clinical indications for which the product is approved;
 
acceptance by physicians, major operators of hospitals and clinics and patients of the product as a safe and effective treatment;
 
acceptance of the product by the target population;
 
the potential and perceived advantages of product candidates over alternative treatments;
 
the safety of product candidates seen in a broader patient group, including its use outside the approved indications;
 
the cost of treatment in relation to alternative treatments;
 
the availability of adequate reimbursement and pricing by third parties and government authorities;
 
relative convenience and ease of administration;
 
the prevalence and severity of adverse events;
 
the effectiveness of our sales and marketing efforts; and
 
unfavorable publicity relating to the product.
 
If any product candidate is approved but does not achieve an adequate level of acceptance by physicians, hospitals, healthcare payors and patients, we may not generate sufficient revenue from these products and may not become or remain profitable.

 
We may incur substantial product liability or indemnification claims relating to the clinical testing of our product candidates.
 
We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials, and claims could be brought against us if use or misuse of one of our product candidates causes, or merely appears to have caused, personal injury or death. While we have and intend to maintain product liability insurance relating to our clinical trials, our coverage may not be sufficient to cover claims that may be made against us and we may be unable to maintain such insurance. Any claims against us, regardless of their merit, could severely harm our financial condition, strain our management and other resources or destroy the prospects for commercialization of the product which is the subject of any such claim. We are unable to predict if we will be able to obtain or maintain product liability insurance for any products that may be approved for marketing. Additionally, we have entered into various agreements where we indemnify third parties for certain claims relating to the testing and use of our product candidates. These indemnification obligations may require us to pay significant sums of money for claims that are covered by these indemnifications.
 
If we fail to attract and retain key management and clinical development personnel, we may be unable to successfully develop or commercialize our product candidates.
 
We are dependent on our management team and clinical development personnel and our success will depend on their continued service, as well as our ability to attract and retain highly qualified personnel. In particular, the continued service of our senior management team, including Johan M. (Thijs) Spoor, our President and Chief Executive Officer, and Daniel Dupret, our Chief Scientific Officer, is critical to our success. The market for the services of qualified personnel in the pharmaceutical industry is highly competitive. The loss of service of any member of our senior management team or key personnel could prevent, impair or delay the implementation of our business plan, the successful conduct and completion of our planned clinical trials and the commercialization of any product candidates that we may successfully develop. We do not carry key man insurance for any member of our senior management team.
 
We use biological materials and may use hazardous materials, and any claims relating to improper handling, storage or disposal of these materials could be time consuming or costly.
 
We may use hazardous materials, including chemicals and biological agents and compounds, that could be dangerous to human health and safety or the environment. Our operations also produce hazardous waste products. Federal, state and local laws and regulations govern the use, generation, manufacture, storage, handling and disposal of these materials and wastes. Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair our product development efforts. In addition, we cannot entirely eliminate the risk of accidental injury or contamination from these materials or wastes. We do not carry specific biological or hazardous waste insurance coverage and our property and casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages or penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended.
 
Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological or hazardous materials.
 
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
 
If we or our partners are sued for infringing intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in that litigation would have a material adverse effect on our business.
 
Our success also depends upon our ability and the ability of any of our future collaborators to develop, manufacture, market and sell our product candidates without infringing the proprietary rights of third parties. Numerous United States and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing products, some of which may be directed at claims that overlap with the subject matter of our intellectual property. Because patent applications can take many years to issue, there may be currently pending applications, unknown to us, which may later result in issued patents that our product candidates or proprietary technologies may infringe. Similarly, there may be issued patents relevant to our product candidates of which we are not aware.
 
There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and biopharmaceutical industries generally. If a third party claims that we or any of our licensors, suppliers or collaborators infringe the third party’s intellectual property rights, we may have to:
 
 
obtain licenses, which may not be available on commercially reasonable terms, if at all;
 
 
abandon an infringing product candidate or redesign our products or processes to avoid infringement;
 
 
pay substantial damages, including the possibility of treble damages and attorneys’ fees, if a court decides that the product or proprietary technology at issue infringes on or violates the third party’s rights;
 
 
pay substantial royalties, fees and/or grant cross licenses to our technology; and/or
 
 
defend litigation or administrative proceedings which may be costly whether we win or lose, and which could result in a substantial diversion of our financial and management resources.
 
Healthcare reform and restrictions on reimbursements may limit our financial returns.
 
Our ability or the ability of our collaborators to commercialize any of our product candidates that we successfully develop may depend, in part, on the extent to which government health administration authorities, private health insurers and other organizations will reimburse consumers for the cost of these products. These third parties are increasingly challenging both the need for and the price of new drug products. Significant uncertainty exists as to the reimbursement status of newly approved therapeutics. Adequate third-party reimbursement may not be available for our product candidates to enable us or our collaborators to maintain price levels sufficient to realize an appropriate return on their and our investments in research and product development.
 
If we or any of our independent contractors, consultants, collaborators, manufacturers, vendors or service providers fail to comply with healthcare laws and regulations, we or they could be subject to enforcement actions, which could result in penalties and affect our ability to develop, market and sell our product candidates and may harm our reputation.
 
We are subject to federal, state, and foreign healthcare laws and regulations pertaining to fraud and abuse and patients’ rights. These laws and regulations include:
 
 
the U.S. federal healthcare program anti-kickback law, which prohibits, among other things, persons and entities from soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual for a healthcare item or service, or the purchasing or ordering of an item or service, for which payment may be made under a federal healthcare program such as Medicare or Medicaid;
 
 
the U.S. federal false claims and civil monetary penalties laws, which prohibit, among other things, individuals or entities from knowingly presenting or causing to be presented, claims for payment by government funded programs such as Medicare or Medicaid that are false or fraudulent, and which may apply to us by virtue of statements and representations made to customers or third parties;


 
the U.S. federal Health Insurance Portability and Accountability Act, or HIPAA, which prohibits, among other things, executing a scheme to defraud healthcare programs;
 
 
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, imposes requirements relating to the privacy, security, and transmission of individually identifiable health information, and requires notification to affected individuals and regulatory authorities of certain breaches of security of individually identifiable health information;
 
 
the federal Physician Payment Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies to report annually to the Centers for Medicare & Medicaid Services, or CMS, information related to payments and other transfers of value to physicians, other healthcare providers and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members, which is published in a searchable form on an annual basis; and
 
 
state laws comparable to each of the above federal laws, such as, for example, anti-kickback and false claims laws that may be broader in scope and also apply to commercial insurers and other non-federal payors, requirements for mandatory corporate regulatory compliance programs, and laws relating to patient data privacy and security.
 
If our operations are found to be in violation of any such health care laws and regulations, we may be subject to penalties, including administrative, civil and criminal penalties, monetary damages, disgorgement, imprisonment, the curtailment or restructuring of our operations, loss of eligibility to obtain approvals from the FDA, or exclusion from participation in government contracting, healthcare reimbursement or other government programs, including Medicare and Medicaid, any of which could adversely affect our financial results.  Although effective compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, these risks cannot be entirely eliminated.  Any action against us for an alleged or suspected violation could cause us to incur significant legal expenses and could divert our management’s attention from the operation of our business, even if our defense is successful.  In addition, achieving and sustaining compliance with applicable laws and regulations may be costly to us in terms of money, time and resources.
 
We will need to grow the size of our organization, and we may experience difficulties in managing this growth.
 
As of March 31, 2016, we had twelve employees.  As our development and commercialization plans and strategies develop, and as we transition into operating as a public company, we expect to need additional managerial, operational, sales, marketing, financial and other personnel.  Future growth would impose significant added responsibilities on members of management, including:
 
 
identifying, recruiting, integrating, maintaining and motivating additional employees;
 
 
managing our internal development efforts effectively, including the clinical, FDA and international regulatory review process for our product candidates, while complying with our contractual obligations to contractors and other third parties; and
 
 
improving our operational, financial and management controls, reporting systems and procedures.
 
Our future financial performance and our ability to commercialize our product candidates will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities.

 
We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants to provide certain services, including substantially all aspects of regulatory approval, clinical management and manufacturing.  There can be no assurance that the services of independent organizations, advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements.  In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval of our product candidates or otherwise advance our business.  There can be no assurance that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, or at all.
 
If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to further develop and commercialize our product candidates and, accordingly, may not achieve our research, development and commercialization goals.
 
Risks Relating to our Finances, Capital Requirements and Other Financial Matters
 
We are a development stage company with a history of operating losses that are expected to continue and we are unable to predict the extent of future losses, whether we will generate significant revenues or whether we will achieve or sustain profitability.
 
We are a company in the development stage and our prospects must be considered in light of the uncertainties, risks, expenses and difficulties frequently encountered by companies in their early stages of operations. We have generated operating losses since our inception, including losses of approximately $2,365,000, and $5,930,000 for the years ended December 31, 2014 and 2015, respectively, and $1,991,000 in the three months ended March 31, 2016. At March 31, 2016, we had an accumulated deficit of approximately $10,287,000.  We expect to make substantial expenditures and incur increasing operating costs in the future and our accumulated deficit will increase significantly as we expand development and clinical trial activities for our product candidates. Our losses have had, and are expected to continue to have, an adverse impact on our working capital, total assets and stockholders’ equity. Because of the risks and uncertainties associated with product development, we are unable to predict the extent of any future losses, whether we will ever generate significant revenues or if we will ever achieve or sustain profitability.
 
We will need substantial additional funding and may be unable to raise capital when needed, which would force us to delay, curtail or eliminate one or more of our research and development programs or commercialization efforts.
 
Our operations have consumed substantial amounts of cash since inception. During the years ended December 31, 2014 and 2015 and the three months ended March 31, 2016, we incurred research and development expenses of approximately $670,000, $1,398,000 and $686,000, respectively. We expect to continue to spend substantial amounts on product development, including conducting clinical trials for our product candidates and purchasing clinical trial materials from our suppliers. We believe that our cash on hand and the net proceeds from this offering will sustain our operations until January 2018 and that we will require substantial additional funds to support our continued research and development activities, as well as the anticipated costs of preclinical studies and clinical trials, regulatory approvals and potential commercialization. We have based this estimate, however, on assumptions that may prove to be wrong, and we could spend our available financial resources much faster than we currently expect. Our current financial condition raises substantial doubt about our ability to continue as a going concern.
 
Until such time, if ever, as we can generate a sufficient amount of product revenue and achieve profitability, we expect to seek to finance future cash needs through equity or debt financings or corporate collaboration and licensing arrangements. Other than this offering, we currently have no other commitments or agreements relating to any of these types of transactions and we cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital, we will have to delay, curtail or eliminate one or more of our research and development programs.
 
 
We received a report from our independent registered public accounting firm with an explanatory paragraph for the year ended December 31, 2015 and 2014 with respect to our ability to continue as a going concern.  The existence of such a report may adversely affect our stock price and our ability to raise capital.  
 
In their report dated June 15, 2016, our independent registered public accounting firm expressed substantial doubt about our ability to continue as a going concern.  We have incurred losses and negative cash flows from operations since inception, have an accumulated deficit as of March 31, 2016 and require additional financing to fund future operations. Our ability to continue as a going concern is subject to our ability to obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities.
 
Raising additional funds by issuing securities or through licensing or lending arrangements may cause dilution to our existing stockholders, restrict our operations or require us to relinquish proprietary rights.
 
To the extent that we raise additional capital by issuing equity securities, the share ownership of existing stockholders will be diluted. Any future debt financing may involve covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, redeem our stock, make certain investments and engage in certain merger, consolidation or asset sale transactions, among other restrictions. In addition, if we raise additional funds through licensing arrangements, it may be necessary to relinquish potentially valuable rights to our product candidates, or grant licenses on terms that are not favorable to us.
 
Risks Associated with our Capital Stock and this Offering
 
We do not know whether an active, liquid and orderly trading market will develop for our common stock in the U.S.
 
Prior to this offering, there has been no public market for our common stock. Although we have applied for listing on The NASDAQ Capital Market, an active trading market for our shares may never develop or be sustained. The lack of an active or liquid 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 market price of our common stock may be volatile and may fluctuate in a way that is disproportionate to our operating performance.
 
Our stock price may experience substantial volatility as a result of a number of factors, including
 
 
sales or potential sales of substantial amounts of our common stock;
 
 
delay or failure in initiating or completing pre-clinical or clinical trials or unsatisfactory results of these trials;
 
 
announcements about us or about our competitors, including clinical trial results, regulatory approvals or new product introductions;
 
 
developments concerning our licensors or product manufacturers;


 
litigation and other developments relating to our patents or other proprietary rights or those of our competitors;
 
 
conditions in the pharmaceutical or biotechnology industries;
 
 
governmental regulation and legislation;
 
 
variations in our anticipated or actual operating results;
 
 
change in securities analysts’ estimates of our performance, or our failure to meet analysts’ expectations; foreign currency values and fluctuations; and
 
 
overall economic conditions.
 
Many of these factors are beyond our control. The stock markets in general, and the market for pharmaceutical and biotechnological companies in particular, have historically experienced extreme price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. These broad market and industry factors could reduce the market price of our common stock, regardless of our actual operating performance.
 
Future sales of shares of our common stock by existing stockholders could depress the market price of our common stock.
 
Upon the closing of this offering, we will have an aggregate of ______ outstanding shares of common stock. The shares sold in this offering will be immediately tradable without restriction.   ___________ shares, or approximately ___ % of our outstanding shares of common stock are currently restricted as a result of lock-up agreements. These shares will be available for sale into the public market on  __________, subject to certain exceptions and also to potential extensions under certain circumstances, and will be subject to volume and other sale restrictions. The representative of the underwriters may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to lock-up agreements.
 
Also, in the future, we may issue additional securities in connection with investments and acquisitions. The amount of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then outstanding stock. Due to these factors, sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock.
 
Holders of approximately__________ shares, or __%, of our common stock have registration rights, subject to some conditions, to require us to file registration statements covering the sale of their shares or to include their shares in registration statements that we may file for ourselves or other stockholders in the future. Once we register the shares for the holders of registration rights, they can be freely sold in the public market upon issuance, subject to the restrictions contained in the lock-up agreements. If a large number of these shares are sold in the public market, the sales could reduce the trading price of our common stock. See “Shares Eligible for Future Sale” for a more detailed description of sales that may occur in the future.
 
We have never paid and do not intend to pay cash dividends.  As a result, capital appreciation, if any, will be your sole source of gain.
 
We have never paid cash dividends on any of our capital stock and we currently intend to retain future earnings, if any, to fund the development and growth of our business.  In addition, the terms of existing and future debt agreements may preclude us from paying dividends.  As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.
 
 
Provisions in our restated certificate of incorporation, our restated by-laws and Delaware law might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, depress the trading price of our common stock.
 
Provisions of our restated certificate of incorporation, our restated by-laws and Delaware law may have the effect of deterring unsolicited takeovers or delaying or preventing a change in control of our company or changes in our management, including transactions in which our stockholders might otherwise receive a premium for their shares over then current market prices. In addition, these provisions may limit the ability of stockholders to approve transactions that they may deem to be in their best interests. These provisions include:
 
 
the inability of stockholders to call special meetings; and
 
 
the ability of our board of directors to designate the terms of and issue new series of preferred stock without stockholder approval, which could include the right to approve an acquisition or other change in our control or could be used to institute a rights plan, also known as a poison pill, that would work to dilute the stock ownership of a potential hostile acquirer, likely preventing acquisitions that have not been approved by our board of directors.
 
In addition, Section 203 of the Delaware General Corporation Law prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns, or within the last three years, has owned 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.
 
The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition.
 
We have broad discretion in the use of the net proceeds of this offering and may not use them effectively.
 
We intend to use the net proceeds from this offering for general corporate purposes and to continue preclinical and clinical development of our product candidates. However, our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common stock. The failure by management to utilize these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common stock to decline and delay the development of our product candidates. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.
 
You will experience immediate and substantial dilution in the net tangible book value per share of the common stock you purchase.
 
Because the public offering price per share of our common stock is substantially higher than the net tangible book value per share of our common stock, you will suffer substantial dilution in the net tangible book value of the common stock you purchase in this offering. Based on an assumed public offering price of $___ per share, if you purchase shares of common stock in this offering, you will suffer immediate and substantial dilution of approximately $___ per share in the net tangible book value of the common stock. See the section entitled “Dilution” in this prospectus for a more detailed discussion of the dilution you will incur if you purchase common stock in this offering.

 
 
We are eligible to be treated as an “emerging growth company,” as defined in the JOBS Act, 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 JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including (1) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, (2) reduced disclosure obligations regarding executive compensation in this prospectus and our periodic reports and proxy statements and (3) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. In addition, as an emerging growth company, we are only required to provide two years of audited financial statements and two years of selected financial data in this prospectus. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our common stock held by non-affiliates exceeds $700.0 million as of any March 31 before that time or if we have total annual gross revenue of $1.0 billion or more during any fiscal year before that time, after which, in each case, we would no longer be an emerging growth company as of the following December 31 or, if we issue more than $1.0 billion in non-convertible debt during any three-year period before that time, we would cease to be an emerging growth company immediately.
 
Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
 
If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our shares or if our results of operations do not meet their expectations, our share price and trading volume could decline.
 
The trading market for our shares will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these analysts. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, our share price could decline.

 
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
Some of the information in this prospectus contains forward-looking statements within the meaning of the federal securities laws. These statements include, among others, the following:
 
 
the results of research and development activities;
 
 
uncertainties relating to preclinical and clinical testing, financing and strategic agreements and relationships;
 
 
the early stage of products under development;
 
 
our need for substantial additional funds;
 
 
government regulation;
 
 
patent and intellectual property matters;
 
 
dependence on third party manufacturers;
 
 
competition; and
 
 
foreign currency fluctuations.
 
These statements may be found under “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.”  Forward-looking statements typically are identified by the use of terms such as “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms, although some forward-looking statements are expressed differently. You should be aware that our actual results could differ materially from those contained in the forward-looking statements due to the factors referenced above.
 
You should also consider carefully the statements under “Risk Factors” and other sections of this prospectus, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements.  We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations or any changes in events, conditions or circumstances on which any such statement is based, except as required by law.
 
 
USE OF PROCEEDS
 
We estimate that we will receive net proceeds from this offering of approximately $             , based on an assumed initial public offering price of $              per share, which is the midpoint of the price range set forth on the cover of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their option to purchase additional shares, we estimate that we will receive an additional $             million in net proceeds.
 
A $1.00 increase (decrease) in the assumed initial public offering price of $             would increase (decrease) the net proceeds to us from this offering by $             .
 
We currently intend to use the net proceeds from this offering as follows:
 
approximately $_________ to continue clinical development and testing of MS1819;
 
approximately $_________ to advance our preclinical AZX1101 program; and
 
the balance, if any, for working capital and other general corporate purposes.
 
We believe that the proceeds allocated to the MS1819 program will be sufficient to enable us to conduct the necessary drug product formulation work, validation and stabilization testing and conduct the program.  We expect that the proceeds allocated to AZX1101 will enable us to fund the additional preclinical studies and prepare the safety and toxicology data necessary to file an IND with the FDA; however, we will need to seek additional financing in order to pursue any clinical program.
 
The foregoing represents our best estimate of the allocation of the net proceeds of the offering during the next 12 to 18 months.  This estimate is based on certain assumptions, including that no events occur which would cause us to abandon any particular efforts, that our research, development and testing activities will occur as projected, and that we do not enter into collaborations to fund a project separately.  The amounts actually expended for each purpose may vary significantly in the event any of these assumptions prove inaccurate.  We reserve the right to change our use of proceeds as unanticipated events may cause us to redirect our priorities and reallocate the proceeds accordingly. Pending specific utilization of the net proceeds as described above, we intend to invest the net proceeds of the offering in short-term investment grade and U.S. government securities.
 
DIVIDEND POLICY
 
We have never paid cash dividends on any of our capital stock and currently intend to retain our future earnings, if any, to fund the development and growth of our business.
 
 
CAPITALIZATION
 
The following table sets forth our capitalization as of March 31, 2016:
 
 
On an actual basis;
 
 
On a pro forma basis, to give effect to (i) the conversion of our outstanding shares of preferred stock into __________ shares of common stock immediately prior to the closing of this offering, and (ii) the issuance of __________ shares of common stock immediately prior to the closing of this offering upon the conversion of notes we issued in August 2015 (based on the midpoint of the price range set forth on the cover page of this prospectus); and
 
 
On a pro forma as adjusted basis, to give further effect to (i) the sale of _______ shares of common stock by us in this offering at the initial public offering price of $ ___ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
 
You should read this table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes included elsewhere in this prospectus.
 
   
March 31, 2016 (unaudited)
   
Actual
 
Pro Forma
 
Pro Forma As Adjusted
               
Notes payable (inclusive of current portion)
 
$
7,460,503
       
Stockholders’ deficit:
             
Preferred stock, $.0001 par value, 1,000,000 shares authorized; 36 shares issued and outstanding
   
1,764,000
       
Common stock, $.0001 par value, 9,000,000 shares authorized; 5,150,757 shares issued and outstanding; __________ shares issued and outstanding, as adjusted (1)
   
515
       
Additional paid-in capital
   
4,254,151
       
Accumulated deficit
   
(10,286,705
)
     
Other comprehensive income
   
(1,151,468
     
Total stockholders’ (deficit) equity
   
(5,419,507
)
     
           
Total capitalization
 
2,040,996
       
 
(1) The number of shares to be outstanding immediately after this offering is based on 6,028,928 shares outstanding on July 13,  2016 , which excludes:
 
 
 1,070,044 sh ares of common stock issuable upon the exercise of outstanding options and warrants at a weighted average exercise price of $ 5.75 per share; and,,
 
 
_____ shares reserved for issuance under our equity incentive plans.

 
DILUTION
 
“Net tangible book value” is total assets minus the sum of liabilities and intangible assets. “Net tangible book value per share” is net tangible book value divided by the total number of shares outstanding on March 31, 2016.  After giving pro forma effect to (i) the conversion of our outstanding shares of preferred stock into ______ shares of common stock immediately prior to the closing of this offering, and (ii) the issuance of __________ shares of common stock immediately prior to the closing of this offering upon the conversion of notes we issued in August 2015 (based on the midpoint of the price range set forth on the cover page of this prospectus), our pro forma net tangible book value on March 31, 2016 was approximately $___ million, or $__ per share.
 
After giving effect to our issuance and sale of             shares of common stock in this offering at an assumed initial public offering price of $             per share, the mid-point of the estimated price range shown on the cover of this prospectus, after deducting the estimated underwriting discounts and offering expenses payable by us, the pro forma as adjusted net tangible book value as of March 31, 2016 would have been $             , or $             per share. This represents an immediate increase in pro forma net tangible book value of $____ per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of $____ per share to investors purchasing shares of common stock in this offering at the assumed public offering price.
 
The following table illustrates this dilution:
 
Assumed public offering price per share
  $    
Pro forma net tangible book value per share as of March 31, 2016
       
Increase in pro forma net tangible book value per share attributable to the offering
       
Pro forma as adjusted net tangible book value per share as of March 31, 2016 after the offering
       
Dilution per share to new investors in the offering
  $    
 
A $1.00 increase (decrease) in the assumed initial public offering price of $___ per share would increase (decrease) the pro forma net tangible book value by ____, the pro forma net tangible book value per share after this offering by $___ per share and the dilution in pro forma net tangible book value per share to investors in this offering by $___ per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discount and offering expenses payable by us.  If the underwriters exercise their over-allotment option in full, the pro forma as adjusted net tangible book value will increase to $___ per share, representing an immediate increase to existing stockholders of $___ per share and an immediate dilution of $___ per share to new investors. If any shares are issued in connection with outstanding options, you will experience further dilution.
 
The following table presents, on a pro forma basis as of March 31, 2016, the differences between the existing stockholders and the new investors purchasing our common stock in this offering with respect to the number of shares purchased from us, the total consideration paid or to be paid to us, which includes net proceeds received from the issuance of common stock, cash received from the exercise of stock options and the average price per share paid or to be paid to us at the public offering price of $__________ per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses:
 
 
Shares Purchased
   
Total Consideration
   
Average
Price Per
Share
 
 
Number
  
Percent
   
Amount
 
  
Percent
   
Existing stockholders
 
  
 
  
 
$
 
  
  
 
    
 
$
 
  
New investors
 
  
 
    
 
$
            
  
  
 
    
 
$
            
  
Total
       
%
 
$
         
%
       
 
Assuming the underwriters’ option to purchase additional shares is exercised in full, sales in this offering will reduce the percentage of shares held by existing stockholders to _____% and will increase the number of shares held by our new investors to _________ shares, or ____%, assuming no purchases of our common stock by existing stockholders in this offering.
 
 
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
 
The following table presents our selected historical financial data for the periods presented and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statement and notes thereto included elsewhere in this prospectus.  The statements of operations data for the fiscal years ended December 31, 2014 and 2015 and the statements of financial condition data as of December 31, 2014 and 2015 are derived from our audited financial statements included elsewhere in this prospectus.  The statements of operations data for the three months ended March 31, 2015 and 2016 and the statements of financial condition data as of March 31, 2016 is derived from our unaudited financial statements included elsewhere in this prospectus.
 
   
January 30, 2014 (Date of Inception) through December 31, 2014
   
Year Ending December 31, 2015
   
Three Months Ended March 31,
 
           
2015
   
2016
 
               
(unaudited)
   
(unaudited)
 
Statements of Operations Data:
                       
Operating expenses
  $ 2,329,106     $ 4,728,808     $ 1,072,416     $ 1,347,216  
Loss from operations
  $ (2,329,106 )   $ (4,728,808 )   $ (1,072,416 )   $ (1,347,216 )
Total other expense
  $ (36,042 )   $ (1,201,428 )   $ (118,891 )   $ (644,104 )
Net loss
  $ (2,365,148 )   $ (5,930,236 )   $ (1,191,307 )   $ (1,991,320 )
Net loss per share, basic and diluted
  $ (0.67 )   $ (1.63 )   $ (0.33 )   $ (0.42 )
 
   
As of December 31,
As of March 31,
 
      2014  
2015
   
2016
 
         
(unaudited)
 
Balance Sheet Data:
                 
Cash
 
$
94,836
   
$
581,668
   
$
169,036
 
Total assets
 
$
6,575,753
   
$
6,685,682
   
$
6,308,821
 
Total current liabilities
 
$
2,430,855
   
$
8,815,512
   
$
10,228,328
 
Total liabilities
 
$
3,930,855
   
$
10,315,512
   
$
11,728,328
 
Total stockholders’ equity (deficit)
 
$
2,644,898
   
$
(3,629,830
 
$
(5,419,507
)
 
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion of our financial condition and results of operations should be read in conjunction with our audited financial statements and the related notes thereto and other financial information appearing elsewhere in this prospectus.
 
Critical Accounting Policies and Estimates

This Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires 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 consolidated financial statements and the reported amount of revenues and expenses during the reporting period. In our consolidated financial statements, estimates are used for, but not limited to, valuation of financial instruments and intangible assets, fair value of long-lived assets, deferred taxes and valuation allowance, and the depreciable lives of long-lived assets.

On an ongoing basis, we evaluate these estimates and assumptions, including those described below. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. Due to the estimation processes involved, the following summarized accounting policies and their application are considered to be critical to understanding our business operations, financial condition and operating results.

Intangible Assets
 
Our definite-lived intangible assets have a carrying value of approximately $2,513,000, $2,584,000, and $3,638,000 as of March 31, 2016, December 31, 2015 and 2014, respectively. These assets include in-process research and development and license agreements. These intangible assets were recorded at historical cost and are stated net of accumulated amortization.
 
The in process research and development and licenses are amortized over their remaining estimated useful lives, ranging from five to 12 years, based on the straight-line method. The estimated useful lives directly impact the amount of amortization expense recorded for these assets on a quarterly and annual basis.
 
In addition, we test for impairment of definite-lived intangible assets when events or circumstances indicate that the carrying value of the assets may not be recoverable. Judgment is used in determining when these events and circumstances arise. If we determine that the carrying value of the assets may not be recoverable, judgment and estimates are used to assess the fair value of the assets and to determine the amount of any impairment loss. No events or circumstances arose in the three months ended March 31, 2016 and the years ended December 31, 2015 and 2014 that would indicate that the carrying value of any of our definite-lived intangible assets may not be recoverable.

Goodwill

Goodwill relates to the acquisition of ProteaBio Europe during 2014 and represents the excess of the total purchase consideration over the fair value of acquired assets and assumed liabilities, using the purchase method of accounting. Goodwill is not amortized, but is subject to periodic review for impairment. As a result, the amount of goodwill is directly impacted by the estimates of the fair values of the assets acquired and liabilities assumed.

 
In addition, goodwill will be reviewed annually, and whenever events or changes in circumstances indicate that the carrying amount of the goodwill might not be recoverable. Judgment is used in determining when these events and circumstances arise. We perform our review of goodwill on our one reporting unit. If we determine that the carrying value of the assets may not be recoverable, judgment and estimates are used to assess the fair value of the assets and to determine the amount of any impairment loss.
 
The carrying value of goodwill at March 31, 2016, December 31, 2015 and 2014 was approximately $1,908,000, $1,833,000, and $2,042,000, respectively.  If actual results are not consistent with our estimates or assumptions, we may be exposed to an impairment charge that could be material.
 
Income Taxes

We use the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted. The measurement of a deferred tax asset is reduced, if necessary, by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

We use a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. We have not identified any uncertain income tax positions that could have a material impact to the consolidated financial statements. We are subject to taxation in various U.S. and foreign jurisdictions and remain subject to examination by taxing jurisdictions for the calendar year 2013 and all subsequent periods due to the availability of net operating loss carryforwards. To the extent we prevail in matters for which a liability has been established, or are required to pay amounts in excess of our established liability, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement generally would require use of our cash and may result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement may reduce our effective income tax rate and would be recognized in the period of resolution.

Our effective income tax rate  may be affected by changes in tax law, our level of earnings, and the results of tax audits.

Although we believe that the judgments and estimates discussed herein are reasonable, actual results could differ, and we may be exposed to losses or gains that could be material.
 
Jumpstart Our Business Startups Act of 2012
 
On April 5, 2012, the Jumpstart Our Business Startups Act of 2012 was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.
 
General
 
To date, we have not generated any revenues from operations and at March 31, 2016, we had an accumulated deficit of approximately $10,287,000, primarily as a result of research and development (“R&D”) expenses and general and administrative (“G&A”) expenses. While we may in the future generate revenue from a variety of sources, including license fees, research and development payments in connection with strategic partnerships and/or government grants, our product candidates are at an early stage of development and may never be successfully developed or commercialized. Accordingly, we expect to continue to incur substantial losses from operations for the foreseeable future and there can be no assurance that we will ever generate significant revenues or net income.
 
 
R&D Expenses
 
Conducting R&D is central to our business. R&D expenses consist primarily of:
 
 
employee-related expenses, which include salaries and benefits, and rent expense;
 
 
license fees and annual payments related to in-licensed products and intellectual property;
 
 
expenses incurred under agreements with clinical research organizations, investigative sites and consultants that conduct or provide other services relating to our clinical trials and a substantial portion of our preclinical activities;
 
 
the cost of acquiring clinical trial materials from third party manufacturers; and
 
 
costs associated with non-clinical activities, patent filings and regulatory filings.
 
We expect to continue to incur substantial expenses related to our R&D activities for the foreseeable future as we continue product development. Since product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later stage clinical trials, we expect that our R&D expenses will increase in the future. In addition, if our product development efforts are successful, we expect to incur substantial costs to prepare for potential commercialization of any late-stage product candidates and, in the event one or more of these product candidates receive regulatory approval, to fund the launch of the product.
 
G&A Expenses
 
G&A expenses consist principally of personnel-related costs, professional fees for legal, consulting and audit services, rent and other general operating expenses not otherwise included in R&D. We anticipate G&A expenses will increase in future periods, reflecting continued and increasing costs associated with:
 
 
support of our expanded R&D activities;
 
 
an expanding infrastructure and increased professional fees and other costs associated with the compliance with the Exchange Act, the Sarbanes-Oxley Act and stock exchange regulatory requirements and compliance; and
 
 
business development and financing activities.
 
Liquidity and Capital Resources, March 31, 2016 and 2015
 
We have experienced net losses and negative cash flows from operations since our inception. As of March 31, 2016, we had sustained cumulative losses attributable to common stockholders of approximately $10,287,000.  At March 31, 2016, we had cash and marketable securities of approximately $213,000.
 
We have funded our operations to date primarily through the issuance of debt and convertible debt securities.  During the years ended December 31, 2015 and 2014 and the three months ended March 31, 2016, we funded our working capital requirements with the proceeds of short-term 8% promissory notes (the “Advance Notes”) and original issuance discount convertible notes (the “OID Notes”).
 
Through March 31, 2016, we had received aggregate gross proceeds of $896,000 from the issuance of Advance Notes, $761,000 of which had been repaid, leaving a principal balance of $135,000 outstanding. Payment of $33,790 of accrued interest on the $761,000 principal amount of Advance Notes repaid was made through the issuance of an aggregate of 5,242 shares of common stock.
 

Through March 31, 2016, we had received aggregate gross proceeds of $7,303,529 from the issuance of $7,961,445 principal amount of OID Notes.  The principal amount of the OID Notes, together with accrued interest, will convert into equity immediately prior to the consummation of this offering.
 
We expect to incur substantial expenditures in the foreseeable future for the development of our product candidates. We will require additional financing to develop, prepare regulatory filings and obtain regulatory approvals, fund operating losses, and, if deemed appropriate, establish manufacturing, sales and marketing capabilities. We believe that our current cash and marketable securities are sufficient to fund operations until September 2016 without giving consideration to the proceeds of this offering based on our current business plan. Our current financial condition raises substantial doubt about our ability to continue as a going concern. Our failure to raise capital as and when needed would have a material adverse impact on our financial condition and our ability to pursue our business strategies. We will seek funds through additional equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing. Adequate additional funding may not be available to us on acceptable terms or at all. If adequate funds are not available to us, we will be required to delay, curtail or eliminate one or more of our research and development programs.
 
Cash Flows for the Three Months Ended March 31, 2016 and 2015
           
Net cash used in operating activities for the three months ended March 31, 2016 was $636,546, which primarily reflected our net loss of $1,991,320 plus non-cash depreciation and amortization expense of $182,842, non-cash accreted interest on OID convertible debt and debt discount - warrants of $710,988, and an increase in accounts payable and accrued expenses of $511,274 due to our cash position, offset by an increase in prepaid expenses of $36,353 consisting primarily of finance and legal costs associated with the filing of the S-1. Net cash used in operating activities for the three months ended March 31, 2015 was $1,025,900, which primarily reflected our net loss of $1,191,307 plus non-cash depreciation and amortization expense of $186,229, non-cash accreted interest on OID convertible debt and debt discount - warrants of $133,478, offset by a decrease in accounts payable and accrued expenses of $135,283.
 
Net cash used in investing activities for the three months ended March 31, 2016 was $936 which consisted of the purchase of property and equipment. Net cash used in investing activities for the three months ended March 31, 2015 was $11,033, which consisted of the purchase of property and equipment.
 
Net cash provided by financing activities for the three months ended March 31, 2016 was $225,000 , which consisted of the gross proceeds in connection with the issuance of OID convertible debt. Net cash provided by financing activities for the three months ended March 31, 2015 was $1,160,000, which consisted of the issuance of promissory notes of $270,000 and the gross proceeds in connection with the issuance of OID convertible debt of $1,140,000 offset by the repayment of promissory notes of $250,000.
 
 
Consolidated Results of Operations for the Three Months Ended March 31, 2016 and 2015
 
R&D expenses were $685,575 and $308,834, respectively, for the three months ended March 31, 2016 and 2015, an increase of $376,741. The increase in R&D is primarily due to costs associated with manufacturing additional batches of MS1819. We expect R&D expenses to increase in future periods as our product candidates continue through clinical trials and we seek strategic collaborations.
 
G&A expenses were $661,641 and $763,582, respectively, for the three months ended March 31, 2016 and 2015, a decrease of $101,941. The decrease was due primarily to a decrease in consulting fees. We expect G&A expenses to increase going forward as we proceed to advance our product candidates through the development and regulatory process.
 
Interest expense was $713,680 and $144,746, respectively, for the three months ended March 31, 2016 and 2015, an increase of $568,934. The increase was due to the higher level of outstanding OID convertible debt. Fair value adjustment of our warrants was $69,576 and $25,855, respectively, for the three months ended March 31, 2016 and 2015, an increase of $43,721. This increase was due to the higher level of warrant liability as a result of the higher level of outstanding OID convertible debt.
 
Net loss was $1,991,320 and $1,191,307 for the three months ended March 31, 2016 and 2015, respectively. The higher net loss for the three months ended March 31, 2016 versus the same period in 2015 is due to the higher expenses noted above.
 
Liquidity and Capital Resources, December 31, 2015 and 2014
 
We have experienced net losses and negative cash flows from operations since our inception. We have cumulative losses attributable to common stockholders of approximately $8,295,000 and $2,365,000, respectively, as of December 31, 2015 and 2014. We have financed our operations through issuances of equity and the proceeds of debt instruments. From the date of inception through December 31, 2014, we received gross proceeds of $859,490 from the sale of our common stock to private investors. From the date of inception through December 31, 2015, we received gross proceeds of $896,000 from the issuance of promissory notes. During this same period, we also repaid $761,000 of these promissory notes. From the date of inception through December 31, 2015, we received cash proceeds of $5,995,000 plus Marketable Securities from a noteholder with a fair value of $150,000 at date of issuance for total proceeds of $6,145,000 from the issuance of original issue discounted convertible debt.
 
At December 31, 2015 and 2014, we had cash and marketable securities of approximately $639,000 and $220,000, respectively. We have funded our operations to date primarily through the issuance of debt and convertible debt securities. During the years ended December 31, 2015 and 2014, we funded our working capital requirements with the proceeds of Advance Notes and OID Notes.
 
We expect to incur substantial expenditures in the foreseeable future for the development of our product candidates. We will require additional financing to develop, prepare regulatory filings and obtain regulatory approvals, fund operating losses, and, if deemed appropriate, establish manufacturing, sales and marketing capabilities. We believe that our current cash and marketable securities are sufficient to fund operations until September 2016 without giving consideration to the proceeds of this offering based on our current business plan. Our current financial condition raises substantial doubt about our ability to continue as a going concern. Our failure to raise capital as and when needed would have a material adverse impact on our financial condition and our ability to pursue our business strategies. We will seek funds through additional equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing. Adequate additional funding may not be available to us on acceptable terms or at all. If adequate funds are not available to us, we will be required to delay, curtail or eliminate one or more of our research and development programs.
 
 
Cash Flows for the Year Ended December 31, 2015 and the Period January 30, 2014 (Date of Inception) through December 31, 2014
 
Net cash used in operating activities for the year ended December 31, 2015 was $4,510,778, which primarily reflected our net loss of $5,930,236, plus non-cash expenses of $733,599 for depreciation and amortization, non-cash accreted interest expense due to the OID convertible debt and debt discount - warrants of $1,561,677, non-cash warrant expense of $218,337, and an increase of accounts payable and accrued expenses of $251,608 due to our limited cash position, offset by a non-cash fair value gain on warrant liability of $386,103, an increase in other receivables of $638,092 due to a higher French R & D tax credit in 2015 versus 2014 and an increase in prepaid expenses of $340,524 consisting primarily of finance and legal costs associated with the filing of the S-1. Net cash used in operating activities from January 30, 2014 (Date of Inception) through December 31, 2014 was $ 986,297 , which primarily reflected our net loss of $2, 365,148 , offset by a non-cash fair value gain on the warrant liability of $1,368, non-cash expenses of $ 429,935 for depreciation and amortization, non-cash accreted interest expense due to the OID convertible debt and debt discount - warrants of $59,029, and a decrease of working capital of $871,559 due primarily to a decrease in accounts receivable of $356,252 as cash was collected from our European subsidiary’s prior billings, an increase of accounts payable and accrued expenses of $563,089 due to our limited cash position, offset by an increase in other receivables of $50,595. 

Net cash used in investing activities for the year ended December 31, 2015 was $24,380 consisting of purchases of property and equipment. Net cash used in investing activities from January 30, 2014 (Date of Inception) through December 31, 2014 was $751,955 consisting of $191,003 in purchases of property and equipment and $560,952 of the cash portion of the purchase of Protea Europe SAS.
 
Net cash provided by financing activities for the year ended December 31, 2015 was $5,021,353 consisting of gross proceeds of $5,395,000 in connection with the issuance of OID convertible debt, repayments of OID convertible debt of $117,947, gross proceeds from the issuance of promissory notes of $445,000, and the repayments of promissory notes of $701,000.

Net cash provided by financing activities from January 30, 2014 (Date of Inception) through December 31, 2014 was $1,850,491 consisting of gross proceeds of $859,491 for the sale of our common stock, gross proceeds of $600,000 in connection with the issuance of OID convertible debt, issuance of promissory notes of $451,000 offset by the repayments of promissory notes of $60,000.
 
Consolidated Results of Operations for the Year Ended December 31, 2015 and the Period January 30, 2014 (Date of Inception) through December 31, 2014 (“ 2014 ”)
 
R&D expenses were $1,398,056 and $670,491, respectively, for the year ended December 31, 2015 and 2014, an increase of $727,565. The increase in R&D is primarily due to costs associated with manufacturing additional batches of MS1819 as well as increased R&D activities in France. We expect R&D expenses to increase in future periods as our product candidates continue through clinical trials and we seek strategic collaborations.
 
G&A expenses were $3,330,752 and $1,658,615, respectively, for the year ended December 31, 2015 and 2014, an increase of $1,672,137. The increase is primarily due to increased G&A expenses in the U.S. such as an increase in legal/investment banking/other professional consulting of $720,555, payroll expenses of $43,307, travel of $121,565, and warrant expense of $218,337 as well as an increase in amortization of $253,297. We expect G&A expenses to increase going forward as we proceed to advance our product candidates through the development and regulatory process.
 
Interest expense was $1,587,533 and $68,149, respectively, for the year ended December 31, 2015 and 2014, an increase of $1,519,384. The increase was due to the higher level of outstanding OID convertible debt. Fair value adjustment of our warrants was $386,103 and $1,368, respectively, for the year ended December 31, 2015 and 2014, an increase of $384,735. This increase was due to the valuation of the warrants liability at the end of each respective period as well as a higher level of warrant liability a result of the higher level of outstanding OID convertible debt.

Other income was $2 and $30,739, respectively, for the year ended December 31, 2015 and 2014. The other income in 2014 was primarily from Mayoly, our lipase development partner.  
 
Net loss for the year ended December 31, 2015 was $5,930,236 compared to a net loss of $2,365,148 for 2014 as a result of the above.
 
Off-Balance Sheet Arrangements
 
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.


DESCRIPTION OF THE BUSINESS
 
Overview
 
We are engaged in the research and development of non-systemic biologics for the treatment of patients with gastrointestinal disorders. Non-systemic biologics are non-absorbable drugs that act locally without reaching the systemic circulation, i.e. the intestinal lumen, skin or mucosa.  Our current product pipeline consists of two therapeutic proteins under development:
 
 
MS1819 - an autologous yeast recombinant lipase for exocrine pancreatic insufficiency (EPI) associated with chronic pancreatitis (CP) and cystic fibrosis (CF).
 
 
AZX1101- a recombinant β -lactamase combination of bacterial origin for the prevention of hospital-acquired infections by resistant bacterial strains induced by parenteral administration of β-lactam antibiotics, as well as prevention of antibiotic-associated diarrhea (AAD).
 
Our initial product, MS1819, is intended to treat patients suffering from EPI who are currently treated with porcine pancreatic extracts, or PPEs, which have been on the market since 1938. The PPE market is well established and growing with estimated sales of $ 880 million in the U.S. in 2015 (based on a 20% discount to IMS Health’s 2015 prescription data) and has been growing for the past five years at a compound annual growth rate of 22% according to IMS Health 2009-2014 data. In spite of their long-term use, however, PPEs suffer from poor stability, formulation problems, possible transmission of conventional and non-conventional infectious agents due to their animal origins, possible adverse events at high doses in patients with CF and limited effectiveness. We believe that MS1819, if successfully developed and approved for commercialization, can address these shortcomings associated with PPEs.
 
Phase 1 testing of MS1819 was completed in March 2011 and we expect to initiate a Phase II clinical trial during the middle of 2016.  See “Product Programs-MS1819-Clinical Program” below. Our second non-systemic biologic product under preclinical development, AZX1101, is designed to protect the gut microbiome (gastrointestinal (GI) microflora) from the effects of certain commonly used intravenous (IV) antibiotics for the prevention of C. difficile infection (CDI) and antibiotic-associated diarrhea (AAD).  CDIs are a leading type of hospital acquired infection (HAI) and are frequently associated with IV antibiotic treatment. Designed to be given orally and co-administered with a broad range of IV beta-lactam antibiotics (e.g., penicillins, cephalosporins and aminogycosides), AZX1101 is intended to protect the gut while the IV antibiotics fight the primary infection. AZX1101 is believed to have the potential to protect the gut from a broad spectrum of IV beta-lactam antibiotics. Beta-lactam antibiotics are a mainstay in hospital infection management and include the commonly used penicillin and cephalosporin classes of antibiotics. AZX1101’s target market is significant and represented by annual U.S. hospitals purchases of approximately 118 million doses of IV beta-lactam antibiotics which are administered to approximately 14 million patients. Currently there are no approved treatments designed to protect the gut microbiome from the damaging effects of IV antibiotics. This worldwide market could represent a multi-billion-dollar opportunity for us. We intend to use a portion of the proceeds of this offering to fund the additional preclinical studies needed to file an Investigational New Drug Application, or IND, with the FDA.
 
Corporate History
 
On May 21, 2014, we entered into a stock purchase agreement (the “SPA”) with Protea Biosciences Group, Inc. (“Protea Group”) and its wholly-owned subsidiary, Protea Biosciences, Inc. (“Protea Sub” and, together with Protea Group, “Protea”) to acquire 100% of the outstanding capital stock of AzurRx BioPharma   SAS (formerly ProteaBio Europe SAS), a wholly-owned subsidiary of Protea Sub. On June 13, 2014, we completed the acquisition in exchange for the payment of $300,000 and the issuance of shares of our Series A convertible preferred stock (the “Series A Preferred”) convertible into 33% of our outstanding common stock. Under the SPA, we are obligated to make certain milestone and royalty payments to Protea.  See “Agreements and Collaborations” below.

 
Product Programs
 
We are currently engaged in research and development of two potential product candidates, MS1819 and AZX1101.
 
MS1819
 
MS1819 is the active pharmaceutical ingredient, or API, derived from Yarrowia lipolytica , an aerobic yeast naturally found in various foods such as cheese and olive oil that is widely used as a biocatalyst in several industrial processes.  MS1819 is an acid-resistant secreted lipase naturally produced by Yarrowia lipolytica, known as LIP2, that we are developing through recombinant DNA technology for the treatment of exocrine pancreatic insufficiency, or EPI, associated with chronic pancreatitis (CP) and cystic fibrosis (CF).  We obtained the exclusive right to commercialize MS1819 in the U.S. and Canada, South America (excluding Brazil), Asia (excluding China and Japan), Australia, New Zealand and Israel pursuant to a sublicense from Laboratoires Mayoly Spindler SAS, or Mayoly, under a joint development agreement that also grants us joint commercialization rights for Brazil, Italy, China and Japan.  See “Agreements and Collaborations.”
 
Background
 
The pancreas is both an endocrine gland that produces several important hormones, including insulin, glucagon, and pancreatic polypeptide, as well as a digestive organ that secretes pancreatic juice containing digestive enzymes that assist the absorption of nutrients and digestion in the small intestine.
 
The targeted indication of MS1819 is the compensation of EPI, which is observed when the exocrine functions of the pancreas are below 10% of normal. The symptomatology of EPI is essentially due to pancreatic lipase deficiency, an enzyme that hydrolyses triglycerides into monoglycerides and free fatty acids. The pancreatic lipase enzymatic activity is hardly compensated by extrapancreatic mechanisms, because gastric lipase has nearly no lipolytic activity in the pH range of the intestine. On the other hand, when they are impaired, the pancreatic amylase and proteases (enzymes that break up starches and protein, respectively) activities can be, at least in part, compensated by the salivary amylase, the intestinal glycosidase, the gastric pepsin, and the intestinal peptidases, all of which are components of the gastric juice secreted by the stomach walls. In summary, lipid maldigestion due to lipase deficiency is responsible for weight loss, steatorrhea featured by greasy diarrhea, and fat-soluble vitamin deficiencies (i.e. A, D, E and K vitamins). In addition, EPI caused by chronic pancreatic disorders is also frequently associated with endocrine pancreatic insufficiency, resulting in diabetes mellitus sometimes called type IIIc.
 
CP, the most common cause of EPI, is a long-standing inflammation of the pancreas that alters its normal structure and functions. In the United States, its prevalence rate is of 42 cases per 100,000 inhabitants, resulting in approximately 132,000 cases. Approximately 60% of patients affected with CP display EPI, resulting in approximately 80,000 patients requiring substitution therapy in the U.S. In Western societies, CP is caused by chronic alcoholic consumption in approximately 55-80% of cases. Other relatively frequent etiologies include the genetic form of the disease that is inherited as an autosomal dominant condition with variable penetrance, pancreatic trauma and idiopathic causes. CP is frequently associated with episodes of acute inflammation in a previously injured pancreas, or as chronic damage with persistent pain, diabetes mellitus due to endocrine pancreatic insufficiency, or malabsorption caused by EPI. In addition to EPI symptoms, weight loss due to malabsorption and/or reduction in food intake due to pain related to food intake, are frequent.
 
CF, another frequent etiology of EPI, is a severe genetic disease associated with chronic morbidity and life-span decrease of most affected individuals. In most Caucasian populations, CF prevalence is of 7-8 cases per 100,000 inhabitants, but less common in other populations, resulting in approximately 30,000 affected individuals in the U.S. CF is inherited as monogenic autosomal recessive disease due to the defect at a single gene locus that encodes the Cystic Fibrosis Transmembrane Regulator protein (CFTR), a regulated chloride channel. Mutation of both alleles of this chloride channel gene results in the production of thick mucus, which causes a multisystem disease of the upper and lower respiratory tracts, digestive system, and the reproductive tract. The progressive destruction of the pancreas results in EPI that is responsible for malnutrition and contributes to significant morbidity and mortality. About 80-90% of patients with CF develop EPI, resulting in approximately 25,000-27,000 patients in the U.S. that require substitution therapy.

 
EPI can be also observed following pancreatic and gastric surgeries due to insufficient enzyme production or asynchronism between the entry of food into the small intestine and pancreatic juice with bile secretion, respectively. Other uncommon etiologies of EPI include intestinal disorders (e.g. severe celiac disease, small bowel resection, enteral artificial nutrition), pancreatic diseases (e.g. pancreatic trauma, severe acute pancreatitis with pancreatic necrosis, and pancreatic cancer), and other uncommon etiologies (e.g. Zollinger-Ellison syndrome, Shwachman-Diamond syndrome). Idiopathic EPI has been also reported in the elderly.
 
Current treatments for EPI stemming from CP and CF rely on porcine pancreatic extracts, or PPEs, which have been on the market since 1938.  The PPE market is well established and growing with estimated sales in the U.S. of $880 million in 2015 and has been growing for the past 5 years at a compound annual growth rate of 22%.  In spite of their long-term use, however, PPEs suffer from poor stability, formulation problems, possible transmission of conventional and non-conventional infectious agents due to their animal origins, possible adverse events at high doses in patients with CF and limited effectiveness.
 
We believe that MS1819 recombinant lipase is currently the only non-animal source product known to be in development for the treatment of CP and has the potential to address the shortcomings of PPEs.
 
History of the Program
 
In 1998, Mayoly, a European pharmaceutical company focusing primarily on gastroenterology disorders, launched a program for the discovery and characterization of novel lipases of non-animal origin that could be used in replacement therapy for EPI. The program was conducted in collaboration with INRA TRANSFERT, a subsidiary of the French academic laboratory, National Institute for Agricultural Research, or INRA. In 2000, Mayoly and INRA discovered that the yeast Yarrowia lipolytica secreted a lipase which was named LIP2.  During the ensuing years, Mayoly investigated the in vitro enzymatic activities of LIP2 in collaboration with the Laboratory of Enzymology at Interfaces and Physiology of Lipolysis, or EIPL, a French public-funded research laboratory at the French National Scientific Research Centre laboratory, or CNR, which focuses on the physiology and molecular aspects of lipid digestion.
 
Pre-clinical Program
 
The efficacy of MS1819 has been investigated in normal minipigs, which are generally considered as a relevant model for digestive drug development when considering their physiological similarities with  humans and their omnivore diet. Experimental pancreatitis was induced by pancreatic duct ligation, resulting in severe EPI with baseline coefficient of fat absorption, or CFA, around 60% post-ligature.  CFA is a measurement obtained by quantifying the amount of fat ingested orally over a defined time period and subtracting the amount eliminated in the stool to ascertain the amount of fat absorbed by the body.  Pigs were treated with either MS1819 or enteric-coated PPE, both administered as a single-daily dose.
 
At doses ranging from 10.5 to 211mg, MS1819 increases the CFA by +25 to +29% in comparison to baseline (p<0.05 at all doses), whereas the 2.5 mg dose had milder activity. Similar efficacy was observed in pigs receiving 100,000 U lipase of enteric-coated porcine pancreatic extract. These findings demonstrate the in vivo activity of MS1819 in a relevant in vivo model at a level similar to the PPEs at dosage of 10.5mg or greater. The results of a clinical trial are statistically significant if they are unlikely to have occurred by chance. Statistical significance of the trial results are typically based on widely used, conventional statistical methods that establishes the p-value of the results. A p-value of 0.05 or less is required to demonstrate statistical significance. As such, these CFA levels are considered to be statistically significant.
 
To date, two non-clinical toxicology studies have been conducted. Both show that MS1819 lipase is clinically well tolerated at levels up to 1000mg/kg in rats and 250 mg/kg in minipigs up to 13 weeks. MS1819 is therefore considered non-toxic in both rodent and non-rodent species up to a maximum feasible dose (MFD) of 1000 mg/kg/day in the rats over six months of administration.
 
Clinical Program
 
We believe that there are two principal therapeutic indications for EPI compensation by MS1819: (1) adult patients with CP or post-pancreatectomy and (2) children or young adults affected by cystic fibrosis. Because of their radically different pathophysiology, we intend to separately investigate each of these indications and have determined, based on market size and expected dose requirements, to pursue the indication for adults first.


During 2010 and 2011, a phase I/IIa clinical trial of MS1819 was conducted in conjunction with Mayoly in a single center in France. The study was an exploratory study mainly designed to investigate the safety of MS1819-FD (freeze-dried) and was a randomized, double blind, placebo controlled, parallel clinical trial in 12 patients affected with CP or pancreatectomy and severe EPI.  This study was not designed, nor did it aim, to demonstrate statistically significant changes of CFA or steatorrhea under MS1819-FD. The primary endpoint of the study was defined as the relative change in steatorrhea (an established surrogate biomarker of EPI correction) in comparison to baseline. The study found that MS1819 was well tolerated with no serious adverse events. Only two adverse events were observed: constipation (2 patients out of 8 with MS1819) and hypoglycemia (2 patients out of 8 with MS1819, and 1 patient out of 4 with placebo).  A non-statistically significant difference of the primary endpoint, possibly due to the small group size, was found between the two groups both in intention-to-treat , a group that included three patients who received the in-patient facility study diet but did not fulfill the protocol’s inclusion criteria, and per-protocol analysis.
 
We are currently in the final stages of developing a protocol for a phase II multi-center dose escalation study in CP and pancreatectomy. This clinical trial is being designed to ascertain the active dose of MS1819 and to compare its efficacy with or in combination with PPEs and is expected to enroll approximately 15 patients.  We have allocated a substantial portion of the proceeds of this offering to conduct the necessary formulation work and validation and stabilization testing on the MS1819 capsules that will be used in the Phase II study, as well as to sponsor and conduct the trial.  We have identified a principal investigator and have identified CRO and clinical sites for the study. We expect to file an IND for the study as a result of interactions with the FDA. We expect to submit a U.S. IND by the third quarter of 2016. The U.S. trial is expected to be a placebo-crossover study in 30-60 patients with chronic pancreatitis. In parallel with the IND preparation, we expect to mitigate the dose escalation work in Australia and New Zealand.
 
AZX1101
 
AZX1101 is a recombinant-lactamase combination of bacterial origin under development for the prevention of hospital-acquired infections by resistant bacterial strains induced by parenteral administration of β-lactam antibiotics (known as nosocomial infections), as well as the prevention of antibiotic-associated diarrhea , or AAD.  Nosocomial infections are a major health concern contributing to increased morbidity, mortality and cost. The Centers for Disease Control, or CDC has estimated that roughly 1.7 million hospital-associated infections (i.e. ~5% of the number of hospitalized patients), cause or contribute to 99,000 deaths each year in the U.S., with the annual cost ranging from $4.5 - $11 billion.
 
Our AZX1101 product candidate is at an early stage of preclinical development and will consist of a c ombination of two β-lactamases having complementary activity spectrum. We have selected two proteins from the screening of 22 candidate enzymes that show biochemical characteristics fitting with the application. The production processes of these two candid ate proteins have been optimized and will be administrated to minipigs in order to evaluate efficacy. We intend to use a portion of the proceeds of this offering to conduct the first animal study and primary toxicology assessment of AZX1101 during the third quarter of 2016.  The offering proceeds will not be sufficient to fund this program past these initial steps and, accordingly, even if the findings warrant further study, we will need to seek additional financing in order to pursue the AZX1101 program, which may not be available on acceptable terms, if at all.
 
Agreements and Collaborations
 
Stock Purchase Agreement
 
On May 21, 2014, we entered into the SPA with Protea to acquire 100% of the outstanding capital stock of ProteaBio Europe (the “Acquisition”). On June 13, 2014, we completed the acquisition in exchange for the payment to Protea of $600,000 and the issuance of shares of our Series A convertible preferred stock (the “Series A Preferred”) convertible into 33% of our outstanding common stock. Pursuant to the SPA, Protea Sub assigned (i) to Protea Europe all of its rights, assets, know-how and intellectual property rights in connection with program PR1101 and those granted under that certain Joint Research and Development Agreement, by and among Protea Sub, Protea Europe and Mayoly, dated March 22, 2010 and (ii) to us all amounts, together with any right of reimbursement, due to Protea Sub in connection with outstanding shareholder loans.

 
Pursuant to the SPA, we are obligated to pay certain other contingent consideration upon the satisfaction of certain events, including (a) a one-time milestone payment of $2,000,000 due within (10) days of receipt of the first approval by the FDA of an NDA or BLA for a Business Product (as such term is defined in the SPA); (b) royalty payments equal to 2.5% of net sales of Business Product up to $100,000,000 and 1.5% of net sales of Business Product in excess of $100,000,000 and (c) ten percent (10%) of the Transaction Value (as defined in the SPA) received in connection with a sale or transfer of the pharmaceutical development business of Protea Europe.
 
Under the terms of the SPA, Protea has the right to designate one member of our board of directors, which right terminates upon the completion of this offering. Protea has exercised this right and Mr. Maged Shenouda sits on our Board.
 
Mayoly Agreement
 
Effective March 22, 2010, Protea and AzurRx SAS entered into a joint research and development agreement (the “2010 Agreement”) with Mayoly pursuant to which Mayoly sublicensed certain of its exclusive rights to a genetically engineered yeast strain cell line on which our MS1819 is based that derive from a Usage and Cross-Licensing Agreement dated February 2, 2006 (the “INRA Agreement”) between Mayoly and  INRA, in charge of patent management acting for and on behalf of the National Centre of Scientific Research (“CNRS”) and INRA.
 
Effective January 1, 2014, Protea entered into an amended and restated joint research and development agreement with Mayoly (the “Mayoly Agreement”) pursuant to which Protea acquired the exclusive right to Mayoly patents and technology, with the right to sublicense, to develop, manufacture and commercialize human pharmaceuticals based on the MS1819 lipase within the following territories: U.S. and Canada, South America (excluding Brazil), Asia (excluding China and Japan), Australia, New Zealand and Israel.  The Mayoly Agreement further provides Mayoly the exclusive right to Protea's patents and technology, with the right to sublicense, to develop, manufacture and commercialize human pharmaceuticals based on the MS1819 lipase within the following territories: Mexico, Europe (excluding Italy, Portugal and Spain) and any other country not granted to us alone, or jointly with Mayoly.  Rights to the following territories are held jointly with Mayoly: Brazil, Italy, Portugal, Spain, China and Japan.  In addition, the Mayoly Agreement requires Protea to pay 70% of all development costs and requires each of the parties to use reasonable efforts to:
 
 
devote sufficient personnel and facilities required for the performance of its assigned tasks;
 
 
make available appropriately qualified personnel to supervise, analyze and report on the results obtained in the furtherance of the development program; and
 
 
deploy such scientific, technical, financial and other resources as is necessary to conduct the development program.
 
Pursuant to the Mayoly Agreement, if Protea obtains marketing authorization in the U.S. during the development program, Protea is obligated to make a one-time milestone payment and pay Mayoly royalties on net product sales in the low single digits. If Protea does not obtain marketing authorization in the U.S. during the development program, but obtains such authorization thereafter, then Mayoly has the option to either request a license from Protea and pay 30% of our development costs, less the shared costs incurred by Mayoly and a royalty on net sales in the mid-teens, or Protea will pay Mayoly royalties on net product sales in the low single digits. If Mayoly receives EU marketing authorization after the development program concludes, then Protea may license the product from Mayoly for 70% of Mayoly’s development costs, less the shared costs incurred by Protea and a royalty on net sales in the mid-teens. The agreement further provides that no royalties are payable by either party until all expenses incurred in connection with the development program since 2009 have been recovered. The Mayoly Agreement further grants Protea the right to cure any breach by Mayoly of its obligations under the INRA agreement. See “INRA Agreement” below.  Unless earlier terminated in accordance with its terms, the Mayoly Agreement will expire, on a country by country basis, on the latest of (i) the expiration of any patent covered by the license, (ii) the duration of the legal protection of any intellectual property licensed under the agreement or (iii) the expiration of any applicable data exclusivity period. The latest expiration date of the current series of issued patents covered by the Mayoly Agreement is September 2028. See “Intellectual Property.” Either party may terminate the agreement upon a material breach by the other party that remains uncured after 90 days’ notice without prejudicing the rights of the terminating party. If the development program or license is terminated due to a material breach that is not cured, then the non-breaching party is free to develop, manufacture and commercialize the product, or grant a license to a third party to carry out such activities in the breaching parties territories or the joint territories. Further, the non-breaching party’s net product sales will be subject to low single digit royalties. Finally, either party may terminate due to insolvency of the other party. In connection with the Acquisition, Protea, with the consent of INRA and CNRS, assigned all of i ts rights, title and interest in and to the Mayoly Agreement to AzurRx S AS.
 
 
INRA Agreement
 
In February 2006, INRA, acting on behalf of CNRS and Institut National de la Recherche Agronomique, entered into a Usage and Cross-licensing Agreement with Mayoly to specify their respective rights to the use of (1) French patent application no. FR9810900 (INRA CNRS patent application), (2) international patent application no. WO2000FR0001148 (Mayoly patent application) and (3) the technology and know-how associated with both patent applications.
 
The agreement covers extensions of both patent applications. Specifically, the INRA CNRS patent application encompasses application no. FR9810900 as well as PCT/FR99/02079 with national phase entry in the U.S. (no. 09/786,048, now US patent 6,582,951), Canada (no. 2,341,776) and Europe (no. 99.940.267.0, now EP 1 108 043 B1). The Mayoly patent application encompasses WO2000FR0001148 with the national phase entered in Europe (now EP 1 276 874 B1).
 
The agreement provides Mayoly with the world-wide use in human therapy, nutraceuticals, and cosmetology and provides INRA with world-wide (a) use of lipase as an enzymatic catalyst throughout this field, including the production of pharmaceuticals, and (b) treatment of the environment, food production processes, cleaning processes and other fields, excluding human therapies, neutraceuticals and cosmetology.  The agreement provides for shared use in the production of lipase in the veterinary field (livestock and pets).  As consideration for the agreement, Mayoly will pay INRA an annual lump sum of €5,000 until marketing.  Upon marketing, Mayoly will pay INRA a lump sum of €100,000 and royalties on net sales of the product.  Unless earlier terminated in accordance with its terms, the agreement with INRA expires upon the expiration of the patents in each country in which the license has been granted. The parties may terminate the agreement in the event the other party breaches its obligations therein, which termination shall become effective three months following written notice thereof to the breaching party.  The breaching party shall have the right to cure such breach or default during such three month period.
 
Intellectual Property
 
Our goal is to obtain, maintain and enforce patent protection for our product candidates, formulations, processes, methods and any other proprietary technologies, preserve our trade secrets, and operate without infringing on the proprietary rights of other parties, both in the United States and in other countries. Our policy is to actively seek to obtain, where appropriate, the broadest intellectual property protection possible for our current product candidates and any future product candidates, proprietary information and proprietary technology through a combination of contractual arrangements and patents, both in the United States and abroad. However, patent protection may not afford us with complete protection against competitors who seek to circumvent our patents.
 
We also depend upon the skills, knowledge, experience and know-how of our management and research and development personnel, as well as that of our advisors, consultants and other contractors. To help protect our proprietary know-how, which is not patentable, and for inventions for which patents may be difficult to enforce, we currently rely and will in the future rely on trade secret protection and confidentiality agreements to protect our interests. To this end, we require all of our employees, consultants, advisors and other contractors to enter into confidentiality agreements that prohibit the disclosure of confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries and inventions important to our business.
 
MS1819
 
The MS1819 program is protected by the following series of issued patents that we have licensed under the Mayoly Agreement covering the method for transformation of Yarrowia lipolytica ,   the sequence of the LIP2 enzyme and its production process:
 
 
PCT/FR99/02079 patent family (including the patents EP1108043 B1, and US6582951) “Method for non-homologous transformation of Yarrowia lipolytica ”, concerns the integration of a gene of interest into the genome of a Yarrowia strain devoid of zeta sequences, by transforming said strain using a vector bearing zeta sequences. This modified strain is used for the current production process.  This patent has been issued in the U.S., Canada, and validated in several European countries, including Austria, Belgium, Switzerland, Cyprus, Germany, Denmark, Spain, Finland, Great Britain, Greece, Ireland, France, Italy, Lithuania, Luxembourg, Netherlands, Portugal and Sweden. This patent expires September 1, 2019.


 
PCT/FR2000/001148 patent family (including the patent EP1276874 B1) “Cloning and expressing an acid-resistant extracellular lipase of Yarrowia lipolytica ” describes the coding sequences of acid-resistant extracellular lipases, in particular Candida ernobii or Yarrowia lipolytica yeasts and the production of said lipases in their recombinant form. This patent has been validated in several European countries, including Italy, France and Great Britain. This patent expires April 28, 2020; and
 
 
PCT/FR2006/001352 patent family (including the patent EP2035556 and patent US8,334,130 and US8,834,867) “Method for producing lipase, transformed Yarrowia lipolytica cell capable of producing said lipase and their uses” describes a method for producing Yarrowia lipolytica acid-resistant recombinant lipase utilizing a culture medium without any products of animal origin or non-characterized mixtures such as tryptone, peptone or lactoserum, in addition to its uses. The European patents expire June 15, 2026, US patent 8,334,130 expires September 11, 2028, and US patent 8,834,867 expires September 15, 2026.
 
AZX1101
 
To date, we own one patent application covering different compositions which has been filed in France.   This application was filed internationally (PCT) on October 13, 2015 as PCT/FR2015/052756 claiming priority to French patent application 1459935 dated October 16, 2014.  This application was published as WO/2016/059341 titled “Hybrid Proteinaceous Molecule Capable Of Inhibiting At Least One Antibiotic And Pharmaceutical Composition Containing It.”    At present all PCT contracting states are designated.  The term of patent protection available is typically 20 years from the filing date of the earliest international (PCT) application.  Patents are territorial rights, meaning that the rights conferred are only applicable in the country or region in which a patent has been filed and granted, in accordance with the law of that country or region.  Patent enforcement is only possible after a patent is granted and before the expiration of the patent term. Any patent issuing from PCT/FR2015/052756 will expire on October 13, 2035, unless the patent term is extended pursuant to specific laws of the granting country. We expect to file additional patent applications covering the production process and formulation of AZX1101 following completion of this offering.
 
Manufacturing
 
MS1819 API is obtained by fermentation in bioreactors using the engineered Yarrowia lipolytica strain. MS1819 is currently manufactured at a contract facility located in Capua Italy owned by DSM. The proprietary yeast cell line from which the API is derived is kept at a storage facility maintained by Charles River.  Because the manufacturing process is fairly straightforward, we believe there are multiple alternative contract manufacturers capable of producing the product we need for clinical trials.
 
AZX1101 API production is still under development in-house.  To date, the manufacturing process appears fairly straightforward with multiple options leading us to believe that there are multiple alternative contract manufacturers capable of producing the products we will need for clinical trials.
 
Competition
 
The pharmaceutical and biotechnology industries are characterized by rapidly evolving technology and intense competition. Many companies of all sizes, including major pharmaceutical companies and specialized biotechnology companies, are engaged in the development and commercialization of therapeutic agents designed for the treatment of the same diseases and disorders that we target. Many of our competitors have substantially greater financial and other resources, larger research and development staff and more experience in the regulatory approval process. Moreover, potential competitors have or may have patents or other rights that conflict with patents covering our technologies.
 
With respect to MS1819, we will compete with PPEs, a well-established market that is currently dominated by a few large pharmaceutical companies, including Abvie, Johnson & Johnson and Actavis plc. There are currently six PPE products that have been approved by the FDA for sale in the U.S. We believe our ability to compete in this market, if we are successful in developing and obtaining regulatory approval to market MS1819, will depend on our ability (or that of a corporate partner) to convince patients, their physicians, healthcare payors and the medical community of the benefits of using a non-animal based product to treat EPI, as well as by addressing other shortcomings associated with PPEs.
 
With respect to AZX1101, we are aware of only one beta-lactamase under active development by a US specialty pharmaceutical company for the treatment of c. difficile although the compounds being developed appear to have very limited efficacy to only specific classes of antibiotics rather than the large classes of antibiotics expected to be covered by our compound.

 
Government Regulation and Product Approval
 
Government authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of products such as those we are developing.  To date, our research and development efforts have been conducted in France. We expect to continue to perform substantially all of our basic research activities in France in order to leverage our human capital expertise as well as to avail ourselves of tax credits awarded by the French government to research companies. We expect to conduct early stage development work in both France and the U.S. and late stage development work, including the MS1819 Phase II study and subsequent Phase 3 trial in the U.S. as North America is our principal target market for any products that we may successfully develop.
 
FDA Approval Process
 
In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act, or the FDC Act,  the Public Health Services Act or the PHS Act, and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending new drug applications, or NDAs, refusal to approve pending biologic license applications, or BLAs ,  warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties, and criminal prosecution.
 
Pharmaceutical product development in the U.S. typically involves preclinical laboratory and animal tests, the submission to the FDA of either a notice of claimed investigational exemption or an investigational new drug application, or IND, which must become effective before clinical testing may commence, and adequate and well-controlled clinical trials to establish the safety and effectiveness of the drug for each indication for which FDA approval is sought. Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity, and novelty of the product or disease.
 
Preclinical tests include laboratory evaluation of product chemistry, formulation, and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy of the product. The conduct of the preclinical tests must comply with federal regulations and requirements, including good laboratory practices. The results of preclinical testing are submitted to the FDA as part of an IND along with other information, including information about product chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long term preclinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted.
 
Clinical trials involve the administration of the investigational new drug to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance with federal regulations; (ii) in compliance with good clinical practice, or GCP, an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators, and monitors; as well as (iii) under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.
 
The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time, or impose other sanctions if it believes that the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. The study protocol and informed consent information for patients in clinical trials must also be submitted to an institutional review board, or IRB, for approval. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions.


Clinical trials to support NDAs or BLAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In Phase 1, the initial introduction of the drug into healthy human subjects or patients, the drug is tested to assess metabolism, pharmacokinetics, pharmacological actions, side effects associated with increasing doses, and, if possible, early evidence on effectiveness. Phase 2 usually involves trials in a limited patient population to determine the effectiveness of the drug for a particular indication, dosage tolerance, and optimum dosage, and to identify common adverse effects and safety risks. If a compound demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to obtain the additional information about clinical efficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, to permit FDA to evaluate the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug.
 
After completion of the required clinical testing, an NDA is prepared and submitted to the FDA for small molecule drugs, or a BLA is prepared and submitted for biologics. Section 351 of the PHS Act defines a biological product as a “virus, therapeutic serum, toxin, antitoxin, vaccine, blood, blood component or derivative, allergenic product, or analogous product, … applicable to the prevention, treatment, or cure of a disease or condition of human beings.” FDA regulations and policies have established that biological products include blood-derived products, vaccines, in vivo diagnostic allergenic products, immunoglobulin products, products containing cells or microorganisms, and most protein products (including cytokines and enzymes).  Biological products subject to the PHS Act also meet the definition of drugs under FDC Act and therefore are regulated under provisions of both statutes. FDA approval of the NDA or BLA is required before marketing of the product may begin in the U.S. The NDA or BLA must include the results of all preclinical, clinical, and other testing and a compilation of data relating to the product’s pharmacology, chemistry, manufacture, and controls. The cost of preparing and submitting an NDA or a BLA is substantial.
 
Once the submission is accepted for filing, the FDA begins an in-depth review. Priority review can be applied to drugs that the FDA determines offer major advances in treatment, or provide a treatment where no adequate therapy exists. The FDA may refer applications for novel drug products, or drug products which present difficult questions of safety or efficacy, to an advisory committee — typically a panel that includes clinicians and other experts — for review, evaluation, and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving an NDA or BLA, the FDA will typically inspect one, or more, clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured. FDA will not approve the product unless compliance with current good manufacturing practices, or GMP — a quality system regulating manufacturing — is satisfactory and the NDA or BLA contains data that provide substantial evidence that the drug is safe and effective in the indication studied. The issuance of a biologics license is a determination that the product, the manufacturing process, and the manufacturing facilities meet applicable requirements to ensure the continued safety, purity and potency of the biologic product.
 
After the FDA evaluates the NDA or BLA and the manufacturing facilities, it issues either an approval letter (with the US license number, in the case of a biologic license) or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA or BLA, the FDA will issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA or BLA approval, the FDA may require a risk evaluation and mitigation strategy, or REMS, to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use, or ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the drug. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drug’s safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.
 
The Hatch-Waxman Act
 
In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims cover the applicant’s product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential competitors in support of approval of an abbreviated new drug application, or ANDA. An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown through bioequivalence testing to be therapeutically equivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct, or submit results of, pre-clinical or clinical tests to prove the safety or effectiveness of their drug product. Drugs approved in this way are commonly referred to as “generic equivalents” to the listed drug, and can often be substituted by pharmacists under prescriptions written for the original listed drug.

 
The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s 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. A certification that the new product will not infringe the already approved product’s listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the applicant does not challenge the listed patents, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired. The ANDA application also will not be approved until any non-patent exclusivity listed in the Orange Book for the referenced product has expired. Federal law provides a period of five years following approval of a drug containing no previously approved active ingredients during which ANDAs for generic versions of those drugs cannot be submitted, unless the submission contains a Paragraph IV challenge to a listed patent — in which case the submission may be made four years following the original product approval. Federal law provides for a period of three years of exclusivity during which the FDA cannot grant effective approval of an ANDA based on the approval of a listed drug that contains previously approved active ingredients but is approved in a new dosage form, route of administration or combination, or for a new use; the approval of which was required to be supported by new clinical trials conducted by, or for, the applicant.
 
The BPCIA
 
The Biologics Price Competition and Innovation Act (BPCIA) was enacted as part of the Affordable Care Act on March 23, 2010. The BPCIA creates an abbreviated licensure pathway for biological products shown to be biosimilar to, or interchangeable with, an FDA-licensed biological reference product. The objectives of the BPCIA are conceptually similar to those of the Hatch-Waxman Act, which established abbreviated pathways for the approval of small molecule drug products under the FDC Act. The implementation of an abbreviated licensure pathway for biological products can present challenges given the scientific and technical complexities that may be associated with the larger and typically more complex structure of biological products, as well as the processes by which such products are manufactured. Most biological products are produced in a living system such as a microorganism, or plant or animal cells, whereas small molecule drugs are typically manufactured through chemical synthesis.

A “biosimilar” product is a follow-on version of another biological product for which marketing approval is sought or has been obtained based on a demonstration that it is “biosimilar” to the original reference product. Section 351(k) of the PHS Act, added by the BPCIA , sets forth the requirements for an application for a proposed biosimilar product and an application or a supplement for a proposed interchangeable product. Section 351(i) defines biosimilarity to mean “that the biological product is highly similar to the reference product notwithstanding minor differences in clinically inactive components” and that “there are no clinically meaningful differences between the biological product and the reference product in terms of the safety, purity, and potency of the product”. A 351(k) application must contain, among other things, information demonstrating that the biological product is biosimilar to a reference product based upon data derived from analytical studies, animal studies, and a clinical study or studies, unless the FDA determines, in its discretion, that certain studies are unnecessary. To meet the additional standard of “interchangeability,” an applicant must provide sufficient information to demonstrate biosimilarity, and also to demonstrate that the biological product can be expected to produce the same clinical result as the reference product in any given patient and, if the biological product is administered more than once to an individual, the risk in terms of safety or diminished efficacy of alternating or switching between the use of the biological product and the reference product is not greater than the risk of using the reference product without such alternation or switch. Biosimilar drugs are not generic drugs, which are shown to be the same as the reference product.  However, biosimilar products that are also determined to be interchangeable may be substituted for the reference product without the intervention of the prescribing healthcare provider.
 
In many cases, biosimilars may be brought to market without conducting the full suite of clinical trials typically required of originators. The law establishes a period of 12 years of data exclusivity for reference products in order to preserve incentives for future innovation and outlines statutory criteria for science-based biosimilar approval standards that take into account patient safety considerations. Under this framework, data exclusivity protects the data in the innovator's regulatory application by prohibiting others, for a period of 12 years, from gaining FDA approval based in part on reliance on or reference to the innovator's data in their application to the FDA. Moreover, a biosimilar applicant cannot file their application until 4 years after the reference biological product was first licensed.  The law does not change the duration of patents granted on biologic products, but does provide procedures for resolving patent disputes based on a biosimilar application .
 
The FDA maintains lists biological products, including any biosimilar and interchangeable biological products licensed by the FDA under the PHS Act in a book titled “Lists of Licensed Biological Products with Reference Product Exclusivity and Biosimilarity or Interchangeability Evaluations” (the “Purple Book”). The Purple Book includes the date a biological product was licensed under 351(a) of the PHS Act and whether the FDA evaluated the biological product for reference product exclusivity. If the FDA has determined that a biological product is protected by a period of reference product exclusivity, the list will identify the date of first licensure and the date that reference product exclusivity (including any attached pediatric exclusivity) will expire. The list will not identify periods of orphan exclusivity and their expiration dates for biological products as those dates are available at the searchable database for Orphan Designated and/or Approved Products. The Purple Book also identifies whether a biological product licensed under section 351(k) of the PHS Act has been determined by the FDA to be biosimilar to or interchangeable with a reference biological product. Biosimilar and interchangeable biological products licensed under section 351(k) of the PHS Act are listed under the reference product to which biosimilarity or interchangeability was demonstrated.
 
Advertising and Promotion
 
Once an NDA or BLA is approved, a product will be subject to certain post-approval requirements. For instance, the FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet.
 
Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved labeling. Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA or BLA or supplement to same, before the change can be implemented. An NDA or BLA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA and BLA supplements as it does in reviewing NDAs and BLAs.
 
Adverse Event Reporting and GMP Compliance
 
Adverse event reporting and submission of periodic reports is required following FDA approval of an NDA or BLA. The FDA also may require post-marketing testing, known as Phase 4 testing, risk minimization action plans, and surveillance to monitor the effects of an approved product, or the FDA may place conditions on an approval that could restrict the distribution or use of the product. In addition, quality-control, drug manufacture, packaging, and labeling procedures must continue to conform to current good manufacturing practices, or cGMPs, after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with FDA and certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the agency inspects manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money, and effort in the areas of production and quality-control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered.


Pediatric Information
 
Under the Pediatric Research Equity Act, or PREA, NDAs, BLAs or supplements to same must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective. The FDA may grant full or partial waivers, or deferrals, for submission of data. Unless otherwise required by regulation, PREA does not apply to any drug for an indication for which orphan designation has been granted.
 
The Best Pharmaceuticals for Children Act, or BPCA, provides NDA and BLA holders a six-month extension of any exclusivity — patent or non-patent — for a drug if certain conditions are met. Conditions for exclusivity include the FDA’s determination that information relating to the use of a new drug in the pediatric population may produce health benefits in that population, the FDA making a written request for pediatric studies, and the applicant agreeing to perform, and reporting on, the requested studies within the statutory timeframe. Applications under the BPCA are treated as priority applications, with all of the benefits that designation confers.
 
Physician Drug Samples
 
As part of the sales and marketing process, pharmaceutical companies frequently provide samples of approved drugs to physicians. The Prescription Drug Marketing Act, or the PDMA, imposes requirements and limitations upon the provision of drug samples to physicians, as well as prohibits states from licensing distributors of prescription drugs unless the state licensing program meets certain federal guidelines that include minimum standards for storage, handling, and record keeping. In addition, the PDMA sets forth civil and criminal penalties for violations.
 
Anti-Kickback, False Claims Laws & The Prescription Drug Marketing Act
 
In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws have been applied to restrict certain marketing practices in the pharmaceutical industry in recent years. These laws include anti-kickback statutes and false claims statutes. The federal healthcare program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce; or in return for; purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid, or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, and formulary managers on the other. Violations of the anti-kickback statute are punishable by imprisonment, criminal fines, civil monetary penalties, and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases, or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.
 
Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. In addition, certain marketing practices, including off-label promotion, may also violate false claims laws. The majority of states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.
 
 
Foreign Regulatory Issues
 
Sales of pharmaceutical products outside the United States are subject to foreign regulatory requirements that vary widely from country to country. Whether or not FDA approval has been obtained, approval of a product by a comparable regulatory authority of a foreign country must generally be obtained prior to the commencement of marketing in that country. Although the time required to obtain such approval may be longer or shorter than that required for FDA approval, the requirements for FDA approval are among the most detailed in the world and FDA approval generally takes longer than foreign regulatory approvals.
 
Employees
 
As of March 31, 2016, we had twelve full-time employees, of whom nine were employed by AzurRx SAS and located in France and three were employed by us and located in our office in Brooklyn, New York.
 
Properties
 
Our executive offices are located in approximately 687 square feet of office space at 760 Parkside Avenue, Downstate Biotechnology Incubator, Suite 217, Brooklyn, NY 11226 that we occupy under a lease expiring on December 31, 2016 with the option for multiple year renewals .  The operations of AzurRx SAS are conducted at approximately 4,520 square feet of office space located at 290 chemin de Saint Dionisy, Jardin des Entreprises, 30980 Langlade, France, that we occupy under a 9-year lease expiring in December 24, 2020 .
 
Legal Proceedings
 
As of the date hereof, we know of no material, existing or pending legal proceedings against us, nor are we the plaintiff in any material proceedings or pending litigation.  There are no proceedings in which any of our directors, executive officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.  From time to time, we may be subject to various claims, legal actions and regulatory proceedings arising in the ordinary course of business.
 
Emerging Growth Company Status
 
We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, which we refer to as the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements that are applicable to other companies that are not emerging growth companies. Accordingly, we have included detailed compensation information for only our three most highly compensated executive officers and have not included a compensation discussion and analysis (CD&A) of our executive compensation programs in this prospectus. In addition, for so long as we are an “emerging growth company,” we will not be required to:
 
 
engage an auditor to report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes–Oxley Act of 2002 (the “Sarbanes–Oxley Act”);
 
 
comply with any requirement that may be adopted by the Public Company Accounting Oversight Board (the “PCAOB”) regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);


 
submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay,” “say-on-frequency,” and “say-on-golden parachutes;” or
 
 
disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparison of the chief executive officer’s compensation to median employee compensation.
 
In addition, the JOBS Act provides that an “emerging growth company” can use the extended transition period for complying with new or revised accounting standards.
 
We will remain an “emerging growth company” until the earliest to occur of:
 
 
our reporting $1 billion or more in annual gross revenues;
 
 
our issuance, in a three year period, of more than $1 billion in non-convertible debt;
 
 
the end of the fiscal year in which the market value of our common stock held by non-affiliates exceeds $700 million on the last business day of our second fiscal quarter; and
 
 
June 30, 2021


 
DIRECTORS AND EXECUTIVE OFFICERS
 
The following table sets forth certain information about our executive officers, key employees and directors as of the date of this Registration Statement.
 
Name
Age
Position
Johan M. (Thijs) Spoor
 44
President, Chief Executive Officer and Director
Daniel Dupret
 59
Chief Scientific Officer
Edward J. Borkowski (1)
 56
Chairman of the Board of Directors
Alastair Riddell (1)
 67
Director
Maged Shenouda (1)       52 Director
_____________
 
(1)
Member of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee
 
Johan M. (Thijs) Spoor is our Chief Executive Officer since January 2016, President since April 2015, and Chairman from June 2014 to September 2015.  From September 2010 until December 2015, he was the chief executive officer of FluoroPharma Medical, Inc. (OTC.QB: FPMI). He has served as chairman of the board of such company from June 2012 until December 2015, and still serves as a member of its board of directors. From December 2008 until February 2010, he worked at Oliver Wyman as a consultant to pharmaceutical and medical device companies. Mr. Spoor was an equity research analyst at J.P. Morgan from July 2007 through October 2008 and at Credit Suisse from November 2005 through July 2007, covering the biotechnology and medical device industries.  Mr. Spoor also sits on the board of directors of MetaStat, Inc. (MTST).  He holds a Pharmacy degree from the University of Toronto as well as an M.B.A. from Columbia University.  We believe that Mr. Spoor’s background in pharmacy, finance and accounting and as a healthcare research analyst, as well as his experience at both large and small healthcare companies, provides him with a broad familiarity of the range of issues confronting our company, which makes him a qualified member of our board .

 
Daniel Dupret has served as President of AzurRx SAS since its formation in 2007 and as Chief Scientific Officer of our company since the Acquisition. Previously, Dr. Dupret founded Proteus SA in 1998 and served as its President and CEO from 1998 to 2007. He founded Appligene SA in 1985 and served as its CSO, then President and CEO until 1998. From 1982 to 1985, he served as Project leader at Transgene SA. In parallel to his biotechnology career, Daniel Dupret served as an advisor for the French government and the European commission in connection with grant commission and funding of early-stage biotechnology companies. From 2003 to 2007, he served as President of the Board of the University of Nîmes.
 
Edward J. Borkowski   joined our board of directors in May 2015 and was appointed Chairman of our board of directors in September 2015. In May 2015, Mr. Borkowski joined the board of Concordia Healthcare. In February 2016, he joined Concordia as its Executive Vice President and continues to serve on its board of directors. Between September 2013 and February 2016, Mr Borkowski was the Chief Financial Officer of Amerigen Pharmaceuticals, an early stage, private, generic pharmaceutical company. From May 2012 to June 2013, Mr. Borkowski served as the Chief Financial Officer of ConvaTec Inc., a private global medical products and technologies company. From January 2011 to May 2012, Mr. Borkowski served as a consultant and advisor to several investment and private equity firms relating to investing in the medical technology and generic pharmaceutical industry. From May 2009 to December 2010, Mr. Borkowski served as the Chief Financial Officer of CareFusion Corporation, a global healthcare company focused on pharmaceutical dispensing equipment, infusion pumps, ventilators and surgical instruments. From 2002 through 2009, Mr. Borkowski was the Chief Financial Officer of Mylan Labs, one of the largest generic and specialty pharmaceutical companies in the world. Mr. Borkowski received his M.B.A. from Rutgers University and his B.S. from Allegheny College. He is also a Certified Public Accountant and a member of the AICPA and NYSSCPA. We believe that Mr. Borkowski’s industry specific extensive management experience provides him with a broad and deep understanding of our business and our competitors’ efforts, which makes him a qualified member of our board .
 
Alastair Riddell joined our board of directors in September 2015. Since September 2012, Dr. Riddell has served as the Chairman of Definigen Ltd. and has served as the Chairman of both Silence Therapeutics Ltd. since November 2013 and Procure Therapeutics from October 2009 to November 2012.  From 2007 to 2009, he served as the Chief Executive Officer of Stem Cell Sciences, Inc. and from 2005 to 2007, he served as the Chief Executive Officer of Paradigm Therapeutics. From 1998 to 2005, Dr. Riddell served as the Chief Executive Officer of Pharmagene Laboratories Ltd. We believe that Dr. Riddell’s background as a medical doctor with experience in a variety of hospital specialties coupled with his experience in the life sciences industry, directing all phases of clinical trials, before moving to sales, marketing and general management, makes him a qualified member of our board.
 
Maged Shenouda joined our board of directors in October 2015.  Mr. Shenouda, a financial professional in the biotechnology industry, was the head of Business Development at Retrofin, Inc. from January 2014 until November 2014. From January 2012 until September 2013, he served as Head of East Coast Operations for the Blueprint Life Science Group.  Prior thereto, Mr. Shenouda was a financial analyst, first at UBS from January 2004 until March 2010 and Stifel Nicolaus from June 2010 until November 2011.  He currently serves on the board of directors of Protea and was appointed to our board as Protea’s designee pursuant to the terms of the SPA.
 
We may appoint one additional independent director prior to the consummation of this offering.

 
CORPORATE GOVERNANCE
 
Director Independence
 
The board of directors has reviewed the independence of our directors based on the listing standards of the NASDAQ. Based on this review, the board of directors determined that each of Messrs. Borkowski, Shenouda and Riddell are independent within the meaning of the NASDAQ rules. In making this determination, our board of directors considered the relationships that each of these non-employee directors has with us and all other facts and circumstances our board of directors deemed relevant in determining their independence. As required under applicable NASDAQ rules, we anticipate that our independent directors will meet in regularly scheduled executive sessions at which only independent directors are present .
 
Board Committees
 
Our board of directors has established the following three standing committees: audit committee; compensation committee; and nominating and governance committee, or nominating committee. Our board of directors has adopted written charters for each of these committees. Upon completion of this offering, copies of the charters will be available on our website. Our board of directors may establish other committees as it deems necessary or appropriate from time to time.
 
Audit Committee
 
The audit committee is responsible for, among other matters:
 
 
appointing, compensating, retaining, evaluating, terminating, and overseeing our independent registered public accounting firm;
 
 
discussing with our independent registered public accounting firm the independence of its members from its management;
 
 
reviewing with our independent registered public accounting firm the scope and results of their audit;
 
 
approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm;
 
 
overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC;
 
 
reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls, and compliance with legal and regulatory requirements;
 
 
coordinating the oversight by our board of directors of our code of business conduct and our disclosure controls and procedures
 
 
establishing procedures for the confidential and/or anonymous submission of concerns regarding accounting, internal controls or auditing matters; and
 
 
reviewing and approving related-person transactions.

 
Our audit committee consists of Messrs. Borkowski, Shenouda and Riddell, with Mr. Borkowski serving as the chairman. The NASDAQ rules require us to have one independent audit committee member upon the listing of our common stock, a majority of independent directors within 90 days of the date of this prospectus and all independent audit committee members within one year of the date of this prospectus. Our board of directors has affirmatively determined that Messrs. Borkowski and Riddell meet the definition of “independent director” for purposes of serving on an audit committee under Rule 10A-3 and NASDAQ rules. Our board of directors has determined that Mr. Borkowski qualifies as an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of Regulation S-K.
 
Compensation Committee
 
The compensation committee is responsible for, among other matters:
 
 
reviewing key employee compensation goals, policies, plans and programs;
 
 
reviewing and approving the compensation of our directors and executive officers;
 
 
reviewing and approving employment agreements and other similar arrangements between us and our executive officers; and
 
 
appointing and overseeing any compensation consultants or advisors.
 
Our compensation committee consists of Messrs. Borkowski, Shenouda and Riddell, with Dr. Riddell serving as the chairman.
 
Nominating Committee
 
The purpose of the nominating committee is to assist the board in identifying qualified individuals to become board members, in determining the composition of the board and in monitoring the process to assess board effectiveness.  Our nominating committee consists of Messrs. Borkowski, Shenouda and Riddell, with Mr. Borkowski serving as the chairman.
 
Board Leadership Structure
 
Currently, our principal executive officer is Johan M. (Thijs) Spoor and our chairman of the board is Edward J. Borkowski.
 
Risk Oversight
 
Our board of directors will oversee a company-wide approach to risk management. Our board of directors will determine the appropriate risk level for us generally, assess the specific risks faced by us and review the steps taken by management to manage those risks. While our board of directors will have ultimate oversight responsibility for the risk management process, its committees will oversee risk in certain specified areas.
 
Specifically, our compensation committee will be responsible for overseeing the management of risks relating to our executive compensation plans and arrangements, and the incentives created by the compensation awards it administers. Our audit committee will oversee management of enterprise risks and financial risks, as well as potential conflicts of interests. Our board of directors will be responsible for overseeing the management of risks associated with the independence of our board of directors.
 
Code of Business Conduct and Ethics
 
Our board of directors adopted a code of business conduct and ethics that applies to our directors, officers and employees. Upon completion of this offering, a copy of this code will be available on our website. We intend to disclose on our website any amendments to the Code of Business Conduct and Ethics and any waivers of the Code of Business Conduct and Ethics that apply to our principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions.

 
EXECUTIVE COMPENSATION
 
Summary Compensation Table
 
The following table provides information regarding the compensation paid during the years ended December 31, 2015 and 2014 to our principal executive officer, principal financial officer and certain of our other executive officers, who are collectively referred to as “named executive officers” elsewhere in this prospectus.
 
Name and Principal Position
Year  
Salary
   
Bonus
   
Equity
Awards
   
All Other
Compensation
   
Total
 
Johan M. (Thijs) Spoor, President and Chief Operating Officer
2015   $ 478,400       -0-       -0-       -0-     $ 478,400  
  2014   $ 139,100       -0-       -0-       -0-     $ 139,100  
Daniel Dupret, Chief Scientific Officer 2015   $ 161,162       -0-       -0-       -0-     $ 161,162  
 
2014   $ 192,988       -0-       -0-       -0-     $ 192,988  
 
Potential Payments Upon Termination or Change in Control
 
If we terminate Mr. Spoor’s employment other than for cause, we will pay him twelve (12) months of his base salary as severance. In the event of termination by us without cause or by Mr. Spoor for good reason in connection with a change of control, the Company will pay him eighteen (18) months of his base salary as severance.

If we terminate Dr. Dupret’s employment other than for cause, the Company will pay him twelve (12) months of his base salary as severance.
 
Overview of Our Fiscal 2015 Executive Compensation
 
Elements of Compensation
 
Our executive compensation program consisted of the following components of compensation in 2014:
 
Base Salary . Each named executive officer receives a base salary for the expertise, skills, knowledge and experience he offers to our management team. Base salaries are periodically adjusted to reflect:
 
 
The nature, responsibilities, and duties of the officer’s position;
 
 
The officer’s expertise, demonstrated leadership ability, and prior performance;
 
 
The officer’s salary history and total compensation, including annual cash incentive awards and annual equity incentive awards; and
 
 
The competitiveness of the officer’s base salary.
 
Each named executive officer’s base salary for fiscal 2014 is listed in the 2014 Summary Compensation Table.
 
 
Employment Agreement
 
Effective as of January 1, 2016, we entered into an employment agreement with Mr. Spoor to serve as our president and chief executive officer for a term of three years. The employment agreement with Mr. Spoor provides for a base annual salary of $350,000, increasing to $425,000 upon completion of this offering and listing of our common stock on The NASDAQ Stock Market or NYSE MKT, and subject an annual milestone bonus, at the sole discretion of the board of directors based on his attainment of certain financial, clinical development, and/or business milestones to be established annually by our board of directors or compensation committee.  The employment agreement is terminable by either party at any time. In the event of termination by us without cause or by Mr. Spoor for good reason not in connection with a change of control, as those terms are defined in the agreement, he is entitled to twelve (12) months’ severance payable over such period. In the event of termination by us without cause or by Mr. Spoor for good reason in connection with a change of control, as those terms are defined in the agreement, he will receive his eighteen (18) months’ severance.
 
Subject to any required consents from third parties, on or as promptly as practicable following the effective date, Mr. Spoor shall be issued 100,000 shares of restricted stock that vest as follows: (i) 50,000 upon the first commercial sale in the United States of MS1819, and (ii) 50,000 upon our total market capitalization exceeding $1 billion dollars for 20 consecutive trading days, in each case subject to the earlier determination of a majority of the Board.
 
In addition, subject to any required consents from third parties, on or as promptly as practicable following the effective date, Mr. Spoor shall also be granted ten-year options to be governed by the terms of the 2014 Incentive Plan to purchase 380,000 shares of common stock, which options will vest as follows: (i) 100,000 upon consummation of this offering, (ii) 50,000 upon initiation of a Phase II clinical trial in the United States for MS1819, (iii) 50,000 completion of a Phase II clinical trial in the United States for MS1819, (iv) 100,000 upon initiation of a Phase III clinical trial in the United States for MS1819, (v) 50,000 upon initiation of a Phase I clinical trial in the United States for any product other than MS1819, and (vi) 30,000 upon the determination of a majority of our board. The employment agreement contains standard confidential and proprietary information, and one-year non-competition and non-solicitation provisions.
 
On June 8, 2016, the Board clarified Mr. Spoor’s agreement as follows: the 380,000 options described have neither been granted nor priced, the options will be granted at a future date to be determined by the Board, and the options will be priced at that future date when they are granted.
 
Outstanding Equity Incentive Awards At Fiscal Year-End
 
There were no outstanding equity awards held by our named executive officers as of December 31, 2015 and 2014.
 

Warrant Exercises and Stock Vested
 
No officers or directors exercised warrants and no stock vested during the years ended December 31, 2015 and 2014.
 
Non-Executive Director Compensation
 
Edward  Borkowski was paid $90,000 in 2015 as a financial consultant. In July 2016, we issued 45,000 shares of restricted stock to Mr. Borkowski and 30,000 shares of restricted stock to each of Messrs. Shenouda and Riddell. The shares of restricted stock vest as follows: (i) 50% upon the first commercial sale in the United States of MS1819, and (ii) 50% upon our total market capitalization exceeding $1 billion dollars for 20 consecutive trading days, in each case subject to the earlier determination of a majority of the Board .
 
Compensation Committee Interlocks and Insider Participation
 
None of our officers currently serves, or has served during the last completed fiscal year, on the compensation committee or board of directors of any other entity that has one or more officers serving as a member of our board of directors.
 
Amended and Restated 2014 Omnibus Equity Incentive Plan
 
Our board of directors and stockholders have adopted and approved the Amended and Restated 2014 Omnibus Equity Incentive Plan (the “2014 Plan”). The 2014 Plan is a comprehensive incentive compensation plan under which we can grant equity-based and other incentive awards to our officers, employees, directors, consultants and advisers. The purpose of the 2014 Plan is to help us attract, motivate and retain such persons with awards under the 2014 Plan and thereby enhance shareholder value.
 
Administration . The 2014 Plan is administered by the board, and upon consummation of this offering will be administered by the compensation committee of the board, which shall consist of three members of the board, each of whom is a “non-employee director” within the meaning of Rule 16b-3 promulgated under the Exchange Act and an “outside director” within the meaning of Code Section 162(m). Among other things, the compensation committee has complete discretion, subject to the express limits of the 2014 Plan, to determine the directors, employees and nonemployee consultants to be granted an award, the type of award to be granted the terms and conditions of the award, the form of payment to be made and/or the number of shares of common stock subject to each award, the exercise price of each option and base price of each stock appreciation right (“SAR”), the term of each award, the vesting schedule for an award, whether to accelerate vesting, the value of the common stock underlying the award, and the required withholding, if any. The compensation committee may amend, modify or terminate any outstanding award, provided that the participant’s consent to such action is required if the action would impair the participant’s rights or entitlements with respect to that award. The compensation committee is also authorized to construe the award agreements, and may prescribe rules relating to the 2014 Plan. Notwithstanding the foregoing, the compensation committee does not have any authority to grant or modify an award under the 2014 Plan with terms or conditions that would cause the grant, vesting or exercise thereof to be considered nonqualified “deferred compensation” subject to Code Section 409A.

 
Grant of Awards; Shares Available for Awards . The 2014 Plan provides for the grant of stock options, SARs, performance share awards, performance unit awards, distribution equivalent right awards, restricted stock awards, restricted stock unit awards and unrestricted stock awards to non-employee directors, officers, employees and nonemployee consultants of AzurRx or its affiliates. The aggregate number of shares of common stock that may be issued under the 2014 Plan shall not exceed ten percent (10%) of the issued and outstanding shares of common stock on an as converted basis (the “As Converted Shares”) on a rolling basis. For calculation purposes, the As Converted Shares shall include all shares of common stock and all shares of common stock issuable upon the conversion of outstanding preferred stock and other convertible securities, but shall not include any shares of common stock issuable upon the exercise of options, warrants and other convertible securities issued pursuant to the 2014 Plan. The number of authorized shares of common stock reserved for issuance under the Plan shall automatically be increased concurrently with our issuance of fully paid and non-assessable shares of As Converted Shares.  Shares shall be deemed to have been issued under the 2014 Plan solely to the extent actually issued and delivered pursuant to an award. If any award expires, is cancelled, or terminates unexercised or is forfeited, the number of shares subject thereto is again available for grant under the 2014 Plan.
 
The number of shares of common stock for which awards may be granted under the 2014 Plan to a participant who is an employee in any calendar year is limited to 300,000 shares. Future new hires and additional non-employee directors and/or consultants would be eligible to participate in the 2014 Plan as well. The number of stock options and/or shares of restricted stock to be granted to executives and directors cannot be determined at this time as the grant of stock options and/or shares of restricted stock is dependent upon various factors such as hiring requirements and job performance.
 
Stock Options . The 2014 Plan provides for either “incentive stock options” (“ISOs”), which are intended to meet the requirements for special federal income tax treatment under the Code, or “nonqualified stock options” (“NQSOs”). Stock options may be granted on such terms and conditions as the compensation committee may determine; provided, however, that the per share exercise price under a stock option may not be less than the fair market value of a share of common stock on the date of grant and the term of the stock option may not exceed 10 years (110% of such value and five years in the case of an ISO granted to an employee who owns (or is deemed to own) more than 10% of the total combined voting power of all classes of capital stock of our Company or a parent or subsidiary of our Company). ISOs may only be granted to employees. In addition, the aggregate fair market value of common stock covered by one or more ISOs (determined at the time of grant), which are exercisable for the first time by an employee during any calendar year may not exceed $100,000. Any excess is treated as a NQSO.
 
Stock Appreciation Rights . A SAR entitles the participant, upon exercise, to receive an amount, in cash or stock or a combination thereof, equal to the increase in the fair market value of the underlying common stock between the date of grant and the date of exercise. SARs may be granted in tandem with, or independently of, stock options granted under the 2014 Plan. A SAR granted in tandem with a stock option (i) is exercisable only at such times, and to the extent, that the related stock option is exercisable in accordance with the procedure for exercise of the related stock option; (ii) terminates upon termination or exercise of the related stock option (likewise, the common stock option granted in tandem with a SAR terminates upon exercise of the SAR); (iii) is transferable only with the related stock option; and (iv) if the related stock option is an ISO, may be exercised only when the value of the stock subject to the stock option exceeds the exercise price of the stock option. A SAR that is not granted in tandem with a stock option is exercisable at such times as the compensation committee may specify.
 
Performance Shares and Performance Unit Awards . Performance share and performance unit awards entitle the participant to receive cash or shares of common stock upon the attainment of specified performance goals. In the case of performance units, the right to acquire the units is denominated in cash values.

 
Distribution Equivalent Right Awards . A distribution equivalent right award entitles the participant to receive bookkeeping credits, cash payments and/or common stock distributions equal in amount to the distributions that would have been made to the participant had the participant held a specified number of shares of common stock during the period the participant held the distribution equivalent right. A distribution equivalent right may be awarded as a component of another award under the 2014 Plan, where, if so awarded, such distribution equivalent right will expire or be forfeited by the participant under the same conditions as under such other award.
 
Restricted Stock Awards and Restricted Stock Unit Awards . A restricted stock award is a grant or sale of common stock to the participant, subject to our right to repurchase all or part of the shares at their purchase price (or to require forfeiture of such shares if issued to the participant at no cost) in the event that conditions specified by the compensation committee in the award are not satisfied prior to the end of the time period during which the shares subject to the award may be repurchased by or forfeited to us. Our restricted stock unit entitles the participant to receive a cash payment equal to the fair market value of a share of common stock for each restricted stock unit subject to such restricted stock unit award, if the participant satisfies the applicable vesting requirement.
 
Unrestricted Stock Awards . An unrestricted stock award is a grant or sale of shares of our common stock to the participant that is not subject to transfer, forfeiture or other restrictions, in consideration for past services rendered to AzurRx or an affiliate or for other valid consideration.
 
Change-in-Control Provisions . In connection with the grant of an award, the compensation committee may provide that, in the event of a change in control, such award will become fully vested and immediately exercisable.
 
Amendment and Termination . The compensation committee may adopt, amend and rescind rules relating to the administration of the 2014 Plan, and amend, suspend or terminate the 2014 Plan, but no such amendment or termination will be made that materially and adversely impairs the rights of any participant with respect to any award received thereby under the 2014 Plan without the participant’s consent, other than amendments that are necessary to permit the granting of awards in compliance with applicable laws. We have attempted to structure the 2014 Plan so that remuneration attributable to stock options and other awards will not be subject to the deduction limitation contained in Code Section 162(m).
 
 
CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
 
We were party to an agreement with JIST Consulting (“JIST”), a company controlled by Johan M. Spoor, our CEO, President and member of our board of directors, to provide Mr. Spoor’s services as a consultant for business strategy, financial modeling, and fundraising. During the years ended December 31, 2015 and 2014, we incurred $478,400 and $139,100, respectively, of expenses to JIST. As of March 31, 2016, we had $508,300 in accounts payable to JIST. Mr. Spoor received no other compensation from us other than reimbursement of related travel expenses.
 
We were party to an agreement with Rigby-Hutton Management Services (“RHMS”) to provide our former President, Christine Rigby-Hutton. During the years ended December 31, 2015 and 2014, we incurred $27,750 and $99,142, respectively, of expenses to RHMS. As of March 31, 2016, we had $38,453 in accounts payable to RHMS. Ms. Rigby-Hutton resigned effective April 20, 2015.
 
On May 21, 2014, we entered into the SPA with Protea in connection with the Acquisition.  Pursuant to the SPA, we issued to Protea 100 shares of our Series A Preferred convertible into 33% of our outstanding common stock. See the section entitled “Description of the Business, Agreements” above.
 
On August 31, 2014, January 31, 2015, February 28, 2015 and May 31, 2015, we issued promissory notes to Matthew Balk and his affiliates in the aggregate principal amount of $236,000. These notes have been repaid in full as to $50,000 on November 11, 2014, $111,000 on April 3, 2015, and $75,000 on August 7, 2015.  Mr. Balk holds voting and dispositive power over the shares held by Pelican Partners LLC, which owns 40%, 47%, and 64%, respectively, of the outstanding common stock of the Company as of March 31, 2016 and December 31, 2015 and 2014.
 
In July 2014, we issued promissory notes to Johan M. (Thijs) Spoor, our president, chief operating officer and chairman of the board, in the aggregate principal amount of $10,000. These notes were repaid in full as to $5,000 on October 17, 2014 and $5,000 on November 10, 2014.
 
From October 1, 2015 through December 31, 2015, the Company used the services of Edward Borkowski, a member of the Board of Directors and the Company’s audit committee chair, as a financial consultant. Expense recorded in general and administrative expense in the accompanying statements of operations related to Mr. Borkowski for the year ended December 31, 2015 was $90,000. As of March 31, 2016, we had $90,000 in accounts payable to Mr. Borkowski. Mr. Borkowski received no other compensation from the Company other than reimbursement of related travel expenses. On October 14, 2014 and March 12, 2015, the Company issued original issue discounted convertible notes to Edward Borkowski, a director and the Company’s audit committee chair, in the aggregate principal amount of $300,000. The notes will automatically convert into shares of the Company’s common stock upon the consummation of this offering at a conversion price equal to the principal amount divided by the lesser of $6.45 per share or the per share price of the Company’s common stock in this offering, multiplied by 80%. Mr. Borkowski has signed an exchange agreement related to these notes as detailed in Note 10 to our financial statements below.
 
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
The following table sets forth certain information regarding the beneficial ownership of our common stock as of July 13, 2016, and as adjusted to reflect the sale of common stock being offered in this offering by:
 
 
each person, or group of affiliated persons, known to us to own beneficially more than 5% of our common stock;
 
 
each of our current directors;
 
 
each of our named executive officers; and
 
 
all of our current directors and executive officers as a group.
 
The information in the following table has been presented in accordance with the rules of the SEC.  Under such rules, beneficial ownership of a class of capital stock includes any shares of such class as to which a person, directly or indirectly, has or shares voting power or investment power and also any shares as to which a person has the right to acquire such voting or investment power within 60 days through the exercise of any stock option, warrant or other right.  If two or more persons share voting power or investment power with respect to specific securities, each such person is deemed to be the beneficial owner of such securities.  Except as we otherwise indicate below and under applicable community property laws, we believe that the beneficial owners of the common stock listed below, based on information they have furnished to us, have sole voting and investment power with respect to the shares shown.  Except as otherwise indicated, each stockholder named in the table is assumed to have sole voting and investment power with respect to the number of shares listed opposite the stockholder’s name.
 
The c alculations of beneficial ownership in this table are based on 6,028,928 shares of common stock outstanding at July 13, 2016.
 
Name and Address of Beneficial Owner (1)
 
Shares Beneficially
Owned
   
Percentage Total
Voting Power Prior to Offering
 
Percentage Total
Voting Power
After This Offering
Pelican Partners LLC
   
2,080,646
     
35
%
 
Daniel Dupret
   
0
     
*
   
Johan M. (Thijs) Spoor (2)
   
539,885
     
9
%
 
Alastair Riddell
   
10,000
     
*
   
Edward J. Borkowski (3)
   
259,862
     
4
 
Maged Shenouda     20,000       *    
All directors and executive officers as a group (5 persons)
   
829,747
     
13
%
 
 
*
 
(1) 
 
 
(2)
 
 
(3)
 Less than 1%.
 
Unless otherwise indicated, the address of such individual is c/o AzurRx BioPharma, Inc., 760 Parkside Avenue, Downstate Biotechnology Incubator, Suite 217, Brooklyn, NY 11226.
 
Includes 300,000 shares issuable pursuant to options granted by third parties at an exercise price of $1.00 per share and 39,851 shares held in a trust for the benefit of Mr. Spoor’s minor children.
 
Includes 82,502 shares issuable upon conversion of OID notes and 27,360 shares issuable upon the exercise of warrants.
 
 
DESCRIPTION OF SECURITIES
 
General
 
Our restated certificate of incorporation authorizes the issuance of up to 100,000,000 shares of common stock, par value $0.0001 per share, and 1,000,000 shares of preferred stock, par value $0.0001 per share.
 
Common Stock
 
As of July 13, 2016, there were 6,028,928 shares of common stock outstanding and 1,070,044 shares of common stock subject to outstanding warrants. An additional _________ shares of common stock will be issued immediately prior to the closing of this offering upon the conversion of outstanding shares of preferred stock and outstanding convertible notes. Each holder of common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of the stockholders, including the election of directors. Our certificate of incorporation and bylaws do not provide for cumulative voting rights.
 
Subject to preferences that may be applicable to any then outstanding preferred stock, the holders of our outstanding shares of common stock are entitled to receive dividends, if any, as may be declared from time to time by our board of directors out of legally available funds. In the event of our liquidation, dissolution or winding up, holders of common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities, subject to the satisfaction of any liquidation preference granted to the holders of any outstanding shares of preferred stock.
 
Holders of our common stock have no preemptive, conversion or subscription rights, and there are no redemption or sinking fund provisions applicable to the common stock. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of our preferred stock that are outstanding or that we may designate and issue in the future.
 
Preferred Stock
 
Our board of directors is empowered, without stockholder approval, to issue shares of preferred stock with dividend, liquidation, redemption, voting or other rights which could adversely affect the voting power or other rights of the holders of common stock. In addition, the preferred stock could be utilized as a method of discouraging, delaying or preventing a change in control of us. Although we do not currently intend to issue any shares of preferred stock, we cannot assure you that we will not do so in the future.
 
Convertible Notes
 
Commencing on October 10, 2014, through a series of transactions, we issued original issue 15% discounted convertible notes to various investors. On March 31, 2016, the holders of all but $300,000 in principal signed exchange agreements rolling the principal amount into new original issue 8% discounted convertible notes due on November 4, 2016, modifying the conversion price to $4.65 per share. The aggregate gross proceeds received in connection with these notes as of July 13, 2016 was $9,162,529. The notes will automatically convert into shares of our common stock upon the consummation of this offering equal to the quotient obtained by dividing the principal amount, multiplied by 1.25, by the lesser of (a) $4.65 or (b) the price per share or price per unit issued in the IPO (2,683,359 shares).
 
 
Options
 
We currently do not have any outstanding options to purchase shares of our common stock or other securities.
 
Warrants
 
In  connection with our private placement of  our original issue discounted convertible notes, we issued five-year warrants (the “Warrants”) to purchase an aggregate of 926,691 shares of our common stock at exercise prices ranging from $5.58 to $7.37 per share. In addition, we issued warrants to purchase an aggregate of 143,353 shares of our common stock to placement agents in connection with this private placement.
 
Transfer Agent
 
The transfer agent for our common stock is Transhare Corporation, 4626 South Broadway, Englewood, Colorado 80113, Tel: (303) 662-1112.
 
Listing
 
We have applied to have our common stock listed on The NASDAQ Capital Market under the symbol “AZRX.”
 
Holders
 
As of July 13, 2016, there were 6,028,928 shares of common stock outstanding, which were held by approximately 37 stockholders of record.
 
Registration Rights
 
Pursuant to the SPA with Protea, we granted registration rights to Protea to include the shares of common stock issuable upon conversion of the Series A Preferred in registration statements that we may file for ourselves or other stockholders in the future.  We also agreed with the holders of our outstanding warrants that we file a registration statement providing for the resale of the shares of common stock issuable upon the exercise of such warrants no later than sixty (60) days following the effective date of this offering.  In addition, we granted certain registration rights in connection with the issuance of the warrants issued to our placement agent in connection with a previous private placement.  We will pay all of the expenses associated with each of such registrations.
 
Delaware Anti-Takeover Law
 
We are subject to the provisions of Section 203 of the DGCL regulating corporate takeovers upon consummation of this offering. This statute prevents certain Delaware corporations, under certain circumstances, from engaging in a “business combination” with:
 
 
a stockholder who owns 15% or more of our outstanding voting stock (otherwise known as an “interested stockholder”);
 
 
an affiliate of an interested stockholder; or
 
 
an associate of an interested stockholder, for three years following the date that the stockholder became an interested stockholder.
 
A “business combination” includes a merger or sale of more than 10% of our assets. However, the above provisions of Section 203 do not apply if:
 
 
our board of directors approves the transaction that made the stockholder an “interested stockholder,” prior to the date of the transaction;
 
 
after the completion of the transaction that resulted in the stockholder becoming an interested stockholder, that stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, other than statutorily excluded shares of common stock; or
 
 
on or subsequent to the date of the transaction, the business combination is approved by our board of directors and authorized at a meeting of our stockholders, and not by written consent, by an affirmative vote of at least two-thirds of the outstanding voting stock not owned by the interested stockholder.

 
SHARES ELIGIBLE FOR FUTURE SALE
 
Prior to this offering, no public market for our common stock existed, and a liquid trading market for our common stock may not develop or be sustained after this offering. Future sales of substantial amounts of our common stock in the public market could adversely affect prevailing market prices of our common stock from time to time and could impair our future ability to raise equity capital in the future. Furthermore, because only a limited number of shares of our common stock will be available for sale shortly after this offering due to certain contractual and legal restrictions on resale described below, sales of substantial amounts of our common stock in the public market after such restrictions lapse, or the anticipation of such sales, could adversely affect the prevailing market price of our common stock and our ability to raise equity capital in the future.
 
Based upon the number of shares outstanding as of ________, 2016, upon the closing of this offering, we will have outstanding an aggregate of _____ shares of common stock, assuming no exercise of the underwriters’ over-allotment option and no exercise of outstanding options, after giving effect to the conversion of (i) all outstanding shares of our preferred stock into ______ shares of common stock and (ii) the issuance of ______ shares of common stock upon the conversion of outstanding convertible notes immediately prior to the closing of this offering. All of the shares sold in this offering by us will be freely tradable without restrictions or further registration under the Securities Act, unless held by our affiliates, as that term is defined under Rule 144 under the Securities Act, or subject to lock-up agreements. The remaining shares of common stock outstanding upon the closing of this offering are restricted securities as defined in Rule 144. Restricted securities may be sold in the U.S. public market only if registered or if they qualify for an exemption from registration, including by reason of Rule 144 or Rule 701 under the Securities Act, which rules are summarized below. These remaining shares will generally become available for sale in the public market as follows:
 
 
no shares will be eligible for sale in the public market on the date of this prospectus; and
 
 
approximately _____shares will be eligible for sale in the public market upon expiration of lock-up agreements 181 days after the date of this prospectus, subject in certain circumstances to the volume, manner of sale and other limitations of Rule 144 and Rule 701.
 
As of ________, 2016, of the _______ shares of common stock issuable upon exercise of outstanding options and warrants, approximately_______ shares will be vested and eligible for sale 181 days after the date of this prospectus.
 
We may issue shares of common stock from time to time as consideration for future acquisitions, investments or other corporate purposes. In the event that any such acquisition, investment or other transaction is significant, the number of shares of common stock that we may issue may in turn be significant. We may also grant registration rights covering those shares of common stock issued in connection with any such acquisition and investment.
 
In addition, the shares of common stock reserved for future issuance under our 2014 Plan will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements, a registration statement under the Securities Act or an exemption from registration, including Rule 144 and Rule 701.

 
Rule 144
 
In general, persons who have beneficially owned restricted shares of our common stock for at least six months, and any affiliate of the company who owns either restricted or unrestricted shares of our common stock, are entitled to sell their securities without registration with the SEC under an exemption from registration provided by Rule 144 under the Securities Act.
 
In general, a person who has beneficially owned restricted shares of our common stock for at least six months would be entitled to sell their securities provided that (1) such person is not deemed to have been one of our affiliates at the time of, or at any time during the 90 days preceding, a sale, (2) we have been subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale and (3) we are current in our Exchange Act reporting at the time of sale.
 
Persons who have beneficially owned restricted shares of our common stock for at least six months, but who are our affiliates at the time of, or any time during the 90 days preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of either of the following:
 
 
1% of the number of shares of our common stock then outstanding, which will equal approximately ______ shares immediately after the closing of this offering based on the number of common shares outstanding as of ________, 2016.
 
 
the average weekly trading volume of our common stock on ______during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.
 
Such sales by affiliates must also comply with the manner of sale, current public information and notice provisions of Rule 144.
 
Rule 701
 
In general, under Rule 701, a person 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 may sell these shares in reliance upon Rule 144, but without being required to comply with the notice, manner of sale, public information requirements or volume limitation provisions of Rule 144. Rule 701 also permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required to wait until 90 days after the date of this prospectus before selling such shares pursuant to Rule 701. As of ________, 2016, _____ shares of our outstanding common stock had been issued in reliance on Rule 701 as a result of exercises of stock options and issuance of restricted stock. However, substantially all Rule 701 shares are subject to lock-up agreements as described below and will become eligible for sale upon the expiration of the restrictions set forth in those agreements.
 
Form S-8 Registration Statements
 
Following this offering, we intend to file with the SEC a registration statement on Form S-8 under the Securities Act to register the offer and sale of shares of our common stock that are issuable pursuant to our 2014 Plan. Shares covered by this registration statement will then be eligible for sale in the public markets, subject to vesting restrictions, any applicable lock-up agreements described below and Rule 144 limitations applicable to affiliates.

 
Lock-Up Arrangements
 
We, all of our directors and executive officers and holders of substantially all of our common stock and securities exercisable for or convertible into our common stock outstanding immediately upon the closing of this offering, have agreed with the underwriters that, for a period of 180 days following the date of this prospectus, subject to certain exceptions, we and they will not, directly or indirectly, offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale, or otherwise dispose of or hedge any of our shares of common stock, any options, or any securities convertible into, or exchangeable for or that represent the right to receive shares of our common stock. These agreements are described in the section of this prospectus titled “Underwriting.”
 
Registration Rights
 
We  agreed with the holders of our outstanding warrants that we file a registration statement providing for the resale of the shares of common stock issuable upon the exercise of such warrants no later than sixty (60) days following the effective date of this offering.  In addition, we granted certain registration rights in connection with the issuance of the warrants issued to our placement agent in connection with a prior private placement.  Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. See the section titled “Description of Capital Stock—Registration Rights” for additional information .
 
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
 
Our Restated Certificate of Incorporation and Amended and Restated Bylaws, subject to the provisions of Delaware Law, contain provisions which allow the corporation to indemnify any person against liabilities and other expenses incurred as the result of defending or administering any pending or anticipated legal issue in connection with service to us if it is determined that person acted in good faith and in a manner which he reasonably believed was in the best interest of the corporation. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons, 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.


UNDERWRITING
 
WallachBeth Capital, LLC and Network 1 Securities, Inc. are acting as the co-book-running managers of the offering, and we have entered into an underwriting agreement, dated [_____], 2016, with them as underwriters.  Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters and the underwriters have agreed to purchase from us, at the public offering price per share less the underwriting discounts set forth on the cover page of this prospectus.
 
The underwriters are committed to purchase all the shares of common stock offered by us other than those covered by the option to purchase additional shares described below, if they purchase any shares.  The obligations of the underwriters may be terminated upon the occurrence of certain events specified in the underwriting agreement.  Furthermore, pursuant to the underwriting agreement, the underwriters’ obligations are subject to customary conditions, representations and warranties contained in the underwriting agreement, such as receipt by the underwriters of officers’ certificates and legal opinions.
 
We have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act of 1933, and to contribute to payments the underwriters may be required to make in respect thereof.
 
The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel and other conditions specified in the underwriting agreement.  The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
 
Over-allotment Option
 
We have granted the underwriters an over-allotment option.  This option, which is exercisable for up to 45 days after the date of this prospectus, permits the underwriters to purchase a maximum of [_____] additional shares (15% of the shares sold in this offering) from us to cover over-allotments, if any.  If the underwriters exercise all or part of this option, it will purchase shares covered by the option at the public offering price per share that appears on the cover page of this prospectus, less the underwriting discount.  If this option is exercised in full, the total offering price to the public will be $[_____] and the total net proceeds, before expenses, to us will be $[_____] million.
 
Discount
 
The following table shows the public offering price, underwriting discount and proceeds, before expenses, to us.  The information assumes either no exercise or full exercise by the underwriters of their over-allotment option.
 
   
  Per Share
   
Total Without Over-Allotment Option
   
Total With Over-Allotment Option
 
Public offering price
 
$
     
$
     
$
   
Underwriting discount (7%)
 
$
     
$
     
$
   
Proceeds, before expenses, to us
 
$
     
$
     
$
   
 
The underwriters propose to offer the shares offered by us to the public at the public offering price per share set forth on the cover of this prospectus.  In addition, the underwriters may offer some of the shares to other securities dealers at such price less a concession of $[_____] per share.  If all of the shares offered by us are not sold at the public offering price per share, the underwriters may change the offering price per share and other selling terms by means of a supplement to this prospectus.


We will pay the out-of-pocket accountable expenses of the underwriters in connection with this offering.  The underwriting agreement, however, provides that in the event the offering is terminated, any advance expense deposits paid to the underwriters will be returned to the extent that offering expenses are not actually incurred in accordance with FINRA Rule 5110(f)(2)(C).
 
We have agreed to pay the underwriters’ non-accountable expenses allowance equal to 1% of the public offering price of the shares (excluding shares that we may sell to the underwriters to cover over-allotments).  We have also agreed to pay the underwriters’ expenses relating to the offering, including (a) all filing fees incurred in clearing this offering with FINRA; (b) up to $5,000 of fees, expenses and disbursements relating to background checks of our officers and directors; (c) all fees, expenses and disbursements relating to the registration, qualification or exemption of securities offered under the securities laws of foreign jurisdictions designated by the underwriters; (d) stock transfer and/or stamp taxes, if any, payable upon the transfer of shares of our common stock to the underwriters; (e) $21,775 for the underwriters’ use of Ipreo’s book-building, prospectus tracking and compliance software for this offering; (f) up to $20,000 of the underwriters’ actual accountable road show expenses for the offering; and (g) up to $100,000   for the fees of the underwriters’ counsel.
 
We estimate that the total expenses of the offering payable by us, excluding underwriting discounts and commissions, will be approximately $[_____].
 
Discretionary Accounts
 
The underwriters do not intend to confirm sales of the securities offered hereby to any accounts over which they have discretionary authority.
 
Lock-Up Agreements
 
Pursuant to certain “lock-up” agreements, we, our executive officers and directors, and certain significant holders of our outstanding shares of common stock on a fully diluted basis (including shares underlying options, warrants and convertible securities) have agreed, subject to certain exceptions, not to offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of or announce the intention to otherwise dispose of, or enter into any swap, hedge or similar agreement or arrangement that transfers, in whole or in part, the economic risk of ownership of, directly or indirectly, engage in any short selling of any common stock or securities convertible into or exchangeable or exercisable for any common stock, whether currently owned or subsequently acquired, without the prior written consent of the underwriters, for a period of 180 days from the date of effectiveness of the offering.
 
The lock-up period described in the preceding paragraph will be automatically extended if: (1) during the last 17 days of the restricted period, we issue an earnings release or announce material news or a material event; or (2) prior to the expiration of the lock-up period, we announce that we will release earnings results during the 16-day period beginning on the last day of the lock-up period, in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the date of the earnings release, unless the underwriters waive this extension in writing; provided, however, that this lock-up period extension shall not apply to the extent that FINRA has amended or repealed NASD Rule 2711(f)(4), or has otherwise provided written interpretive guidance regarding such rule, in each case, so as to eliminate the prohibition of any broker, dealer, or member of a national securities association from publishing or distributing any research report, with respect to the securities of an emerging growth company (as defined in the JOBS Act) prior to or after the expiration of any agreement between the broker, dealer, or member of a national securities association and the emerging growth company or its stockholders that restricts or prohibits the sale of securities held by the emerging growth company or its stockholders after the initial public offering date.


Underwriter Warrants
 
We have agreed to issue to the underwriters warrants to purchase up to a total of _____ shares of common stock.  The warrants are exercisable at $[_____] per share (120% of the public offering price) commencing on a date which is one year from the effective date of the offering under this prospectus supplement and expiring on a date which is no more than five (5) years from the effective date of the offering in compliance with FINRA Rule 5110(f)(2)(G).  The warrants have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA.  The underwriters (or their permitted assignees under the Rule) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, 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 securities for a period of 180 days from effectiveness.  In addition, the warrants provide for registration rights upon request, in certain cases.  We will bear all fees and expenses attendant to registering the securities issuable on exercise of the warrants other than underwriting commissions incurred and payable by the holders.  The exercise price and number of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend or our recapitalization, reorganization, merger or consolidation.  However, the warrant exercise price or underlying shares will not be adjusted for issuances of shares of common stock at a price below the warrant exercise price.
 
Right of First Refusal
 
We have granted to the underwriters a right of first refusal, for a period of up to twelve (12) months from the date of effectiveness of the registration statement, to purchase for its account or to sell for our account, or any subsidiary or successor, any securities of our company or any such subsidiary or successor which we or any subsidiary or successor may seek to sell in public or private equity and public debt offerings during such twelve (12)-month period.  The underwriters will not have more than one opportunity to waive or terminate the right of first refusal in consideration of any payment or fee.
 
Electronic Offer, Sale and Distribution of Shares
 
A prospectus in electronic format may be made available on the websites maintained by the underwriters, if any, participating in this offering and the underwriters participating in this offering may distribute prospectuses electronically.  The underwriters may agree to allocate a number of shares for sale to its online brokerage account holders.  Internet distributions will be allocated by the underwriters that will make internet distributions on the same basis as other allocations.  Other than the prospectus in electronic format, the information on these websites is not part of, nor incorporated by reference into, this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or the underwriters in their capacity as underwriters, and should not be relied upon by investors.
 
Stabilization
 
In connection with this offering, the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate-covering transactions, penalty bids and purchases to cover positions created by short sales.
 
 
Stabilizing transactions permit bids to purchase shares so long as the stabilizing bids do not exceed a specified maximum, and are engaged in for the purpose of preventing or retarding a decline in the market price of the shares while the offering is in progress.
 
 
Over-allotment transactions involve sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase.  This creates a syndicate short position which may be either a covered short position or a naked short position.  In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they 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 underwriters may close out any short position by exercising their over-allotment option and/or purchasing shares in the open market.
 
 
 
Syndicate covering transactions involve purchases of shares 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 underwriters will consider, among other things, the price of shares available for purchase in the open market as compared with the price at which they may purchase shares through exercise of the over- allotment option.  If the underwriters sell more shares than could be covered by exercise of the over-allotment option and, therefore, have a naked short position, the position can be closed out only by buying shares in the open market.  A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be downward pressure on the price of the shares in the open market that could adversely affect investors who purchase in the offering.
 
 
Penalty bids permits the underwriters to reclaim a selling concession from a syndicate member when the shares originally sold by that syndicate member are purchased in stabilizing or syndicate covering transactions to cover syndicate short positions.
 
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our shares of common stock or preventing or retarding a decline in the market price of our shares of common stock.  As a result, the price of our common stock or warrants in the open market may be higher than it would otherwise be in the absence of these transactions.  Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of our common stock.  These transactions may be effected on The NASDAQ Capital Market, in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time.
 
Passive Market Making
 
In connection with this offering, the underwriters may engage in passive market making transactions in our common stock on The NASDAQ Capital Market in accordance with Rule 103 of Regulation M under the Exchange Act, during a period before the commencement of offers or sales of the shares and extending through the completion of the distribution.  A passive market maker must display its bid at a price not in excess of the highest independent bid of that security.  However, if all independent bids are lowered below the passive market maker’s bid, then that bid must then be lowered when specified purchase limits are exceeded.
 
Other Relationships
 
The underwriters and their respective affiliates have provided, and may in the future provide, various investment banking, commercial banking and other financial services for us and our affiliates for which they have received, and may in the future receive, customary fees.  However, except as disclosed in this prospectus, we have no present arrangements with the underwriters for any further services.
 
Offer Restrictions Outside the United States
 
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required.  The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities 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 into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus.  This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

LEGAL MATTERS
 
The validity of the shares of our common stock offered hereby has been passed upon for us by Loeb & Loeb LLP, New York, NY.  Cozen O’Connor, New York, NY, is acting as counsel to the underwriters.

EXPERTS
 
WeiserMazars LLP, an independent registered public accounting firm, has audited the financial statements of AzurRx BioPharma, Inc. as of December 31, 2015 and 2014 and for the year ended December 31, 2015 and the period from January 30, 2014 (date of inception) through December 31, 2014 and the statements of operations and comprehensive loss and cash flows for the period from January 1, 2014 through May 31, 2014 for Protea Europe SAS (predecessor) included in this prospectus and registration statement as set forth in its reports, which are included in this prospectus and registration statement.  The report for AzurRx BioPharma, Inc. includes an explanatory paragraph about the existence of substantial doubt concerning its ability to continue as a going concern.  Such financial statements have been so included in reliance on the reports of WeiserMazars, LLP, upon the authority of said firm as experts in accounting and auditing.
 
WHERE YOU CAN FIND MORE INFORMATION
 
We have filed with the SEC a registration statement on Form S-1, which includes amendments and exhibits, under the Securities Act and the rules and regulations under the Securities Act for the registration of common stock being offered by this prospectus.  This prospectus, which constitutes a part of the registration statement, does not contain all the information that is in the registration statement and its exhibits and schedules.  Certain portions of the registration statement have been omitted as allowed by the rules and regulations of the SEC.  Statements in this prospectus that summarize documents are not necessarily complete, and in each case you should refer to the copy of the document filed as an exhibit to the registration statement.  You may read and copy the registration statement, including exhibits and schedules filed with it, and reports or other information we may file with the SEC at the public reference facilities of the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549.  You may call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms.  In addition, the registration statement and other public filings can be obtained from the SEC’s internet site at www.sec.gov.
 
Upon completion of this offering, we will become subject to information and periodic reporting requirements of the Exchange Act and we will file annual, quarterly and current reports, proxy statements, and other information with the SEC.

 
AzurRx BioPharma, Inc.
 
Index to Consolidated Financial Statements
 
 
Page
   
F-2
   
F-4
   
F-5
   
F-6
   
F-7
   
F-8
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholders of AzurRx BioPharma, Inc.
 
We have audited the accompanying consolidated balance sheets of AzurRx BioPharma, Inc. (the “Company”) as of December 31, 2015 and 2014, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity (deficit), and cash flows for the year ended December 31, 2015 and for the period January 30, 2014 (date of inception) through December 31, 2014. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2015 and 2014, and the consolidated results of their operations and their consolidated cash flows for the year ended December 31, 2015 and for the period January 30, 2014 (date of inception) through December 31, 2014, in conformity with U.S. generally accepted accounting principles.
 
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred significant operating losses and negative cash flows from operations since inception. The Company also had a working capital deficiency of $6,748,152 and an accumulated deficit of $8,295,384 at December 31, 2015. The Company is dependent on obtaining necessary funding from outside sources, including obtaining additional funding from the sale of securities in order to continue their operations. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter.
 
As described in Note 1, the consolidated balance sheet as of December 31, 2014 and the related consolidated statements of operations and comprehensive loss, changes in stockholders' equity, and cash flows for the period January 30, 2014 (date of inception) through December 31, 2014 have been restated to correct a misstatement.
 
/s/ WeiserMazars LLP
Edison, New Jersey
 
June 15, 2016
 
 
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of AzurRx BioPharma, Inc.
 
We have audited the accompanying statements of operations and comprehensive loss and cash flows of Protea Europe SAS (the “Company”) (Predecessor to AzurRx BioPharma SAS) for the period from January 1, 2014 through May 31, 2014.  These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
 
In our opinion, the financial statements of the Company referred to above present fairly, in all material respects, the results of its operations and its cash flows for the period from January 1, 2014 through May 31, 2014, in conformity with U.S. generally accepted accounting principles.
   
/s/ WeiserMazars LLP
Edison, New Jersey
June 15, 2016
 
AZURRX BIOPHARMA, INC.
                 
Consolidated Balance Sheets
                 
   
12/31/14
(Restated)
   
12/31/15
   
03/31/16 
(Unaudited)
 
ASSETS
                 
                   
Current Assets:
                 
Cash
  $ 94,836     $ 581,668     $ 169,036  
Marketable securities
    125,070       56,850       44,343  
Other receivables
    428,752       1,074,858       1,084,043  
Prepaid expenses
    14,796       353,984       390,715  
Total Current Assets
    663,454       2,067,360       1,688,137  
                         
Property, equipment, and leasehold improvements, net
    211,725       176,319       172,958  
                         
Other Assets:
                       
 In process research & development, net
    422,104       345,678       351,337  
 License agreements, net
    3,215,701       2,238,105       2,161,986  
 Goodwill
    2,042,454       1,832,579       1,908,195  
 Deposits
    20,315       25,641       26,208  
Total Other Assets
    5,700,574       4,442,003       4,447,726  
Total Assets
  $ 6,575,753     $ 6,685,682     $ 6,308,821  
                         
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                 
                         
Current Liabilities:
                       
Accounts payable and accrued expenses
  $ 1,003,544     $ 781,985     $ 1,325,697  
Accounts payable and accrued expenses - related party
    219,530       636,753       636,753  
Convertible promissory notes
    391,000       135,000       135,000  
Convertible debt
    661,285       6,442,372       7,325,503  
Warrant liability
    146,376       818,216       801,497  
Interest payable
    9,120       1,186       3,878  
Total Current Liabilities
    2,430,855       8,815,512       10,228,328  
                         
Contingent consideration
    1,500,000       1,500,000       1,500,000  
Total Liabilities
    3,930,855       10,315,512       11,728,328  
                         
Stockholders' Equity (Deficit):
                       
Convertible preferred stock - Par value $0.0001 per share; 1,000,000 shares authorized; 36 shares outstanding as of March 31, 2016; 71 shares outstanding as of December 31, 2015; 100 shares outstanding as of December 31, 2014; liquidation preference approximates par value at March 31, 2016, December 31, 2015 and 2014
    4,900,000       3,479,000       1,764,000  
Common stock - Par value $0.0001 per share; 9,000,000 shares authorized; 5,150,757 shares outstanding as of March 31, 2016; 4,296,979 shares outstanding as of December 31, 2015; 3,584,321 shares outstanding as of December 31, 2014
    358       430       515  
Additional paid in capital
    859,133       2,532,188       4,254,151  
Accumulated deficit
    (2,365,148 )     (8,295,384 )     (10,286,705 )
Accumulated other comprehensive (loss) income
    (749,445 )     (1,346,064 )     (1,151,468 )
Total Stockholders' Equity (Deficit)
    2,644,898       (3,629,830 )     (5,419,507 )
Total Liabilities and Stockholders' Equity (Deficit)
  $ 6,575,753     $ 6,685,682     $ 6,308,821  
                         
See accompanying notes to consolidated financial statements
                 
 
 
See accompanying notes to consolidated financial statements
 
 
F-4

 
 
AZURRX BIOPHARMA, INC.
Consolidated Statements of Operations and Comprehensive Loss
 
 
 
01/01/14
through 05/31/14 Protea Europe SAS (Predecessor)
 
01/30/14
(Date of
Inception)
through
12/31/14 (1) Consolidated
(Restated)
   
Year Ended 12/31/15 Consolidated
   
3 Months Ended 03/31/16 Consolidated 
(Unaudited)
   
3 Months Ended 03/31/15 Consolidated 
(Unaudited)
 
                             
Research and development expenses
$ 380,132     $ 670,491     $ 1,398,056     $ 685,575     $ 308,834  
General & administrative expenses
  207,074       1,658,615       3,330,752       661,641       763,582  
                                       
Loss from operations
  (587,206 )     (2,329,106 )     (4,728,808 )     (1,347,216 )     (1,072,416 )
                                       
Other:
                                     
   Interest expense
  -       (68,149 )     (1,587,533 )     (713,680 )     (144,746 )
   Fair value adjustment, warrants
  -       1,368       386,105       69,576       25,855  
   Other income
  -       30,739       -       -       -  
Total other
  -       (36,042 )     (1,201,428 )     (644,104 )     (118,891 )
                                       
Loss before income taxes
  (587,206 )     (2,365,148 )     (5,930,236 )     (1,991,320 )     (1,191,307 )
                                       
Income taxes
  -       -       -       -       -  
                                       
Net loss
$ (587,206 )   $ (2,365,148 )   $ (5,930,236 )   $ (1,991,320 )   $ (1,191,307 )
                                       
Other comprehensive income (loss):
                                     
  Foreign currency translation adjustment
$ 2,179     $ (749,445 )   $ (596,619 )   $ 194,596     $ (675,857 )
Total comprehensive loss
$ (585,027 )   $ (3,114,593 )   $ (6,526,855 )   $ (1,796,724 )   $ (1,867,164 )
                                       
Basic and diluted weighted average shares outstanding
  4,000   (2)    3,540,196       3,627,133       4,725,879       3,584,321  
                                       
Loss per share - basic and diluted
$ (146.80 )   $ (0.67 )   $ (1.63 )   $ (0.42 )   $ (0.33 )
                                       
(1) - Includes Protea Europe SAS from date of acquisition, see Note 2
           
(2) - All shares owned by former parent
           
 
See accompanying notes to consolidated financial statements
 
 
F-5

 
 
AZURRX BIOPHARMA, INC.
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
 
   
Convertible
Preferred Stock
   
Common Stock
   
Additional
Paid In
   
Accumulated
   
Accumulated
Other
Comprehensive
       
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
   
(Loss) Income
   
Total
 
Balance, January 30, 2014 (Date of Inception), AzurRx
    -     $ -       -     $ -     $ -     $ -     $ -     $ -  
Common stock issued
                    3,584,321       358       859,133                       859,491  
Acquisition of Protea Europe SAS
    100       4,900,000                                               4,900,000  
Foreign currency translation adjustment
                                                    (749,445 )     (749,445 )
Net loss
                                            (2,365,148 )             (2,365,148 )
Balance, December 31, 2014 (Restated)
    100       4,900,000       3,584,321       358       859,133       (2,365,148 )     (749,445 )     2,644,898  
                                                                 
Common stock issued
                    5,242       1       33,789                       33,790  
Preferred stock converted into common stock
    (29 )     (1,421,000 )     707,416       71       1,420,929                       -  
Warrants issued to investment bankers
                                    218,337                       218,337  
Foreign currency translation adjustment
                                                    (596,619 )     (596,619 )
Net loss
                                            (5,930,236 )             (5,930,236 )
Balance, December 31, 2015
    71     $ 3,479,000       4,296,979     $ 430     $ 2,532,188     $ (8,295,384 )   $ (1,346,064 )   $ (3,629,830 )
                                                                 
(unaudited)
                                                               
Preferred stock converted into common stock
    (35 )     (1,715,000 )     853,778       85       1,714,915                       -  
Warrants issued to investment bankers
                                    7,048                       7,048  
Foreign currency translation adjustment
                                                    194,596       194,596  
Net loss
                                            (1,991,320 )             (1,991,320 )
Balance, March 31, 2016
    36     $ 1,764,000       5,150,757     $ 515     $ 4,254,151     $ (10,286,705 )   $ (1,151,468 )   $ (5,419,507 )
 
See accompanying notes to consolidated financial statements
 
 
F-6

 
 
AZURRX BIOPHARMA, INC.
                             
Consolidated Statements of Cash Flows
                             
                               
   
01/01/14 through 05/31/14 Protea Europe SAS (Predecessor)
   
01/30/14 (Date of Inception) through 12/31/14 (1) Consolidated
(Restated)
   
Year Ended 12/31/15 Consolidated
   
3 Months Ended 03/31/16 Consolidated 
(Unaudited)
   
3 Months Ended 03/31/15 Consolidated 
(Unaudited)
 
Cash flows from operating activities:
                             
Net loss
  $ (587,206 )   $ (2,365,148 )   $ (5,930,236 )   $ (1,991,320 )   $ (1,191,307 )
Adjustments to reconcile net loss to net cash used in operating activities:
                                       
Depreciation
    4,153       11,113       41,784       10,845       10,902  
Amortization
    -       418,822       691,815       171,997       175,327  
Fair value adjustment, warrants
    -       (1,368 )     (386,103 )     (69,576 )     (25,855 )
Warrant expense
    -       -       218,337       7,048       -  
Interest expense settled with issuances of common stock
    -       -       33,790       -       -  
Accreted interest on convertible debt
    -       27,893       749,262       348,610       63,167  
Accreted interest on debt discount - warrants
    -       31,136       812,415       362,378       70,311  
Changes in assets and liabilities, net of effects of acquisition:
                                       
Accounts receivable
    -       356,252       -       -       -  
Other receivables
    6,204       (50,595 )     (638,092 )     45,859       (5,092 )
Prepaid expenses
    (10,696 )     (1,307 )     (340,524 )     (36,353 )     662  
Deposits
    -       (5,000 )     (6,900 )     -       -  
Accounts payable and accrued expenses
    31,839       563,089       251,608       511,274       (135,283 )
Interest payable
    -       9,120       (7,934 )     2,692       11,268  
Due to related party
    549,307       -       -       -       -  
Net cash used in operating activities
    (6,399 )     (1,005,993 )     (4,510,778 )     (636,546 )     (1,025,900 )
                                         
Cash flows from investing activities:
                                       
Purchase of property and equipment
    -       (191,003 )     (24,380 )     (936 )     (11,033 )
Acquisition of Protea Europe SAS, net of cash acquired
    -       (560,952 )     -       -       -  
Net cash used in investing activities
    -       (751,955 )     (24,380 )     (936 )     (11,033 )
                                         
Cash flows from financing activities:
                                       
Issuances of common stock
    -       859,491       -       -       -  
Issuances of convertible promissory notes
    -       451,000       445,000       -       270,000  
Repayments of convertible promissory notes
    -       (60,000 )     (701,000 )     -       (250,000 )
Issuances of convertible debt
    -       600,000       5,395,000       225,000       1,140,000  
Repayments of convertible debt
    -       -       (117,647 )     -       -  
Net cash provided by financing activities
    -       1,850,491       5,021,353       225,000       1,160,000  
                                         
Effect of exchange rate changes on cash
    (2,788 )     2,293       637       (150 )     (9,702 )
                                         
(Decrease) increase in cash
    (6,399 )     92,543       486,195       (412,482 )     123,067  
 
                                       
Cash, beginning balance
    48,235       -       94,836       581,668       94,836  
                                         
Cash, ending balance
  $ 39,048     $ 94,836     $ 581,668     $ 169,036     $ 208,201  
 
                                       
Supplemental disclosures of cash flow information:
                                       
Cash paid for interest
  $ -     $ -     $ -     $ -     $ -  
                                         
Cash paid for income taxes
  $ -     $ -     $ -     $ -     $ -  
                                         
Non-cash investing and financing activities:
                                       
Shares issued for purchase of Protea Europe SAS
  $ -     $ 4,900,000     $ -     $ -     $ -  
                                         
Contingent consideration related to purchase of Protea Europe SAS acquisition
  $ -     $ 1,500,000     $ -     $ -     $ -  
                                         
Receipt of marketable securities in exchange for issuance of convertible debt to investor
  $ -     $ 150,000     $ -     $ -     $ -  
                                         
Issuance of 5,242 shares of common stock as payment of interest on convertible promissory notes
  $ -     $ -     $ 33,790     $ -     $ -  
                                         
Conversion of preferred shares into common shares by Protea
  $ -     $ -     $ 1,421,000     $ 1,715,000     $ -  
 
(1) - Includes Protea Europe SAS from date of acquisition, see Note 2
 
See accompanying notes to consolidated financial statements
 
 
F-7

 
Notes to Consolidated Financial Statements, AzurRx Biopharma Inc., March 31, 2016, December 31, 2015 and 2014 (Information pertaining to the three month periods ended March 31, 2016 and 2015 are unaudited)

Note 1 - The Company, Basis of Presentation, and Significant Accounting Policies

The Company

AzurRx Biopharma, Inc. (“AzurRx”, the “Company”, or “Parent”) was incorporated on January 30, 2014 in the State of Delaware. In June 2014, the Company acquired 100% of the issued and outstanding capital stock of AzurRx BioPharma SAS (formerly ProteaBio Europe SAS), a company incorporated in October 2008 under the laws of France that had been a wholly-owned subsidiary of Protea Biosciences, Inc., or Protea Sub, in turn a wholly-owned subsidiary of Protea Biosciences Group, Inc., a publicly-traded company.

AzurRx, through its AzurRx Europe SAS subsidiary, is engaged in the research and development of non-systemic biologics for the treatment of patients with gastrointestinal disorders. Non-systemic biologics are non-absorbable drugs that act locally without reaching the systemic circulation, i.e. the intestinal lumen, skin or mucosa. The Company’s current product pipeline consists of two therapeutic proteins under development:

·
MS1819 - a recombinant (synthetic) lipase, an enzyme derived from a specialized yeast, which breaks apart fats. Lipases are required to treat patients whose pancreases don’t work anymore in a condition known as exocrine pancreatic insufficiency (EPI) which usually arises from chronic pancreatitis (CP) or cystic fibrosis (CF).

·
AZ1101- a recombinant (synthetic) enzyme which is being developed to prevent hospital-acquired infec tions which come from resistant bacterial strains caused by parenteral (intra-venous) administration of β-lactam antibiotics, as well as prevention of antibiotic-associated diarrhea (AAD).

Basis of Presentation and Principles of Consolidation
 
The financial statements for the period January 1, 2014 through May 31, 2014 include only the accounts of Protea Europe SAS (“Predecessor”). There were no material transactions between June 1, 2014 and June 13, 2014 on the accounts of the Predecessor so the Company assumed May 31, 2014 as the acquisition date for financial statement presentation purposes. For the period January 30, 2014 (date of inception) through May 31, 2014, general & administrative expenses and net loss for the U.S. parent company were $176,456. The financial statements for the periods January 30, 2014 (date of inception) through December 31, 2014; January 1 through December 31, 2015; and January 1, 2016 through March 31, 2016 and 2015 include the accounts of AzurRx and its wholly-owned subsidiary, AzurRx Europe SAS (collectively, the “Company”). Intercompany transactions and balances have been eliminated upon consolidation.
 
At December 31, 2014 and the year then ended, the Company has recorded a prior period adjustment relating to their property, equipment and leasehold improvements, intangible assets, and goodwill in regards to its consolidation of its French acquired subsidiary. The impact of these adjustments are as follows:

Financial Statement Item
 
As Previously Reported
   
As Adjusted
   
Change
 
                   
Consolidated Balance Sheet
                 
Property, equipment, and leasehold improvements, net
  $ 222,662     $ 211,725     $ 10,937  
Total Other assets
  $ 6,391,503     $ 5,700,574     $ 690,929  
Total Assets
  $ 7,277,619     $ 6,575,753     $ 701,866  
Accumulated deficit
  $ (2,406,922 )   $ (2,365,148 )   $ (41,774 )
Accumulated other comprehensive loss
  $ (5,805 )   $ (749,445 )   $ 743,640  
Total Stockholders’ Equity (Deficit)
  $ 3,346,764     $ 2,644,898     $ 701,866  
                         
Consolidated Statement of Operations and Comprehensive Loss
                 
Loss from operations
  $ (2,370,880 )   $ (2,329,106 )   $ (41,774 )
Net loss
  $ (2,406,922 )   $ (2,365,148 )   $ (41,774 )
Foreign currency translation adjustment
  $ (9,343 )   $ (749,445 )   $ 740,102  
Total comprehensive loss
  $ (2,416,265 )   $ (3,114,593 )   $ 698,328  
Loss per share - basic and diluted
  $ (0.68 )   $ (0.67 )   $ (0.01 )
                         
Consolidated Statement of Cash Flows
                       
Net loss
  $ (2,406,922 )   $ (2,365,148 )   $ (41,774 )
Amortization
  $ 460,596     $ 418,822     $ 41,774  
 
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred significant operating losses and negative cash flows from operations since inception, had a working capital deficiency at March 31, 2016 and December 31, 2015 of approximately $8,540,000 and $6,748,000, respectively, and had an accumulated deficit at March 31, 2016 and December 31, 2015 of approximately $10,287,000 and $8,295,000, respectively. The Company is dependent on obtaining necessary funding from outside sources, including obtaining additional funding from the sale of securities in order to continue their operations. These conditions raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 
F-8

 
Notes to Consolidated Financial Statements, AzurRx Biopharma Inc., March 31, 2016, December 31, 2015 and 2014 (Information pertaining to the three month periods ended March 31, 2016 and 2015 are unaudited)

Note 2 - Significant Accounting Policies

Use of Estimates
The accompanying consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, and include certain estimates and assumptions which affect the reported amounts of assets and liabilities at the date of the financial statements (including goodwill, intangible assets and contingent consideration), and the reported amounts of revenues and expenses during the reporting period, including contingencies. Accordingly, actual results may differ from those estimates.

Concentration of Risks
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and available for sale marketable securities. The Company primarily maintains its cash balances with financial institutions in federally-insured accounts. The Company may from time to time have cash in banks in excess of FDIC insurance limits. The Company has not experienced any losses to date resulting from this practice. The Company’s investments in Marketable Securities are comprised of a single investment in a publicly traded stock received as payment from an investor for his $150,000 investment in the Company's Original Issue Convertible Debt. The investor has agreed to make up any shortfall from sales of these securities while any gain is for the account of the Company. As of March 31, 2016, the market value of these Marketable Securities are $44,343 and an associated Other Receivable of $105,657 was recorded. As of December 31, 2015, the market value of these Marketable Securities are $56,850 and an associated Other Receivable of $93,150 was recorded. As of December 31, 2014, the market value of these Marketable Securities are $125,070 and an associated Other Receivable of $24,930 was recorded. See Note 3 below.

Property, Equipment, and Leasehold Improvements
Property, equipment and leasehold improvements are carried on the cost basis and depreciated over the estimated useful lives of the related assets using the straight-line method. For financial statement purposes, depreciation expense is provided using the straight-line method over the estimated useful lives of the assets as follows:
 
  Laboratory Equipment  5 years
  Computer Equipment  5 years
  Office Equipment  7-8 years
  Leasehold Improvements  Term of lease or estimated useful life of the assets; whichever is shorter
 
Expenditures for maintenance and repairs are charged to operations as incurred while renewals and betterments are capitalized.

Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price of the acquired business over the fair value of amounts assigned to assets acquired and liabilities assumed. Goodwill and other intangible assets with indefinite useful lives are reviewed for impairment annually or more frequently if events or circumstances indicate impairment may be present. Any excess in carrying value over the estimated fair value is charged to results of operations.

Intangible assets subject to amortization consist of in process research and development and license agreements reported at the fair value at date of the acquisition less accumulated amortization. Amortization expense is provided using the straight-line method over the estimated useful lives of the assets as follows:

In Process Research & Development      12 years
License Agreements                                   5 years

Research and Development
Research and development costs are charged to operations when incurred and are included in operating expenses. Research and development costs consist principally of compensation of employees and consultants that perform the Company’s research activities, the fees paid to maintain the Company’s licenses, and the payments to third parties for clinical trial and additional product development and testing.

 
F-9

 
Notes to Consolidated Financial Statements, AzurRx Biopharma Inc., March 31, 2016, December 31, 2015 and 2014 (Information pertaining to the three month periods ended March 31, 2016 and 2015 are unaudited)

Fair Value Measurements
The Company follows Accounting Standards Codification (“ASC”) Topic 820-10, Fair Value Measurements and Disclosures (“ASC 820”), which among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions, which reflect those that a market participant would use.

At March 31, 2016, December 31, 2015 and 2014, the Company had Level 2 instruments consisting of marketable securities of common stock in a thinly-traded public company received as payment from an investor for $150,000 of the Company’s Original Issue Discounted Convertible Note, see Notes 3 and 10 below.

At March 31, 2016, December 31, 2015 and 2014, the Company had Level 3 instruments consisting of the Company’s common stock warrant liability related to the Company’s convertible debt, see Note 10 and contingent consideration in connection with the Protea Europe SAS acquisition, see Note 6.
 
The carrying amounts of the Company’s financial instruments, including accounts payable, and accrued liabilities, approximate fair value due to their short maturities.

 
F-10

 
Notes to Consolidated Financial Statements, AzurRx Biopharma Inc., March 31, 2016, December 31, 2015 and 2014 (Information pertaining to the three month periods ended March 31, 2016 and 2015 are unaudited)

The following tables summarize the Company’s financial instruments measured at fair value on a recurring basis:

   
Fair Value Measurements at Reporting Date Using
 
   
Total
   
Level 1
   
Level 2
   
Level 3
 
As of March 31, 2016 (Unaudited):
                       
Marketable Securities
  $ 44,343     $ -     $ 44,343     $ -  
Warrant Liability
  $ 801,497     $ -     $ -     $ 801,497  
Contingent Consideration
  $ 1,500,000     $ -     $ -     $ 1,500,000  
                                 
As of December 31, 2015:
                               
Marketable Securities
  $ 56,850     $ -     $ 56,850     $ -  
Warrant Liability
  $ 818,216     $ -     $ -     $ 818,216  
Contingent Consideration
  $ 1,500,000     $ -     $ -     $ 1,500,000  
                                 
As of December 31, 2014:
                               
Marketable Securities
  $ 125,070     $ -     $ 125,070     $ -  
Warrant Liability
  $ 146,376     $ -     $ -     $ 146,376  
Contingent Consideration
  $ 1,500,000     $ -     $ -     $ 1,500,000  
   
The following table provides a reconciliation of the fair value of liabilities using Level 3 significant unobservable inputs:

   
Warrant
   
Contingent
 
   
Liability
   
Consideration
 
Date of Inception (January 30, 2014)
  $ -     $ -  
Protea Europe SAS acquisition
    -       1,500,000  
Issuance of warrants
    147,744       -  
Change in fair value
    (1,368 )     -  
Balance at December 31, 2014
    146,376       1,500,000  
Issuance of warrants
    1,057,943       -  
Change in fair value
    (386,105 )     -  
Balance at December 31, 2015
    818,214       1,500,000  
Issuance of warrants
    52,859       -  
Change in fair value
    (69,576 )     -  
Balance at March 31, 2016
  $ 801,497     $ 1,500,000  
 
The warrant liability above relates to the Company’s original issued discounted convertible notes, see Note 10 below.
 
The fair values of the outstanding warrants were measured by the Company using a Binomial Option Pricing model. Inputs used to determine estimated fair value of the warrant liabilities at March 31, 2016, December 31, 2015 and 2014 include the estimated fair value of the underlying stock at the valuation date ($1.77, $2.16 and $3.09, respectively), the estimated term in years of the warrants (5.49, 4.90 and 5.34, respectively), risk-free interest rates (1.28%, 1.72% and 1.69%, respectively), expected dividends (zero) and the expected volatility (117.5%, 98% and 93%, respectively) of the underlying stock. The significant unobservable inputs used in the fair value measurement of the warrant liabilities are the fair value of the underlying stock at the valuation date and the estimated term of the warrants. Generally, increases (decreases) in the fair value of the underlying stock and estimated term would result in a directionally similar impact to the fair value measurement.
 
The contingent consideration was valued by the Company using a series of Black-Scholes Option Pricing Models (“BSM”). Significant unobservable inputs used in the calculations included projected net sales over a 9-year period discounted by the Company’s weighted average cost of capital of 33.7%, the contractual hurdle amount of $100 million that replaces the strike price input in the traditional BSM, an asset volatility of 90% that replaces the equity volatility in the traditional BSM, risk-free rates ranging from 1.5% to 2.7%, and an option-adjusted spread of 0.5% that is applied to these payments to account for the payer’s risk and arrive at a present value of the expected payment.  As the next sales forecast becomes less uncertain, liability may lower in value.  If the volatility increases, then the liability value may increase.

 
F-11

 
Notes to Consolidated Financial Statements, AzurRx Biopharma Inc., March 31, 2016, December 31, 2015 and 2014 (Information pertaining to the three month periods ended March 31, 2016 and 2015 are unaudited)
 
The fair value of the Company's other receivables, convertible debt, and loans payable are as follows:
 
         
Fair Value Measured at Reporting Date Using
       
   
Carrying Amount
   
Level 1
   
Level 2
   
Level 3
   
Fair Value
 
As of March 31, 2016 (Unaudited).:
                         
Other Receivables
  $ 1,084,043     $ -     $ -     $ 1,084,043     $ 1,084,043  
Convertible Debt
  $ 7,325,503                     $ 7,325,503     $ 7,325,503  
Convertible Promissory Notes
  $ 135,000     $ -     $ -     $ 135,000     $ 135,000  
                                         
As of December 31, 2015:
                                       
Other Receivables
  $ 1,074,858     $ -     $ -     $ 1,074,858     $ 1,074,858  
Convertible Debt
  $ 6,442,372                     $ 6,442,372     $ 6,442,372  
Convertible Promissory Notes
  $ 135,000     $ -     $ -     $ 135,000     $ 135,000  
                                         
As of December 31, 2014:
                                       
Other Receivables
  $ 428,752     $ -     $ -     $ 428,752     $ 428,752  
Convertible Debt
  $ 661,285     $ -     $ -     $ 661,285     $ 661,285  
Convertible Promissory Notes
  $ 391,000     $ -     $ -     $ 391,000     $ 391,000  
 
The fair value of Other Receivables approximates carrying value as these consist primarily of French R & D tax credits that are normally received within 9 months of year end.

The fair value of Convertible Debt and Loans Payable approximates carrying value due to the terms of such instruments and applicable interest rates.

Stock-based Compensation
The Company’s board of directors and stockholders have adopted and approved the Amended and Restated 2014 Omnibus Equity Incentive Plan which took effect on May 12, 2014. Although the Company did not grant any stock options under the Plan during the three months ended March 31, 2016 and the years ended December 31, 2015 and 2014, the Company will account for its stock-based compensation awards in accordance with ASC Topic 718, Compensation—Stock Compensation ("ASC 718"). ASC 718 requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the statements of operations based on their grant date fair values. For stock options granted to employees and to members of the board of directors for their services on the board of directors, the Company estimates the grant date fair value of each option award using the Black-Scholes option-pricing model. The use of the Black-Scholes option-pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the common stock. For awards subject to service-based vesting conditions, the Company recognizes stock-based compensation expense, net of estimated forfeitures, equal to the grant date fair value of stock options on a straight-line basis over the requisite service period.

Income Taxes
Income taxes are recorded in accordance with ASC 740, Accounting for Income Taxes ("ASC 740"), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. The Company determines its deferred tax assets and liabilities based on differences between financial reporting and tax bases of assets and liabilities, which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. 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 March 31, 2016, December 31, 2015 and 2014, the Company does not have any significant uncertain tax positions. All tax years are still open for audit.

 
F-12

 
Notes to Consolidated Financial Statements, AzurRx Biopharma Inc., March 31, 2016, December 31, 2015 and 2014 (Information pertaining to the three month periods ended March 31, 2016 and 2015 are unaudited)

Impairment of Long-lived Assets
The Company periodically evaluates its long-lived assets for potential impairment in accordance with ASC Topic 360, Property, Plant and Equipment (“ASC 360”). Potential impairment is assessed when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. Recoverability of these assets is assessed based on undiscounted expected future cash flows from the assets, considering a number of factors, including past operating results, budgets and economic projections, market trends and product development cycles. If impairments are identified, assets are written down to their estimated fair value. The Company has not recognized any impairment charges through March 31, 2016.

Foreign Currency Translation
For foreign subsidiaries with operations denominated in a foreign currency, assets and liabilities are translated to U.S. dollars, which is the functional currency, at year-end exchange rates. Income and expense items are translated at average rates of exchange prevailing during the year. Gains and losses from translation adjustments are accumulated in a separate component of shareholders’ equity (deficit).

Collaboration Agreements
As more fully discussed in Note 14, the Company has joint research collaboration agreements with Laboratoires Mayoly Spindler SAS and INRA TRANSFERT. Any payments due from our collaboration partners is recorded as a reduction in research and development expenses.

Subsequent Events
The Company considered events or transactions occurring after the balance sheet date but prior to the date the consolidated financial statements are available to be issued for potential recognition or disclosure in its consolidated financial statements.

 Note 3 - Marketable Securities

At March 31, 2016, December 31, 2015 and 2014, the Company had $44,343, $56,850 and $125,070, respectively, of common stock in a public company. These available for sale securities are recorded at fair value and were received as payment from an investor for $150,000 of the Company’s Original Issue Discounted Convertible Notes. The investor has agreed to make up any shortfall between the value of the Marketable Securities when converted to cash and the face amount of his Convertible Note.

The Marketable Securities fair value was based on Level 2 inputs.

   Note 4 - Other Receivables
 
Other Receivables consisted of the following:
 
   
March 31,
             
 
 
2016
   
December 31,
   
December 31,
 
   
(Unaudited)
   
2015
   
2014
 
Research & development tax credits
  $ 950,482     $ 912,818     $ 380,247  
Investor subscription
    105,657       93,150       24,930  
Other
    27,904       68,880       23,575  
 
  $ 1,084,043     $ 1,074,848     $ 428,752  
 
The research & development tax credits are refundable tax credits for research conducted in France. The Investor subscription is related to an investor’s agreement to make up any shortfall between the Marketable Securities given for his Convertible Debt, see Note 3. The make-whole provision is a deemed “put” measured at fair value due to its relationship in connection with the Marketable Securities. The Company follows the guidance in ASC 815-25-35-6 and records the change in fair values of both the Marketable Securities and the “put” in earnings. Due to the correlation of these instruments, the change in fair values completely offset and net to zero. Other is primarily amounts due from collaboration partner Mayoly, see Note 14.
 
 
F-13

 
Notes to Consolidated Financial Statements, AzurRx Biopharma Inc., March 31, 2016, December 31, 2015 and 2014 (Information pertaining to the three month periods ended March 31, 2016 and 2015 are unaudited)

    Note 5 - Property, Equipment, and Leasehold Improvements

Property, equipment and leasehold improvements consisted of the following:
   
March 31,
             
   
2016
   
December 31,
   
December 31,
 
   
(Unaudited)
   
2015
   
2014
 
Laboratory Equipment
  $ 154,709     $ 148,578     $ 155,703  
Computer Equipment
    17,986       16,733       11,105  
Office Equipment
    29,906       29,057       22,048  
Leasehold Improvements
    29,163       28,008       31,215  
      231,764       222,376       220,071  
Less accumulated depreciation
    (58,806 )     (46,057 )     (8,346 )
                         
    $ 172,958     $ 176,319     $ 211,725  
 
Depreciation expense for the three months ended March 31, 2016 and 2015 was $10,845 and $10,902, respectively. Depreciation expense for the years ended December 31, 2015 and 2014 was $41,784 and $11,113, respectively. Depreciation expense is included in General and Administrative (“G & A”) expenses.

   Note 6 - Acquisition
 
On March 19, 2014, AzurRx entered into a Memo of Understanding with Protea Biosciences Group, Inc. (“Protea Group”) and its wholly-owned subsidiary, Protea Biosciences, Inc. (“Protea Sub” and, together with Protea Group, “Protea”) to acquire 100% of the outstanding capital stock of AzurRx BioPharma SAS (formerly ProteaBio Europe SAS), a wholly-owned subsidiary of Protea Sub, a company engaged in the research and development of non-systemic biologics for the treatment of patients with gastrointestinal disorders in exchange for a non-refundable deposit of $300,000. On May 21, 2014, the Company entered into a stock purchase agreement (the “SPA”) with Protea for this acquisition. On June 13, 2014, the Company completed the acquisition in exchange for a payment of $300,000 and the issuance of shares of its Series A convertible preferred stock (the “Series A Preferred”). Pursuant to the SPA, the Company is obligated to pay Protea certain other Contingent Consideration in U.S. dollars upon the satisfaction of certain events, including (a) a one-time milestone payment of $2,000,000 due within (10) days of receipt of the first approval by the Food and Drug Administration (“FDA”) of a New Drug Application (“NDA”) or Biologic License Application (“BLA”) for a Business Product (as such term is defined in the SPA); (b) royalty payments equal to 2.5% of net sales of Business Product up to $100,000,000 and 1.5% of net sales of Business Product in excess of $100,000,000 and (c) ten percent (10%) of the Transaction Value (as defined in the SPA) received in connection with a sale or transfer of the pharmaceutical development business of Protea Europe. The total consideration was $7,000,000, which consisted of $600,000 cash, the fair value of the 100 shares of Class A Preferred stock issued to Protea, and the fair value of the Contingent Consideration described above.

The estimated useful lives of the intangible assets acquired are described in Note 2, “Significant Accounting Policies, Goodwill and Intangible Assets”.

Goodwill related to this acquisition is 100% deductible for U.S. federal income tax purposes.

Acquisition costs in connection with this acquisition were approximately $118,000 and are included in operating expenses.

The acquisition was accounted for as a business combination and, accordingly, the purchase price was allocated to the identified tangible and intangible assets acquired less the liabilities assumed, based on fair value.

 
F-14

 
Notes to Consolidated Financial Statements, AzurRx Biopharma Inc., March 31, 2016, December 31, 2015 and 2014 (Information pertaining to the three month periods ended March 31, 2016 and 2015 are unaudited)

The purchase price was determined as following:
 
Purchase price:
     
Fair value of Class A preferred stock issued to seller
  $ 4,900,000  
Cash
    600,000  
Fair value of the contingent consideration
    1,500,000  
Total purchase price
  $ 7,000,000  
 
The Class A Preferred Stock was valued using the Option Pricing Method. Significant unobservable inputs used in this calculation included the Company’s total equity value at June 13, 2014 of $34.8 million, the exercise price of $0.01 for the first breakpoint, for each closed form option model an expected term of four years, volatility of 90%, and an interpolated risk-free rate of 1.32%.

See Note 2, Fair Value Measurements above for the explanation of the valuation method and significant inputs used to value the Contingent Consideration.

The following table summarizes the allocation of the purchase price to the estimated fair value of the assets acquired and the liabilities assumed as of the date of the acquisition:
 
Net assets acquired were allocated as follows:
       
      Cash
  $ 39,045  
      Accounts receivable
    291,740  
      Other receivable
    424,384  
      Prepaid expenses and other current assets
    15,202  
      Property and equipment
    45,381  
      Other long-term assets
    17,157  
      In process research and development
    495,829  
      License agreements
    4,045,064  
      Goodwill
    2,290,892  
      Accounts payable and accrued expenses
    (664,694 )
         
            Total purchase price
  $ 7,000,000  

 
F-15

 
Notes to Consolidated Financial Statements, AzurRx Biopharma Inc., March 31, 2016, December 31, 2015 and 2014 (Information pertaining to the three month periods ended March 31, 2016 and 2015 are unaudited)

The following is the proforma income statement as if both companies had been consolidated for the full applicable periods presented (unaudited):

   
Year Ended
 
   
12/31/14
 
Research and development expenses
  $ 1,050,623  
General & administrative expenses
    1,865,689  
         
Loss from operations
    (2,916,312 )
         
Interest expense
    (68,149 )
Fair value adjustment, warrants
    1,368  
Other income
    30,739  
Total other
    (36,042 )
         
Loss before income taxes
    (2,952,354 )
         
Income taxes
    -  
         
Net loss
  $ (2,952,354 )
         
Basic and diluted weighted average shares outstanding
    3,540,196  
         
Loss per share - basic and diluted
  $ (0.83 )
 
Note 7 - Intangible Assets and Goodwill
 
Intangible assets are as follows:
   
March 31,
             
   
2016
   
December 31,
   
December 31,
 
   
(Unaudited)
   
2015
   
2014
 
In Process Research & Development
  $ 413,000     $ 396,634     $ 442,058  
Less accumulated amortization
    (61,663 )     (50,956 )     (19,954 )
                         
    $ 351,337     $ 345,678     $ 422,104  
                         
License Agreements
  $ 3,369,329     $ 3,235,814     $ 3,606,394  
Less accumulated amortization
    (1,207,343 )     (997,709 )     (390,693 )
                         
    $ 2,161,986     $ 2,238,105     $ 3,215,701  
 
Amortization expense for the three months ended March 31, 2016 and 2015 was $171,997 and $175,327, respectively. Amortization expense for the years ended December 31, 2015 and 2014 was $691,815 and $418,822, respectively. Amortization expense is included in G & A expenses.
 
As of March 31, 2016, amortization expense is expected to be $708,282 per year for the next three years and two months and $34,417 per year for the next year and 10 months after that.
 
Goodwill is as follows:
 
   
Goodwill
 
Date of Inception (January 30, 2014)
  $ -  
Protea Europe SAS acquisition
    2,290,892  
Foreign currency translation
    (248,438 )
Balance at December 31, 2014
    2,042,454  
Foreign currency translation
    (209,875 )
Balance at December 31, 2015
    1,832,579  
Foreign currency translation
    75,616  
Balance at March 31, 2016 (unaudited)
  $ 1,908,195  
 
F-16

 
Notes to Consolidated Financial Statements, AzurRx Biopharma Inc., March 31, 2016, December 31, 2015 and 2014 (Information pertaining to the three month periods ended March 31, 2016 and 2015 are unaudited)

Note 8 - Accounts Payable
 
Accounts payable and accrued expenses consisted of the following:

   
March 31,
             
 
 
2016
   
December 31,
   
December 31,
 
   
(Unaudited)
   
2015
   
2014
 
Trade payables
  $ 916,563     $ 409,407     $ 825,574  
Accrued expenses
    139,721       174,210       4,197  
Accrued payroll
    269,413       198,368       173,773  
 
  $ 1,325,697     $ 781,985     $ 1,003,544  
 
Note 9 - Convertible Promissory Notes
 
Commencing on July 22, 2014 and through April 3, 2015, the Company, through a series of transactions with various investors, raised $896,000 through the sale of its convertible promissory notes with various maturity dates that can be extended by the Company. The maturity dates ranged from August 31, 2014 through May 31, 2015. All maturity dates have been extended by the Company. Through December 31, 2015, the Company entered into transactions in which noteholders were voluntarily repaid $761,000 and shares were issued to such noteholders in lieu of interest payments. As of December 31, 2014, the Company raised $451,000 through the sale of these convertible promissory notes and repaid $60,000 of these notes. The notes bear interest at 8% per annum and are convertible into Common Stock of the Company at $6.45 per share at the investors’ discretion as long as the notes are outstanding. As of March 31, 2016, December 31, 2015 and 2014, the Company had $135,000, $135,000 and $391,000, respectively, of these notes outstanding.
 
Interest expense for the three months ended March 31, 2016 and 2015 incurred in connection with the promissory notes was $2,693 and $11,268, respectively. Interest expense for the years ended December 31, 2015 and 2014 incurred in connection with the promissory notes was $25,856 and $9,120, respectively. On August 7, 2015, 5,242 shares of the Company’s common stock were issued in payment of $33,790 of accrued interest payable on these notes. Interest payable at March, 31, 2016, December 31, 2015 and 2014 in connection with these notes was $3,878, $1,186 and $9,120, respectively.

Note 10 - Original Issue Discounted Convertible Notes

Commencing on October 10, 2014, the Company, through a series of transactions, issued original issue discounted convertible notes to several investors at 85% of the principal amount of the notes. The notes do not otherwise bear interest. The notes are convertible into shares of the Company’s common stock at the principal amount divided by the lesser of $6.45 per share or the per share price of the Common Stock representing the pre-money valuation immediately prior to any shares sold in the Company’s initial public offering (“IPO”), multiplied by 80% (the “Convertible Shares”). Additionally, separate warrants to purchase shares of the Company’s common stock equal to 50% of the number of Convertible Shares at the lesser of $7.37 per share or at a 20% discount to the pre-money IPO valuation of the Company were issued in conjunction with these notes. The warrants are exercisable for five years beginning six months after the issue date. If the pre-money IPO valuation of the Company is less than $43,750,000, then the number of Warrant Shares (herein defined as the underlying common stock shares) will be recalculated as follows: New Number of Warrant Shares = Existing Warrant Shares * [43,750,000/(IPO valuation*80%)]. The Company did not recognize any amounts associated with the beneficial conversion feature at the dates of issuances of such notes due to the unsatisfied condition associated with the pre-money valuation. If, and when, the pre-money valuation is determined, the Company may be required to recognize the value of the beneficial conversion feature, if any, in earnings.

 
F-17

 
Notes to Consolidated Financial Statements, AzurRx Biopharma Inc., March 31, 2016, December 31, 2015 and 2014 (Information pertaining to the three month periods ended March 31, 2016 and 2015 are unaudited)

The notes had nine-month terms with principal and interest due starting July 10, 2015. The holders of the notes may demand payment in cash before the maturity date within thirty (30) trading days of the Company’s initial public offering.   If, on the maturity date, the principal amount of any note remains unpaid, the Company shall pay to the note holder a one-time default penalty of 5% of the total amount unpaid on the maturity date. The Company, however, shall still be required to repay the note holder the principal balance and interest on the principal balance, which shall accrue at the default interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. As of December 31, 2015, $2,105,882 in principal amount of these notes are in default due to being past their maturity dates.

On March 31, 2016, the holders of all but $300,000 in principal signed exchange agreements nullifying the default provisions and rolling the principal amount into new original issue discounted convertible notes at 92% of the principal amount of the notes due on November 4, 2016, modifying the conversion price to $4.65 per share, and modifying the strike price of the warrants down to the lesser of (i) $5.58 or (ii) a 15% premium to the price per share or unit issued in the IPO or in connection with a public listing. As a result of these exchange agreements, as of December 31, 2015, the Company has not recorded any of the default provisions for all but $300,000 in principal of these notes. The aggregate gross proceeds received in connection with these notes through March 31, 2016, December 31, 2015 and 2014 was $7,303,529, $6,145,000 and $750,000, respectively.  Through June 13, 2016 , gross proceeds of $700,000 were received from the issuance of additional original issue discounted convertible notes.
 
The Company accounted for the warrant feature of the notes based upon the fair value of the warrants on the date of issuance. The effect of the warrant modifications is reflected in the fair value adjustment at March 31, 2016 noted below. The Company recorded a warrant liability related to the warrants at March 31, 2016, December 31, 2015 and December 31, 2014 of $1,251,066, $1,205,687, and $147,744, respectively. The warrant liability was adjusted to the fair value at March 31, 2016 of $801 , 497 by recording a fair value adjustment of $69 , 576 at March 31, 2016. The warrant liability was adjusted to the fair value at December 31, 2015 of $818,216 by recording a fair value adjustment of $386,105 at December 31, 2015 and the warrant liability was adjusted to the fair value at December 31, 2014 of $146,376 by recording a fair value adjustment of $1,368 at December 31, 2014.
 
For the three month periods ended March 31, 2016 and 2015, the Company recorded $710,988 and $133,479, respectively, of interest expense related to the original issue discount and warrant features of these notes. For the three months ended March 31, 2016 and 2015, $348,610 and $63,167, respectively, of these amounts were accreted interest expense related to the original issue discount feature of the notes that also increased the outstanding balance of the convertible debt by the same amount. For the three months ended March 31, 2016 and 2015, $362,378 and $70,311, respectively, of these amounts were amortization of the debt discount related to the warrant features of the convertible debt.
 
For the years ended December 31, 2015 and 2014, the Company recorded $1,561,677 and $59,029, respectively, of interest expense related to the original issue discount and warrant features of these notes. For the years ended December 31, 2015 and 2014, $749,262 and $27,893, respectively, of these amounts were accreted interest expense related to the original issue discount feature of the notes that also increased the outstanding balance of the convertible debt by the same amount. For the years ended December 31, 2015 and 2014, $812,415 and $31,136, respectively, of these amounts were amortization of the debt discount related to the warrant features of the convertible debt.
 
 
F-18

 
Notes to Consolidated Financial Statements, AzurRx Biopharma Inc., March 31, 2016, December 31, 2015 and 2014 (Information pertaining to the three month periods ended March 31, 2016 and 2015 are unaudited)

Convertible Debt consisted of:
   
March 31,
             
   
2016
   
December 31,
   
December 31,
 
   
(Unaudited)
   
2015
   
2014
 
Convertible Debt
  $ 7,303,529     $ 6,145,000     $ 750,000  
Accreted Interest
    74,589       659,508       27,893  
Debt Discount - Warrants
    (52,615 )     (362,136 )     (116,608 )
                         
    $ 7,325,503     $ 6,442,372     $ 661,285  
 
Note 11 - Equity
 
The Company has authorized 9,000,000 shares of its common stock, $0.0001 par value and 1,000,000 shares of preferred stock, $0.0001 par value.

Common Stock
At March 31, 2016, December 31, 2015 and 2014, the Company had issued and outstanding 5,150,757, 4,296,979 and 3,584,321, respectively, shares of its common stock.
 
Voting
Each holder of common stock has one vote for each share held.

Stock Option Plan
The Company’s board of directors and stockholders have adopted and approved the Amended and Restated 2014 Omnibus Equity Incentive Plan (the “2014 Plan”), which took effect on May 12, 2014. The 2014 Plan permits the Company to award stock options (both incentive stock options and non-qualified stock options), stock appreciation rights, restricted stock, restricted stock units, performance stock awards, performance unit awards, unrestricted stock awards, distribution equivalent rights to the Company’s officers, employees, directors, consultants and advisers. The maximum number of shares of common stock that may be issued pursuant to awards under the 2014 Plan is ten percent (10%) of the issued and outstanding shares of the Company’s common stock on an “as converted” basis on a rolling basis. The “as converted” shares include all shares of the Company’s common stock and all shares of the Company’s common stock issuable upon the conversion of outstanding preferred stock and other convertible securities, but do not include any shares of common stock issuable upon the exercise of options and other convertible securities issued pursuant to the Plan. During the three months ended March 31, 2016 and the years ended December 31, 2015 and 2014, the Company did not grant any stock options under the Plan.

Series A Convertible Preferred Stock
Pursuant to the SPA with the Protea Group, on June 13, 2014, the Company issued 100 shares of Series A Convertible Preferred Stock (“Series A”).

The terms of the Series A are described below:

Voting
The Series A preferred stock holders are entitled to vote, together with the holders of common stock as one class, on all matters to which holders of common stock shall be entitled to vote, in the same manner and with the same effect as the common stock holders with the same number of votes per share that equals the number of shares of common stock into which the Series A preferred stock is convertible at the time of such vote.

Dividends
The holders of the Series A Preferred shall be entitled to receive dividends, when, as, and if declared by the Board, ratably with any declaration or payment of any dividend on common stock. To date there have been no dividends declared or paid by the Board of Directors.

 
F-19

 
Notes to Consolidated Financial Statements, AzurRx Biopharma Inc., March 31, 2016, December 31, 2015 and 2014 (Information pertaining to the three month periods ended March 31, 2016 and 2015 are unaudited)

Liquidation
The holders of the Series A shall be entitled to receive, before and in preference to, any distribution of any assets of the Company to the holders of common stock, an amount equal to $0.0001 per share, plus any declared but unpaid dividends. The liquidation preference as of March 31, 2016, December 31, 2015 and 2014 approximates par value.

Conversion
The Series A is convertible into 33% of the issued and outstanding shares of common stock on a fully diluted basis, assuming the conversion, exercise, or exchange for shares of common stock of all convertible securities issued and outstanding immediately prior to such conversion, including the Series A Preferred stock, all outstanding warrants and options, and all outstanding convertible debt, notes, debentures, or any other securities which are convertible, exercisable, or exchangeable for shares of common stock. The Series A Convertible Preferred Stock is subject to mandatory conversion upon the occurrence of certain triggering events including a public offering coupled with an equity-linked financing with an offering price that values the Company prior to consummation of such financing at not less than $12,000,000 and the aggregate gross proceeds to the Company (before deduction of underwriting discounts and registration expenses) are not less than $6,000,000. The Company did not recognize any amounts associated with the beneficial conversion feature at the date of issuance of such convertible preferred shares due to the unsatisfied condition associated with the pre-money valuation. If, and when, the pre-money valuation is determined, the Company may be required to recognize the value of the beneficial conversion feature, if any, in earnings.

During the three months ended March 31, 2016, Protea Group converted 35 shares of Series A Convertible Preferred Stock into 853,778 shares of commons stock. During the year ended December 31, 2015, Protea Group converted 29 shares of Series A Convertible Preferred Stock into 707,416 shares of commons stock. During the year ended December 31, 2014, no shares were converted. In April 2016, Protea Group converted the balance of 36 shares of Series A Convertible Preferred Stock into 878,171 shares of common stock.

Note 12 - Warrants

Stock warrant transactions for the period from January 30, 2014 (date of inception) through March 31, 2016 were as follows:
 
         
Exercise
   
Weighted
 
         
Price Per
   
Average
 
   
Warrants
   
Share
   
Exercise Price
 
                   
Warrants issued and exercisable at January 30, 2014
    -       -       -  
                         
Granted during the year
    68,400     $ 7.37     $ 7.37  
Expired during the year
    -       -       -  
Exercised during the year
    -       -       -  
Warrants issued and exercisable at December 31, 2014
    68,400     $ 7.37     $ 7.37  
                         
Granted during the year
    594,074     $ 7.37     $ 7.37  
Expired during the year
    -       -       -  
Exercised during the year
    -       -       -  
Warrants issued and exercisable at December 31, 2015
    662,474     $ 7.37     $ 7.37  
                         
Granted during the year
    44,705     $ 5.58     $ 5.58  
Expired during the year
    -       -       -  
Exercised during the year
    -       -       -  
Warrants issued and exercisable at March 31, 2016 (unaudited)
    707,179     $ 5.58 - $7.37     $ 5.84  

 
F-20

 
Notes to Consolidated Financial Statements, AzurRx Biopharma Inc., March 31, 2016, December 31, 2015 and 2014 (Information pertaining to the three month periods ended March 31, 2016 and 2015 are unaudited)
 
           
Weighted Average
       
     
Number of Shares
   
Remaining Contract
   
Weighted Average
 
Exercise Price
   
Under Warrants
   
Life in Years
   
Exercise Price
 
$ 5.58       605,127       4.72     $ 5.58  
$ 7.37       102,052       4.70     $ 7.37  
                             
Total warrants
      707,179       4.72     $ 5.84  
 
Per the terms of exchange agreements executed on March 31, 2016 with certain holders of the Company’s Original Issue Discounted Convertible Notes, the associated warrants had their exercise price adjusted to $5.58 per share with no other adjustments made to the warrants, see Note 10 above.
 
During the three months ended March 31, 2016, 5,259 immediately vesting warrants were issued to investment bankers in association with the placement of original issue discounted convertible notes with a value of $7,048, using the same valuation used to value the warrants issued in connection with the original issue discounted convertible notes, see Note 10 above. This amount was included in G & A expenses.
 
During the year ended December 31, 2015, 102,052 immediately vesting warrants were issued to investment bankers in association with the placement of original issue discounted convertible notes with a value of $218,337, using the same valuation used to value the warrants issued in connection with the original issue discounted convertible notes, see Note 10 above. This amount was included in G & A expenses.
 
During the year ended December 31, 2014, no such warrants were issued.

Through June 13, 2016 , 122,721 warrants were issued to investors and 11,688 warrants were issued to placement agents in connection with the issuance of $700,000 of additional original issue discounted convertible notes.
 
Note 13 - Interest Expense

During the three months ended March 31, 2016 and 2015, the Company incurred $713,680 and $144,746, respectively, of interest expense. During the three months ended March 31, 2016 and 2015, $710,988 and $133,479, respectively, of this amount was in connection with the Convertible Notes issued by the Company in the form of accretion of original issue debt discount and amortization of the debt discount related to the warrants. During the three months ended March 31, 2016 and 2015, the Company also incurred $2,693 and $11,268, respectively, of interest expense in connection with the promissory notes issued by the Company.

During the years ended December 31, 2015 and 2014, the Company incurred $1,587,533 and $68,149, respectively, of interest expense. During the years ended December 31, 2015 and 2014, $1,561,677 and $59,029, respectively, of this amount was in connection with the Convertible Notes issued by the Company in the form of accretion of original issue debt discount and amortization of the debt discount related to the warrants. During the years ended December 31, 2015 and 2014, the Company also incurred $25,856 and $9,120, respectively, of interest expense in connection with the promissory notes issued by the Company.

Note 14 - Agreements
 
Mayoly Agreement
On March 22, 2010, the Predecessor entered into a joint research and development agreement (the “2010 Agreement”) with Laboratoires Mayoly Spindler SAS (“Mayoly”) with no consideration exchanged, pursuant to which Mayoly sublicensed certain of its exclusive rights to a genetically engineered yeast strain cell line on which MS1819 is based that derive from a Usage and Cross-Licensing Agreement dated February 2, 2006 (the “INRA Agreement”) between Mayoly and  INRA TRANSFERT, a subsidiary of the National Institute for Agricultural Research (“INRA”) in charge of patent management acting for and on behalf of the National Centre of Scientific Research (“CNRS”) and INRA.

Effective January 1, 2014, the Predecessor entered into an amended and restated joint research and development agreement with Mayoly (the “Mayoly Agreement”) with no consideration exchanged, pursuant to which the Predecessor acquired the exclusive right, with the right to sublicense, to commercialize human pharmaceuticals based on the MS1819 lipase within the following territories: U.S. and Canada, South America (excluding Brazil), Asia (excluding China and Japan), Australia, New Zealand and Israel.  Rights to the following territories are held jointly with Mayoly: Brazil, Italy, Portugal, Spain, China and Japan.  The Mayoly Agreement requires the Predecessor to pay 70% of all development costs and requires each of the parties to use reasonable efforts to:

 
F-21

 
Notes to Consolidated Financial Statements, AzurRx Biopharma Inc., March 31, 2016, December 31, 2015 and 2014 (Information pertaining to the three month periods ended March 31, 2016 and 2015 are unaudited)
 
· 
devote sufficient personnel and facilities required for the performance of its assigned tasks;
· 
make available appropriately qualified personnel to supervise, analyze and report on the results obtained in the furtherance of the development program; and
· 
deploy such scientific, technical, financial and other resources as is necessary to conduct the development program.

The Agreement grants the Predecessor the right to cure any breach by Mayoly of its obligations under the INRA agreement. In connection with the Acquisition, the Predecessor, with the consent of INRA and CNRS, assigned all of it rights, title and interest in and to the 2014 Agreement to the AzurRx Europe SAS.

The Agreement includes a €1,000,000 payment due to Mayoly upon the U.S. FDA approval of MS1819.

INRA Agreement
In February 2006, Mayoly and INRA TRANSFERT, on behalf of INRA and CNRS, entered into a Usage and Cross-Licensing Agreement granting Mayoly exclusive worldwide rights to exploit Yarrowia lipolytica and other lipase proteins based on their patents for use in humans. The INRA Agreement provides for the payment by Mayoly of royalties on net sales, subject to Mayoly’s right to terminate such obligation upon the payment of a lump sum specified in the agreement.

Employment Agreement
On January 3, 2016, the Company entered into an employment agreement with its President and Chief Executive Officer, Johan Spoor. The employment agreement provides for a term expiring January 2, 2019. The Company may terminate Mr. Spoor’s employment at any time and for any reason, or for no reason. Mr. Spoor may terminate his employment at any time and for any reason, or for no reason.   During the term and for a period of twelve (12) months thereafter, Mr. Spoor shall not engage in competition with the Company either directly or indirectly, in any manner or capacity.
 
The Company will pay Mr. Spoor a base salary of $350,000 per year, which shall  automatically  increase  to  $425,000 upon (i) consummation of the Company’s initial public offering which results in the listing of the Company’s common stock on The NASDAQ Stock Market or NYSE MKT, or (ii) consummation of a merger or consolidation of the Company with or into any other corporation or corporations, or a sale of all or  substantially all of the assets of the Company, or the effectuation by the Company of a transaction or series of related transactions in which more than 50% of the voting shares of the Company is disposed of or conveyed, and in each such case the Company becomes  a  public  reporting  company which  results  in  the  listing  of  the  Company’s shares (or shares of the Company’s parent company) on The NASDAQ Stock Market or NYSE MKT (the “Public Event”). At the sole discretion of the Board or the Compensation Committee of the Board, following each calendar year of employment, Mr. Spoor shall be eligible to receive an additional cash bonus based on his attainment of certain financial, clinical development, and/or business milestones to be established annually by the Board or the Compensation Committee.
 
In addition, Mr. Spoor shall be issued 100,000 shares of common stock, which vest as follows: (i) 50,000 Restricted Shares upon the first commercial sale in the United States of MS1819, and (ii) 50,000 Restricted Shares upon the total market capitalization of the Company exceeding $1 billion dollars for 20 consecutive trading days, in each case subject to the earlier determination of a majority of the Board.  In the event of a Change of Control (defined), all of the Restricted Shares shall vest in full.  The estimated fair value at the date of grant was $216,000.  Mr. Spoor shall also be issued 380,000 10-year stock options pursuant to the Company’s Amended and Restated Stock Option Plan, which options shall vest as follows so long as the Executive is serving as Chief Executive Officer or President at such  time: (i) 100,000 of such stock options shall vest upon consummation of the Public Event, (ii)  50,000 of such stock options shall vest upon the Company initiating a Phase II clinical trial in the United States for MS1819 (i.e., upon the first individual enrolled in the trial),  (iii)  50,000 of such stock options shall  vest upon the Company completing a Phase II clinical trial in the United States for MS1819, (iv) 100,000 of such stock options shall vest upon the Company initiating a Phase III clinical trial in the United States for MS1819, (v) 50,000 of such stock options shall vest upon the Company initiating a Phase  I clinical trial in  the United States for any product other than MS1819, and (vi) 30,000 of such stock options shall vest upon the determination of a majority of the Board.
 
On June 8, 2016, the Board clarified Mr. Spoor’s agreement as follows: the 380,000 options described have neither been granted nor priced since certain key provisions , particularly the underlying strike price, have not been determined.  The options will be granted at a future date to be determined by the Board, and the options will be priced at that future date when they are granted.
 
 
F-22

 
Notes to Consolidated Financial Statements, AzurRx Biopharma Inc., March 31, 2016, December 31, 2015 and 2014 (Information pertaining to the three month periods ended March 31, 2016 and 2015 are unaudited)
 
If the Company terminates Mr. Spoor’s employment other than for cause, or he terminates for good reason, as both terms are defined in the agreement, the Company will pay him twelve (12) months of his base salary as severance. If the Company terminates Mr. Spoor’s employment other than for cause, or he terminates for good reason, in connection with a Change of Control, the Company will pay him eighteen (18) months of his base salary in lump sum as severance. Upon termination of Mr. Spoor’s employment, the Company may impose a restrictive covenant on him for up to twelve (12) months, provided that the Company must continue his severance payments to continue the covenant beyond nine (9) months.
 
Note 15 - Income Taxes
 
The Company is subject to taxation at the federal level in both the United States and France and at the state level in the United States. At March 31, 2016, December 31, 2015 and 2014, the Company had gross deferred tax assets of approximately $2,901,000, $2,412,000 and $645,000, respectively. As the Company cannot determine that it is more likely than not that the Company will realize the benefit of the deferred tax asset, a valuation allowance of approximately $2,901,000, $2,412,000 and $645,000, respectively, has been established at March 31, 2016, December 31, 2015 and 2014.

The significant components of the Company’s net deferred tax assets (liabilities) consisted of:

   
March 31,
             
   
2016
   
December 31,
   
December 31,
 
   
(Unaudited)
   
2015
   
2014
 
Gross deferred tax assets:
                 
   Net operating loss carry-forwards
  $ 2,901,000     $ 2,412,000     $ 645,000  
   Deferred tax asset valuation allowance
    (2,901,000 )     (2,412,000 )     (645,000 )
Net deferred tax asset
  $ -     $ -     $ -  
 
Income taxes computed using the federal statutory income tax rate differs from the Company’s effective tax rate primarily due to the following:

   
March 31,
             
   
2016
   
December 31,
   
December 31,
 
   
(Unaudited)
   
2015
   
2014
 
Income taxes benefit (expense) at statutory rate
    34 %     34 %     34 %
State income tax, net of federal benefit
    11 %     11 %     11 %
Change in valuation allowance
    (45 %)     (45 %)     (45 %)
      0 %     0 %     0 %
 
At March 31, 2016, the Company has gross net operating loss carry-forwards for U.S. federal and state income tax purposes of approximately $6,405,000 and $6,402,000, respectively, which expire in the year 2036. The net increase in the valuation allowance for the three months ended March 31, 2016 was approximately $489,000.
 
At December 31, 2015, the Company has gross net operating loss carry-forwards for U.S. federal and state income tax purposes of approximately $5,325,000 and $5,322,000, respectively, which expire in the year 2035. The net increase in the valuation allowance for the year ended December 31, 2015 was approximately $1,767,000.
 
At December 31, 2014, the Company has gross net operating loss carry-forwards for U.S. federal and state income tax purposes of approximately $1,425,000 and $1,422,000, respectively, which expire in the year 2034. The net increase in the valuation allowance for the year ended December 31, 2014 was approximately $645,000.
 
The Company acquired a French subsidiary during 2014. The operations of the subsidiary are not taxed in the United States and this is not considered in the tax provision. At December 31, 2015 and 2014, the Company has approximately $5,052,000 and $2,722,000, respectively, in net operating losses which it can carryforward indefinitely to offset against future French income.
 
 
F-23

 
Notes to Consolidated Financial Statements, AzurRx Biopharma Inc., March 31, 2016, December 31, 2015 and 2014 (Information pertaining to the three month periods ended March 31, 2016 and 2015 are unaudited)
 
ASC 740 prescribes recognition threshold and measurement attributes for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At March 31, 2016, December 31, 2015 and 2014, the Company had taken no uncertain tax positions that would require disclosure under ASC 740.

Note 16 - Net Loss per Common Share

Basic net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the impact of common shares issuable upon exercise of stock options and warrants and conversion of convertible debt that are not deemed to be anti-dilutive.  The dilutive effect of the outstanding stock options and warrants is computed using the treasury stock method.

For the three months ended March 31, 2016, diluted net loss per share did not include the effect of 707,179 shares of common stock issuable upon the exercise of outstanding warrants; 1,194,364 shares of common stock issuable upon the conversion of promissory notes and convertible debt; and 878,171 shares of common stock issuable upon the conversion of the Series A preferred stock, as their effect would be anti-dilutive.

For the three months ended March 31, 2015, diluted net loss per share did not include the effect of 172,367 shares of common stock issuable upon the exercise of outstanding warrants; 408,454 shares of common stock issuable upon the conversion of promissory notes and convertible debt; and 2,439,365 shares of common stock issuable upon the conversion of the Series A preferred stock, as their effect would be anti-dilutive.

For the year ended December 31, 2015, diluted net loss per share did not include the effect of 662,474 shares of common stock issuable upon the exercise of outstanding warrants; 1,141,769   shares of common stock issuable upon the conversion of promissory notes and convertible debt; and 1,731,949 shares of common stock issuable upon the conversion of the Series A preferred stock, as their effect would be anti-dilutive.

For the period of inception (January 30, 2014) through December 31, 2014, diluted net loss per share did not include the effect of 68,400 shares of common stock issuable upon the exercise of outstanding warrants, 197,419   shares of common stock issuable upon the conversion of promissory notes and convertible debt, and 1,896,620 shares of common stock issuable upon the conversion of the Series A preferred stock, as their effect would be anti-dilutive.

Note 17 - Related Party Transactions

During the years ended December 31, 2015 and 2014, the Company employed the services of JIST Consulting (“JIST”), a company controlled by Johan M. Spoor, the Company’s President and a Director, as a consultant for business strategy, financial modeling, and fundraising. Expense recorded in general and administrative expense in the accompanying statements of operations related to JIST for the years ended December 31, 2015 and 2014 was $478,400 and $139,100, respectively. Included in accounts payable at March 31, 2016, December 31, 2015 and is $508,300, $508,300, and $139,100, respectively, for JIST relating to Mr. Spoor’s services. Mr. Spoor received no other compensation from the Company other than reimbursement of related travel expenses.

During the years ended December 31, 2015 and 2014, the Company's President, Christine Rigby-Hutton, was employed through Rigby-Hutton Management Services (“RHMS”). Expense recorded in general and administrative expense in the accompanying statements of operations related to RHMS for the years ended December 31, 2015 and 2014 was $27,750 and $99,142, respectively. Included in accounts payable at March 31, 2016, December 31, 2015 and 2014 is $38,453, $38,453 and $80,430, respectively, for RHMS for Ms. Rigby-Hutton’s services. Ms. Rigby-Hutton received no other compensation from the Company other than reimbursement of related travel expenses. Ms. Rigby-Hutton resigned from the Company effective April 20, 2015.

 
F-24

 
Notes to Consolidated Financial Statements, AzurRx Biopharma Inc., March 31, 2016, December 31, 2015 and 2014 (Information pertaining to the three month periods ended March 31, 2016 and 2015 are unaudited)
 
From October 1, 2015 through December 31, 2015, the Company used the services of Edward Borkowski, a member of the Board of Directors and the Company’s audit committee chair, as a financial consultant. Expense recorded in general and administrative expense in the accompanying statements of operations related to Mr. Borkowski for the year ended December 31, 2015 was $90,000. Included in accounts payable at March 31, 2016 and December 31, 2015 is $90,000 for Mr. Borkowski’s services. Mr. Borkowski received no other compensation from the Company other than reimbursement of related travel expenses. On October 14, 2014 and March 12, 2015, the Company issued original issue discounted convertible notes to Edward Borkowski, a director and the Company’s audit committee chair, in the aggregate principal amount of $300,000. The notes will automatically convert into shares of the Company’s common stock upon the consummation of this offering at a conversion price equal to the principal amount divided by the lesser of $6.45 per share or the per share price of the Company’s common stock in this offering, multiplied by 80%. Mr. Borkowski has signed an exchange agreement related to these notes as detailed in Note 10 above.
 
On August 31, 2014, January 31, 2015, February 28, 2015 and May 31, 2015, the Company issued promissory notes to Matthew Balk and his affiliates in the aggregate principal amount of $236,000. These notes have been repaid in full as to $50,000 on November 11, 2014, $111,000 on April 3, 2015, and $75,000 on August 7, 2015.  Mr. Balk holds voting and dispositive power over the shares held by Pelican Partners LLC, which owns 40%, 47%, and 64%, respectively, of the outstanding common stock of the Company as of March 31, 2016 and December 31, 2015 and 2014.
 
In July 2014, the Company issued promissory notes to Johan M. (Thijs) Spoor, the Company’s President, Chief Operating Officer and Chairman of the Board, in the aggregate principal amount of $10,000. These notes were repaid in full as to $5,000 on October 17, 2014 and $5,000 on November 10, 2014.
 

 

 
AZURRX BIOPHARMA, INC.
 
 

 
                                  Shares
 
Common Stock
 
 
 

 
 
 
 
 
 
 

 
PROSPECTUS
 
 
 
 
 
 
WallachBeth Capital, LLC                              Network 1 Financial Securities, Inc.

Through and including        , 2016 (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 requirement is in addition to a dealers’ obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or membership.
 

PART II
 
INFORMATION NOT REQUIRED IN PROSPECTUS
 
Item 13. Other Expenses of Issuance and Distribution
 
The following table sets forth the various expenses, all of which will be borne by the registrant, in connection with the sale and distribution of the securities being registered, other than the underwriting discounts and commissions. All amounts shown are estimates except for the SEC registration fee and the FINRA filing fee.
 
SEC registration fee
  $ 1,510.50  
FINRA fees
  $ *  
Printing and engraving expenses
  $ *  
Accounting fees and expenses
  $ *  
Legal fees and expenses
  $ *  
Miscellaneous
  $ *  
Total
  $ *  
________________________________
*  To be provided by amendment.
 
Item 14. Indemnification of Directors and Officers.
 
Amended and Restated Bylaws
 
Pursuant to our bylaws, our directors and officers will be indemnified to the fullest extent allowed under the laws of the State of Delaware for their actions in their capacity as our directors and officers.
 
We must indemnify any person made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (“Proceeding”) by reason of the fact that he is or was a director, against judgments, penalties, fines, settlements and reasonable expenses (including attorney’s fees) (“Expenses”) actually and reasonably incurred by him in connection with such Proceeding if: (a) he conducted himself in good faith, and: (i) in the case of conduct in his own official capacity with us, he reasonably believed his conduct to be in our best interests, or (ii) in all other cases, he reasonably believes his conduct to be at least not opposed to our best interests; and (b) in the case of any criminal Proceeding, he had no reasonable cause to believe his conduct was unlawful.
 
We must indemnify any person made a party to any Proceeding by or in the right of us, by reason of the fact that he is or was a director, against reasonable expenses actually incurred by him in connection with such proceeding if he conducted himself in good faith, and: (a) in the case of conduct in his official capacity with us, he reasonably believed his conduct to be in our best interests; or (b) in all other cases, he reasonably believed his conduct to be at least not opposed to our best interests; provided that no such indemnification may be made in respect of any proceeding in which such person shall have been adjudged to be liable to us.
 
No indemnification will be made by unless authorized in the specific case after a determination that indemnification of the director is permissible in the circumstances because he has met the applicable standard of conduct.
 
Reasonable expenses incurred by a director who is party to a proceeding may be paid or reimbursed by us in advance of the final disposition of such Proceeding in certain cases.
 
We have the power to purchase and maintain insurance on behalf of any person who is or was our director, officer, employee, or agent or is or was serving at our request as an officer, employee or agent of another corporation, partnership, joint venture, trust, other enterprise, or employee benefit plan against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not we would have the power to indemnify him against such liability under the provisions of the amended and restated bylaws.


Delaware Law
 
We are incorporated under the laws of the State of Delaware. Section 145 of the Delaware General Corporation Law provides that a Delaware corporation may indemnify any persons who are, or are threatened to be made, parties 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 such corporation), by reason of the fact that such person was an officer, director, employee or agent of such corporation, or is or was serving at the request of such person as an officer, director, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was illegal. A Delaware corporation may indemnify any persons who are, or are threatened to be made, a party to any threatened, pending or completed action or suit by or in the right of the corporation by reason of the fact that such person was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses which such officer or director has actually and reasonably incurred. Our amended and restated certificate of incorporation and amended and restated bylaws provide for the indemnification of our directors and officers to the fullest extent permitted under the Delaware General Corporation Law.
 
Section 102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duties as a director, except for liability for any:
 
 
transaction from which the director derives an improper personal benefit;
 
 
act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
 
 
unlawful payment of dividends or redemption of shares; or
 
 
breach of a director’s duty of loyalty to the corporation or its stockholders.
 
Our amended and restated certificate of incorporation and amended and restated bylaws include such a provision. Expenses incurred by any officer or director in defending any such action, suit or proceeding in advance of its final disposition shall be paid by us upon delivery to us of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified by us.
 
Section 174 of the Delaware General Corporation Law provides, among other things, that a director who willfully or negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption may be held liable for such actions. A director who was either absent when the unlawful actions were approved, or dissented at the time, may avoid liability by causing his or her dissent to such actions to be entered in the books containing minutes of the meetings of the board of directors at the time such action occurred or immediately after such absent director receives notice of the unlawful acts.


Indemnification Agreements
 
As permitted by the Delaware General Corporation Law, we have entered, and intend to continue to enter, into separate indemnification agreements with each of our directors and executive officers, that require us to indemnify such persons against any and all expenses (including attorneys’ fees), witness fees, damages, judgments, fines, settlements and other amounts incurred (including expenses of a derivative action) in connection with any action, suit or proceeding, whether actual or threatened, to which any such person may be made a party by reason of the fact that such person is or was a director, an officer or an employee of us or any of our affiliated enterprises, provided that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to our best interests and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The indemnification agreements also set forth certain procedures that will apply in the event of a claim for indemnification thereunder.
 
At present, there is no pending litigation or proceeding involving any of our directors or executive officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or preceding that may result in a claim for indemnification.
 
We have an insurance policy covering its officers and directors with respect to certain liabilities, including liabilities arising under the Securities Act or otherwise.
 
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or controlling persons, we have been advised that in the opinion of the SEC this indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
 
Item 15. Recent Sales of Unregistered Securities.
 
The information below lists all of the securities sold by us during the past three years which were not registered under the Securities Act:
 
Between January 30, 2014 and September 2015, we sold 100 shares of Series A Convertible Preferred Stock and 3,584,321 shares of common stock.
 
Commencing on July 22, 2014, the Company, through a series of transactions with various investors, raised $896,000 through the issuance and sale of its promissory notes.
 
Commencing on October 10, 2014, the Company, through a series of transactions with various investors, raised $9,162,526 through the issuance and sale of its original issue discounted convertible notes and warrants to purchase an aggregate of 2,128,683 shares of common stock.
 
In July 2016, the Company issued  an aggregate of 105,000 shares of restricted stock to the Company’s non-executive members of its board of directors.
 
These securities were issued pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated thereunder, in reliance on the recipient’s status as an “accredited investor” as defined in Rule 501(a) of Regulation D, except for the restricted stock grants which were issued pursuant to Rule 701 or Rule 506.
 
 
Item 16. Exhibits and Financial Statement Schedules.
 
     (a) The following exhibits are filed as part of this Registration Statement:
 
1.1
Form of Underwriting Agreement*
   
3.1
Amended and Restated Certificate of Incorporation of the Registrant
   
3.2
Amended and Restated Bylaws of the Registrant
   
4.1
Form of Common Stock Certificate*
   
4.2
Form of Investor Warrant
   
4.3
Form of Underwriter Warrant*
   
5.1
Opinion of Loeb & Loeb LLP regarding legality*
   
10.1
Stock Purchase Agreement dated May 21, 2014 between the Registrant, Protea Biosciences Group, Inc. and its wholly-owned subsidiary, Protea Biosciences, Inc.
   
10.2
Amended and Restated Joint Research and Development Agreement dated January 1, 2014 between the Registrant and Mayoly +
   
10.3
Amended and Restated AzurRx BioPharma, Inc. 2014 Omnibus Equity Incentive Plan
   
10.4
Employment Agreement between the Registrant and Mr. Spoor
   
14.1
Code of Ethics of AzurRx BioPharma, Inc. Applicable To Directors, Officers And Employees
   
21.1
Subsidiaries of the Registrant
   
23.1
Consent of WeiserMazars LLP, independent registered public accounting firm
   
23.2
Consent of Loeb & Loeb LLP (included in Exhibit 5.1)*
   
24.1
Power of Attorney (included on signature page)
 
*   To be filed by amendment.
 
+   Confidential treatment has been requested with respect to portions of this exhibit.
 
 
Item 17. Undertakings.
 
The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, 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 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 Act and will be governed by the final adjudication of such issue.
 
The undersigned registrant hereby undertakes that:
 
     (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus 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 of 1933, 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.

 
SIGNATURES
 
Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this registration statement or amendment thereto to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Brooklyn, New York, on July 13, 2016.
 
 
 
AZURRX BIOPHARMA, INC.
 
 
By:   /s/ Johan M. (Thijs) Spoor
         Name: Johan M. (Thijs) Spoor
         Title: President  and Chief Executive Officer
 
 
POWER OF ATTORNEY
 
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Johan M. (Thijs) Spoor his true and lawful attorney-in-fact, 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 (and to any registration statement filed pursuant to Rule 462 under 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, hereby ratifying and confirming all that said attorney-in-fact or his substitute, each acting alone, may lawfully do or cause to be done by virtue thereof.
 
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities held on the dates indicated.

Signature
 
Title
 
Date
         
/s/ Johan M. (Thijs) Spoor
 
President, Chief Executive Officer and Director
 
July 13, 2016
Johan M. (Thijs) Spoor
 
(principal executive officer and principal financial and accounting officer)
   
         
/s/ Edward J. Borkowski
 
Chairman of the Board of Directors
 
July 13, 2016
Edward J. Borkowski
       
         
/s/ Alastair Riddell
 
Director
 
July 13, 2016
Alastair Riddell
       
         
/s/ Maged Shenouda
  Director  
July 13, 2016
Maged Shenouda        


Exhibit 3.1

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION
 
OF
 
AZURRX BIOPHARMA, INC.
 
(Pursuant to Sections 242 and 245 of the
 
General Corporation Law of the State of Delaware)
 
AzurRx BioPharma, Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “General Corporation Law”),
 
DOES HEREBY CERTIFY :
 
That the name of this corporation is AzurRx BioPharma, Inc. and that this corporation was originally incorporated pursuant to the General Corporation Law on January 30, 2014 under the name BioPharma D’Azur, Inc. and filed a Certificate of Amendment to its Certificate of Incorporation on May 13, 2014 changing its name to AzurRx BioPharma, Inc.; and
 
That the Board of Directors duly adopted resolutions proposing to amend and restate the Certificate of Incorporation, as amended, of this corporation, declaring said amendment and restatement to be advisable and in the best interests of this corporation and its stockholders, and authorizing the appropriate officers of this corporation to solicit the consent of the stockholders therefor, which resolution setting forth the proposed amendment and restatement is as follows:
 
RESOLVED , that the Certificate of Incorporation, as amended, of this corporation be amended and restated in its entirety as follows:
 
FIRST :  The name of the corporation is AzurRx BioPharma, Inc. (hereinafter called the “Corporation”).
 
SECOND :  The registered office of the Corporation is to be located at 615 South DuPont Highway, in the City of Dover, in the County of Kent, 19981.  The name of its Registered Agent at such address is National Corporate Research, Ltd.
 
THIRD :  The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.
 
FOURTH :  The total number of shares which the Corporation shall have authority to issue is one hundred ten million (110,000,000) shares, of which one hundred million (100,000,000) shares shall be common stock, par value $0.0001 per share, and ten million (10,000,000) shares shall be preferred stock, par value $0.0001 per share. The board of directors of the Corporation may divide the preferred stock into any number of series, fix the designation and number of each such series, and determine or change the designation, relative rights, preferences, and limitations of any series of preferred stock. The board of directors (within the limits and restrictions of the adopting resolutions) may increase or decrease the number of shares initially fixed for any series, but no decrease may reduce the number below the shares then outstanding and duly reserved for issuance.
 
FIFTH :  The name and mailing address of the incorporator is: Hope Wankel, c/o Loeb & Loeb LLP, 345 Park Avenue, New York, New York 10154.
 
 
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SIXTH :  The election of directors need not be by written ballot unless the by-laws so provide.
 
SEVENTH :  The board of directors of the Corporation is authorized and empowered from time to time in its discretion to make, alter, amend or repeal by-laws of the Corporation, except as such power may be restricted or limited by the General Corporation Law of the State of Delaware.
 
EIGHTH :  Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs.  If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders of this Corporation, as the case may be, and also on this Corporation.
 
NINTH :  The Corporation shall to the fullest extent permitted by Section 145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all directors and officers when it shall have the 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, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which any person may be entitled under any by-law, resolution of stockholders, resolution of directors, agreement or otherwise, as permitted by said Section, as to actions of such person in any capacity in which he or she served at the request of the Corporation.
 
TENTH:   Anything to the contrary in this Certificate of Incorporation notwithstanding, no director shall be liable personally to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided however, that nothing in this paragraph shall eliminate or limit the liability of a director (i) for any breach of such directors 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) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which such director derived an improper personal benefit.  The modification or repeal of this Article Tenth shall not affect the restriction hereunder of a directors personal liability for any act or omission occurring prior to such modification or repeal.

 
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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 13 th day of July, 2016.
 
/s/ Johan M. (Thijs) Spoor                                                                       
Name: Johan M. (Thijs) Spoor
Title: CEO
 
 
 
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Exhibit 3.2
 

 
AMENDED AND RESTATED
 
BYLAWS
 
 
 
OF
 
 
 
AZURRX BIOPHARMA, INC.
 
- A Delaware Corporation -

 
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AMENDED AND RESTATED BY-LAWS
 
OF
 
AZURRX BIOPHARMA, INC.
 
ARTICLE I
OFFICES
 
SECTION 1.   Principal Office .  The registered office of the corporation shall be located in such place as may be provided from time to time in the Certificate of Incorporation.
 
SECTION 2.   Other Offices .  The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or as the business of the corporation may require.
 
ARTICLE II
STOCKHOLDERS
 
SECTION 1.   Annual Meetings .  The annual meeting of the stockholders of the corporation shall be held wholly or partially by means of remote communication or at such place, within or without the State of Delaware, on such date and at such time as may be determined by the board of directors and as shall be designated in the notice of said meeting.
 
SECTION 2. Special Meetings .  Special meetings of the stockholders for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be held wholly or partially by means of remote communication or at any place, within or without the State of Delaware, and may be called by resolution of the board of directors, or by the Chairman or the President.
 
SECTION 3.   Notice and Purpose of Meetings .  Written or printed notice of the meeting stating the place, day and hour of the meeting and, in case of a special meeting, stating the purpose or purposes for which the meeting is called, and in case of a meeting held by remote communication stating such means, shall be delivered not less than ten nor more than sixty days before the date of the meeting, either personally, or by mail, or if prior consent has been received by a stockholder by electronic transmission, by or at the direction of the Chairman or the President, the Secretary, or the persons calling the meeting, to each stockholder of record entitled to vote at such meeting.
 
SECTION 4.   Quorum .  The holders of a majority of the shares of capital stock issued and outstanding and entitled to vote, represented in person or by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by statute or by the Certificate of Incorporation.  If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders present in person or represented by proxy shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented.  At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified.

 
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SECTION 5.   Voting Process .  If a quorum is present or represented, the affirmative vote of a majority of the shares of stock present or represented at the meeting, by ballot, proxy or electronic ballot, shall be the act of the stockholders unless the vote of a greater number of shares of stock is required by law, by the Certificate of Incorporation or by these by-laws.  Each outstanding share of stock having voting power, shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders.  A shareholder may vote either in person, by proxy executed in writing by the stockholder or by his duly authorized attorney-in-fact, or by an electronic ballot from which it can be determined that the ballot was authorized by a stockholder or proxy holder.  The term, validity and enforceability of any proxy shall be determined in accordance with the General Corporation Law of the State of Delaware (the “GCL”).
 
SECTION 6.   Written Consent of Stockholders Without a Meeting .  Whenever the stockholders are required or permitted to take any action by vote, such action may be taken without a meeting, without prior notice and without a vote, if a written consent or electronic transmission, setting forth the action so taken, shall be signed  or e-mailed 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 called for such purpose.
 
ARTICLE III
DIRECTORS
 
SECTION 1.   Powers .  The business affairs of the corporation shall be managed by its board of directors, which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these by-laws directed or required to be exercised or done by the stockholders.  The board of directors may adopt such rules and regulations, not inconsistent with the Certificate of Incorporation or these By-Laws or applicable laws, as it may deem proper for the conduct of its meetings and the management of the corporation.
 
SECTION 2.   Number, Qualifications, Term .  The board of directors shall consist of one or more members.  The number of directors shall be fixed by the board of directors and may thereafter be changed from time to time by resolution of the board of directors.  All directors shall hold office until the expiration of their respective terms of office and until their successors shall have been elected and qualified.  Directors need not be residents of the State of Delaware nor stockholders of the corporation.
 
SECTION 3.   Vacancies .  Vacancies and newly created directorships resulting from any increase in the number of directors may be filled by a majority of the directors then in office, though less than a quorum. A vacancy created by the removal of a director by the stockholders may be filled by the stockholders. A director elected to fill a vacancy resulting from the death, resignation or removal of a director shall serve for the remainder of the full term of the director whose death, resignation or removal shall have created such vacancy and until his successor shall have been elected and qualified.
 
SECTION 4.   Place of Meetings .  Meetings of the board of directors, regular or special, may be held either within or without the State of Delaware.
 
SECTION 5.   First Meeting .  The first meeting of each newly elected board of directors shall be held immediately following and at the place of the annual meeting of stockholders and no other notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present, or it may convene at such place and time as shall be fixed by the consent in writing of all the directors.
 
SECTION 6.   Regular Meetings .  Regular meetings of the board of directors may be held upon such notice, or without notice, and at such time and at such place as shall from time to time be determined by the board.
 
SECTION 7.   Special Meetings .  Special meetings of the board of directors may be called by the Chairman or the President or by the number of directors who then legally constitute a quorum.  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 U.S. mail, it shall be sent by first class mail, charges prepaid, at least three days before the date of the meeting.

 
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SECTION 8.   Notice; Waiver .  Attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened.  Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting.
 
SECTION 9.   Quorum .  A majority of the directors then in office shall constitute a quorum for the transaction of business unless a greater number is required by law, by the Certificate of Incorporation or by these by-laws.  If a quorum shall not be present at any meeting of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.
 
SECTION 10.   Action Without A Meeting .  Any action required or permitted to be taken at a meeting of the directors may be taken without a meeting if a consent in writing or by electronic transmission, setting forth the action so taken, shall be signed by all of the directors entitled to vote with respect to the subject matter thereof.  In addition, meetings of the board may be held by means of conference telephone or voice communication as permitted by the GCL.
 
SECTION 11.   Action .  Except as otherwise provided by law or in the Certificate of Incorporation or these by-laws, if a quorum is present, the affirmative vote of a majority of the members of the board of directors will be required for any action.
 
SECTION 12.   Removal of Directors . Subject to any provisions of applicable law, any or all of the directors may be removed by vote of the stockholders.
 
ARTICLE IV
COMMITTEES
 
SECTION 1. Executive Committee . The board may, by resolution adopted by a majority of the whole board, designate one or more of its members to constitute members or alternate members of an Executive Committee.
 
SECTION 2.   Powers and Authority of Executive Committee .  The Executive Committee shall have and may exercise, between meetings of the Board, all the powers and authority of the Board in the management of the business and affairs of the Company, including, the right to authorize the purchase of stock, except that the Executive Committee shall not have such 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 or authorizing the declaration of a dividend.
 
SECTION 3. Other Committees .  The Board may, by resolution adopted by a majority of the whole Board, designate one or more other committees, each of which shall, except as otherwise prescribed by law, have such authority of the Board as shall be specified in the resolution of the Board designating such committee.  A majority of all the members of such committee may determine its action and fix the time and place of its meeting, unless the Board shall otherwise provide.  The Board shall have the power at any time to change the membership of, to fill all vacancies in and to discharge any such committee, either with or without cause.
 
SECTION 4. Procedure; Meetings; Quorum .  Regular meetings of the Executive Committee or any other committee of the Board, of which no notice shall be necessary, may be held at such times and places as shall be fixed by resolution adopted by a majority of the members thereof.  Special meetings of the Executive Committee or any other committee of the Board shall be called at the request of any member thereof.  So far as applicable, the provisions of Article III of these By-laws relating to notice, quorum and voting requirements applicable to meetings of the Board shall govern meetings of the Executive Committee or any other committee of the Board.  The Executive Committee and each other committee of the Board shall keep written minutes of its proceedings and circulate summaries of such written minutes to the Board before or at the next meeting of the Board.

 
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ARTICLE V
OFFICERS
 
SECTION 1.   Number .  The board of directors at its first meeting after each annual meeting of stockholders shall choose a President, a Secretary and a Treasurer, none of whom need be a member of the board.  The board of directors may also choose a Chairman from among the directors, one or more Executive Vice Presidents, one or more Vice Presidents, Assistant Secretaries and Assistant Treasurers.  The board of directors may appoint such other officers and agents as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board of directors.  More than two offices may be held by the same person.
 
SECTION 2.   Compensation .  The salaries or other compensation of all officers of the corporation shall be fixed by the board of directors.  No officer shall be prevented from receiving a salary or other compensation by reason of the fact that he is also a director.
 
SECTION 3.   Term; Removal; Vacancy .  The officers of the corporation shall hold office until their successors are chosen and qualify.  Any officer may be removed at any time, with or without cause, by the affirmative vote of a majority of the whole board of directors.  Any vacancy occurring in any office of the corporation shall be filled by the board of directors.
 
SECTION 4.   Chairman .  The Chairman shall, if one be elected, preside at all meetings of the board of directors.
 
SECTION 5.   Chief Executive Officer .  The Chief Executive Officer of the corporation shall preside at all meetings of the stockholders and the board of directors in the absence of the Chairman, shall have general supervision over the business of the corporation and shall see that all directions and resolutions of the board of directors are carried into effect.   The Chief Executive Officer shall direct, coordinate and control the corporation’s business and activities and its operating expenses and capital expenditures and shall have general authority to exercise all the powers necessary for the Chief Executive Officer of the corporation, all in accordance with basic policies established by and subject to the control of the board of directors.
 
SECTION 6.   President .  The President shall, in the absence or disability of the Chief Executive Officer, perform the duties and exercise the powers of the Chief Executive Officer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe.  The President shall be the chief administrative officer of the corporation.  The President shall implement the general directives, plans and policies and shall establish operating and administrative plans and policies and direct and coordinate the corporation’s organizational components, within the scope of the authority delegated to the President by the board of directors.
 
SECTION 7.   Vice President .  The Executive Vice Presidents shall, in the absence or disability of the President, perform the duties and exercise the powers of the President and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe.  If there shall be more than one Executive Vice President, the Executive Vice Presidents shall perform such duties and exercise such powers in the absence or disability of the President, in the order determined by the board of directors.  The Vice Presidents shall, in the absence or disability of the President and of the Executive Vice Presidents, perform the duties and exercise the powers of the President and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe.  If there shall be more than one vice president, the vice presidents shall perform such duties and exercise such powers in the absence or disability of the President and of the Executive Vice President, in the order determined by the board of directors.
 
SECTION 8.   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.  He 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 President, under whose supervision he shall be.  He shall have custody of the corporate seal of the corporation and he, or an assistant secretary, shall have the authority to affix the same to an 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 9.   Assistant Secretary .  The Assistant Secretary, if there shall be one, or if there shall be more than one, the assistant secretaries in the order determined by the board of directors, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such powers as the board of directors may from time to time prescribe.
 
SECTION 10.   Treasurer .  The Treasurer or Chief Financial Officer 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.  He 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 Chairman, the President and the board of directors, at its regular meetings, or when the board of directors so requires, an account of all of his transactions as Treasurer and of the financial condition of the corporation.
 
SECTION 11.   Assistant Treasurer .  The Assistant Treasurer, if there shall be one, or, if there shall be more than one, the Assistant Treasurers in the order determined by the board of directors, shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe.
 
ARTICLE VI
CAPITAL STOCK
 
SECTION 1.   Form .  Every holder of shares in the corporation shall be entitled to have a certificate signed in the name of the corporation by the Chairman, the President, an Executive Vice President or Vice President, and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the corporation, certifying the number of shares and the class or series of shares owned by the shareholder and setting forth any additional statements that may be required by the GCL. The shares of the corporation shall be represented by certificates or, where allowed for or required by applicable law, shall be electronically issued without a certificate. Every registered holder of one or more shares of the corporation is entitled, at the option of the holder, to a share certificate, or non-transferable written certificate of acknowledgement of the right to obtain a share certificate, stating the number and the class of shares held as shown on the securities register. Any or all of the signatures on the certificate may be facsimile. 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 were an officer, transfer agent or registrar at the date of issue.
 
Whenever the corporation shall be authorized to issue more than one class of stock or more than one series of any class of stock and if the shares are represented by certificates, the certificates representing stock of any such class or series shall set forth thereon the statements prescribed by the GCL.  Any restrictions on the transfer or registration of transfer of any shares of stock of any class or series shall be noted conspicuously on the certificate representing such shares.
 
SECTION 2.   Lost and Destroyed Certificates .  The board of directors may direct a new certificate to be issued in place of any certificate theretofore issued by the corporation alleged to have been lost or destroyed.  When authorizing such issue of a new certificate, the board of directors, in its discretion and as a condition precedent to the issuance thereof, may prescribe such terms and conditions as it deems expedient, and may require such indemnities as it deems adequate, to protect the corporation from any claim that may be made against it with respect to any such certificate alleged to have been lost or destroyed.
 
SECTION 3.   Transfer of Shares .  Upon surrender to the corporation or the transfer agent of the corporation of a certificate representing shares (if the shares are represented by certificates) duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, a new certificate shall be issued to the person entitled thereto, and the old certificate cancelled and the transaction recorded upon the books of the corporation.

 
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ARTICLE VII
INDEMNIFICATION
 
SECTION 1.  (a) The Corporation shall indemnify, subject to the requirements of subsection (d) of this Section, 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 he 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 him in connection with such action, suit or proceeding if he acted in good faith and in a manner he 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 his conduct was unlawful.  The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he 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 reasonable cause to believe that his conduct was unlawful.
 
(b) The Corporation shall indemnify, subject to the requirements of subsection (d) of this Section, 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 or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he 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 him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he 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 of the State of Delaware 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 which the Court of Chancery of the State of Delaware or such other court shall deem proper.
 
(c) To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of this Section, or in defense of any claim, issue or matter therein, the Corporation shall indemnify him against expenses (including attorneys' fees) actually and reason­ably incurred by him in connection therewith.
 
(d) Any indemnification under subsections (a) and (b) of this Section (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (a) and (b) of this Section.  Such determination shall be made (1) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders.
 
(e) Expenses incurred by a director, officer, employee or agent in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Section.  Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate.
 
(f) The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this Section shall not limit the Corporation from providing any other indemnification or advancement of expenses permitted by law nor shall they be deemed exclusive of any other rights to which a person seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.

 
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(g) The Corporation may 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 him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Section.
 
(h) For the purposes of this Section, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Section with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.
 
(i) For purposes of this Section, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to any employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Section.
 
(j) The indemnification and advancement of expenses provided by, or granted pursuant to, this Section shall, unless otherwise provided when authorized or ratified by the Board of Directors, continue as to a person who has ceased to be a director, officer, employee or agent of the Corporation and shall inure to the benefit of the heirs executors and administrators of such a person.
 
(k) The officers and directors of the Company, as individuals, shall not be liable until all funds of the Company have been distributed, with the exception of the proceeds contained in a trust account, that is subject to the trust agreement to be entered into by the Company.
 
ARTICLE VIII
GENERAL PROVISIONS
 
SECTION 1.   Checks .  All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate.
 
SECTION 2.   Fiscal Year .  The fiscal year of the corporation shall be determined, and may be changed, by resolution of the board of directors.
 
SECTION 3.   Seal .  The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced.
 
ARTICLE IX
AMENDMENTS
 
SECTION 1.  These by-laws may be altered, amended, supplemented or repealed or new by-laws may be adopted (a) at any regular or special meeting of stockholders at which a quorum is present or represented, by the affirmative vote of the holders of a majority of the shares entitled to vote, provided notice of the proposed alteration, amendment or repeal be contained in the notice of such meeting, or (b) by a resolution adopted by a majority of the whole board of directors at any regular or special meeting of the board.  The stockholders shall have authority to change or repeal any by-laws adopted by the directors.

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Exhibit 4.2
 
NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE 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 AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF CORPORATE COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
 
AMENDED AND RESTATED COMMON STOCK PURCHASE WARRANT
 
AZURRX BIOPHARMA, INC.

Warrant Shares: [______]

Original Issue Date: [__________]

Initial Exercise Date: [_________]
 
THIS AMENDED AND RESTATED COMMON STOCK PURCHASE WARRANT (the “ Warrant ”) certifies that, for value received [______________] or its assigns (the “ Holder ”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth and in the Amended and Restated Securities Purchase Agreement between the Company and the Holder (the “ Purchase  Agreement ”), at any time on or after the Initial Exercise Date and on or prior to the close of business on the fifth anniversary of the Initial Exercise Date (the “ Termination Date ”) but not thereafter, to subscribe for and purchase from AzurRx BioPharma, Inc., a Delaware corporation (the “ Company ”), up to [_________] shares (as subject to adjustment hereunder, the “ Warrant Shares ”) of Common Stock.  The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
 
Section 1.    Definitions .  Capitalized terms used and not otherwise defined herein shall have the meanings set forth in the Amended and Restated Original Issue Discount Convertible Notes (the “ Notes ”), dated [______], issued by the Company to the purchasers pursuant to the Purchase Agreement.
 
Section 2.    Exercise .
 
a)            Exercise of Warrant .  Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as the Company may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise form annexed hereto and within three (3) Trading Days of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer to an account designated by the Company or cashier’s check drawn on a United States bank or, if available, pursuant to the cashless exercise procedure specified in Section 2(c) below.  If the amount of payment received by the Company is less than the aggregate Exercise Price of the shares being purchased, the Holder shall make payment of the deficiency within three (3) Trading Days following notice thereof.  Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company.  Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall automatically reduce the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased.  The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases.  The Company shall deliver any objection to any Notice of Exercise Form within two (2) Business Days of receipt of such notice.  The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 
   
 
 
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b)            Exercise Price .  The exercise price per share of the Common Stock under this Warrant shall be the lesser of i) $7.37 or ii) a 20% discount to the pre money IPO valuation of the Company (the “ Exercise Price ”);
 
c)            Cashless Exercise .  In the event the Registration Statement (as defined in Section 5 hereof) is not effective, the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
 
(A)     =     the VWAP on the Trading Day immediately preceding the date on which Holder elects to exercise this Warrant by means of a “cashless exercise,” as set forth in the applicable duly executed and delivered Notice of Exercise;
 
(B)      =     the Exercise Price of this Warrant, as adjusted hereunder; and
 
(X)     =      the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.
 
d)            Mechanics of Exercise .
 
i.            Delivery of Certificates Upon Exercise .  Certificates for shares purchased hereunder shall be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s prime broker with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder and such Warrant Shares have been sold or (B) the shares are eligible for resale by the Holder without volume or manner-of-sale limitations pursuant to Rule 144, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise by the date that is five (5) Trading Days after the latest of (A) the delivery to the Company of the Notice of Exercise, (B) surrender of this Warrant (if required), and (C) payment of the aggregate Exercise Price as set forth above (including by cashless exercise, if permitted) (such date, the “ Warrant Share Delivery Date ”).  The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised in accordance with the requirements of the preceding sentence and with payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of such shares, having been paid.
 
ii.            Delivery of New Warrants Upon Exercise .  If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
 
iii.            Rescission Rights .  If the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

 
 
 

 
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iv.            Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise .  In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “ Buy- In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder subject to payment of the Exercise Price therefor.  For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000.  The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss.  Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
 
v.            No Fractional Shares or Scrip .  No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant.  As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round to the nearest whole share.
 
vi.            Charges , Taxes and Expenses .  Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided , however , that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.  The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise.
 
vii.            Closing of Books .  The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
 
e)            Intentionally omitted.

 
 
 

 
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                Section 3.    Certain Adjustments .
 
a)            Stock Dividends and Splits .  If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged.  Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
 
b)            Issuance of Additional Shares of Common Stock .
 
i.           Until the Company consummates its initial public offering, in the event the Company shall issue any Additional Shares of Common Stock (as defined below), at a price per share less than the Exercise Price then in effect or without consideration, then the Exercise Price upon each such issuance shall be adjusted to that price determined by multiplying the Exercise Price then in effect by a fraction:
 
(A)           the numerator of which shall be equal to the sum of (x) the number of shares of outstanding Common Stock (assuming full exercise, conversion or exchange of all options, warrants and other securities which are convertible into or exercisable or exchangeable for, and any right to subscribe for, shares of Common Stock) immediately prior to the issuance of such Additional Shares of Common Stock plus (y) the number of shares of Common Stock (rounded to the nearest whole share) which the aggregate consideration for the total number of such Additional Shares of Common Stock so issued would purchase at a price per share equal to the Exercise Price then in effect, and
 
(B)           the denominator of which shall be equal to the number of shares of outstanding Common Stock (assuming full exercise, conversion or exchange of all options, warrants and other securities which are convertible into or exercisable or exchangeable for, and any right to subscribe for, shares of Common Stock) immediately after the issuance of such Additional Shares of Common Stock.
 
ii.           “ Additional Shares of Common Stock ” means all shares of Common Stock issued by the Company after the date hereof, except: (i) securities issued (other than for cash) in connection with a merger, acquisition, or consolidation, (ii) securities issued pursuant to the conversion or exercise of convertible or exercisable securities issued or outstanding on or prior to the date of the Purchase Agreement or issued pursuant to the Purchase Agreement (so long as the conversion or exercise price in such securities are not amended to lower such price and/or adversely affect the Holders), (iii) the Warrant Shares, (iv) securities issued in connection with bona fide strategic license agreements or other partnering arrangements so long as such issuances are not for the purpose of raising capital, (v) Common Stock issued or the issuance or grants of options to purchase Common Stock pursuant to the Company’s stock option plans and employee stock purchase plans outstanding as they exist on the date of the Purchase Agreement, and (vi) any warrants issued to any placement agent and its designees for the transactions contemplated by the Purchase Agreement.
 
c)            Calculations .  All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.  For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
 
d)            Notice to Holder .
 
i.            Adjustment to Exercise Price .  Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.

 
 
 

 
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ii.            Notice to Allow Exercise by Holder .  If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 10 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.  To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously publicly disclose such notice.  The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
 
e)            Voluntary Adjustment By Company .  The Company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company.
 
f)            Adjustment for Number of Warrant Shares .  In the event that the pre-money IPO valuation of the Company is less than $43,750,000, then the number of Warrant Shares will be recalculated as follows:
 
          New Number of Warrant Shares = Existing Warrant Shares * [43,750,000/(IPO valuation*80%)]
 
Section 4.    Transfer of Warrant .
 
a)            Transferability .  Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer, but only after such transferee agrees to be bound by the provisions of this Agreement.  Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled.  The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 
 
 

 
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b)            New Warrants .  This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney.  Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice.  All Warrants issued on transfers or exchanges shall be dated the Initial Exercise Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
 
c)            Warrant Register .  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 hereof 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.
 
d)            Transfer Restrictions .  The Warrant may only be disposed of in compliance with state and federal securities laws and shall not transferred unless the Warrant is (i) registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or current public information requirements pursuant to Rule 144.
 
e)            Representation by the Holder .  The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.
 
Section 5.    Registration Rights .
 
a)           Promptly following the date the Company becomes a reporting company pursuant to the Exchange Act but no later than sixty (60) days following such date, the Company shall prepare and file with the U.S.  Securities and Exchange Commission a registration statement on Form S-1 (the “ Registration Statement ”) providing for the resale of the Warrant Shares in an amount at least equal to the number of Warrant Shares.  Such Registration Statement also shall cover, to the extent allowable under the Securities Act and the rules promulgated thereunder (including Rule 416), such indeterminate number of additional shares of Warrant Shares resulting from stock splits, stock dividends or similar transactions with respect to the Warrant Shares.
 
b)            Expenses .  The Company will pay all expenses associated with each registration, including filing and printing fees, the Company’s counsel and accounting fees and expenses, costs associated with clearing the Warrant Shares for sale under applicable state securities laws, listing fees, fees and expenses of one counsel to the Holders and the Holders’ reasonable expenses in connection with the registration, but excluding discounts, commissions, fees of underwriters, selling brokers, dealer managers or similar securities industry professionals with respect to the Warrant Shares being sold.
 
c)            Effectiveness .  The Company shall use commercially reasonable efforts to have the Registration Statement declared effective as promptly as practicable.  The Company shall notify the Holders by facsimile or e­mail as promptly as practicable, and in any event, within forty-eight (48) hours, after any Registration Statement is declared effective and shall simultaneously provide the Holders with copies of any related Prospectus to be used in connection with the sale or other disposition of the securities covered thereby.

 
 
 

 
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Section 6.    Miscellaneous .
 
a)            No Rights as Stockholder Until Exercise .  This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3.
 
b)            Loss , Theft , Destruction or Mutilation of Warrant .  The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
 
c)            Saturdays , Sundays , Holidays , etc .  If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.
 
d)            Authorized Shares . The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant.  The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant.  The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed.  The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
 
Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment.  Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
 
Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body having jurisdiction thereof.

 
 
 

 
-7-

 
 
e)            Jurisdiction .  All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof.
 
f)            Restrictions .  The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
 
g)            Nonwaiver and Expenses .  No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder or Company shall operate as a waiver of such right or otherwise prejudice the Holder’s or Company’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date.  If either party willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the other, the first party shall pay to the other party such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the affected party in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
 
h)            Notices .  Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via email or facsimile at the email address or facsimile number set forth on the signature pages attached to the Purchase Agreement at or prior to 5:30 p.m.  (New York City time) on a Trading Day, (b) the next Trading Day after the date of email or facsimile transmission, if such notice or communication is delivered via email or facsimile at the email address or facsimile number set forth on the signature pages attached to the Purchase Agreement on a day that is not a Trading Day or later than 5:30 p.m.  (New York City time) on any Trading Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by U.S.  nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given.  The address for such notices and communications shall be as set forth on the signature page attached to the Purchase Agreement.
 
i)            Limitation of Liability .  No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
 
j)            Remedies .  The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant.  The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.
 
k)            Successors and Assigns .  Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder.  The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.
 
l)            Amendment .  This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.
 
m)            Severability .  Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
 
n)            Headings .  The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
 
 
 
 

 
-8-

 
 
IN WITNESS WHEREOF, the Company has caused this Amended and Restated Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
 
  AZURRX BIOPHARMA, INC.
   
 
By:                                                                          
      Name:  
      Title:    
 
 
 
 
-9-

 
NOTICE OF EXERCISE
 
TO:           AZURRX BIOPHARMA, INC.
 
(1)           The undersigned hereby elects to purchase                   Warrant Shares of the Company
pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
 
(2)           Payment shall take the form of (check applicable box): [ ] in lawful money of the United States; or [ ] if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).
 
(3)           Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:
 
                                                                             
 
The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:
 
                                                                              
 
                                                                              
 
                                                                              
 
(4)            Accredited Investor .  The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended, and that the aforesaid Shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale, in connection with the distribution thereof, and that the undersigned has no present intention of distributing or reselling such shares.
 
[SIGNATURE OF HOLDER]
 
Name of Investing
Entity:
Signature of Authorized Signatory of
Investing Entity:
Name of Authorized
Signatory:
Title of Authorized
Signatory:
Date:                                                                                                                                          
 
 
 
 

 
-10-

 
 
ASSIGNMENT FORM
 
(To assign the foregoing warrant, execute
 
this form and supply required information.
 
Do not use this form to exercise the warrant.)
 
FOR VALUE RECEIVED, [_____ all of or [_____ shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to                                                                                                                                                                               whose address is
                                                                                                                                                                                                         
 
Dated:  __________, _______
 
Holder’s Signature:                                                        
 
Holder’s Address:                                                         
                                                                                                                                          
 

 
NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company.  Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

Exhibit 10.1


 
 
STOCK PURCHASE AND SALE
AGREEMENT
 
 
DATED MAY 21, 2014
 
BY AND AMONG
 
AZURRX BIOPHARMA, INC.
 
AND
 
PROTEA BIOSCIENCES GROUP, INC.
 
AND
 
PROTEA BIOSCIENCES, INC.
 
AND
 
PROTEABIO EUROPE SAS

 
 

 
 
 
TABLE OF CONTENTS
 
  Page :
ARTICLE 1 DEFINITIONS
1
1.1.
Definitions
1
1.2.
Terms Generally; Certain Rules of Construction
7
ARTICLE 2 THE PURCHASE
8
2.1.
Purchase and Sale of the Shares
8
2.2.
Purchase Price
8
2.3.
Contingent Consideration
8
2.4.
Closing
8
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE SELLERS
9
3.1.
Organization and Qualification
9
3.2.
Authority Relative to this Agreement
9
3.3.
No Conflict
9
3.4.
Required Filings and Consents
10
3.5.
Intellectual Property
10
3.6.
Contracts
12
3.7.
Compliance with Laws
12
3.8.
Claims and Proceedings
12
3.9.
Regulatory Compliance
13
3.10.
No Finder
13
3.11.
Financial Statements
13
3.12.
Absence of Certain Changes
14
3.13.
Off-Balance Sheet Undertakings
14
3.14.
Taxes
14
3.15.
Capitalization, Etc.
15
3.16.
Books and Records; Internal Accounting Controls
15
3.17.
Ownership of Shares
15
3.18.
Employee Matters
15
3.19.
Banks
16
3.20.
Real Property
16
3.21.
Environment
16
3.22.
Restricted Shares
16
3.23.
Access to Information
17
3.24.
Disclosure
17
3.25.
Transactions with Affiliates
17
3.26.
Title to Assets
17
3.27.
Insurance
17
3.28.
No Insolvency
17
3.29.
No Undisclosed Liabilities
17
ARTICLE 4 REVERSION OF SHARES; ISSUANCE OF PARENT SHARES; PARENT REGISTRATION RIGHTS; ANTI-DILUTION RIGHTS
18
4.1.
Reversion of Shares
18
4.2.
Issuance of Parent Shares
18
 
 
 

 
 
4.3.
Further Assurances in Order to Effect the Reversion
18
4.4.
Parent Registration Rights
18
4.5.
Anti-Dilution
19
4.6.
Board Appointment Rights
19
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BUYER
19
5.1.
Buyer Representations
19
ARTICLE 6 CONDITIONS TO CLOSING AND CLOSING DELIVERIES
21
6.1.
Conditions to Obligations of the Buyer
21
6.2.
Conditions to Obligations of the Sellers
22
ARTICLE 7 RESTRICTIVE COVENANTS
23
7.1.
Non-Solicitation
23
7.2.
Non-Competition
23
7.3.
Non-Disclosure and Non-Use
24
7.4.
Non-Disparagement
24
7.5.
Equitable Relief/Interpretation
24
ARTICLE 8 OTHER COVENANTS AND AGREEMENTS
25
8.1.
Covenants To Be Observed by the Buyer and Protea
25
8.2.
Additional Covenants
27
ARTICLE 9 GOVERNING LAW; LITIGATION.
28
9.1.
Governing Law
28
9.2.
Litigation; Waiver of Jury Trial
29
ARTICLE 10 INDEMNITY
29
10.1.
Indemnification
29
10.2.
Indemnification Procedures
30
10.3.
Survival of Claims
32
ARTICLE 11 TERM; TERMINATION
32
11.1.
Termination of Agreement
32
11.2.
Effect of Termination
33
ARTICLE 12 MISCELLANEOUS PROVISIONS
33
12.1.
Amendment and Modifications
33
12.2.
Waiver of Compliance
33
12.3.
Expenses
33
12.4.
Further Assurances
33
12.5.
No Waiver of Rights
33
12.6.
Notices
33
12.7.
Assignment
34
12.8.
Counterparts
34
12.9.
Headings
34
12.10.
Entire Agreement
34
12.11.
Third Party Beneficiaries
34
12.12.
Severability
34
12.13.
Survival
34

Exhibit A
Form of Certificate of Designation
Exhibit B
Executive Agreement
Exhibit C
Amendment to Mr. Jais’ Employment Agreement
Exhibit D
2014 Mayoly Agreement
Exhibit E
Description of Program PR1101

 
 

 
 
STOCK PURCHASE AND SALE AGREEMENT
 
This STOCK PURCHASE AND SALE AGREEMENT (including the Exhibits and Schedules hereto, this “ Agreement ”) is made and entered into this 21 st day of May 2014, by and among AzurRx BioPharma, Inc., a Delaware corporation (the “ Buyer ”), Protea Biosciences Group, Inc., a Delaware corporation (the “ Parent ”), Protea Biosciences, Inc., a Delaware corporation (the “ Protea Sub ”) and ProteaBio Europe SAS, a corporation organized under the laws of France (the “ Company ”). The Parent, Protea Sub and the Company are sometimes each referred to herein as a “ Seller ” and collectively as the “ Sellers .”
 
RECITALS
 
A.  The Parent owns 100% of the outstanding capital stock of Protea Sub which owns 100% of the outstanding shares of capital stock of the Company (the “ Shares ”).
 
B.  The Buyer wishes to purchase from the Sellers, and the Sellers wish to sell to the Buyer, 100% of the Shares.
 
Accordingly, the parties agree as follows:
 
ARTICLE 1
 
DEFINITIONS
 
1.1.            Definitions .  As used in this Agreement and the Exhibits and Schedules delivered pursuant hereto and to the extent incorporated in other Transaction Documents, the following definitions shall apply:
 
“2010 Mayoly Agreement” means the Joint Research and Development Agreement, by and among Protea Sub, the Company and Laboratoires Mayoly Spindler SAS (“ Mayoly ”), dated March 22, 2010, that canceled and replaced the Joint Research and Development Agreement among the aforementioned parties dated May 27, 2009.
 
“2014 Mayoly Agreement ” means the draft Joint Development and License Agreement, by and between the Company and Mayoly, that will terminate and replace the 2010 Mayoly Agreement.
 
“Affiliate” means, as to any Person, a Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Person specified.  With respect to any natural person, the term Affiliate shall also include any member of said person’s immediate family, any family limited partnership for said person and any trust, voting or otherwise, of which said person is a trustee or of which said person or any of said person’s immediate family is a beneficiary.  With respect to any trust, the term Affiliate shall also include any beneficiary or trustee of such trust.  For purposes of the foregoing, the term “ control ” and variations thereof means the possession of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by Contract or otherwise.
 
“Agreement” has the meaning set forth in the preamble to this Agreement.
 
Books and Records ” means all books and records, ledgers, employee records, customer lists, files, and other records of every kind (whether written, electronic, or otherwise embodied) owned or used by the Company or in which the Company’s assets, business, or transactions are otherwise reflected, in each case with respect to the Business.
 
“Business” means the pharmaceutical development business of the Company.
 
“Business Day” means any day other than a Saturday, Sunday or legal holiday in connection with which banks in New York, New York are authorized or permitted to close.
 
“Business IP” means all Intellectual Property Rights and other proprietary rights related to the Business (other than Business Patents) owned by the Sellers.
 
“Business Know-How” means practical knowledge, techniques and skill, not included in the Business Patents, which is: (a) controlled by the Sellers immediately prior to the Closing; and (b) directed to the development, manufacture (including synthesis, formulation, storage, breeding, finishing or packaging), use, offer for sale, sale or import of any Business Product.

 
1

 
 
“Business Patents” means:
 
(a)           the patents and patent applications listed on Schedule 3.5 of the Sellers’ Disclosure Schedule;
 
(b)           any and all divisionals, continuations and continuations-in-part of the patents and patent applications referenced in the preceding subsection (a);
 
(c)           the foreign patent applications associated with the patent applications referenced in the preceding subsections (a) and (b);
 
(d)           the patents issued or issuing from the patent applications referenced in the preceding subsections (a) through (c); and
 
(e)           reissues, reexaminations, restorations (including supplemental protection certificates) and extensions of any patent or patent application referenced in the preceding subsections (a) through (d).
 
“Business Product” means any product or technology incorporating Business Technology.
 
“Business Technology” means the Business IP, Business Know-How and Business Patents.
 
“Buyer” has the meaning set forth in the preamble to this Agreement.
 
“Buyer Indemnified Parties” means the Buyer and its officers, directors, stockholders, employees, Affiliates, agents, successors and assigns.
 
Certificate of Designation ” means the Certificate of Designation, Preferences and Rights of the Series A Preferred in the form attached hereto as Exhibit A .
 
“Claims” means any and all notices, claims, demands, Legal Proceedings, deficiencies Orders, and Losses assessed or sustained (or delivery and notification thereof), including, without limitation, the defense or settlement of any such Claim and the enforcement of all rights to indemnification under this Agreement.
 
“Closing” means the consummation of the Transactions in accordance herewith which shall be deemed to occur as of the end of the Closing Date.
 
“Closing Date” means the date that is no more than three Business Days following the satisfaction of the conditions set forth in Article 6, or at such other date as the parties hereto shall agree.
 
CNRS Agreement ” means the Research Partnership Agreement in respect of “biochemical and analytical characterization of industrial lots of the “Yarrowia lipolytica lipase” by and among the Company and Centre National de la Recherche Scientifique (“ CNRS ”) and University of Aix-Marseille dated February 18, 2013.
 
“Code” means the United States Internal Revenue Code of 1986.
 
“Commission” means the   Securities and Exchange Commission.
 
“Common Stock” means the common stock, $.0001 par value, of the Buyer.
 
“Company” shall have the meaning given such term in the preamble.
 
“Company-Licensed Patents” means Business Patents owned solely or jointly by any Person other than the Company that are licensed to the Company.
 
“Company-Owned Patents” means Business Patents owned solely by the Company or the Company’s joint ownership interest in Business Patents owned jointly by the Company and any other Person(s), if any.

 
2

 
 
“Company Plan” means each of the Company’s employee benefit plans, policies, arrangements, and agreements, and each compensation, incentive, bonus, profit sharing, retirement, deferred compensation, equity, phantom equity, option, equity purchase, equity appreciation right and severance plan and arrangements including employee group or executive medical, life or disability insurance of the Company.
 
“Consent” means any consent, authorization or approval.
 
“Contingent Consideration” means any Milestone Payment, Royalty Payment or Sale Payment payable by the Buyer under Section 2.3.
 
“Contract” means the 2010 Mayoly Agreement, the 2014 Mayoly Agreement, the CNRS Agreement and any other contract, agreement, commitment, arrangement or understanding (whether written or oral, whether formal or informal), (a) involving the performance of services or delivery of goods or materials by the Company of an aggregate amount or value in excess of $50,000, (b) not entered into in the ordinary course of business and involving expenditures by or receipts of the Company in excess of $50,000, or (c) involving the acquisition, sale, transfer, licensure, co-development, or creation of Business Technology.
 
“Conversion Price” means the greater of (i) $0.55 (as appropriately adjusted for stock splits, recapitalizations or similar transactions occurring after the date hereof) and (ii) the twenty (20) day volume weighted average price of the Parent Shares as reported by Bloomberg L.P., if applicable.
 
 “Direct Claim ” means a Claim brought by one party to this Agreement against another party to this Agreement.
 
“EMEA” means the European Medicines Agency or any successor agency thereof or, to the extent the mutual recognition procedure is used for a licensed product in the European Union, any Governmental Entity having the authority to regulate the sale of medicinal or pharmaceutical products in any country in the European Union through marketing approval, not including Governmental Entities with responsibility solely for pricing or reimbursement approvals .
 
Executive ” shall mean Daniel Dupret.
 
Executive Agreement ” means the terms and conditions of Daniel Dupret’s mandat social as set forth on Exhibit B .
 
Executive Royalty Agreement ” means the Contrat de Cession D’Invention Brevatable , to be entered into by and between the Company and Daniel Dupret in a form to be mutually agreed upon by the Company, Daniel Dupret and the Buyer.
 
FDA ” means the Food and Drug Administration of the United States Department of Health and Human Services or any successor agency thereof performing similar functions.
 
Final Consent Date ” has the meaning set forth in Section 8.1(i).
 
“Financial Statements” means (i) the audited balance sheet of the Company as at December 31, 2013 and the related audited statements of income, retained earnings and cash flows for the twelve (12) month period then ended together with the report therein by the Company’s statutory auditors ( commissaire aux comptes ), and (ii) the audited balance sheet of the Company as at December 31, 2012 and the related audited statements of income, retained earnings and cash flows for the twelve (12) month period then ended together with the report therein by the Company’s statutory auditors ( commissaire aux comptes ).
 
“Funding Threshold Amount” has the meaning set forth in Section 4.1.
 
“GAAP” means generally accepted accounting principles in the United States, as in effect from time to time.
 
“Governmental Entity” means any government or agency, district, bureau, board, commission, court, department, official, political subdivision, tribunal, taxing authority or other instrumentality of any government, whether federal, state or local, domestic, European or foreign.

 
3

 
 
  Indebtedness ” means all payment obligations (including obligations under capitalized leases, letters of credit, bankers acceptances and other non-trade liabilities) of the Company to any bank, insurance company, finance company or other institutional lender or other Person for money borrowed; provided , however , that Indebtedness shall not include trade payables and accruals in accordance with the Company’s past practice.
 
Indemnified Party(ies)” means the Seller Indemnified Parties or the Buyer Indemnified Parties, as applicable.
 
Indemnifying Party(ies)” means a party that is indemnifying the Seller Indemnified Parties or the Buyer Indemnified Parties, as applicable.
 
“Intellectual Property Right” means any assay components, biological materials, cell lines, preclinical and clinical data, study designs, chemical compositions or structures, formulae, trademark, service mark, registration thereof or application for registration therefore, trade name, license, invention, patent, patent application, trade secret, trade dress, know-how, copyright, copyrightable materials, copyright registration, application for copyright registration, Proprietary and Confidential Information, software programs and data bases, the names and all derivations thereof, domain names and any other type of proprietary intellectual property right, and all embodiments and fixations thereof and related documentation, registrations and franchises and all additions, improvements and accessions thereto, in each case which is owned or licensed or filed by the Company or any of its Affiliates or used or held for use in the Business, whether registered or unregistered or domestic or foreign; provided , however that Intellectual Property Rights shall not include any shrink-wrapped, off the shelf, bundled with computers or downloaded software generally available to the public.
 
“Law” means any constitutional provision, statute or other law, rule, regulation, or interpretation of any Governmental Entity and any Order, whether domestic or foreign.
 
“Legal Proceedings” means any judicial, administrative or arbitral actions, suits, proceedings (public or private) or Claims or any other proceedings, in each case, by or before a Governmental Entity.
 
“Liability” means any direct or indirect indebtedness, liability, assessment, expense, Claim, loss, damage, deficiency, obligation or responsibility, known or unknown, disputed or undisputed, joint or several, vested or unvested, executory or not, fixed or unfixed, choate or inchoate, liquidated or unliquidated, secured or unsecured, determinable or undeterminable, accrued or unaccrued, absolute or not, actual or potential, contingent or otherwise (including any liability under any guarantees, letters of credit, performance credits or with respect to insurance loss accruals).
 
“Losses” means any and all losses, damages, debts, liabilities, obligations, deficiencies, penalties, interest, amounts paid in connection with Claims, amounts paid in settlement, costs (including court costs) and expenses, including reasonable attorneys’ and other professionals’ fees and disbursements and other amounts paid or incurred in connection with the enforcement of rights (whether by Law or pursuant to this Agreement) to recover Losses but shall not include any punitive damages (other than punitive damages included in Claims by Third Parties).
 
“Material Adverse Effect” means any result, occurrence, fact, change, event or effect that has or might be reasonably expected to have a material adverse effect on the Company’s operations, properties, assets, financial condition, results, plans, strategies or prospects.
 
 “Milestone Payment” has the meaning set forth in Section 2.3.
 
“Net Sales” means the total gross amount invoiced (such amount, “ Gross Sales ”) for all commercial sales of any Business Product to Third Parties by the Buyer, its Affiliates or its or their sublicensees, less the following deductions actually allowed or reserved, and reflected in the Company’s net sales as reported in its financial statements prepared, in accordance with GAAP, consistently applied (collectively, “ Permitted Deductions ”):
 
(a)           credits or allowances actually granted for damaged or spoiled Business Product, returns, recalls or rejections of such Business Product, and retroactive price adjustments;
 
(b)           normal and customary trade, cash and quantity discounts, allowances and credits for such Business Product;

 
4

 
 
(c)           chargebacks, rebates or similar payments actually made to customers with respect to such Business Product, including managed health care organizations, wholesalers, distributors, buying groups, retailers, health care insurance carriers, pharmacy benefit management companies, health maintenance organizations or other institutions or health care organizations or to any Governmental Entity or Regulatory Authority, including, but not limited to any federal, state/provincial, local and other governments, their agencies and purchasers and reimbursers. Sales or other transfers between the Buyer, its Affiliates or its or their sublicensees and any dispositions of such Business Product for pre-clinical or clinical testing required in connection with obtaining Regulatory Approval of a Business Product, in each case, without charge, shall be excluded from the computation of Net Sales and no payments will be payable on such sales or transfers except where such Affiliates or sublicensees are end users, but Net Sales shall include the subsequent sales to Third Parties by such Affiliates.
 
 “ Option Fee ” means the Buyer’s payment of $300,000 to the Parent pursuant to the Option Agreement dated March 27, 2014 by and among the Buyer and the Sellers.
 
Option Plan” means the AzurRx BioPharma, Inc. 2014 Omnibus Equity Incentive Plan of the Buyer.
 
“Order” means any decree, injunction, judgment, order, award, ruling, assessment or writ by a court, administrative agency, other Governmental Entity, Regulatory Authority, arbitrator or arbitration panel.
 
“Parent” has the meaning set forth in the preamble.
 
“Parent Shares” means shares of the common stock, $.0001 par value per share, of the Parent.
 
 “ Permits ” means any material license, franchise, permit, order or approval, pre-manufacturing notices, or other similar authorization issued by a Government Entity affecting, or relating in any way to, the Business as conducted by the Company.
 
Permitted Liens ” means (i) mechanics’, carriers’, workmen’s, warehousemen’s, repairmen’s or other like liens arising in the ordinary course of business which are not due and payable as of the Closing Date, (ii) liens arising under original purchase price conditional sale contracts and equipment leases with third parties entered into in the ordinary course, (iii) liens for Taxes not yet due and payable and (iv) other imperfections of title, restrictions or encumbrances of record, if any, which liens, imperfections of title, restrictions or other encumbrances do not materially impair the value or the continued use or occupancy and operation of the specific assets to which they relate substantially in the manner currently operated.
 
“Person” means any individual, partnership, joint venture, corporation, limited liability company, trust, estate, unincorporated organization or Governmental Entity.
 
" Proprietary and Confidential Information " means any information of a Person that is not generally known to the public or to the Person's competitors in the industry, is used in the business of such Person, and gives such Person an advantage over others that do not know the information. "Proprietary and Confidential Information" includes but is not limited to know-how, trade secrets, customer lists, supplier lists, referral source lists, computer software or data of any sort developed or compiled, algorithms, source or other computer code, requirements and specifications, procedures, security practices, regulatory compliance information, personnel matters, drawings, specifications, instructions, methods, processes, techniques, formulae, costs, profits or margin information, markets, sales, pricing policies, operational methods, plans for future development, data drawings, samples, processes, products, the financial condition, results of operations, business, properties, assets, liabilities, or future prospects with respect to such Person’s business (including the Business, specifically in the case of the Company), and all other proprietary information of such Person.
 
Protea ” means the Parent and Protea Sub.

 
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Public Event ” means a transaction that results in the Buyer becoming either a public reporting company that files (voluntarily or otherwise) reports with the Commission pursuant to the rules and regulations promulgated under the Securities Exchange Act of 1934, as amended (whether by means of an initial public offering, reverse merger, self-registration or otherwise), or a public trading company that is quoted or listed on any U.S. securities exchange or quotation service.
 
“Purchase Price ” has the meaning set forth in Section 2.2.
 
Rebate Payment ” has the meaning set forth in Section 8.2(f).
 
“Registrable Securities” has the meaning set forth in Section 4.4.
 
“Regulatory Authority” means any regulatory agency, ministry, department or other governmental body having authority in any country or region to control the development, manufacture, marketing, and sale of any pharmaceutical, therapeutic, biologic or medical device product, including the FDA and EMEA.
 
“Release Time” means the earlier of the Closing and the rightful abandonment or termination of this Agreement pursuant to Section 11.1.
 
“Restricted Period ” means the time period commencing on the Closing Date and ending on the two (2) year anniversary of the Closing Date.
 
“Restrictions” means all liens, pledges, encumbrances, security interests, voting trusts, options, warrants, calls and rights of first refusal, provided however, the term Restrictions shall not include restrictions or requirements imposed by any Regulatory Authority.
 
“Restrictive Covenants ” means those covenants of each of the Sellers set forth in Article 7 hereof.
 
“Reversion” has the meaning set forth in Section 4.1.
 
“Reversion Date” has the meaning set forth in Section 4.1.
 
 “Royalty Payment” has the meaning set forth in Section 2.3.
 
“Sale Payment” has the meaning set forth in Section 2.3.
 
Securities Act ” means the Securities Act of 1933, as amended.
 
Sellers ” has the meaning set forth in the preamble.
 
“Sellers’ Disclosure Schedules” means the document of even date herewith and delivered by the Sellers to the Buyer referring to the representations and warranties in this Agreement.
 
Seller Indemnified Parties” means the Sellers and their respective officers, directors, partners, employees, Affiliates, agents, successors and assigns.
 
 “Series A Preferred” means the Series A Convertible Preferred Stock, $.0001 par value, of the Buyer.
 
 “Shares” has the meaning set forth in the preamble.
 
“Solicitation” has the meaning set forth in Section 8.1(h)(i).

 
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Tax ” or “ Taxes ” means all federal, state, local and foreign taxes, contributions, charges, fees, levies, deficiencies or other assessments of whatever kind or nature, either direct or indirect,  imposed, assessed or collected by any Governmental Entity (a “ Tax Authority ”) (including all (i) corporate income, net income, gross income, gross receipts, sales, use, ad valorem, transfer, transaction, franchise, profits, license, withholding, actions, duties, payroll, employment, unemployment, excise, estimated, severance, stamp, occupation, real property, personal property, intangible property, occupancy, recording, value added, minimum, local, business, salaries, distributions, environmental and windfall profits taxes, (ii) registration and custom duties and (iii) social contribution, (iv) together with any interest, penalties and other related charges), including any liability therefore as a result of the French tax code (code général des impôts), the French social security code ( code de la sécurité sociale ) and of the Treasury Regulation Section 1.1502-6 or any similar provision of applicable Law, or as a result of any Tax sharing or similar agreement, by reason of being a successor-in-interest or transferee of another entity, together with any interest, penalties, and additions to tax or additional amount imposed by any federal, state, local or foreign taxing authority.
 
  “Tax Proceeding” means an audit, examination, investigation, or Legal Proceeding relating to any Tax of the Company.
 
Tax Return ” includes any return, declaration, report, Claim for refund or credit, information return or statement, and any amendment thereto, including any consolidated, combined, unitary or separate return or other document (including any related or supporting information or schedule), filed on or required to be filed with any Governmental Entity in connection with the determination, assessment, collection or payment of Taxes or the administration of any Laws covered by Laws or administrative requirements relating to Taxes.
 
“Third Party” means any Person other than a party to this Agreement or an Affiliate of a party to this Agreement.
 
“Third Party Benefits” has the meaning set forth in Section 10.2(g).
 
“Transaction Documents” means, collectively, this Agreement, the Certificate of Designation and the Executive Agreements.
 
“Transactions” means all of the transactions contemplated by this Agreement and the other Transaction Documents.
 
1.2.            Terms Generally; Certain Rules of Construction
.  Definitions in this Agreement and the other Transaction Documents shall apply equally to both the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The words “ include ,” “ includes ” and “ including ” shall be deemed to be followed by the phrase “without limitation”.  The term “dollars” and “$” means United States dollars.  All references in this Agreement or any other Transaction Document to Sections, Exhibits and Schedules shall be deemed references to Sections of, and Exhibits and Schedules to this Agreement or any other Transaction Document in which used, except as otherwise provided.  Any reference in this Agreement to a “ day ” or number of “ days ” (without the explicit qualification of “Business”) shall be interpreted as a reference to a calendar day or number of calendar days.  If any action is required to be taken or notice is required to be given on or before a particular calendar day, and such calendar day is not a Business Day, then such action or notice shall be deemed timely if it is taken or given on or before the next Business Day.  Unless otherwise expressly provided herein or unless the context shall otherwise require, any provision using a defined term which is based on a specified relationship between one Person and one or more other Persons shall, as of any time, refer only to such Persons who have the specified relationship as of that particular time.

 
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ARTICLE 2
THE PURCHASE
 
2.1.            Purchase and Sale of the Shares .  Subject to and upon the terms and conditions of this Agreement, Protea Sub hereby agrees to sell, transfer, convey, assign and deliver to Buyer, and Buyer hereby agrees to purchase, acquire and accept the Shares, from Protea Sub, at the Closing, free and clear of any Restrictions whatsoever. At the Closing, Protea Sub shall deliver to Buyer the Shares, free and clear of any Restrictions along with appropriate stock powers duly executed by Protea Sub.
 
2.2.            Purchase Price .  The consideration for the Shares (the “Purchase Price” ) shall consist of (i) $300,000 in cash payable at Closing (which the parties acknowledge a portion of which may be paid by forgiving outstanding indebtedness owed to the Buyer as evidenced by promissory notes issued by the Parent to the Buyer), (ii) 100 shares of Series A Preferred having the rights and preferences set forth in the Certificate of Designation, to be issued at Closing, and (iii) the contingent consideration described in Section 2.3.  The cash portion of the Purchase Price shall be paid by wire transfer into an account designated by the Parent.
 
2.3.            Contingent Consideration . The Buyer shall be obligated to make the following payments to the Parent upon the events and subject to the conditions set forth below:
 
(a)           The Buyer shall pay to the Parent, by wire transfer of immediately available funds to an account designated by the Parent, a one-time milestone payment of $2,000,000 (the “ Milestone Payment ”) within ten (10) days of receipt of the first approval by the FDA of a New Drug Application or Biologics License Application for a Business Product.
 
(b)           The Buyer shall pay to the Parent, by wire transfer of immediately available funds to an account designated by the Parent, an amount equal to 2.5% of Net Sales of Business Product up to $100,000,000 in aggregate Net Sales, and 1.5% of Net Sales of Business Product in excess of $100,000,000 (the “ Royalty Payments ”). Royalty Payments shall be made within forty-five (45) days after the end of each calendar quarter and shall be accompanied by a report showing all Net Sales during such calendar quarter, including a reconciliation to Gross Sales and a breakdown of all estimated Permitted Deductions from the gross amount invoiced to arrive at Net Sales.
 
(c)           In the event of the sale or transfer of the Business by the Buyer, at any time following the Closing, whether in connection with a sale of assets, merger, or other business combination, the Parent will be entitled to ten percent (10%) of the Transaction Value received by the Buyer in connection with such sale (the “ Sale Payment ”).  The Sale Payment shall be made at the same time as the payments to Buyer and all payments will be made in the same form as the consideration received by the Buyer unless otherwise mutually agreed in writing.  “ Transaction Value ” for purposes of this clause shall mean the aggregate value of all cash, securities, notes, debentures, options, warrants and other consideration paid for acquisition of equity of the Company, or for acquisition of assets owned by the Company or majority owned subsidiaries of the Company, including joint venture rights and interests. The Transaction Value shall be the aggregate fair value thereof as determined jointly by the Buyer and the Parent or by an independent appraiser jointly selected by the Buyer and the Parent.
 
2.4.            Closing .  The Closing of the Transactions shall occur electronically via email and facsimile on the Closing Date; provided , that if the parties mutually agree to a physical closing, then the Closing shall occur on the Closing Date at the offices of Loeb & Loeb LLP, 345 Park Avenue, New York, NY 10154 on the Closing Date.  All proceedings to be taken and all documents to be executed and delivered by all parties at the Closing will be deemed to have been taken and executed simultaneously and no proceedings will be deemed to have been taken nor documents executed or delivered until all have been taken, executed and delivered.

 
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
 
The Sellers, jointly and severally, represent and warrant to the Buyer that the statements contained in this Article 3 are true and correct as of the Closing Date, except as specifically disclosed in the Sellers’ Disclosure Schedules. The Sellers’ Disclosure Schedules will correspond to the numbered and lettered paragraphs contained in this Article 3, and the disclosure in any such specified schedule of the Sellers’ Disclosure Schedules shall qualify only the corresponding subsection in this Article 3 (except to the extent that the relevance of such disclosure to other sections of the Sellers’ Disclosure Schedules or this Agreement is reasonably apparent on its face from the content or the disclosure is specifically cross-referenced in another section of the Sellers’ Disclosure Schedules).
 
3.1.            Organization and Qualification . Schedule 3.1 of the Sellers’ Disclosure Schedules sets forth the Company’s place of incorporation or formation, principal place of business and jurisdictions in which it is qualified to do business. The Company (i) is a société par actions simplifée unipersonnelle duly organized and validly existing under the Laws of France; (ii) has full power and authority to carry on its business as it is now being conducted and to own, lease, use and operate the properties and assets purported to be owned by it and to carry on the Business in all material respects as currently conducted; (iii) is duly qualified or licensed to do business and is in good standing in every jurisdiction in which the conduct of the Business, or the ownership or lease of its properties, require it to be so qualified or licensed, except where the failure to be so qualified or licensed would not have a Material Adverse Effect. The Company has never conducted any business under or otherwise used, for any purpose or in any jurisdiction, any fictitious name, assumed name, trade name or other name, other than “ProteaBio Europe SAS.“
 
3.2.            Authority Relative to this Agreement . Each of the Sellers has all requisite corporate power and authority to execute and deliver this Agreement and the other Transaction Documents to which it is a party, to perform its obligations hereunder and to consummate the Transactions. The execution, delivery and performance of this Agreement and the other Transaction Documents by the Sellers and the consummation by Sellers of the Transactions have been duly and validly authorized by all necessary corporate action of the Sellers, and except for the consent of the sole shareholder of the Company, no other corporate action on the part of the Sellers is necessary to authorize this Agreement and the other Transaction Documents or to consummate the Transactions. This Agreement and the other Transaction Documents have been duly executed and delivered by the Sellers and, assuming the due authorization, execution and delivery by the other Parties hereto, each such agreement constitutes a legal, valid and binding obligation of the Sellers, enforceable against the Sellers in accordance with its terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting the enforcement of creditors’ rights generally or by general equitable principles.
 
3.3.            No Conflict . Except as set forth on Schedule 3.3 of the Sellers’ Disclosure Schedules, the execution and delivery of this Agreement and the other Transaction Documents by the Sellers do not, and the performance by the Sellers of their obligations hereunder and the consummation of the Transactions will not: (a) conflict with or violate any provision of the certificate of incorporation or other organizational documents of a Seller; (b) assuming that all filings and notifications described in Section 3.4 have been made, conflict with or violate any Law or Order applicable to a Seller or by which any of the Company’s assets or the Company is bound or affected; (c) contravene, conflict with or result in any breach of or result in a default (or an event which with the giving of notice or lapse of time or both would reasonably be expected to become a default) under, or give to others any right of termination, amendment, acceleration or cancellation or modification of, or result in the creation of any Restrictions on any of the Company’s assets or the Business; or (d) contravene, conflict with or result in a violation of any of the terms or requirements of, or give any Governmental Entity or Regulatory Authority the right to revoke, withdraw, suspend, cancel, terminate or modify, any filing, permit, authorization, consent, approval, right or Order that relates to the Business.

 
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3.4.            Required Filings and Consents . The execution and delivery of this Agreement and the other Transaction Documents by the Sellers does not, and the performance by the Sellers of their obligations hereunder and thereunder and the consummation of the Transactions will not, require any consent, approval, authorization or permit to be obtained by the Sellers of, or filing by the Sellers with or notification by the Sellers to, any Governmental Entity or Regulatory Authority, other than those contemplated in this Agreement and, after Closing, filing by Protea Sub of a notification with the Banque de France ( declaration statistique ) to inform the French authorities of the liquidation of Protea Sub’s foreign investment in the Company.
 
3.5.            Intellectual Property .
 
(a)            Disclosure and Ownership of Business Patents; No Restrictions . There are no Company-Owned Patents. Schedule 3.5(a) of the Sellers’ Disclosure Schedules lists all of the Company-Licensed Patents, setting forth in each case the jurisdictions in which the Company-Licensed Patents have been filed. Except as set forth in Schedule 3.5(a)(ii) of the Sellers’ Disclosure Schedules, the Company has a valid, legally enforceable right to use and license all Company-Licensed Patents.
 
(b)            Ownership of and Right to Use Business Know-How and Business IP; No Restrictions . Except as set forth in Schedule 3.5(b) of the Sellers’ Disclosure Schedules, the Company has good, valid and marketable title to, free and clear of all Restrictions, or a valid, legally enforceable right to use and license, the Business Know-How and Business IP.
 
(c)            2010 Mayoly Agreement . The 2010 Mayoly Agreement is in full force and effect and the Sellers’ have not received any notice of a breach by the Sellers of the 2010 Mayoly Agreement, other than a breach that shall have been waived prior to the Closing Date.
 
(d)            CNRS Agreement. The CNRS Agreement is in full force and effect and the Sellers’ have not received any notice of a breach by the Sellers of the CNRS Agreement, other than a breach that shall have been waived prior to the Closing Date.
 
(e)            Usage and Cross-Licensing Agreement . The Usage and Cross-Licensing Agreement by and among INRA TRANSFERT (a subsidiary of INRA in charge of patent management, acting on behalf of the CNRS and the French Institut National de la Recherche Agronomique (INRA)) and Mayoly dated February, 2 2006 (the “ Usage and Cross-Licensing Agreement ”) is in full force and effect and to the Sellers’ knowledge, Mayoly has not received any notice of a breach by Mayoly of the Usage and Cross-Licensing Agreement, other than a breach that shall have been waived prior to the Closing Date.
 
(f)            No Third Party Rights in Business Technology . Except as set forth in Schedule 3.5(f) of the Sellers’ Disclosure Schedules, and subject to the terms of the 2010 Mayoly Agreement and the 2014 Mayoly Agreement:
 
(i)            No Employee Ownership . No current or former officer, director, employee, consultant or independent contractor of the Company has any right, title or interest in, to or under any Business Technology developed by such person in the course of providing services to the Company that has not been either (A) irrevocably assigned or transferred to the Company or (B) licensed (with the right to grant sublicenses) to the Company under an exclusive, irrevocable, worldwide, royalty-free, fully-paid and assignable license.
 
(ii)            No Challenges . The Sellers have not received any written communication from any Person challenging or threatening to challenge, nor is any Seller a party to any pending and served proceeding or, to a Seller’s knowledge, pending but not served proceeding or threatened proceeding in which any Person is challenging the Company’s ownership of, and right to use and license, any of its Business Technology.
 
(iii)            No Restrictions . The Sellers are not subject to any outstanding decree, order, judgment or stipulation restricting in any manner the use, transfer or licensing of the Business Technology by the Company.
 
(g)            Patents . Except as set forth in Schedule 3.5(g) of the Sellers’ Disclosure Schedules:

 
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(i)            Proper Filing . All Company-Licensed Patents for which the Sellers have any filing or maintenance obligations have been duly filed and maintained, including the timely submission of all necessary filings and fees in accordance with the legal and administrative requirements of the appropriate Governmental Entity, and have not lapsed (other than lapsed provisional applications that have been converted to non-provisional applications), expired or been abandoned.
 
(ii)            No Challenges . The Sellers have not received any written notice of and have no knowledge of any basis for any inventorship challenge, interference, interparties re-examination, invalidity or unenforceability with respect to Business Patents.
 
(h)            No Infringement of Third Party IP Rights . The Company has never infringed (directly, contributorily, by inducement, or otherwise), misappropriated, or to its knowledge otherwise violated or made unlawful use of any Intellectual Property Right of any other Person or engaged in unfair competition under laws applicable to the Company.  Under the laws applicable to the Company, no Business Product, and no method or process used in the development, manufacturing or use of any Business Product, infringes, violates, or makes unlawful use of any Intellectual Property Right of, or contains any Intellectual Property misappropriated from, any other Person. To the knowledge of the Sellers, there exists no Claim that the Company or any Business Product has infringed or misappropriated any Intellectual Property Right of another Person or engaged in unfair competition or that any Business Product, or any method or process used in the development, manufacturing or use of any Business Product, infringes, violates, or makes unlawful use of any Intellectual Property Right of, or contains any Intellectual Property misappropriated from, any other Person. Without limiting the generality of the foregoing:
 
(i)            Infringement Claims . No infringement, misappropriation, or similar Claim or Proceeding is pending or, to the best of any Seller’s knowledge, threatened against the Company or against any other Person who is or may be entitled to be indemnified, defended, held harmless, or reimbursed by the Company with respect to such Claim or Proceeding. The Sellers have never received any notice or other communication (in writing or otherwise) relating to any actual, alleged, or suspected infringement, misappropriation, or violation by the Company, any of their employees or agents, or any Business Product of any Intellectual Property Rights of another Person, including any letter or other communication suggesting or offering that the Company obtain a license to any Intellectual Property Right of another Person.
 
(ii)            Infringement Claims Affecting In-Licensed IP . No Claim or Proceeding involving any Intellectual Property or Intellectual Property Right licensed to the Company is pending, or to the best of the Sellers’ knowledge, has been threatened, except for any such Claim or Proceeding that, if adversely determined, would not materially adversely affect (a) the use or exploitation of such Intellectual Property or Intellectual Property Right by the Company, or (b) the design, development, manufacturing, marketing, distribution, provision, licensing or sale of any Business Product.
 
(i)            Confidentiality . The Sellers have undertaken commercially reasonable measures and precautions to protect and maintain the confidentiality of the Business Know-How.
 
(j)            Employee, Consultant and Contractor Agreements . Except as set forth in Schedule 3.5(j), all current and former employees, consultants and contractors of the Sellers who are or were involved in, or who have contributed to, the creation or development of any Business Technology have executed and delivered to the Company a written agreement regarding the protection of proprietary information and the irrevocable assignment to the Company of any intellectual property rights in Business Technology arising from services performed by such Persons. To the Sellers’ knowledge, no current or former employee, consultant or contractor of the Sellers is in violation of any term of any such agreement.
 
(k)            No Government Funding . Except as set forth in Schedule 3.5(k) of the Sellers’ Disclosure Schedule, no funding, facilities or personnel of any Governmental Entity were used, directly or indirectly, to develop or create, in whole or in part, any Business Technology.

 
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3.6.            Contracts .
 
(a)           Schedule 3.6(a) of the Sellers’ Disclosure Schedules contains a true and accurate list of all Contracts, to which the Company is a party. Each of the Contracts is (assuming due authorization and execution by the other party or parties thereto) valid, binding and in full force and effect and enforceable by the Company in accordance with its terms.
 
(b)           The consummation of the Transactions will not result in a material breach of any of the Contracts.
 
(c)           There exists no material default or event of default or event, occurrence, condition or act, with respect to the Company, or to Sellers’ knowledge, with respect to the other contracting party, which, with the giving of notice, the lapse of the time or the happening of any other event or conditions, would become a material default or event of default under any Contract. The Sellers have not received written or oral notice of, and have no knowledge of any intent to effect, the cancellation, modification or termination of any Contract. True, correct and complete copies of all Contracts have been delivered to the Buyer.
 
(d)           Except as set forth on Schedule 3.6(d) of the Sellers’ Disclosure Schedules, the Company is not bound by any of the following:
 
(i)    
any Contract that grants a power of attorney, agency or similar authority to another Person;
 
(ii)   
any Contract to lend or advance to, invest in, or guarantee any Indebtedness, obligation or performance of, or indemnify any Person;
 
(iii)   
any Contract limiting the freedom of the Company from engaging in any business including any non-competition agreement or other restrictive covenant agreement;
 
(iv)  
any Contract that contains a Restriction with respect to any asset of the Company;
 
(v)   
any capitalized leases; and
 
(vi)  
any unexpired written bid or proposal to enter into any of the contacts identified above that is of a nature that it could, as presented, be accepted by a Third Party and be thereby binding upon the Company.
 
3.7.            Compliance with Laws . Except as set forth on Schedule 3.7 of the Sellers’ Disclosure Schedules, the Company is not in conflict in any respect with or in default or violation of any material Order materially affecting or relating to the Business, or the Laws of any Governmental Entity, materially affecting or relating to the Business. Except as set forth on Schedule 3.7 of the Sellers’ Disclosure Schedules, the Sellers have not received from any Governmental Entity any notification in writing with respect to possible conflicts, defaults or violations of Laws materially affecting or relating to the Business.
 
3.8.            Claims and Proceedings . Except as set forth on Schedule 3.8 of the Sellers’ Disclosure Schedules, there is no outstanding Order of any Governmental Entity or Regulatory Authority against or involving the Company or the Business. To the Seller’s knowledge, and except as set forth on Schedule 3.8 of the Sellers’ Disclosure Schedules, there are no Claims (whether or not the defense thereof or Liabilities in respect thereof are covered by insurance), pending or threatened against or involving the Company or the Business or that otherwise relates to or might affect the Business (whether or not the Company is named as a party thereto). To the Sellers’ knowledge, there is no proposed Order that, if issued or otherwise put into effect, (i) could have a Material Adverse Effect or (ii) could have the effect of preventing, delaying, making illegal or otherwise interfering with the Transactions or any of the Transaction Documents.

 
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3.9.            Regulatory Compliance .
 
(a)           The Company has obtained all necessary and applicable approvals, clearances, authorizations, licenses and registrations required by any Governmental Entity and Regulatory Authority in the United States, France or foreign jurisdiction for the conduct of the Business as conducted to date, except where the failure to do so has not had a Material Adverse Effect and would not reasonably be expected to have a Material Adverse Effect.
 
(b)           The Company is in compliance with all FDA, EMEA and other non-United States equivalent agencies and similar state and local laws applicable to the maintenance, compilation and filing of reports with regard to its products and services.
 
(c)           The Company has not received any written notice or other written communication from the FDA, EMEA or any other Governmental Entity or Regulatory Authority (i) contesting the pre-market clearance or approval of, the uses of or the labeling and promotion of any of its products or services; or (ii) otherwise alleging any material violation of any laws by the Company.
 
(d)           There have been no recalls, field notifications or seizures ordered or adverse regulatory actions taken (or, to the knowledge of the Sellers, threatened) by the FDA, EMEA or any other Governmental Entity or Regulatory Authority with respect to any of the Company’s products or services, including any facilities where any of the Company’s products are produced, processed, packaged or stored and the Company has not within the last three years, either voluntarily or at the request of any Governmental Entity or Regulatory Authority, initiated or participated in a recall of any of the Company’s products or provided post-sale warnings regarding any of the Seller’s products.
 
(e)           All filings with and submissions to the FDA, EMEA and any corollary entity in any other jurisdiction made by the Company with regard to any product or service, whether oral, written or electronically delivered, were true, accurate and complete in all material respects as of the date made, and, to the extent required to be updated, as so updated remain true, accurate and complete in all material respects as of the date hereof and do not materially misstate any of the statements or information included therein, or omit to state a material fact necessary to make the statements therein not misleading.
 
(f)           None of the Company nor its directors, officers, employees, agents, representatives or consultants are under investigation by the FDA or other Regulatory Authority for debarment action or presently debarred pursuant to the Generic Drug Enforcement Act of 1992, as amended, or any analogous laws.
 
(g)           The Sellers have heretofore made available to the Buyer copies of all correspondence between any of the Sellers and any Regulatory Authority.
 
3.10.            No Finder . No Seller nor any Person acting on behalf of a Seller has agreed to pay to any broker, finder, investment banker or any other Person, a brokerage, finder’s or other brokerage fee or commission in connection with this Agreement or any matter related hereto, nor has any broker, finder, investment banker or any other Person taken any action on which a Claim for any such payment would be based.
 
3.11.            Financial Statements . The Seller has delivered to the Buyer the Financial Statements. The Financial Statements (i) are true and correct ( régulier et sincère ) in all respects, (ii) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered, (iii) present fairly ( donnent une image fidèle et sincère ) the financial position of the Company as of the respective dates thereof and the results of operations and cash flows (and changes in financial position, if any) of the Company for the periods covered thereby and (iv) reflect all liabilities (whether absolute, accrued, contingent or otherwise) of the Company required to be recorded thereon or in the annexes or notes thereto in accordance with GAAP, as applicable, as at the respective dates thereof. As of the Closing Date, the Company has no outstanding Indebtedness or off balance sheet arrangements. To the knowledge of Sellers, the audits of the Financial Statements have been conducted in each case in accordance with all applicable generally accepted auditing standards.

 
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3.12.            Absence of Certain Changes .  Since December 31, 2013, except as set forth in Schedule 3.12 of the Sellers’ Disclosure Schedules (i) the Company has conducted the Business only “en bon père de famille ”, in the ordinary course of business and consistent with past practice, (ii) no change in the financial conditions, assets, liabilities, businesses, or results of operation of the Company having or that may have a Material Adverse Effect has occurred and (iii) the Company has not undertaken any of the actions contemplated in Section 8.1(a).
 
3.13.            Off-Balance Sheet Undertakings . Except as set forth in Schedule 3.13 of the Sellers’ Disclosure Schedules, the Company is not bound by any off-balance sheet undertaking, and in particular it has not granted any guarantees (in any form whatsoever, including as a comfort letter), sureties or warranties with regard to the performance of obligations contracted by third parties (including the Sellers).
 
3.14.            Taxes .
 
(a)           The Company has complied with all applicable Laws relating to Tax. In particular, in the determination and computation of the research tax credit, the Company has complied with all applicable Laws relating to the research tax credit.
 
(b)           The Company has duly and timely filed (taking into account valid extensions of time to file) all Tax Returns required to be filed by it prior to the date hereof, which Tax Returns are true, correct, complete and prepared in accordance with applicable Law.
 
(c)           The Company has duly and timely paid (taking into account valid extensions of time to pay) all Taxes due and payable on or before the Closing Date, and has properly accrued on the Financial Statements in accordance with GAAP all Taxes not yet due or payable and that may become due and payable in respect of any period covered by the Financial Statements.
 
(d)            The Company has timely and properly withheld or collected, paid over and reported all Taxes required to be withheld or collected by it on or before the Closing Date.
 
(e)           The Company holds all documents supporting the information contained in the Tax Returns and, in particular, concerning the research tax credit.
 
(f)           The Company is not a party to any Contract that would result, individually or in the aggregate, in the payment of any amount that would not be deductible by the Company by reason of Section 162, 280G or 404 of the Code.  The Company does not have any plan or Contract providing for deferred compensation that is subject to Section 409A(a) of the Code or any asset, plan or Contract that is subject to Section 409A(b) of the Code.
 
(g)           Except as set forth in Schedule 3.14 of the Sellers’ Disclosure Schedules, there are no current, notified, on-going, pending or, to the knowledge of Sellers, threatened Tax Proceeding, inspections, inquiries, action, suit, litigation or claims against, or related to the taxable income of the Company or to any Taxes of which the Company may be liable and the Company has not received any request for information or notice from any Tax Authority. Schedule 3.14 of the Sellers’ Disclosure Schedules sets forth (i) a list of all audits, examinations or investigations completed with respect to the Company for taxable periods ending after December 31, 2010; (ii) the amounts claimed or threatened to be claimed against the Company in connection with such Tax Proceeding; and (iii) the amounts paid by or on behalf of the Company, and the amount of any provisions made in the Financial Statements as a result of such Tax Proceeding. Such provisions as made in the Financial Statements are sufficient to cover all risks and costs associated with all pending or threatened Tax Proceeding, inspections, inquiries, litigation proceedings or claims.
 
(h)           The Company (i) has not received any written Tax ruling or entered into any written and legally binding agreement or is currently under negotiations to enter into any such agreement with any Tax authority that would affect the Tax situation of the Company in any time period ending after the Closing; (ii) does not benefit from a specific Tax regime subordinated to the respect of any undertaking whatsoever, or has consented to, or may be found liable as a result of, any undertaking in respect of Taxes made in the context of acquisitions, divestitures, mergers, restructuring or similar transactions; or (iii) has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.

 
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(i)           At the Closing Date, there shall not be any encumbrances on any of the assets of the Company in connection with any failure (or alleged failure) to pay any Tax. No claim for Taxes has ever been made by an authority in a jurisdiction where the Company files Tax Returns.
 
3.15.            Capitalization, Etc.   The Sellers have provided to the Buyer accurate and complete copies of the Company’s certificate of incorporation ( K-bis ), bylaws or other organizational documents as currently in effect. The capitalization of the Company consists solely of the Shares. Protea Sub is the lawful owner of all the Shares. The Shares are fully paid up and were validly issued. There are no securities, options, warrants, calls, pre-emptive, exchange, conversion, purchase or subscription rights, or other rights, agreements, arrangements or commitments of any kind, contingent or otherwise, that could require the Company to issue, sell or otherwise cause to become outstanding, any shares of capital stock or other equity or debt interest in the Company or require the Company to grant or enter into any such option, warrant, call, subscription, conversion, purchase or other right, agreement, arrangement or commitment, and no authorization has been given therefore. There are no voting trusts, shareholders’ agreements, proxies or other agreements or understandings in effect regarding the governance, the voting or transfer of any Shares or any other equity interests in, or any rights or obligations of Protea Sub in the Company. As of the date of this Agreement, the authorized capital stock of the Parent consists of 200,000,000 Parent Shares and 10,000,000 shares of "blank check" preferred stock, par value $0.0001 per share, of which there are 65,713,600 Parent Shares issued and outstanding and no shares of preferred stock issued and outstanding.  All of the issued and outstanding Parent Shares have been duly authorized, validly issued, fully paid and non-assessable. The Parent owns 100% of the issued and outstanding capital stock of Protea Sub.
 
3.16.            Books and Records; Internal Accounting Controls. All material proceedings occurring since October 23, 2008 of the directors of the Company and all Consents to actions taken thereby, are accurately reflected in the minutes and records contained in the corporate minute books of the Company which have heretofore been made available to the Buyer. The Company maintains a system of internal accounting controls sufficient, in the judgment of the Company, to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, and (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP.
 
3.17.            Ownership of Shares .   Protea Sub has good and valid title to all of the Shares, free and clear of any Restrictions.  When the Shares are transferred to the Buyer pursuant to this Agreement, the Shares shall be free and clear of any Restrictions, subject however to legal requirements imposed by the applicable securities and other laws of France, including local governments.
 
3.18.            Employee Matters .
 
(a)           Schedule 3.18(a) of the Sellers’ Disclosure Schedules sets forth a true and complete list of the names, titles, annual salaries or wage rates and other compensation, benefits, work permits, visas, resident alien status (if applicable) and office location of all employees of the Company with an indication of their seniority.
 
(b)           The Sellers have made available to the Buyer copies of the employment contracts of all the employees of the Company listed in schedule 3.18(a) of the Sellers’ Disclosure Schedules.
 
(c)           Except as set forth in schedule 3.18(c) of the Sellers’ Disclosure Schedules, the Company is not involved in negotiations, whether with employees or employees’ representatives, to modify the terms and conditions of employment of any of its employees (other than the employees’ annual pay review consistent with past practice), and, has not made any representations, promises, offers or proposals to any of its employees, or to any employees’ representatives, concerning or affecting the terms and conditions of employment (including in relation to any benefits and remuneration) of any of the employees.
 
(d)           The Company has complied with all applicable Laws, Orders, relevant collective status and collective bargaining agreements relating to employment, labor and employee health and safety (including French statutory working time rules). No present or former employee, officer or director of the Company has, or will have at the Closing Date, any Claim against the Company or the Buyer for any matter including for (i) wages, salary (including in respect of work made in excess of the French statutory working time rules), bonus, mandatory rest ( contrepartie obligatoire en repos ), vacation, severance, benefit plans, undeclared work ( travail dissimulé ), or sick pay except for the same incurred in the ordinary course of business through the last payroll period prior to the Closing Date, or (ii) Claims respecting employment conditions or practices, including discrimination, sexual harassment, safety conditions, French statutory working time rules, undeclared work ( travail dissimulé ) and mandatory rest ( contrepartie obligatoire en repos ).

 
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(e)           Except as set forth in Schedule 3.18(e) of the Sellers’ Disclosure Schedules, the Company is not a party to or bound by any collective labor agreement or similar arrangement with any labor organization or work rules or practices agreed to with any labor organization or employee association applicable to employees of the Company and no collective bargaining agreement which is binding on the Company restricts any of them from relocating or closing any of their operations or contains any obligation relating to the maintenance of the level of employment.  There is no: (i) unfair labor practice complaint against the Company pending before any French court or any state or local agency; (ii) pending labor strike or other material labor trouble affecting the Company; (iii) material labor grievance pending against the Company; (iv) pending representation question respecting the employees of the Company; or (v) pending arbitration proceeding arising out of or under any collective bargaining agreement to which the Company is a party.
 
(f)           Schedule 3.18(f) of the Sellers’ Disclosure Schedules sets forth a true and complete list of every Company Plan now in effect or under which the Company has or might have any obligation. Each Company Plan has been maintained and administered in all respects in material compliance with its terms and all applicable Laws. There are no unpaid amounts past due in respect of any Company Plans in which the Company participates. All liabilities and contingent liabilities with regard to such Company Plans as at December 31, 2013 have been properly accounted for in the Financial Statements.
 
3.19.            Banks . Schedule 3.19 of the Sellers’ Disclosure Schedules contains a complete and correct list of the names and locations of all banks in which the Company has accounts or safe deposit boxes, and the names of all persons authorized to draw thereon or to have access thereto.   No Person holds a power of attorney to act on behalf of the Company with respect to bank accounts.
 
3.20.            Real Property .   The Company does not own any real property. Schedule 3.20 of the Sellers’ Disclosure Schedules sets forth a true and complete list of all real property leased by the Company.  True and correct copies of all leases, and all amendments to such leases, have been delivered to the Buyer.  All of such leases are in full force and effect and no event of default by the Company has occurred, and no event has occurred which (whether with or without notice, lapse of time or both) could reasonably be expected to cause a default thereunder.
 
3.21.            Environment .
 
(a)           No activities of the Company and no facilities used or owned by it are and have been the source of any pollution or any damage to human health or the environment of any nature whatsoever.
 
(b)           None of the land, premises or facilities used or owned by the Company are contaminated by any pollution whatsoever.
 
(c)           No dangerous or toxic wastes or substances are or have been stored or treated on land currently owned, used or leased, or which has been owned, used or leased in the past, by any the Company.  The Company has not shipped or caused the shipment of any dangerous or toxic wastes or substances.  The Company has not disposed or caused the disposal of wastes whatsoever on sites other than those specifically designed for their storage, treatment or destruction and other than in compliance with applicable rules and regulations.
 
(d)           There are no prohibitions, injunctions, Restrictions or limitations of any nature whatsoever on the free use or disposal by the Company of any of its movable assets arising from their environmental condition, and there are no facts or circumstances which may provide a basis for any such prohibition, injunction, Restriction or limitation.
 
3.22.            Restricted Shares . The Parent understands and acknowledges that: (i) the shares of Series A Preferred have not been, and will not be, registered with the Commission under Section 5 of the Securities Act in reliance upon one or more exemptions afforded by the Securities Act and/or rules promulgated by the Commission pursuant thereto which may be selected by the Buyer in its sole discretion including, without limitation: (1) Section 4(2) of the Securities Act for private offerings; and (2) Rule 506 of Regulation D promulgated under Section 4(2) of the Securities Act for private offerings; and (ii) the shares of Series A Preferred (and shares of Common Stock issuable upon conversion thereof) have not been, and will not be, registered or qualified with any applicable state or territorial securities regulatory agency in reliance upon one or more exemptions afforded from registration or qualification afforded under the securities laws of such state or territory which exemptions may be selected by the Buyer in its sole discretion.

 
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3.23.            Access to Information .  During the course of the Transactions, the Parent has had the opportunity, to the extent it determined to be necessary or relevant in order to evaluate the sufficiency of the Purchase Price: (i) to be provided with financial and other written information about the Buyer to the extent the Buyer has such information in its possession or could acquire it without unreasonable effort or expense; (ii) to meet with representatives of the Buyer and to ask questions and receive answers concerning the terms and conditions of this Agreement, the shares of Series A Preferred and the Common Stock issuable upon conversion of the Series A Preferred, and the business of the Buyer and its finances; (iii) to review all documents, books and records of the Buyer; and (iv) to the extent the Parent availed itself of this opportunity, received satisfactory information and answers.
 
3.24.            Disclosure .  No representation or warranty by the Sellers contained in or connected to this Agreement or any other Transaction Document, nor any written statement or certificate furnished or to be furnished by or on behalf of the Sellers to the Buyer or any representatives of the Buyer in connection herewith or pursuant hereto or listed on any Schedule hereto, contains or will contain any untrue statement of a material fact, or omits or will omit to state any material fact required to make the statements herein or therein contained not misleading.  To the extent that any disclosure in any single Schedule reasonably puts the Buyer on actual notice of the facts reflected therein, such disclosure shall be deemed to be a disclosure in all other Schedules under this Agreement as to such facts.
 
3.25.            Transactions with Affiliates . Except as set forth in the Financial Statements or as contemplated by the Executive Royalty Agreement, there are no loans, leases, agreements, contracts, royalty agreements, management contracts or arrangements or other continuing transactions between (a) the Company on the one hand, and (b) on the other hand, any officer, employee, consultant or director of the Company, or any Person owning any capital stock of the Company or any member of the immediate family of such officer, employee, consultant, director or stockholder or any corporation or other entity controlled by such officer, employee, consultant, director or stockholder, or a member of the immediate family of such officer, employee, consultant, director or stockholder. All the shareholder’s loans have been made in accordance with applicable Law by Protea Sub (and not Parent).
 
3.26.            Title to Assets . The Company has good and marketable title to (i) all properties and assets purportedly owned or used by it as reflected in the Financial Statements, (ii) all properties and assets necessary for the conduct of the Business as currently conducted, and (iii) all of the real and personal property reflected in the Financial Statements free and clear of any Restrictions.
 
3.27.            Insurance .  Schedule 3.27 provides a complete and accurate summary of the insurance policies of the Company (with the indication of the policy number, execution date, duration, name of the carrier, nature of the risks covered and principal terms and conditions). These insurance policies have been subscribed with insurance companies which are known to be solvent.  The corresponding premiums have been duly paid and the Company has complied with the provisions thereof.  The continuity and cost of the coverage provided by those policies shall not be affected by the sale of the Shares to the Buyer.
 
3.28.            No Insolvency . The Company (i) has not made an amicable settlement with its creditors ( règlement amiable ) or entered into any moratorium or other arrangement with its creditors generally; (iii) is not in judicial reorganization ( redressement judiciaire ) or judicial liquidation ( liquidation judiciaire ); (iv) has not been the object of any proceedings for the reorganization or collective discharge of its liabilities under the laws of any jurisdiction; (v) has not filed any motion, request or petition of bankruptcy, reorganization, suspension of lawsuits or claims by its creditors or the equivalent thereof; or (vi) is not under the threat of any such proceedings. The Company is not under voluntary liquidation or winding-up nor has it ceased or proposed to cease to carry on all or a substantial portion of the Business.
 
3.29.            No Undisclosed Liabilities .  Except as set forth on Schedule 3.29, to the Company’s knowledge, the Company does not have any material liability or obligation of any nature (whether known or unknown and whether absolute, accrued, contingent or otherwise), except (i) as disclosed in the Financial Statements or as otherwise specifically disclosed herein; and (ii) for liabilities and obligations incurred since the date of the Financial Statements in the ordinary course of business consistent with past practice.

 
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ARTICLE 4
REVERSION OF SHARES; ISSUANCE OF PARENT SHARES; PARENT REGISTRATION RIGHTS; ANTI-DILUTION RIGHTS
 
4.1.            Reversion of Shares .
 
(a)           In the event the Buyer has not provided evidence reasonably acceptable to the Parent that the Buyer has raised gross proceeds from an equity or equity-linked financing of the Buyer of at least $2,000,000 (the “ Funding Threshold Amount ”) on or before the six (6) month anniversary of the Closing Date (the “ Reversion Date ”), the Shares, together with any funds the Buyer has raised in such equity or equity-linked financing and any subsequent financing, will revert to the Parent (the “ Reversion ”), and the Series A Preferred will be forfeited by the Parent to the Buyer and automatically cancelled as of the Reversion Date.
 
(b)           In the event of a Reversion, Section 8.1(f) (Taxes), Section 8.2(c) (Additional Financing), and Section 10.1(a) (Indemnification regarding Taxes), shall each immediately terminate.
 
(c)           Upon satisfaction of the Funding Threshold Amount, all rights of Protea to the Shares will terminate.
 
4.2.            Issuance of Parent Shares .  In the event of a Reversion, promptly following the Reversion Date, the Parent will issue to the Buyer (and/or its designees) Parent Shares at the Conversion Price equal to the total dollar amount raised by the Buyer through the Reversion Date, including the cash portion of the Purchase Price and the Option Fee.  The Parent covenants and agrees that upon issuance of the Parent Shares described above, such Parent Shares shall be duly authorized, validly issued, fully paid and non-assessable.  The Buyer (and/or its designees) shall have “piggy-back” registration rights with respect to such Parent Shares on substantially the same terms as the “piggy-back” registration rights granted to the Parent pursuant to Section 4.4.
 
4.3.            Further Assurances in Order to Effect the Reversion .  In the event of a Reversion, each party shall execute and deliver such further certificates, agreements, assignments and other documents and take such other actions as the other party may reasonably request in order to effect the Reversion in accordance with the terms of this Agreement.
 
4.4.            Parent Registration Rights .  Following the consummation of a Public Event, the Parent shall have the following “piggy-back” registration rights with respect to the shares of Common Stock issuable upon conversion of the Series A Preferred (the “ Registrable Securities ”).
 
(a)            Notice of Registration .  If at any time or from time to time following the consummation of a Public Event, the Buyer shall determine to register any of its shares of Common Stock exclusively for cash, either for its own account or the account of security holders, other than (i) a registration on Form S-8 or otherwise relating solely to employee benefit plans, (ii) a registration on Form F-4 or S-4, (iii) a registration on any other form which does not permit secondary sales, or (iv) a registration on any other form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities, the Buyer shall:
 
(i)           promptly give to the Parent written notice thereof; and
 
(ii)           include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all Registrable Securities as are specified in a written request or requests, actually received by the Buyer within 20 days after receipt of such written notice from the Buyer by the Parent.

 
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(b)            Underwritten Offerings .  If the registration of which the Buyer gives notice is for a registered public offering involving an underwriting, the Buyer shall so advise the Parent as a part of the written notice given pursuant to Section 4.4(a).  In such event the right of the Parent to registration pursuant to Section 4.4(a) shall be conditioned upon the Parent’s participation in such underwriting and the inclusion of the Registrable Securities in the underwriting to the extent provided herein.  The Parent shall (together with the Buyer and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Buyer.  The foregoing shall include, without limitation, such powers of attorney and escrow agreements as the underwriters may require.  Notwithstanding any other provision of this Section 4.4, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, or if the number of shares that may be registered shall be limited by reason of Rule 415 under the Securities Act, the number of shares of Registrable Securities to be included in such registration shall be reduced accordingly, it being understood that the shares proposed to sold by the Buyer in such underwriting shall be given priority and shall not be subject to any such limitation vis-a-vis the Registrable Securities.  The Buyer shall so advise the Parent and other holders distributing their securities through such underwriting, and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated among the Parent and such other holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by the Parent and such other holders at the time of filing the registration statement.  To facilitate the allocation of shares in accordance with the above provisions, the Buyer may round the number of shares allocated to the Parent to the nearest 100 shares.  If the Parent disapproves of the terms of any such underwriting, the Parent may elect to withdraw therefrom by written notice to the Buyer and the managing underwriter.
 
The Registrable Securities so excluded or withdrawn shall also be excluded or withdrawn from registration, and neither such Registrable Securities nor any securities convertible into or exchangeable or exercisable for Common Stock shall be sold in any public sale or other distribution, without the prior written consent of the Buyer or such underwriters, for such period of time before and after (not to exceed thirty (30) days before and one hundred eighty (180) days after) the effective date of the registration statement relating thereto as the underwriters may require.
 
(c)            Buyer Termination of Registration .  The Buyer reserves the right to terminate any registration under this Section 4.4 at any time and for any reason without liability to the Parent.
 
4.5.            Anti-Dilution .  The Parent shall have the anti-dilution rights described in the Certificate of Designation.
 
4.6.            Board Appointment Rights .  For so long as the Parent owns such number of shares of Series A Preferred as shall be convertible into twenty percent (20%) or more of the issued and outstanding common stock of the Buyer, the Parent shall have the right to designate at least one member of the board of directors of the Buyer; provided, however, that the Buyer shall not increase the size of its board to greater than five (5) members without the advance written consent of the Parent.
 
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
 
5.1.            Buyer Representations .  The Buyer hereby represents and warrants to the Sellers as follows:
 
(a)            Formation .  The Buyer is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware.  The Buyer has all requisite power and authority, and all necessary Consents, Orders, licenses and Permits of and from all Governmental Entities, to own and use its assets, and to carry on its business as it is now being conducted.
 
(b)            Authority; Binding Effect; and Consents .  The execution, delivery and performance by the Buyer of this Agreement and any other Transaction Documents to which the Buyer is a party and the consummation of the Transactions by the Buyer have been duly and validly authorized by all necessary action on the part of the Buyer.  The Buyer has all requisite power and authority to enter into this Agreement and any other Transaction Documents to which it is a party and to carry out the Transactions.  This Agreement and any other Transaction Documents to which the Buyer is a party have been duly executed and delivered by the Buyer and constitute the legal, valid and binding obligations of the Buyer, enforceable against the Buyer in accordance with their terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting the enforcement of creditors’ rights generally or by general equitable principles.

 
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(c)            Consents of Governmental Entities .  Except as set forth on Schedule 5.1(c), no Consent, declaration, filing or registration by the Buyer with any Governmental Entity is required in connection with the execution and delivery by the Buyer of this Agreement and the consummation of the Transactions.
 
(d)            No Conflict .  Neither the execution, delivery nor performance of this Agreement and any other Transaction Documents to which the Buyer is a party, nor the consummation by the Buyer of the Transactions, will conflict with, or result in a breach of, any of the terms, conditions or provisions of the certificate of incorporation, by-laws or any material Contract to which the Buyer is a party or by which it is bound.
 
(e)            Brokerage .  No broker or finder has acted directly or indirectly for the Buyer in connection with this Agreement or the Transactions, and no broker or finder is entitled to any brokerage or finder’s fee or other commission in respect thereof based in any way on Contracts made by or on behalf of the Buyer.
 
(f)            Litigation; Compliance .  There is no Claim, pending or to the knowledge of the Buyer threatened, nor is there any written Order outstanding, against the Buyer which would prevent the Buyer from being able to close the Transactions.
 
(g)            Capitalization of the Buyer .  The authorized capital stock of the Buyer consists of 9,000,000 shares of Common Stock, and 1,000,000 shares of "blank check" preferred stock, par value $0.0001 of which there are 3,584,321 shares of Common Stock issued and outstanding and no shares of preferred stock issued and outstanding.  All of the issued and outstanding Common Stock has been duly authorized, validly issued, fully paid and non-assessable.
 
(h)            Valid Issuance of Series A Preferred .  The shares of Series A Preferred, when issued, sold and delivered in accordance with the terms and for the consideration set forth in this Agreement, will be validly issued, fully paid and non-assessable and free of Restrictions on transfer other than restrictions on transfer under the Certificate of Designation, the other Transaction Documents, applicable state and federal securities laws and Restrictions created by or imposed by the Parent.  Assuming the accuracy of the representations of the Parent in Article 3 of this Agreement and subject to the filing of the Certificate of Designation, the shares of Series A Preferred will be issued in compliance with all applicable federal and state securities laws.  The Common Stock issuable upon conversion of the Series A Preferred has been duly reserved for issuance, and upon issuance in accordance with the terms of the Certificate of Designation, will be validly issued, fully paid and non-assessable and free of Restrictions other than restrictions on transfer under the Transaction Documents, applicable federal and state securities laws and Restrictions created by or imposed by the Parent.
 
(i)            Restricted Shares . The Buyer understands and acknowledges that: (i) any Parent Shares issued to the Buyer, when and if issued, will not be registered with the Commission under Section 5 of the Securities Act in reliance upon one or more exemptions afforded by the Securities Act and/or rules promulgated by the Commission pursuant thereto which may be selected by Parent in its sole discretion including, without limitation: (1) Section 4(2) of the Securities Act for private offerings; and (2) Rule 506 of Regulation D promulgated under Section 4(2) of the Securities Act for private offerings; and (ii) any Parent Shares issued to the Buyer, when and if issued, will not be registered or qualified with any applicable state or territorial securities regulatory agency in reliance upon one or more exemptions afforded from registration or qualification afforded under the securities laws of such state or territory which exemptions may be selected by the Parent in its sole discretion.
 
(j)            Access to Information .  During the course of the Transactions, the Buyer has had the opportunity, to the extent it determined to be necessary or relevant in order to evaluate the risk of the Reversion: (i) to be provided with financial and other written information about the Sellers to the extent the Sellers have such information in their possession or could acquire it without unreasonable effort or expense; (ii) to meet with representatives of the Parent and to ask questions and receive answers concerning the terms and conditions of this Agreement, the Parent Shares, and the business of the Sellers and their finances; (iii) to review all documents, books and records of the Sellers, including the Books and Records and the public filings of the Parent made with the Commission; and (iv) to the extent the Buyer availed itself of this opportunity, received satisfactory information and answers.

 
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ARTICLE 6
CONDITIONS TO CLOSING AND CLOSING DELIVERIES
 
6.1.            Conditions to Obligations of the Buyer .  The obligations of the Buyer to consummate the Transactions shall be subject to the following conditions unless waived in writing by the Buyer:
 
(a)            Representations .  The representations and warranties of the Sellers contained in this Agreement shall be true in all respects at and as of the Closing Date with the same effect as though such representations and warranties were made at and as of the Closing Date.
 
(b)            Compliance with all Agreements .  The Sellers shall have performed and complied in all respects with all agreements and conditions contained in this Agreement that are required to be performed or complied with by them prior to or at the Closing.
 
(c)            No Material Adverse Effect .  During the period from the date hereof through the Closing Date, there shall have been no Material Adverse Effect.
 
(d)            No Orders; Legal Proceedings .  No Law shall have been enacted, entered, issued, promulgated or enforced by any Governmental Entity, nor shall any Claim have been instituted and remain pending or have been threatened and remain so at what would otherwise be the Closing Date, which prohibits or restricts or would (if successful) prohibit or materially restrict the Transactions or materially restrict the Business from operating following the Closing Date consistent with past practice.
 
(e)            Officers’ Certificates .  The Buyer shall have received from the Sellers (dated the Closing Date and in form and substance reasonably satisfactory to the Buyer) a certificate or certificates signed by the chief executive officer of each Seller, certifying and setting forth (i) that the conditions specified in subsections (a), (b), (c) and (d) of this Section 6.1 have been fulfilled, (ii) the names, signatures and positions of the directors and the officers of each Seller authorized to execute any agreements contemplated herein to which such Seller is a party, and (iii) a copy of the resolutions adopted by the board of directors of each Seller authorizing the execution, delivery and performance of this Agreement, any agreement contemplated herein to which such Seller is a party and the Transactions.
 
(f)            Good Standing Certificates .  The Sellers shall have delivered to the Buyer a good standing certificate with respect to each of the Sellers as of a date no more than five (5) days prior to the Closing Date, issued by the Secretary of State or equivalent officer of the jurisdiction of such entity’s incorporation or formation, as applicable.
 
(g)            No Indebtedness or other Obligations of the Company or Restrictions on its Assets .  On the Closing Date and after giving effect to the Transactions, the Company shall not have any Indebtedness or any Restrictions other than Permitted Liens on its assets.
 
(h)            Required Consents .  All material Consents from Third Parties and all waiting periods required under any Contract to which the Company is a party or subject, as applicable, in each case required to enter into, and consummate the Transactions, shall have been obtained, expired or the necessity for such Consent or waiting periods shall have been waived in writing by such Third Party.
 
(i)            Deliveries in Respect of the Transfer of the Shares .  The Parent and Protea Sub shall have tendered to the Buyer: (i) duly signed transfer forms ( ordres de mouvement ) in favor of the Buyer in respect of all the Shares, in accordance with the terms of this Agreement; (ii) a share ownership certificate ( attestation d'inscription en compte ) together with a certified copy of the relevant pages of the Company's books ( comptes d'actionnaires and registre des mouvements de titres ) evidencing that the transfer of the Shares to Buyer and that the name of Buyer as owner of the Shares have been duly recorded thereon; (iii) the registers ( registre des mouvements de titres ) and shareholder accounts ( fiches individuelles d'actionnaires ) of the Company and all statutory registers and other books and records of the Company; (iv) a certified copy of the resolution of Protea Sub approving the transfer of the Shares to the Buyer; and (v) a short-form share purchase agreement attached as schedule 6.1(i) for the sole purpose of registering the transfer of the Shares with the French Tax authorities.

 
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(j)            Executive Agreement .  On or prior to the Closing Date, the shareholder of the Company shall have approved the terms and conditions of the Executive’s mandate social in accordance with Exhibit B and delivered to the Buyer the minutes of such decision.
 
(k)            Insurance .  The Buyer shall have received insurance certificates or other documentation to its satisfaction, evidencing that the Company has insurance with respect to operation of the Business in amount and coverage satisfactory to the Buyer.
 
(l)            Certificate of Designation .  The Buyer shall have filed the Certificate of Designation with the Secretary of State of the State of Delaware on or prior to the Closing Date.
 
(m)            2014 Mayoly Agreement .  The Company shall have executed, and delivered to the Buyer, an executed copy  of   the 2014 Mayoly Agreement in substantially the form attached hereto as Exhibit D , together with evidence of such approval or consent as required by INRA TRANSFERT in accordance with the terms and conditions of the Usage and Cross Licensing Agreement or confirmation from Mayoly, delivered in such form as shall be reasonably acceptable to the Buyer, that such written consent or approval is not required as a result of the expiration of the applicable 30 day waiting period.
 
(n)            Usage and Cross-Licensing Agreement .   The Sellers shall have provided to the Buyer a letter signed by each of the Sellers certifying (i) that Mayoly has paid to INRA TRANSFERT all sums due under the Usage and Cross-Licensing Agreement, and performed all of its obligations with respect to the 2010 Mayoly Agreement or that Mayoly has paid the releasing balance provided under the Usage and Cross-Licensing Agreement, (ii) that the Usage and Cross-Licensing Agreement is a worldwide exclusive license and that such license has not been converted into a non-exclusive license, and (iii) more generally that no provision of the Usage and Cross-Licensing Agreement restricts Mayoly from performing its obligations under the 2014 Mayoly Agreement.
 
(o)            CNRS Agreement . The Company shall have notified in writing CNRS and the University of Aix Marseille of the Transaction and the Company shall have provided a copy of such written notification to the Buyer.
 
(p)            Assignment of Rights . The Protea Sub shall have assigned to the Company and/or the Buyer all its rights pertaining to the 2010 Mayoly Agreement.  In addition, the Parent and Protea Sub shall have assigned to the Company and/or the Buyer all their rights, assets, know-how and all Intellectual Property Rights in respect of program PR1101, which is described on Exhibit E . The Parent and the Protea Sub agree to execute and deliver such further certificates, agreements, assignments and other documents and take such other actions as the Buyer may reasonably request in order to effect the assignment of rights contemplated herein.
 
(q)            Shareholder’s loans . Protea Sub shall have assigned all its outstanding current account, if any, together with its right of reimbursement (better fortune clause) under all past shareholder’s loan to the Buyer in accordance with article 1690 of the French civil code.
 
6.2.            Conditions to Obligations of the Sellers .  The obligation of the Sellers to consummate the Transactions with respect to the Buyer shall be subject to the following additional conditions unless waived in writing by the Sellers:
 
(a)            Representations .  The representations and warranties of the Buyer contained in this Agreement shall be true in all respects at and as of the Closing Date with the same effect as though such representations and warranties were made at and as of the Closing Date.
 
(b)            Compliance .  The Buyer shall have performed and complied in all respects with all agreements and conditions contained in this Agreement that are required to be performed or complied with by it prior to or at the Closing.

 
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(c)            Officer’s Certificate .  The Sellers shall have received from the Buyer (dated the Closing Date and in form and substance reasonably satisfactory to the Sellers) a certificate of an officer of the Buyer certifying and setting forth (i) that the conditions specified in subsections (a) and (b) of this Section 6.2 as to the Buyer have been fulfilled, (ii) the names, signatures and positions of the Persons authorized to execute this Agreement and any other Transaction Documents to which the Buyer is a party on behalf of the Buyer and (iii) a copy of the resolutions of the Buyer authorizing the execution, delivery and performance of this Agreement.
 
(d)            Payment of the Purchase Price .  The Buyer shall have paid the cash portion of the Purchase Price to the Parent at the Closing.
 
(e)            Issuance of Series A Preferred Stock Certificates .  Certificates representing the shares of Series A Preferred shall have been issued and delivered to the Parent.
 
(f)            Certificate of Designation .  The Buyer shall have filed the Certificate of Designation with the Secretary of State of the State of Delaware on or prior to the Closing Date.
 
ARTICLE 7
RESTRICTIVE COVENANTS
 
7.1.            Non-Solicitation .  In consideration for the Transactions, and for the purpose of protecting the respective trade secrets and goodwill of Protea and the Buyer, neither party nor its Affiliates shall, during the Restricted Period, directly or indirectly through any other Person:
 
(a)           (i) employ, solicit or induce any individual who is, or was at any time during the one (1) year period prior to the date hereof, an employee, consultant or sales representative of the other party, (ii) cause such individual to terminate or refrain from renewing or extending his or her employment by or consulting relationship with the other party or (iii) cause such individual to become employed by or enter into a consulting relationship with such party or its Affiliates or any other Person.
 
(b)           solicit, persuade or induce any customer to terminate, reduce or refrain from renewing or extending its contractual or other relationship with the other party or any of its Affiliates in regard to the purchase of products or services procured, performed, manufactured, marketed or sold, or to become a customer of or enter into any contractual or other relationship with any competitor of the other party, as applicable, or any other Person in regard to the purchase of products or services similar or identical to those procured, performed, manufactured, marketed or sold by the other party or any of its Affiliates.
 
(c)           solicit, persuade or induce any supplier to terminate, reduce or refrain from renewing or extending its contractual or other relationship with the other party or any of its Affiliates or to become a supplier of or enter into any contractual or other relationship with such party, as applicable directly or indirectly in regard to the sale of products or services similar or identical to those purchased, performed, manufactured, marketed or sold by the other party or any of its Affiliates.
 
7.2.            Non-Competition .  In consideration for the Transactions, and for the purpose of protecting the respective parties’ business, trade secrets and goodwill:
 
(a)           Protea (except on behalf of the Company or any of its Affiliates, if any, with respect to any individuals who become employed by the Company) shall not, during the Restricted Period, directly or indirectly, in its own capacity or through any other Person, whether as owner, consultant, executive, partner, member, manager, officer, director, sales representative, venturer, agent, through equity ownership, investment of capital, rendering of services, or otherwise, engage or assist others to engage in the Business in direct competition with the Company or Buyer; provided however, direct or beneficial equity ownership by Protea, its Affiliates, directors, officers or employees of less than 10% of any business entity engaged in activities similar to the Business shall not be regarded as a violation of this Section 7.2.

 
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(b)           The Buyer nor any of its Affiliates shall not, during the Restricted Period, directly or indirectly, in their own capacity or through any other Person, whether as owner, consultant, executive, partner, member, manager, officer, director, sales representative, venturer, agent, through equity ownership, investment of capital, rendering of services, or otherwise, engage or assist others to engage in direct competition with Protea; provided however, direct or beneficial equity ownership by the Buyer, its Affiliates, directors, officers or employees of less than 10% of any business entity engaged in activities similar to the business of Protea shall not be regarded as a violation of this Section 7.2.  For clarity, in the event of a Reversion, the Business of the Company shall be considered part of the business of Protea.
 
7.3.            Non-Disclosure and Non-Use .  Without the prior written Consent of the other party, neither Buyer and its Affiliates on the one hand, and Protea and its Affiliates on the other hand, shall disclose or use any Proprietary and Confidential Information of the other party, which any of their respective officers, managers, directors, employees, counsel, agents, investment bankers, or accountants, may now possess or may hereafter create or obtain and such Proprietary and Confidential Information shall not be published, disclosed, or made accessible by any of them to any other Person or used by any of them, provided , however , that such party may disclose or use any such information (i) as has become generally available to the public other than through a breach of this Agreement by such party or any of its Affiliates and representatives (ii) as becomes available to such party on a non-confidential basis from a source other than any other party hereto or such other party’s Affiliates or representatives, provided that such source is not known or reasonably believed by such party to be bound by a confidentiality agreement or other obligations of secrecy (iii) as may be required in any report, statement or testimony required to be submitted to any Governmental Entity having or claiming to have jurisdiction over it, or as may be otherwise required by applicable Law, or as may be required in response to any summons or subpoena or in connection with any litigation, (iv) as may be required to obtain any governmental approval or Consent required in order to consummate the Transactions or (v) as may be necessary to establish such party’s rights under this Agreement; provided, further, however , that in the case of clauses (i), (iii), and (iv), the Person intending to disclose Proprietary and Confidential Information will promptly notify the party to whom it is obliged to keep such information confidential and, to the extent practicable, provide such party a reasonable opportunity to prevent public disclosure of such information.  In the event the Transactions are not consummated and this Agreement is terminated pursuant to Section 11.1, each party hereto shall return all confidential materials to the appropriate other party or destroy such confidential materials (and certify in writing the destruction thereof) exchanged in connection with this Agreement.  Each party acknowledges responsibility for disclosures caused by such party and any of its respective Affiliates and representatives.
 
7.4.            Non-Disparagement .  Each party agrees not to (i) in any way publicly disparage the other party or their respective Affiliates, equity holders, officers, directors, employees or agents or the Business, (ii) cause embarrassment or public humiliation to such Persons, or (iii) make any public statement or take any action that is adverse, inimical or otherwise detrimental to the interests of any such Persons or the Business.
 
7.5.            Equitable Relief/Interpretation .  Each of Protea and Protea Sub on the one hand, and Buyer and its Affiliates on the other hand, severally and not jointly, acknowledges that a breach of the covenants contained herein, including the covenants contained in this Article 7, may cause irreparable damage to the other party, the amount of which will be difficult to ascertain, and that the remedies at Law for any such breach will be inadequate.  Accordingly, each party hereto agrees, that, in addition to any other remedy which may be available at Law or in equity, each party shall be entitled to specific performance and injunctive relief to prevent any actual, intended or likely breach.  The parties acknowledge that the time, scope and other provisions of this Article 7 have been specifically negotiated by sophisticated commercial parties and agree that all such provisions are reasonable under the circumstances of the Transactions.  In the event that any provision in this Article 7 or any other provision contained in this Agreement shall be determined by any court of competent jurisdiction to be unenforceable, such provisions shall be interpreted to extend only over the maximum period of time for which they may be enforceable and/or over the maximum geographical area as to which they may be enforceable and/or to the maximum extent in all other respects as to which they may be enforceable, all as determined by such court in such action so as to be enforceable to the extent consistent with then applicable Law.

 
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ARTICLE 8
OTHER COVENANTS AND AGREEMENTS
 
8.1.            Covenants To Be Observed by the Buyer and Protea .  Protea and the Buyer hereby covenant and agree to the following and to cause the Company to comply with the following:
 
(a)            Operation of Business in the Ordinary Course .  Except as previously approved by the Buyer in writing, until the Release Time, the Company shall conduct the Business only in the ordinary course and consistent with prior practices.  Without limiting the generality of the foregoing, prior to the Release Time, the Company shall not without the Buyer’s prior written consent, (i) amend or propose to amend its articles of incorporation, by-laws or other organizational documents, as applicable, (ii) make or change any Tax election or change any annual Tax accounting period, or (iii) make any dividends or distributions of cash or property.
 
(b)            Insurance; Defaults; Litigation .  Until the Release Time, the Company shall (i) maintain in force (including necessary renewals thereof) the insurance policies currently in effect, except to the extent that they may be replaced with equivalent policies appropriate to insure its assets and business, to the same extent as currently insured, without material increase in cost; (ii) comply in all respects with all Contracts to which the Company is a party and not suffer or permit to exist any condition or event that, with notice or lapse of time or both, would constitute a default by it under any material Contract, license or governmental Consent or Permit; (iii) duly observe and conform, in all material respects, to all applicable Laws; and (iv) notify the Buyer of any Claim that after the date hereof is threatened or commenced against it.
 
(c)            Access .  Until the Release Time , the Company shall, upon reasonable notice, afford the Buyer and its accountants, managers, members, officers, partners, employees, counsel, agents and other representatives, reasonable access during business hours to the plants, properties, Books and Records, shall permit them to make extracts from and copies of such Books and Records, and will from time to time furnish the Buyer with such additional financial and operating data and other information as to the financial condition, results of operations, businesses, properties, assets, liabilities, or further prospects of the Company as the Buyer requests; provided , however, that the Buyer agrees to keep all information obtained as a result of such access in strict confidence in the event the Transactions are terminated as described in Article 11 hereunder, and all such information shall be returned to the Company within a reasonable time.  Until the Release Time,   the Company shall cause its statutory auditors ( commissaire aux comptes ) to make available to the Buyer and its independent certified public accountants the work papers relating to any audits of the Company.
 
(d)            Contracts .  Until the Release Time, except with respect to such contracts or other agreements as shall be necessary to consummate the Transactions, including but not limited to, the entry into the 2014 Mayoly Agreement and the Executive Royalty Agreement, the Company shall not enter into any Contract (unless such Contract is in the ordinary course of business consistent with past practices) not approved in writing by the Buyer.
 
(e)            Employee Benefits .  Until the Release Time, the Company shall refrain from adopting any Company Plan or amending any Company Plan which increases the current or future liability of the Company thereunder (other than an amendment that is required by Law) and shall pay all contributions to the Company Plans as they become due.
 
(f)            Taxes .
 
(i)           Protea shall prepare (or cause to be prepared) and file (or cause to be filed) on a timely basis (taking into account valid extensions of time to file) all Tax Returns of the Company that are due after the date hereof for taxable periods ending on or before the Closing Date.  Such Tax Returns shall be true, correct and complete, shall be prepared on a basis consistent with the similar Tax Returns for the immediately preceding taxable period, and shall not make, amend, revoke or terminate any Tax election or change any accounting practice or procedure without the prior written consent of the Buyer, which consent shall not unreasonably be withheld, delayed or conditioned.  Protea shall give a copy of each such Tax Return to the Buyer prior to filing for its review and comment (such receipt and any review and/or comment by the Buyer to not affect the Buyer’s rights set forth in Article 10).  Protea (prior to the Closing) and the Buyer (following the Closing) shall cause the Company to cooperate in connection with the preparation and filing of such Tax Returns, to timely pay the Tax shown to be due thereon, and to furnish the Parent proof of such payment.  Not later than twenty (20) days before the due date for payment of Taxes with respect to any such Tax Returns, Protea shall pay to the Company an amount equal to that portion, if any, of the Taxes shown on such Tax Return for which Protea has an obligation to indemnify the Buyer pursuant to the provisions of Section 10.1.

 
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(ii)           The Buyer shall prepare (or cause to be prepared) and file (or cause to be filed) on a timely basis (taking into account valid extensions of time to file) all Tax Returns of the Company for taxable periods ending after the Closing Date.  Any such Tax Returns for a period that includes the Closing Date shall be true, correct and complete in all material respects, shall be prepared on a basis consistent with the similar Tax Returns for the immediately preceding taxable period, and shall not make, amend, revoke or terminate and tax election or change any accounting practice or procedure without the prior consent of the Parent, which consent shall not unreasonably be withheld, delayed or conditioned.  Not later than twenty (20) days before the due date for payment of Taxes with respect to any such Tax Returns, Protea shall pay to the Company an amount equal to that portion, if any, of the Taxes shown on such Tax Return for which Protea has an obligation to indemnify the Buyer pursuant to the provisions of  Section 10.1.
 
(iii)           Following the Closing, the Parent may amend any Tax Return of the Company for any taxable period ending on or before the Closing with the consent of the Buyer, which consent shall not be unreasonably withheld, delayed or conditioned.  The Buyer shall cause the Company to cooperate in connection with the preparation and filing of such amended Tax Returns and any Tax Proceeding in connection therewith.  The cost of preparing and filing such amended Tax Returns shall be borne by the Parent.
 
(iv)           Following the Closing, the Buyer shall not cause or permit the Company to file a Tax Return with respect to a taxable period that ended on or prior to the Closing (or amend a Tax Return filed pursuant to clause (ii) above after the Closing but including the Closing Date) without the Parent’s prior consent, which consent shall not unreasonably be withheld, delayed or conditioned.
 
(v)           The Buyer shall retain (or cause the Company to retain) all Books and Records with respect to Tax matters for pre-Closing periods at least until sixty (60) days after the expiration of the applicable statute of limitations, including any extensions or waivers thereof, and to abide by all record retention agreements entered into by or with respect to the Company with any Governmental Entity.
 
(vi)           Protea shall be liable for all sales, use and other transfer Taxes arising from the Transactions contemplated by this Agreement.  Protea shall timely file all Tax Returns relating to such Taxes and timely remit to the appropriate Governmental Entity any such Taxes, and shall give a copy of such Tax Returns to the Buyer promptly after filing, together with proof of payment of the Tax, if any, shown thereon to be due.  Protea shall give a copy of each such Tax Return to the Buyer prior to filing for its review and comment (such receipt and any review and/or comment by the Buyer to not affect the Buyer’s rights set forth in Article 10).
 
(g)            Notice of Material Adverse Changes .  Until the Release Time,   the Sellers shall promptly notify the Buyer of any Material Adverse Change.
 
(h)            Exclusivity .
 
(i)           In consideration of the Buyer entering into this Agreement and devoting significant time and resources towards exploring a possible transaction, until the Release Time (1) each of the Sellers will cease, and will cause their respective employees, legal counsel, accountants, financial advisors, accountants, consultants and other representatives to cease, all existing discussions among the Sellers with any Third Party with respect to any Acquisition Proposal (as defined below) and (2) prior to any termination of this Agreement as set forth in Article 11 hereto, the Sellers will not engage in or continue any Solicitation (as defined below) or take any action to authorize or permit any of the foregoing to engage in or continue any Solicitation.  Each of the Sellers hereby represents that they are not now engaged in discussions or negotiations with any other party other than the Buyer with respect to any Acquisition Proposal.  The term “Acquisition Proposal” shall mean any proposal for (A) a sale or issuance of any shares of capital stock in the Company, (B) a merger, consolidation, sale of a substantial portion of the assets or any similar transaction or business combination involving the Company, (C) any other transaction involving the Company or any of its securities or assets that would have an effect similar to the transactions described in (A) or (B), or (C) any other transaction that would reasonably likely have the effect of proscribing the Transactions, including, without limitation, a recapitalization or refinancing.  The term “ Solicitation ” shall mean any action or activity pursuant to which any Person, directly or indirectly, solicits, entertains or enters into any agreement, negotiations with, or furnishes any information to, any Person (other than the Buyer or any agent, Affiliate, representative or other designee of the Buyer), with respect to any Acquisition Proposal.

 
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(ii)           Before responding to any Acquisition Proposal, the Sellers shall (a) immediately notify the Buyer (orally and in writing) if any offer is made, any discussions or negotiations are sought to be initiated, any inquiry, proposal or contact is made or any information is requested with respect to any Acquisition Proposal, (b) promptly notify the Buyer of the terms of any proposal that it may receive in respect of any such Acquisition Proposal, including, without limitation, the identity of the prospective purchaser or soliciting party, (c) promptly provide the Buyer with a copy of any such offer, if written, or a written summary (in reasonable detail) of such offer, if not in writing, and (d) keep the Buyer informed of the status of such offer and the offeror’s efforts and activities with respect thereto.
 
(iii)           Each party agrees that if it breaches the provisions of this Section 8.1(h) the non-breaching party shall be entitled to pursue a Claim for such breach in accordance with Article 9 hereof, which if proven, shall entitle such non-breaching party to recovery of all its costs and expenses, including reasonable attorneys’ fees, incurred by such party in connection with the Transactions, whether such expenses were incurred before or after such breach of this Section 8.1(h), and in connection with the pursuit of such Claim.
 
(i)            2010 Mayoly Agreement Sublicense . In the event (i) an executed copy of the 2014 Mayoly Agreement is not delivered on or prior to June 14, 2014 (the “ Final Consent Date ”) or (ii) INRA TRANSFERT has not provided its consent to the 2014 Mayoly Agreement on or prior to the Final Consent Date, Parent and Protea Sub agrees to take such actions as shall be necessary, in compliance with the 2010 Mayoly Agreement, to either (1) assign all rights, title and interest of Protea Sub in and to the 2010 Mayoly Agreement to the Company or (2) grant a sublicense under the 2010 Mayoly Agreement to the Company and the Buyer, each on such terms and conditions as shall be mutually acceptable to the Parent and the Buyer in exchange for the Purchase Price set forth herein.
 
(j)            Executive Royalty Agreement .  In the event the Executive Royalty Agreement is not executed on or prior to the Closing Date, the Buyer agrees to take any such actions as shall be reasonably necessary to authorize the execution of the Executive Royalty Agreement, in a form mutually acceptable to the Company, Daniel Dupret and the Buyer.
 
8.2.            Additional Covenants .  The Buyer and the Sellers hereby further covenant and agree to the following:
 
(a)            Satisfaction of Conditions .  The Sellers, on the one hand, and the Buyer, on the other, shall use commercially reasonable efforts to cause the satisfaction of the conditions precedent to the obligation of all parties to consummate the Transactions.
 
(b)            Public Disclosure; Current Report on Form 8-K . Unless otherwise permitted by this Agreement, the Sellers and Buyer shall consult with each other before issuing any press release or otherwise making any public statement or making any other public (or non-confidential) disclosure (whether or not in response to an inquiry) regarding the terms of this Agreement and the Transactions, and neither party shall issue any such press release or make any such statement or disclosure without the prior approval of the other (which approval shall not be unreasonably withheld), except as may be required by Law including, without limitation, the filing of any required documents with the Commission.  In furtherance thereof, the parties hereby acknowledge and agree that Parent is required to file a Current Report on Form 8-K within four (4) Business Days after the execution of this Agreement.
 
(c)            Additional Financing .  The Buyer agrees to use its best commercial efforts to raise $3,000,000 of gross proceeds in excess of the Funding Threshold Amount on or prior to the first anniversary of the Closing Date. The Parent will use commercially reasonable efforts to assist in such capital raising efforts if requested by the Buyer.
 
(d)            Accounting and Administrative Support . The Parent agrees to provide ten (10) hours of accounting and administrative support per month as requested by the Buyer, with any additional hours required to be approved in advance by the Parent, in order for the Buyer to compile and prepare its financial statements which include any period prior to the Closing Date, as reasonably requested by the Buyer until the earlier of the (A) the one year anniversary of the Closing Date or (B) the Reversion Date.

 
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(e)            Option Plan and Option Agreements . Promptly following the Closing Date, the Buyer shall execute stock option agreements (in amounts and on terms which shall be reasonably acceptable to the Parent) to the respective employees to whom the Buyer has granted options pursuant to the Option Plan.
 
(f)            Rebate Payment .  The Buyer shall pay to the Parent, by wire transfer of immediately available funds to an account designated by the Parent, any proceeds received by the Company from the government of France in connection with a rebate from the research and development program, Credit d’import recherché , for the year ended 2013 (the “ Rebate Payment ”) or otherwise direct the Rebate Payment to be paid directly to the Parent. The Rebate Payment shall be made within five (5) days of receipt of funds by the Buyer.
 
(g)            Employment Agreement of Mr. Jais .  The Company shall use its commercially reasonable efforts to cause Mr. Jais to execute and deliver to the Buyer an executed copy of the amendment to the employment agreement in substantially the form set forth on Exhibit C .
 
(h)            Invalidity and death group insurance . Promptly following the Closing Date, the Company shall use its commercially reasonable efforts to terminate the invalidity and death group insurance which is currently with Klesia and subscribe for new insurance with another insurance company reasonably acceptable to the Buyer. Notwithstanding the foregoing to the contrary, in the event the process of terminating the existing insurance with Klesia and subscribing for new insurance is cost-prohibitive in the reasonable opinion of the Company, the Buyer and Company will negotiate in good faith to mutually determine the best course of action with respect to the foregoing.
 
(i)            INRA TRANSFERT .  Promptly following the Closing Date but in no event later than forty-five (45) days following the Closing Date, the Company shall use reasonable endeavors to notify INRA TRANSFERT with a written communication (which written communication may be made jointly with Mayoly) disclosing the Transaction; provided that the 2014 Mayoly Agreement has been executed and delivered to the Buyer.
 
(j)            Bankruptcy of Parent .  In the event (i) the Parent engages in any liquidation, dissolution, winding up, (ii) the Parent files any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium Law or any other Law for the relief of, or relating to, debtors, now or hereafter in effect, or makes any assignment for the benefit of creditors or takes any corporate action in furtherance of any of the foregoing, or (iii) an involuntary petition is filed against Parent under any bankruptcy statute now or hereafter in effect, and such petition is not dismissed or discharged within sixty (60) days, or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) is appointed to take possession, custody or control of any property of Parent, the Series A Preferred shall be forfeited by the Parent to the Buyer and automatically cancelled as of such date.
 
(k)            Use of Proceeds .  The proceeds from the cash portion of the Purchase Price received hereunder shall be used for working capital and other general corporate purposes of the Parent in its sole discretion.
 
(l)            Directors and Officers Liability Insurance .  The Parent shall extend its directors and officers liability insurance run-off coverage for a period of at least two (2) years following the Closing Date to ensure that the Buyer and its Affiliates are covered against any potential claims attributable to or resulting from acts taken prior to the Closing Date against the Company.
 
ARTICLE 9
GOVERNING LAW; LITIGATION.
 
9.1.            Governing Law .  THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF DELAWARE, WITHOUT REGARD TO ITS CONFLICTS OF LAWS PRINCIPLES.

 
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9.2.            Litigation; Waiver of Jury Trial .
 
(a)           The parties hereby consent to the exclusive jurisdiction of the United States District Court for the Southern District of New York and courts of the State of New York located in Manhattan, New York with respect to any Claim, action, suit or other proceeding arising out of or relating to this Agreement and do hereby unconditionally and irrevocably waive any right to contest venue in said courts or to claim that said courts constitute an inconvenient forum.
 
(b)           THE PARTIES TO THIS AGREEMENT HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVE ANY RIGHT EACH SUCH PARTY MAY HAVE TO TRIAL BY JURY IN ANY ACTION OF ANY KIND OR NATURE, IN ANY COURT IN WHICH AN ACTION MAY BE COMMENCED, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN OR AMONG ANY OF THE PARTIES TO THIS AGREEMENT OF ANY KIND OR NATURE.
 
(c)           Each of the parties to this Agreement acknowledge that each has been represented in connection with the signing of this waiver by independent legal counsel selected by the respective party and that such party has discussed the legal consequences and import of this waiver with legal counsel.  Each of the parties to this Agreement further acknowledge that each has read and understands the meaning of this waiver and grants this waiver knowingly, voluntarily, without duress and only after consideration of the consequences of this waiver with legal counsel.
 
ARTICLE 10
INDEMNITY
 
10.1.            Indemnification .
 
(a)           Subject to the other provisions of this Article 10, after the Closing, Protea agrees to indemnify and hold the Buyer Indemnified Parties harmless from and against any and all Losses (calculated in accordance with Section 10.2(d)): (i) based upon, attributable to or resulting from the failure of any representation or warranty of the Sellers set forth in Article 3 to be materially true and correct in all respects as of the date made, (ii) for any due and unpaid Taxes attributable to a pre-Closing period; (iii) based upon, attributable to or resulting from the material breach of any Restrictive Covenant by the Sellers and (iv) relating directly or indirectly (including in respect of French social security administration) from the exclusion of Mr. Blond from the group insurance policy in respect of invalidity and death subscribed with the insurance company Klesia.
 
(b)           Subject to the other provisions of this Article 10, after the Closing, the Buyer hereby agrees to indemnify and hold the Seller Indemnified Parties harmless from and against any and all Losses (calculated in accordance with Section 10.3): (i) based upon, attributable to or resulting from the failure of any representation or warranty of the Buyer set forth in Article 5 or any representation or warranty contained in any certificate delivered by or on behalf of the Buyer pursuant to this Agreement, to be materially true and correct in all respects as of the date made; and (ii) based upon, attributable to or resulting from the material breach of any covenant or other agreement on the part of the Buyer under this Agreement or any Transaction Document.

 
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10.2.            Indemnification Procedures .
 
(a)            Third Party Claims .  If any Indemnified Party receives notice of the assertion or commencement of any Third Party Claim made against such Indemnified Party with respect to which the Indemnifying Party may be obligated to provide indemnification under this Agreement, the Indemnified Party shall give the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than thirty (30) calendar days after receipt of such notice of such Third Party Claim.  The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure.  Such notice by the Indemnified Party shall describe the Third Party Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party.  The Indemnifying Party shall have the right to participate in, or by giving written notice to the Indemnified Party, to assume the defense of any Third Party Claim at the Indemnifying Party’s expense and by the Indemnifying Party’s own counsel, and the Indemnified Party shall cooperate in good faith in such defense; provided , that if the Indemnifying Party is a Seller, such Indemnifying Party shall not have the right to defend or direct the defense of any such Third Party Claim that exclusively seeks non-monetary relief.  If the Indemnifying Party assumes the defense of any Third Party Claim, subject to Section 10.2(b), it shall have the right to take such action as it deems necessary to avoid, dispute, defend, appeal or make counterclaims pertaining to any such Third Party Claim in the name and on behalf of the Indemnified Party. If the Indemnifying Party assumes the defense of any Third Party Claim, the Indemnified Party shall have the right to participate in the defense of any Third Party Claim with counsel selected by it subject to the Indemnifying Party’s right to control the defense thereof.  The fees and disbursements of such counsel shall be at the expense of the Indemnified Party, provided , that if in the reasonable opinion of counsel to the Indemnified Party, (A) there are legal defenses available to an Indemnified Party that are different from or additional to those available to the Indemnifying Party; or (B) there exists a conflict of interest between the Indemnifying Party and the Indemnified Party that cannot be waived, the Indemnifying Party shall be liable for the reasonable fees and expenses of counsel to the Indemnified Party.  If the Indemnifying Party elects not to or defend such Third Party Claim, fails to promptly notify the Indemnified Party in writing of its election to defend as provided in this Agreement, or fails to diligently prosecute the defense of such Third Party Claim, the Indemnified Party may, subject to Section 10.2(b), pay, compromise, defend such Third Party Claim and seek indemnification for any and all Losses based upon, arising from or relating to such Third Party Claim; provided ; however , that the Indemnified Party shall use its reasonable best efforts in the defense of all such Claims.
 
(b)            Settlement of Third Party Claims .  Notwithstanding any other provision of this Agreement, the Indemnifying Party shall not enter into settlement of any Third Party Claim without the prior written consent of the Indemnified Party, except as provided in this Section 10.2(b).  If a firm offer is made to settle a Third Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnified Party and provides, in customary form, for the unconditional release of each Indemnified Party from all liabilities and obligations in connection with such Third Party Claim and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying Party shall give written notice to that effect to the Indemnified Party.  If the Indemnified Party fails to consent to such firm offer within ten (10) Business Days after its receipt of such notice, the Indemnified Party may continue to contest or defend such Third Party Claim and in such event, the maximum liability of the Indemnifying Party as to such Third Party Claim shall not exceed the amount of such settlement offer.  If the Indemnified Party fails to consent to such firm offer and also fails to assume defense of such Third Party Claim, the Indemnifying Party may settle the Third Party Claim upon the terms set forth in such firm offer to settle such Third Party Claim.  If the Indemnified Party has assumed the defense pursuant to Section 10.2(a), it shall not agree to any settlement without the written consent of the Indemnifying Party (which consent shall not be unreasonably withheld, conditioned or delayed).

 
30

 
 
(c)            Direct Claims .  Any Action by an Indemnified Party on account of a Loss which does not result from a Third Party Claim (a “ Direct Claim ”) shall be asserted by the Indemnified Party giving the Indemnifying Party reasonably prompt written notice thereof, but in any event not later than thirty (30) days after the Indemnified Party becomes aware of such Direct Claim.  The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure.  Such notice by the Indemnified Party shall describe the Direct Claim in reasonable detail, shall include copies of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party.  The Indemnifying Party shall have thirty (30) days after its receipt of such notice to respond in writing to such Direct Claim.  The Indemnified Party shall allow the Indemnifying Party and its professional advisors to investigate the matter or circumstance alleged to give rise to the Direct Claim, and whether and to what extent any amount is payable in respect of the Direct Claim and the Indemnified Party shall assist the Indemnifying Party’s investigation by giving such information and assistance (including reasonable access to the Indemnified Party’s premises and personnel and the right to examine and copy any accounts, documents or records upon reasonable notice and during business hours) as the Indemnifying Party or any of its professional advisors may reasonably request.  If the Indemnifying Party does not so respond within such thirty (30) day period, the Indemnifying Party shall be deemed to have rejected such Claim, in which case the Indemnified Party shall be free to pursue such remedies as may be available to the Indemnified Party on the terms and subject to the provisions of this Agreement.
 
(d)            Method of Indemnity Payments .  In the case of any amount payable to any Indemnified Party pursuant to Article 10 hereof, the Indemnified Party shall forward to the Indemnifying Party notice of any sums due and owing by the Indemnifying Party pursuant to this Agreement with respect to such matter and the Claim shall be satisfied as follows:
 
(i)           In the case of any amount payable to a Buyer Indemnified Party, the Indemnifying Party shall be required to pay all of the sums so due and owing to the Buyer Indemnified Parties by wire transfer of immediately available funds within ten (10) Business Days after the date of such notice.
 
(ii)           In the case of any amount payable to a Seller Indemnified Party the Indemnifying Party shall be required to pay all of the sums so due and owing to the Seller Indemnified Parties by wire transfer of immediately available funds within ten (10) Business Days after the date of such notice.
 
(e)           The failure of the Indemnified Party to give reasonably prompt notice of any Claim shall not release, waive or otherwise affect the Indemnifying Party’s obligations with respect thereto except to the extent that the Indemnifying Party can demonstrate actual Loss and prejudice as a result of such failure.
 
(f)           Notwithstanding anything in this Section 10.3 to the contrary, no Indemnifying Party shall be liable for any settlement of any Claim effected without its written Consent, which Consent shall not be unreasonably withheld, conditioned or delayed.  If the Indemnifying Party shall have the exclusive authority to defend such Claim under this Section 10.3, and the Indemnified Party nevertheless shall settle such Claim, the Indemnifying Party shall have no liability with respect to such settlement.
 
(g)            Treatment of Indemnity Payments .  The amount of any Loss for which indemnification is provided under this Article 10 shall be net of (i) any amounts recovered by the Indemnified Party pursuant to any indemnification by or indemnification agreement with any Third Party and (ii) any insurance proceeds or other cash receipts or sources of reimbursement received as an offset against such Loss (collectively, “ Third Party Benefits ”)  Notwithstanding the foregoing, the processing of any Claims by an Indemnified Party for a Third Party Benefit with respect to an indemnifiable Loss shall not relieve the Indemnifying Parties of their obligations under this Article 10 to promptly indemnify the Indemnified Parties; provided , however that if an Indemnified Party subsequently receives a Third Party Benefit for the Loss for which the Indemnifying Parties had previously indemnified the Indemnifying Parties pursuant to this Article 10, the Indemnified Parties shall promptly refund such Third Party Benefit (net of the cost of procuring such Third Party Benefit) to the Indemnifying Parties.

 
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10.3.            Survival of Claims .
 
(a)           Except as otherwise provided in this Section 10.3, all representations and warranties of the Sellers and the Buyer contained in this Agreement shall survive the Closing Date and any investigation made by or on behalf of any party hereto for a period of eighteen months (18) following the Closing Date. Notwithstanding the generality of the immediately preceding sentence:
 
(i)           the representations and warranties set forth in Section 3.2 (Authority Relative to this Agreement), Section 3.5 (Intellectual Property), Section 3.9 (Regulatory Compliance), Section 3.11 (Financial Statements), Section 3.12 (Taxes) and Section 3.16 (Employee Matters) shall survive until the later of (i) sixty (60) days after the expiration of the applicable statute of limitations for the applicable underlying Claim including any extensions or waivers thereof or (ii) if there is no applicable statute of limitations, then five (5) years from the Closing Date;
 
(ii)           the representations and warranties set forth in Section 3.13 (Capitalization) and Section 3.15 (Ownership of Shares) of this Agreement and Claims with respect to fraud shall survive indefinitely.
 
(iii)           any Claim for a breach of a covenant made pursuant to this Agreement shall survive until sixty (60) days after the expiration of the applicable statute of limitations for the underlying Claim, including any extensions or waivers thereof, running from the date of such breach.
 
(b)           The indemnification provided for in this Article 10 shall terminate at the applicable time set forth in Section 10.3(a) (and no Claims shall be made by any Buyer Indemnified Party or Seller Indemnified Party thereafter), except that such indemnification by the Sellers or the Buyer, as applicable, shall continue as to any Losses with respect to which any Buyer Indemnified Party or Seller Indemnified Party, as applicable, has validly given a Claim Notice to the Parent or to the Buyer, as applicable, in accordance with the requirements of Section 10.2 on or prior to the date such indemnification would otherwise terminate in accordance with Section 10.3(a), as to which the obligation of the Sellers or the Buyer, as applicable, shall continue solely with respect to the specific matters described in such Claim Notice until the liability of the Sellers or the Buyer, as applicable, shall have been determined pursuant to this Article 10 and the Sellers shall have reimbursed all Buyer Indemnified Parties, or the Buyer shall have reimbursed all Seller Indemnified Parties, as applicable, for the full amount of such Losses that are payable with respect to such Claim Notice in accordance with this Article 10.
 
ARTICLE 11
TERM; TERMINATION
 
11.1.            Termination of Agreement .  Anything to the contrary notwithstanding, this Agreement and the Transactions may be terminated:
 
(a)            Agreement .  By mutual consent in writing of the Buyer and the Sellers;
 
(b)            By the Buyer .  By the Buyer: (i) upon written notice to the Sellers if the Transactions have not been consummated on or prior to June 25, 2014 unless such failure of consummation shall be due to the failure of the Buyer to perform or observe in all material respects the covenants and agreements hereof to be performed or observed by the Buyer; or (ii) if the Sellers have breached any representation, warranty or covenant contained in this Agreement in any material respect, the Buyer has notified the Sellers of the breach, and the breach has continued without cure for a period of ten (10) Business Days after the notice of breach; or
 
(c)            By the Sellers .   By the Sellers: (i) upon written notice to the Buyer if the Transactions have not been consummated on or prior to June 25, 2014, unless such failure of consummation shall be due to the failure of the Sellers to perform or observe in all material respects the covenants and agreements hereof to be performed or observed by the Sellers; or (ii) if the Buyer has breached any representation, warranty or covenant contained in this Agreement in any material respect, the Sellers have notified the Buyer of the breach, and the breach has continued without cure for a period of ten (10) Business Days after the notice of breach.

 
32

 
 
11.2.            Effect of Termination .   If this Agreement shall be terminated pursuant to Section 11.1, all further obligations of the parties under this Agreement shall terminate without further liability of any party to the other; provided , however , that any party may pursue any Claim that it may have as a result of a breach by another party of any covenant under this Agreement.
 
ARTICLE 12
MISCELLANEOUS PROVISIONS
 
Except as provided otherwise in this Agreement, the following provisions shall apply hereto:
 
12.1.            Amendment and Modifications .  Subject to applicable Law, this Agreement may be amended, modified and supplemented only by a written agreement between the Buyer and the Sellers which states that it is intended to be a modification of this Agreement.
 
12.2.            Waiver of Compliance .  Any failure of the Sellers, on the one hand, or the Buyer, on the other hand, to comply with any obligation, covenant, agreement or condition in this Agreement may be expressly waived in writing by the Buyer, on the one hand, or the Sellers, on the other hand, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure by the Sellers or the Buyer.
 
12.3.            Expenses . Subject to all rights and remedies that a party may have against another party for breach of this Agreement, all fees and expenses incurred by each party in connection with the Transactions shall be borne by the party incurring such fees and expenses.
 
12.4.            Further Assurances .  During the period between the execution of this Agreement and the Closing, and during all periods after the Closing, each party shall execute and deliver such further certificates, agreements and other documents and take such other actions as the other party may reasonably request to consummate or implement the Transactions or to evidence such events or matters.
 
12.5.            No Waiver of Rights .  No failure on the part of any party to exercise or delay in exercising any right hereunder shall be deemed a waiver thereof, nor shall any single or partial exercise preclude any further or other exercise of such right or any other right.
 
12.6.            Notices .  Any notice required, permitted or desired to be given pursuant to any of the provisions of this Agreement shall be in writing and shall be deemed to have been sufficiently given or served for all purposes if (i) delivered in Person, (ii) sent by registered or certified mail, return receipt requested, postage and fees prepaid, or (iii) sent by a national overnight delivery service, return receipt requested, fees prepaid, to the parties as follows:
 
(a)           if to the Buyer, to:
 
AzurRx BioPharma, Inc.
1410 Broadway, 23 rd Floor
New York, NY 10018
Attn: Christine Rigby-Hutton, President and COO
email: christine.rigby@azurrx.com
 
With copies to (which shall not constitute notice):
 
Loeb & Loeb LLP
345 Park Avenue
New York, NY 10154
Attn: David J. Levine
email: dlevine@loeb.com
 
or to such other Person or address as the Buyer shall furnish to the Sellers in writing.

 
33

 
 
(b)           if to the Sellers, to:
 
c/o Protea Biosciences Group, Inc.
955 Hartman Run Road
Morgantown, West Virginia 26505
Attn: Stephen Turner, CEO
email: stephen.turner@proteabio.com
 
With copies (which shall not constitute notice) to:
 
Richardson & Patel LLP
The Chrysler Building
405 Lexington Avenue, 49 th Floor
New York, NY 10174
Attn: David N. Feldman
email: dfeldman@richardsonpatel.com
 
or to such other address as the Sellers shall furnish to the Buyer in writing.  Any notice given under this Section 12.6 shall be effective (i) if delivered personally, when delivered, (ii) if delivered overnight by national overnight courier, the end of the next Business Day after deposit with such courier, and (iii) if mailed, the third Business Day after mailing.  Any of the parties hereto may at any time and from time to time change the address to which notice shall be sent hereunder by notice to the other party given under this Section 12.6.  The date of the giving of any notice sent by mail shall be the date of the posting of the mail.
 
12.7.            Assignment .  This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations under this Agreement or the other Transaction Documents shall be assigned by any of the parties hereto without the prior written consent of the other party; provided , that the Buyer may assign its rights, interests or obligations under this Agreement and the other Transaction Documents to any acquiror.
 
12.8.            Counterparts .  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but shall constitute one and the same instrument.  Facsimile and electronic signatures ( i.e. , PDF) to this Agreement shall be valid.
 
12.9.            Headings .  The headings of the Sections and Articles are inserted for convenience only and shall not constitute a part hereof or affect in any way the meaning or interpretation of such Agreement.
 
12.10.            Entire Agreement .  This Agreement and the Transaction Documents set forth the entire agreement of the parties hereto in respect of the subject matter contained therein, and supersede all prior agreements, whether oral or written, by any officer, employee or representative of any party hereto with respect to the subject matter hereof.
 
12.11.            Third Party Beneficiaries .  Except as specifically set forth or referred to herein, nothing herein expressed or implied is intended or shall be construed to confer upon or give to any Person other than the parties hereto and their successors or assigns, any rights or remedies under or by reason of this Agreement.
 
12.12.            Severability .  If any provision of this Agreement shall hereafter be held to be invalid or unenforceable for any reason, that provision shall be reformed to the maximum, extent permitted to preserve the parties’ original intent; failing which, it shall be severed from this Agreement with the balance of this Agreement continuing in full force and effect.  Such occurrence shall not have the effect of rendering the provision in question invalid in any other jurisdiction or in any other case or circumstances, or of rendering invalid any other provisions contained therein to the extent that such other provisions are not themselves actually in conflict with any applicable Law.
 
12.13.            Survival .  Subject to earlier termination upon Reversion or the terms of Section 8.2(i), the provisions of Section 2.3 of this Agreement shall survive the Closing and shall continue in effect until December 31, 2040, subject to automatic renewal for successive one-year periods until the average Royalty Payment for the three prior completed calendar years is less than $100,000.
 

 
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, all as of the day and year first above written.
 
BUYER:
 
AZURRX BIOPHARMA, INC.
 
By:   /s/ Christine Rigby-Hutton
Christine Rigby-Hutton, President and COO
 
SELLERS:
 
PROTEA BIOSCIENCES GROUP, INC.
 
By:   /s/ Stephen Turner
Stephen Turner, Chief Executive Officer
 
PROTEA BIOSCIENCES, INC.
 
By:   /s/ Stephen Turner
Stephen Turner, Chief Executive Officer
 
PROTEABIO EUROPE SAS
 
By:   /s/ Daniel Dupret
Daniel Dupret, President

 
35

 
 
EXHIBIT A
 
Form of Certificate of Designation

 
 

 
 
EXHIBIT B
 
Executive Agreement

 
 

 
 
EXHIBIT C
 
Amendment to Mr. Jais’ Employment Agreement

 
 

 
 
EXHIBIT D
 
2014 Mayoly Agreement

 
 

 
 
EXHIBIT E
 
Description of Program PR1101
 
 
 
Exhibit 10.2
 
 
CONFIDENTIAL TREATMENT REQUESTED.
INFORMATION FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED IS OMITTED AND MARKED WITH “*****” OR OTHERWISE
CLEARLY INDICATED. AN UNREDACTED VERSION OF THIS DOCUMENT HAS
ALSO BEEN PROVIDED TO THE SECURITIES AND EXCHANGE COMMISSION.

 
JOINT DEVELOPMENT AND LICENSE AGREEMENT
 
Between
 
Laboratoires Mayoly Spindler SAS
 
and
 
Proteabio Europe SAS

 
 

 
Confidential

Contents
 
Clause Page
 
1.
Definitions
 
2.
Purpose of the Agreement
 
3.
Grant of licenses and sub-licenses in connection with the Development Program
 
4.
Contributions of the Parties to the Development Program
 
5.
Project management
 
6.
Timelines
 
7.
Off project licenses
 
8.
Right of Withdrawal
 
9.
Royalties
 
10.
Payments, records and audits
 
11.
Confidentiality
 
12.
Technology and Patent Rights
 
13.
Representations, warranties, covenants
 
14.
Indemnification, insurance
 
15.
Term, termination
 
16.
Governing law and dispute resolution
 
17.
Miscellaneous
 
 
Exhibit A - Assigned Territories
 
 
Exhibit B - Core Program [
 
 
Exhibit C - Program Budget for the period 2009 - 2019
 
 
Exhibit D - Restricted entities
 
 
Exhibit E - Form of balance statement of Shared Costs
 
 
Exhibit F - Deduction of development costs (example)
 
 
Exhibit G - Reciprocal License Agreement

 
Page 2 of 65

 
Confidential

This Joint Development and License Agreement (the " Agreement ") becomes effective as of 1 January 2014 (the " Effective Date "), by and between:
 
Laboratoires Mayoly Spindler (" LMS "), a corporation created and organized under French laws, identified at the SIREN under number 709 807 408 RCS Versailles, having its registered office at 6 avenue de l'Europe, 78401 Chatou, France,
 
And
 
Proteabio Europe ("Protea") , a corporation created and organized under French laws, identified at the SIREN under number 508 757 630 RCS Nîmes, having its registered office at 290 chemin de Saint Dionisy- Jardin des Entreprises, 30980 Langlade, France,
 
Each of LMS and Protea are referred to herein as a " Party " and collectively as the " Parties ".
 
RECITALS
 
A.
LMS, Protea and Protea Biosciences, Inc. entered into a Joint Research and Development Agreement dated March 22, 2010.
 
B.
LMS, Protea and Protea Biosciences, Inc. have decided to change the allocation of costs regarding the Development Program (as defined hereafter) pursuant to which Protea will make the majority investment in this program, subject to Protea holding the rights to manage this program. This change impacts multiple aspects of the contractual relationship between the Parties.
 
C.
In this context, LMS, Protea and Protea Biosciences, Inc. desire to terminate, in its entirety, the March 22, 2010 Joint Research and Development Agreement and replace it in its entirety with this Agreement which shall set out the terms and conditions of the Development Program and clarify the terms under which Protea benefits from license rights to carry out separate development, manufacturing and marketing activities in relation to human pharmaceutical medicine or nutraceutical products utilizing the Active Ingredient (as defined hereafter).
 
NOW, THEREFORE , the Parties agree as follows:
 
1.
Definitions
 
" Active Ingredient " means any lipase produced by the " yarrowia lipolytica recombinant strain with 6 copies of the lip2 gene permitting to overexpress the acid resistant Yarrovia Lipolitica LIP2 lipase". This strain has been deposited in 2005 at CNCM ( Collection Nationale de Culture de Microorganismes ) under the reference number I-3542.
 
" Affiliate " is to be interpreted as follows:
 
 
-
an "Affiliate" of LMS is any corporation or other entity that is controlled, directly or indirectly, by Scorpius SAS, with its registered office located at 55 rue Jouffroy d’Abbans, 75017 PARIS, and registered under number 384 617 692 RCS Paris; and

 
Page 3 of 65

 
Confidential
 
 
-
an "Affiliate" of Protea means any corporation or other entity which, directly or indirectly:
 
(a)      controls Protea, or
 
(b)      is controlled by the corporation or other entity referred to in (a) above
 
A corporation or other entity shall be regarded as in control of another corporation or entity if it owns or directly or indirectly controls more than 50% of the voting securities or other ownership interest of the other corporation or entity, or if it possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the corporation or other entity.
 
" API " means the active pharmaceutical ingredient.
 
" Applicable Laws " means any laws, treaties, statutes, ordinances, judgments, decrees, directives, rules, injunctions, writs, regulations, binding arbitration rulings, orders, judicial or administrative interpretations or authorization of, any Government Authority relevant to the manufacture, distribution, promotion, marketing, handling, storage and/or sale of the Product or a Side Product, and to any other matters set forth in this Agreement.
 
" Assigned Tasks " means the tasks assigned to each Party under the Development Program, as may be amended from time to time by the Review Committee.
 
" Assigned Territory " means the geographical area assigned for the development, use, manufacturing and Commercialization of the Product and the Side Product, as set forth in Exhibit A, which identifies:
 
 
(a)
the Assigned Territory assigned exclusively to a Party, namely "Protea Assigned Territory" and "LMS Assigned Territory"; and
 
 
(b)
the Joint Assigned Territory.
 
" Background " means Technology, Patents, and Patent Rights owned or Controlled by a Party as of the Effective Date. For the avoidance of doubt, "Foreground" generated under the March 22, 2010 Joint Research and Development Agreement is deemed to be Foreground (and not Background) under this Agreement.
 
" Caller Request " has the meaning given in Section 12.4.2(c).
 
" Commercialization " and " Commercialize " mean any and all activities, excluding development and manufacturing, necessary or desirable to realize commercial sales of a Product or Side Product in accordance with Applicable Laws, including using, distributing, importing, transporting, customs clearance, export, warehousing, packing, handling and delivering to customers, as well as offering for sale and sales, marketing, promoting and reimbursement related activities, including booking sales.

 
Page 4 of 65

 
Confidential
 
" Confidential Information " has the meaning given in Section 11.1.
 
" Control " or " Controlled " means, with respect to any intellectual property right or other tangible or intangible property, that a Party or one of its Affiliates owns or has a license or sublicense to such item or right, and has the ability to grant access, license or sublicense in or to such right without violating the terms of any agreement or other arrangement with any Third Party.
 
" Core Program " means the core elements setting out the framework for the Development Program and identified in Exhibit B.
 
“Cost of Goods Sold ” or “ COGS ” means the direct and indirect costs, which are reasonable and necessary, incurred in manufacturing the Product or the Side Product (as applicable) for sale in the relevant Assigned Territory, in accordance with generally accepted accounting principles (“ GAAP ”) applied and consistent with general industry practice.
 
" Development Program " means the development by the Parties (non-clinical, pharmaceutical and clinical development) of the Active Ingredient in various pharmaceutical dosage forms for the Field in order to obtain the necessary Marketing Authorizations for the Product in the Assigned Territories.
 
" EU MA " has the meaning given in Section 6.2.
 
" Field " means the treatment of a patient population suffering from exocrine pancreatic insufficiency in chronic pancreatitis and/or cystic fibrosis.
 
" Force Majeure Event " has the meaning given in Section 17.2.2.
 
" Foreground " means any Technology and Patent Rights that are discovered, made or conceived as a result of the carrying out of the Development Program and which are not Background or Sideground.
 
" Government Authority " means any governmental department, commission, entity, board, bureau, agency, administration, court or other instrumentality of any country in each of the Assigned Territories, including federal, state, district or commonwealth thereof, any foreign government or any jurisdiction, municipality or other political subdivision thereof.
 
Gross Profit Margin ” means the remainder, if any, that results from Net Sales in the relevant Assigned Territory minus Cost of Goods Sold.
 
" Gross Sales " means, with respect to a Party, the invoice value of sales of Products or Side Products (as applicable, and excluding freight, insurance costs, taxes, duties and levies) by such Party, its Affiliates or sublicensees of such Party or of its Affiliates, to a customer (such as a wholesaler or retailer). Sale to an Affiliate of a Party, or a sublicensee of a Party or of its Affiliates shall not constitute a Gross Sale.

 
Page 5 of 65

 
Confidential
 
" Intellectual Property " means all patents (including the Patents), copyrights, trademarks, service marks, service names, or trade names, including any applications or registrations for any of the foregoing, or extensions, renewals, continuations, continuations in part, divisionals, reexaminations, or re-issues thereof, or amendments or modifications thereto, brandmarks, brand names, trade dress, labels, logos, know-how (including the Know-How), show-how, technical and non-technical information, trade secrets, formulae, techniques, sketches, drawings, models, inventions, designs, specifications, processes, apparatus, equipment, databases, research, experimental work, development, pharmacology and clinical data, software programs and applications, software source documents, third-party licenses, and any similar type of proprietary intellectual property right vesting in the owner and/or licensee thereof pursuant to the Applicable Laws or regulations of any relevant jurisdiction or under any applicable license or contract, whether now existing or hereafter created, together with all modifications, enhancements and improvements thereto.
 
" Know-How " means any and all methods, devices, technology, trade secrets, inventions, compositions, designs, formulae, know-how, show-how, technical and training manuals and documentation and other information, including processes and analytical methodologies used in development, testing, analysis and manufacture, and medical, clinical and toxicological testing as well as other scientific data, which is related to, made, developed, conceived, and/or used in connection with the Development Program, the Active Ingredient, the Product, or any ingredient thereof, and/or the formulation, development, registration, manufacture, packaging, labeling, import, export, receipt, shipment, storage, use, pricing or sale of the Product.
 
" LMS IP " means any Background and Sideground owned and/or Controlled by LMS (other than the Patent(s)).
 
" Major EU Country " has the meaning given in Section 6.2.
 
" Marketing Authorization " means the technical, medical and scientific licenses, registrations, authorizations and/or approvals for the manufacture and/or marketing of the Product, or a Side Product, granted by any relevant Governmental Authority in any Assigned Territory.
 
" Needed " in respect of a license granted hereunder means "technically essential" and a license is "Needed" if, without the grant of such right:
 
 
(a)
carrying out the obligations assigned to the recipient Party under this Agreement would be impossible, significantly delayed, or require significant additional financial or human resources; or
 
 
(b)
the use of its own Foreground by the recipient Party would be technically or/and legally impossible.
 
Net Sales ” means, with respect to a Party (i.e. "Protea Net Sales" or  "LMS Net Sales"), such Party's Gross Sales less all normal and customary discounts (such as trade, quantity, cash or other discounts), rebates, refunds, credits, wholesaler allowances, shelf stock adjustments, chargebacks, returns, and any other gross to net allowances consistent with GAAP.

 
Page 6 of 65

 
Confidential
 
" Off Project Product License " has the meaning given in 12.4.2(c).
 
" Patent(s) " means any patent granted in any portion of the Assigned Territories that claim the benefit of priority of any of the following applications filed by LMS and/or Institut National de la Recherche Agronomique ("INRA") and Centre National de la Recherche (“CNRS”):
 
 
(c)
International patent application number PCT/FR2006/001352, entitled "Method for producing  lipase, transformed Yarrowia lipolytica ," capable of producing said lipase and their uses," and published under WO 2007/144475;
 
 
(d)
International patent application number PCT/FR00/001148, entitled "Cloning and expressing an acid-resistant extracellular lipase of Yarrowia lipolytica ," and published under WO 01/83773;
 
 
(e)
International patent application number PCT/FR99/02079, entitled "Method for non-homologous transformation of Yarrowia lipolytica "; and
 
 
(f)
French Application Serial No. 9810900 filed on September 1, 1998, in France.
 
The Parties acknowledge that patents issuing from national stage applications based on PCT/FR2006/001352 and PCT/FR00/01148 are dependent on the patents issued to INRA and CNRS entitled, "Method for non-homologous transformation of Yarrowia lipolytica ," filed on September 1, 1998, in France, and issuing from national stage applications based on application number PCT/FR99/02079.
 
On February 2, 2006, LMS and INRA TRANSFERT, as representative for INRA and CNRS, signed a reciprocal license agreement entitled "Accord d'exploitation et de licences croisées" (hereafter the " Reciprocal License Agreement ," a copy of which is attached hereto at Exhibit G). LMS and INRA/CNRS patents are defined in the reciprocal license agreement as "INRA-CNRS/LMS Technology."
 
The Parties acknowledge that PCT/FR2006/001352 is a continuation of the "INRA-CNRS/LMS Technology" and that LMS must comply with the terms of the Reciprocal License Agreement.
 
By a letter signed on 6 June 2014, INRA TRANSFERT has agreed to the sublicenses granted to Protea by LMS under the present Agreement, and in particular under Sections 3.1, 7.1 and 12.4.
 
" Patent Period " means the life of any patent(s) owned, licensed or controlled by LMS that was granted from a national stage application based on pct/fr2006/001352. For purposes of clarity, the Patent Period shall end, on a country by country basis, after such patent(s) and/or any supplementary protection certificate relating to such patent(s), have expired or otherwise been declared invalid and/or unenforceable by a court, tribunal, or other agency of competent jurisdiction in each of the countries where the patent was applied for and/or granted.
 
" Patent Rights " means patents, patent applications, certificates of invention, or applications for certificates of invention, together with any extensions, registrations, confirmations, reissues, divisions, continuations or continuations-in-part, re-examinations, renewals, and foreign counterparts thereof.

 
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" Product " means any human pharmaceutical medicine or nutraceutical product in the Field and utilizing the Active Ingredient.
 
Program Budget ” has the meaning given in Section 4.2.1(a).
 
" Protea IP " means Background and Sideground owned and/or Controlled by Protea.
 
" Reciprocal License Agreement " has the meaning given in the definition of "Patent(s)".
 
" Sideground " means Technology and Patent Rights made or conceived as a result of projects carried out separately from the Development Program after the Effective Date, regardless of whether they are a consequence (including improvement) of work carried out under the Development Program.
 
" Side Product " means any human pharmaceutical medicine or nutraceutical product, outside the Field, utilizing the Active Ingredient.
 
" Shared Costs " means those costs that will be subject to the contribution provisions set forth in Section 4.2. Such costs shall include only the following costs and charges, net any and all grants or subsidies related to any of the foregoing expenses, including, for example, French Crédit d'Impôt Recherche and any other equivalent grant (be it in the USA or in France):
 
 
-
all external expenses related to the Development Program, including:
 
 
costs and expenses associated with conducting development activities;
 
 
expenses for all clinical, pre-clinical and pharmaceutical activities (including production of API and formulation);
 
 
consulting expenses and vendor costs directly related to the Development Program;
 
 
intellectual property expenses paid in connection for the filing and prosecution of patents stemming from patent applications filed after the Effective Date, except expenses incurred as from entering into national examination phase;
 
 
license fees paid in connection with any patents owned and/or controlled by Third Parties for which a license or other authorization is necessary for the development (with the exception of any royalties, fees and expenses incurred by LMS in connection with the Patents);
 
 
costs associated with external dedicated personnel directly involved in the Development Program;
 
 
legal costs (other than expenses relating to intellectual property referred to above) involved in carrying out the Development Program, up to 20,000€, excl. tax, per year;
 
 
insurance expenses involved in carrying out the Development Program; and
 
 
-
any other items contemplated in the Program Budget.

 
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" Stage 1 ", and " Stage 2 " have the meaning given in Section 6.2 .
 
" Technology " means inventions, trade secrets, Know-How, data and Intellectual Property, of any kind, including any proprietary materials (such as the " yarrowia lipolytica recombinant strain with 6 copies of the lip2 gene permitting to overexpress the acid resistant Yarrovia Lipolitica LIP2 lipase"), compounds, reagents, techniques, analytical methodology, or processes that are not included in Patent Rights.
 
“Term” means the period running until expiry of the legal protection of the Technology and Patent Rights licensed under this Agreement by each Party to the others, i.e. the latest of any of the following dates: the date of expiry of (i) the Patent Period, (ii) the duration of any other patent licensed under this Agreement, or (iii) the duration of the legal protection of any intellectual property right licensed under this Agreement or (iv) any data exclusivity period applicable to data licensed by a Party to another under this Agreement.
 
" Third Party " means any entity other than Protea, LMS, or their Affiliates.
 
" Withdrawal " has the meaning given in Section 8.1.
 
1.2
In this Agreement:
 
 
(a)
reference to Sections or Exhibits are to the sections and exhibits of this Agreement;
 
 
(b)
all references to the words 'include' and 'including' shall be construed without limitation;
 
 
(c)
a reference to writing or written includes faxes and e-mail;
 
 
(d)
"day" means calendar day, "month" means a calendar month, "year" means a period of 365 days except in the case of a leap year which shall mean a period of 366 days;
 
 
(e)
any standards, regulations, codes stated in any part of this Agreement shall be interpreted as the latest version, on the Effective Date, of the said standard, regulation, code etc., unless stated otherwise.
 
2.
Purpose of the Agreement
 
The subject matter of this Agreement is:
 
 
(a)
with regard to the Development Program, to:
 
 
(i)
determine the Parties' respective rights and obligations with regard to the carrying out of the Development Program;
 
 
(ii)
organize the management of the Development Program; and
 
 
(iii)
set out the rules applicable to intellectual property rights deriving from the Development Program, and the principles for the manufacturing and marketing of any Product; and
 
 
(b)
with regard to any Products not developed under the Development Program and Side Products, to determine the Parties' respective rights and obligations with regard to the development, the manufacturing and marketing of such Products and Side Products.
 

 
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3.
Grant of licenses and sub-licenses in connection with the Development Program
 
3.1
Licenses and sub-licenses granted by LMS
 
3.1.1
LMS License
 
 
(a)
LMS hereby grants to Protea and its Affiliates an irrevocable right and license to the Patents and any LMS IP:
 
 
(i)
to the extent Needed under the Development Program to develop and use any Products; and
 
 
(ii)
to the extent Needed to manufacture any Products developed under the Development Program; and
 
 
(iii)
to the extent Needed to Commercialize any Products developed under the Development Program;
 
hereafter referred to as the " LMS License".
 
 
(b)
The LMS License shall be:
 
 
(i)
exclusive (even as to LMS) for the Protea Assigned Territory, except that LMS shall be entitled to grant licenses to the Patents and the LMS IP in the Protea Assigned Territory in connection with:
 
 
(1)
pre-clinical, pharmaceutical and manufacturing processes development work contracted with entities located in the Protea Assigned Territory. For the avoidance of doubt, LMS cannot license the Patents and the LMS IP to any other entity than Protea to carry out clinical development work in the Protea Assigned Territory in the Field; and
 
 
(2)
manufacturing of Products, developed under the Development Program, contracted with entities located in the Protea Assigned Territory, provided that such Products are manufactured solely for the purpose of being sold outside of the Protea Assigned Territory.
 
 
(ii)
non exclusive for:
 
 
(1)
the Joint Assigned Territory; and
 
 
(2)
the LMS Assigned Territory, but only to the extent permitting Protea to:
 
 
-
carry out pre-clinical, clinical, pharmaceutical and manufacturing processes development work contracted with entities located in the LMS Assigned Territory; and
 
 
-
manufacture Products, developed under the Development Program, contracted with entities located in the LMS Assigned Territory;
 
Protea not having any right to Commercialize the Products, developed under the Development Program, in the LMS Assigned Territory.

 
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3.1.2
Sublicensing rights
 
 
(a)
The rights granted under the LMS Licence may be sub-licensed by Protea to any Third Parties without the need to obtain prior consent from LMS. Protea shall inform LMS of the name of the sub-licensee and the scope of the rights sub-licensed. However, Protea must ask LMS' prior written consent if Protea wishes to sub-license said rights to the LMS restricted entities referred to in Exhibit D. LMS shall be entitled to amend such entities referred to in Exhibit D at any time and at the latest 12 months before the first application for a Marketing Authorization for the Product, developed under the Development Program, is submitted by a Party.
 
 
(b)
Notwithstanding the foregoing, in the event Protea grants the sub-license referred to in the preceding sub-Section, Protea shall ensure that such sub-license does not adversely impact or otherwise restrict LMS' rights under this Agreement.
 
3.1.3
Miscellaneous
 
Notwithstanding the foregoing, in the event LMS licenses, sub-licenses, or otherwise authorizes the use of the Patents and any LMS IP by a Third Party, LMS shall ensure that such Third-Party license, sub-license or other authorization does not adversely impact or otherwise restrict Protea's rights under this Agreement.
 
3.2
Licenses and sub-licenses granted by Protea
 
3.2.1
Protea License
 
 
(a)
Protea hereby grants to LMS and its Affiliates an irrevocable right and license to any Protea IP:
 
 
(i)
to the extent Needed under the Development Program to develop and use any Products; and
 
 
(ii)
to the extent Needed to manufacture any Products developed under the Development Program; and
 
 
(iii)
to the extent Needed to Commercialize any Products developed under the Development Program;
 
hereafter referred to as the " Protea License ".
 
 
(b)
The Protea License shall be:
 
 
(i)
exclusive (even as to Protea) for the LMS Assigned Territory, except that Protea shall be entitled to grant licenses to the Protea IP in the LMS Assigned Territory in connection with:
 
 
(1)
pre-clinical, clinical, pharmaceutical and manufacturing processes development work contracted with entities located in the LMS Assigned Territory; and
 
 
(2)
manufacturing of Products , developed under the Development Program, contracted with entities located in the LMS Assigned Territory.
 

 
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(ii)
non exclusive for:
 
 
(1)
the Joint Assigned Territory; and
 
 
(2)
the Protea Assigned Territory, but only to the extent permitting LMS to:
 
 
-
carry out pre-clinical, pharmaceutical and manufacturing processes development work contracted with entities located in the Protea Assigned Territory. For the avoidance of doubt, LMS cannot use the Protea IP to carry out clinical development work in the Protea Assigned Territory in the Field; and
 
 
-
manufacture of Products , developed under the Development Program, contracted with entities located in the Protea Assigned Territory, provided that such Products are manufactured solely for the purpose of being sold outside of the Protea Assigned Territory;
 
LMS not having any right to Commercialize the Products , developed under the Development Program, in the Protea Assigned Territory.
 
3.2.2
Sublicensing rights
 
 
(a)
The licenses granted under the Protea License may be sub-licensed by LMS to any Third Parties without the need to obtain prior consent from Protea. LMS shall inform Protea of the name of the sub-licensee and the scope of the rights sub-licensed. However, LMS must ask Protea's prior written consent if LMS wishes to sub-license said rights to the Protea restricted entities referred to in Exhibit D. Protea shall be entitled to amend such entities referred to in Exhibit D at any time and at the latest 12 months before the first application for a Marketing Authorization for the Product, developed under the Development Program, is submitted by a Party.
 
 
(b)
Notwithstanding the foregoing, in the event LMS grants the sub-license referred to in the preceding sub-Section, LMS shall ensure that such sub-license does not adversely impact or otherwise restrict Protea's rights under this Agreement.
 
3.2.3
Miscellaneous
 
Notwithstanding the foregoing, in the event Protea licenses, sub-licenses, or otherwise authorizes the use of any Protea IP by a Third Party, Protea shall ensure that such Third-Party license, sub-license or other authorization does not adversely impact or otherwise restrict LMS's rights under this Agreement.
 
3.3
Restrictions
 
In the event a Third Party is engaged in activities in a country of the Assigned Territory which is subject to an exclusive license granted by one Party to the other pursuant to this Section 3, then such other Party shall take whatever action is necessary to stop the violation by such Third Party. If that Party (the " Defaulting Party ") fails to take such action in such country, then another Party (the " Intervening Party ") may undertake action to stop the Third Party. In such event, the Defaulting Party shall reimburse the Intervening Party for all costs and expenditures incurred in protecting the Territory from the Third Party. Such amounts may be deducted by Intervening Party from the payments it must make pursuant to this Agreement, if applicable. A violation of this Section shall be considered a material breach of this Agreement.
 

 
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4.
Contributions of the Parties to the Development Program
 
4.1
Contributions
 
Each Party shall use its best efforts to ensure the success of the Development Program. Each Party commits to (i) implement its Assigned Tasks approved by the Review Committee and devote sufficient personnel and facilities required for the performance of its obligations and responsibilities hereunder, (ii) make available appropriately qualified personnel to conduct, supervise, analyze and report on the results obtained in the furtherance of the Development Program, and (iii) provide and expend such scientific, technical and other resources as are necessary to conduct the Development Program.
 
4.2
Responsibility of costs
 
4.2.1
As from the Effective Date, Protea shall incur 70% of all Shared Costs and LMS shall incur 30% of all Shared Costs as follows:
 
 
(a)
Exhibit C sets out one single total budgeted amount per year, up to a total of 30,864,000€ at the end of the project, (the " Program Budget ") as forecasted at the date of signature of the Agreement. The Parties acknowledge that budget overruns may occur, but in such case the burden of such overruns will be allocated between the Parties as set out in sub-Sections 4.2.1(b) to 4.2.1(f) below;
 
 
(b)
for any budget overrun of up to 20%, Protea and LMS shall respectively bear its share of the costs, i.e. 30% for LMS and 70% for Protea (the " Overrun Share "), within the year in which such 20% (or less) overrun occurs;
 
 
(c)
for any budget overrun above 20% and up to 30%, Protea shall pay the overrun amount between 20% and 30%, and LMS shall reimburse to Protea its own share (i.e. 30%) of the overrun over 2 consecutive years (spread in equal amounts over both years) as from the date an EU MA is granted to LMS for any Major EU Country (the " LMS Reportable Overrun Share "). Such reimbursement shall not be offset with any other costs LMS may have incurred in its Assigned Territory;
 
 
(d)
for any budget overrun above 30%, Protea shall bear the amount exceeding 30%;
 
 
(e)
the budget overrun is assessed on the basis of the total yearly amounts set out in Exhibit C;
 
 
(f)
for the avoidance of doubt, the Shared Costs and any budget overrun are taken into account in the expenses referred to in Sections 9.4.1.
 

 
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4.2.2
In order to comply with the above provision, no later than the 15 th of each month, each Party shall send to the other Party the detailed balance statement of all Shared Costs in the form set out in the template statement attached as Exhibit E for the preceding calendar month incurred by that Party. A summary statement shall be discussed and reviewed during the first Review Committee meeting each semester or, if required by either Party, during a specific Review Committee meeting held for the purpose of examining each Party's summary statements. Protea and LMS shall issue an invoice of all Shared Costs for the applicable month owed respectively by LMS and Protea based on the allocation set forth in Section 4.2.1. Each Party shall send to the other Party copies of the original invoices listed in the invoice. Whichever Party has financed less than that for which it is responsible based on an accounting of the Shared Costs invoices for that month, and consistent with the allocation of Shared Costs set forth above in Section 4.2.1, shall pay the balance of the costs owed to the other Party within 45 days of the date of invoice. No later than the 15 th of February, an invoice covering the preceding calendar year shall be established by each Party to reflect the actual Shared Costs incurred by each Party during such year, and taking in particular into account the Crédit d'Impôt Recherche received by each Party for such year which reduces the actual burden of such costs for such Party.
 
5.
Project management
 
The management of the Development Program shall be organized with a Coordinator, a Management Committee and a Review Committee.
 
5.1
Coordinator
 
5.1.1
Appointment
 
Promptly after the date of signature of the Agreement, Protea shall appoint a Coordinator to serve as a Program Manager.
 
5.1.2
Duties
 
The Coordinator shall monitor the compliance by each Party with its obligations under this Agreement and act as an effective intermediary between the Parties. In this regard, the Coordinator shall carry out the following tasks, including the following:
 
 
(a)
receiving the financial contributions of each Party provided for herein and allocating such contributions as directed by the Review Committee;
 
 
(b)
maintaining the records and financial accounts relative to the financial contributions of each Party;
 
 
(c)
responsibility for the communication between the Parties, including the exchange of information related to the Parties' Technology and Patent Rights;
 
 
(d)
coordinating the day-to-day activities of the Parties;
 
 
(e)
convening meetings with the Management Committee and the Review Committee as provided for herein.
 
The Coordinator shall not act beyond the scope of his duties as provided above. He shall not be entitled to enter into any agreements or make any commitments on behalf of either Party or all Parties without their prior written consent.
 

 
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5.2
Management Committee
 
5.2.1
Composition and Management Committee meetings
 
Within 30 days from the date of signature of the Agreement, Protea and LMS shall designate their respective Program Manager who shall comprise the Management Committee. Each Program Manager shall, to the extent possible, be assigned to the Development Program until completion. Each Program Manager shall be responsible for communicating all Development Program instructions and information to the Coordinator and will be available on a regular basis for consultation during the course of the Development Program.
 
5.2.2
Meetings
 
The Management Committee shall meet every two months unless the Coordinator calls for any special meeting. The Coordinator shall distribute the minutes of each meeting to all members of the Management Committee within 20 days following each meeting. Such minutes are deemed accepted by a Party if such Party does not object to their content within 10 days from receiving them.
 
5.2.3
Duties of the Management Committee
 
The Management Committee shall be responsible for:
 
 
(a)
preparing a detailed schedule of the Assigned Tasks to be performed by each Party, refining and adapting the Development Program budget, the initial version of which is attached as Exhibit C, and analyzing any other anticipated detailed financial expenses to be incurred;
 
 
(b)
scheduling and addressing all aspects of the pharmaceutical, clinical and non-clinical development activities associated with the Development Program, including addressing and procuring the vendors, consultants and Third Parties utilized by each Party in connection with each Party's obligations under the Development Program;
 
 
(c)
organizing all logistics and material support for the performance of the Development Program, it being provided that clinical trials undertaken in connection with the Development Program shall be initiated and performed under the direction and/or supervision of Protea (without Protea being necessarily the sponsor of such studies from a regulatory standpoint), if and to the extent instructed by Protea;
 
 
(d)
following up on the Parties' contributions and the payment of any grants and/or any other public aid, if applicable;
 
 
(e)
monitoring the implementation of the Development Program schedule and the Program Budget;
 
 
(f)
submitting, on a quarterly basis, a scientific, technical and financial progress report on the implementation of the Development Program to the Review Committee.
 

 
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5.3
Review Committee
 
5.3.1
Composition and Review Committee meetings
 
The Review Committee shall consist of a minimum of 6 members. Such committee shall be comprised as follows:
 
 
(a)
LMS' President or his nominee, LMS' Program Manager, and such other person(s) designated by LMS or the LMS Program Manager;
 
 
(b)
Protea's President or his nominee, Protea's Program Manager, and such other person(s) designated by Protea.
 
5.3.2
Meetings
 
The Review Committee will meet at least twice a year to review the progress of the Development Program. Either Party may call a special meeting if it deems appropriate at any time subject to a prior notice of 20 days. The chairman for each meeting of the Review Committee shall alternate between a representative of LMS and a representative of Protea, with the initial chairman of the Review Committee being appointed by Protea. The chairman of the Review Committee shall be responsible for providing an agenda for each meeting at least 10 days in advance of such meeting and shall prepare written minutes to all members of the Review Committee within 20 days after the relevant meeting. Such minutes are deemed accepted by a Party if such Party does not object to their content within 15 days from receiving them.
 
5.3.3
Duties
 
The Review Committee shall provide the strategic direction of the Development Program and shall make all decisions required for the implementation of the Development Program of a strategic, financial and/or contractual nature, including:
 
 
(a)
pharmaceutical, clinical and non-clinical development activities, including on any strategies in this respect and on the regulatory aspects relating to such strategies;
 
 
(b)
amendments to the Development Program schedule;
 
 
(c)
amendments to the contributions of the Parties, including their Assigned Tasks and the Program Budget, subject to Section 5.3.4(b)(i)(1);
 
 
(d)
the progress of the Parties’ completing their Assigned Tasks;
 
 
(e)
the organization of the Product manufacturing activities during the Development Program;
 
 
(f)
filing of patents in the name of Protea, or of any other appropriate mode of protection considering the nature of the Foreground in question;
 
 
(g)
attempting to resolve any disagreements arising during Management Committee meetings; and
 
 
(h)
deciding upon other strategic, marketing, manufacturing, regulatory, and development matters relating to the Development Program.
 

 
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5.3.4
Decisions
 
 
(a)
Protea and LMS shall respectively have one vote in all decisions made by the Review Committee.
 
 
(b)
Should the Review Committee fail to agree on any matter, then Protea shall take the final decision. However:
 
 
(i)
if the disagreement relates to changing the Core Program or to marketing activities before the Development Program ends (e.g. communicating at congresses (in compliance with Applicable Laws) on products in the pipeline). In such case, if the disagreement relates to:
 
 
(1)
changing the Core Program, no change can be made to the Core Program without the Parties' prior written consent.
 
 
(2)
marketing activities before the Development Program ends, then the Parties shall make sure that their marketing activities (a) are strictly limited to their respective Assigned Territory (e.g. no such activities will be carried out in international congresses targeting both Parties' Assigned Territories) and (b) do not detrimentally affect the Intellectual Property of the other Party.
 
 
(ii)
each Party (and not the Review Committee) will solely decide on:
 
 
(1)
who will be the holder of the Marketing Authorization in its Assigned Territory;
 
 
(2)
if and how to submit applications for the Marketing Authorizations for the Product , developed under the Development Program, in its Assigned Territory. The Parties shall consult with each other on the regulatory strategies for obtaining Marketing Authorizations for the Product , developed under the Development Program, and the relevant Governmental Authorities in each of the Joint Assigned Territories, in a coordinated and consistent manner;
 
 
(3)
on the organization of the Product manufacturing activities in its Assigned Territory after the Development Program has ended;
 
 
(4)
on the marketing and promotional activities in its Assigned Territory after the Development Program has ended;
 
 
(iii)
there will not be any Commercialization in the Joint Assigned Territories if the Parties have not reached an agreement on this matter.
 

 
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5.4
Locations of committee meetings
 
The location of meetings as provided for herein will be on a rotating basis between the LMS facilities in Chatou, France, and Protea's facilities in Langlade, France. Each Party shall bear its own costs in relation thereto.
 
6.
Timelines
 
6.1
As soon as reasonably practical following the date of signature of the Agreement, the Management Committee shall meet to consult LMS on the status of the Development Program. Protea shall then draft a document(s) detailing the respective Assigned Tasks of the Parties on the basis of the Core Program. Protea shall be responsible for the drafting and content of the timelines and assignment of responsibilities between the Parties.
 
6.2
The Development activities conducted under the Development Program shall be divided in two stages, as set forth below:
 
 
(a)
Stage 1 shall begin upon the Effective Date and encompass the activities carried out until the receipt of the draft of the first Phase II clinical study report in chronic pancreatitis or cystic fibrosis indication pursuant to the Development Program. Protea shall send to LMS the copy of that report as soon as possible once Protea has received it (the " Stage 1 Report Notice "), and the Parties shall use their best efforts to meet within the 60-day period following the Stage 1 Report Notice to discuss whether to proceed to Stage 2 (the " Next Stage Assessment Period "). Stage 1 shall be completed on the date of the Stage 1 Report Notice.
 
 
(b)
Stage 2 shall begin at the earliest of the following dates: the date at which the Parties decide in writing to proceed to Stage 2 (for instance, following the meeting referred to in sub-Section 6.2(a)) or the date at which the Next Stage Assessment Period expires. Stage 2 shall be completed once the following conditions are fulfilled:
 
 
(i)
the US FDA approves one or more of the following for both indications of the Product:  a new drug application (" NDA "), a supplemental NDA, a biologics license application (“ BLA ”), or a supplemental BLA (together the “ US MA ”) or delivers its approval for the marketing of a nutraceutical form of the Product developed under the Development Program; and
 
 
(ii)
either (1) a marketing authorization is granted, for both indications of the Product, by (1a) the European Medecines Agency pursuant to the centralized authorization procedure or by (1b) a competent Major EU Country national authority pursuant to a national, mutual recognition or decentralized authorization procedure (the marketing authorizations in 1a and 1b being referred to, each, as the " EU MA ", and a “ Major EU Country ” means any of the following countries: UK, France or Germany), or (2) an approval for marketing is granted, or a declaration for marketing is made, or marketing of the Product is carried out, in a Major EU Country in relation to a nutraceutical form of the Product developed under the Development Program.
 
6.3
LMS shall file the relevant applications in accordance with good industry practice to obtain the Marketing Authorization for the Major EU Countries for both indications of the Product at the latest 12 months following the US MA being granted (the " LMS Filing Commitment ").
 

 
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6.4
Stage 2 shall be deemed completed in any event and regardless of whether an EU MA has been granted or not, if the following conditions are fulfilled:
 
 
(a)
the US MA is granted; and
 
 
(b)
either:
 
 
(i)
LMS has not complied with the LMS Filing Commitment; or
 
 
(ii)
3 years have elapsed after the date upon which LMS complied with the LMS Filing Commitment.
 
6.5
Upon Stage 2 being completed:
 
 
(a)
the Development Program shall be deemed to end, each Party being released of its obligations with respect to the carrying out of the Development Program;
 
 
(b)
Section 3 shall continue to apply;
 
 
(c)
Sections 4 and 5 shall no more apply (except as regards the provisions of 4.2.1(f), the amounts payable by LMS under Section 4.2.1(c), and subject to any accrued amounts due by either Party to the other pursuant to Section 4);
 
 
(d)
each Party shall notify to the other the person that it appoints as its representative with responsibility for the management of the Agreement until its expiry or termination. Either Party may change its representative by notice in writing to the other Party. Throughout the remaining term of the Agreement, such representatives shall communicate regularly and hold periodic meetings for the purposes of reporting on, assessing and properly managing this Agreement, in particular as regards marketing and promotional activities on the Product which the Parties shall endeavor to be consistent in the Assigned Territories while adapting such activities to the relevant markets.
 
7.
Off project licenses
 
7.1
Off Project License granted by LMS
 
7.1.1
LMS Off Project License
 
 
(a)
LMS grants to Protea and its Affiliates an irrevocable right and license to:
 
 
(i)
any LMS IP which is licensed under Section 3.1. For the avoidance of doubt, the LMS IP licensed under this Section 7.1.1 is the same as the LMS IP which is licensed under the LMS License, and does not extend to LMS IP which (1) may be developed separately by LMS and which (2) is not Needed (2a) under the Development Program to develop and use any Products, or (2b) to manufacture any Products developed under the Development Program, or (2c) to Commercialize any Products developed under the Development Program. Protea may have access to such separately developed LMS IP under the conditions set out in Section 12.4; and
 
 
(ii)
the Patents;
 
to develop and use, manufacture and Commercialize:
 
 
(iii)
any Side Products; and
 
 
(iv)
any Products;
 
hereafter referred to as the " LMS Off Project License ".

 
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(b)
The LMS Off Project License cannot be used to develop, manufacture and Commercialize:
 
 
(i)
Side Products, unless:
 
 
(1)
Stage 1 has been completed; or
 
 
(1)
the Development Program ends, either due to (1) a decision of the Parties during Stage 1, (2) a breach of LMS, or (3) a Force Majeure Event;
 
 
(ii)
Products, unless the Development Program ends with Stage 2 not being completed due to (1) a decision of the Parties to end the Development Program without prohibiting a Party from continuing a separate development of Products, (2) a breach of LMS, (3) LMS' withdrawal, or (4) a Force Majeure Event.
 
 
(c)
The LMS Off Project License shall be:
 
 
(i)
exclusive (even as to LMS) for the Protea Assigned Territory, except that LMS shall be entitled to grant licenses to the Patents and the LMS IP in the Protea Assigned Territory in connection with:
 
 
(1)
pre-clinical, pharmaceutical and manufacturing processes development work contracted with entities located in the Protea Assigned Territory. However, LMS cannot license the Patents and the LMS IP to any other entity than Protea to carry out clinical development work in the Protea Assigned Territory in relation to Side Products and Products; and

 
(2)
manufacturing of Side Products and Products contracted with entities located in the Protea Assigned Territory, provided that such Side Products and Products are manufactured solely for the purpose of being sold outside of the Protea Assigned Territory.
 
 
(ii)
non exclusive for:
 
 
(1)
the Joint Assigned Territory; and
 
 
(2)
the LMS Assigned Territory, but only to the extent permitting Protea to:
 
 
-
carry out pre-clinical, pharmaceutical and manufacturing processes development work contracted with entities located in the LMS Assigned Territory. However, Protea cannot use the Patents and the LMS IP to carry out clinical development work in the LMS Assigned Territory in relation to Side Products and Products; and
 
 
-
manufacture Side Products and Products contracted with entities located in the LMS Assigned Territory, provided that such Side Products and Products are manufactured solely for the purpose of being sold outside of the LMS Assigned Territory;
 
Protea not having any right to Commercialize Side Products and Products in the LMS Assigned Territory,

 
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1.2
Sublicensing rights
 
 
(a)
The rights granted under the LMS Off Project License may be sub-licensed by Protea to any Third Parties without the need to obtain prior consent from LMS. Protea shall inform LMS of the name of the sub-licensee and the scope of the rights sub-licensed. However, Protea must ask LMS' prior written consent if Protea wishes to sub-license said rights to the LMS restricted entities referred to in Exhibit D.
 
 
(b)
Notwithstanding the foregoing, in the event Protea grants the sub-license referred to in the preceding sub-Section, Protea shall ensure that such sub-license does not adversely impact or otherwise restrict LMS' rights under this Agreement.
 
7.1.3
Miscellaneous
 
Notwithstanding the foregoing, in the event LMS licenses, sub-licenses, or otherwise authorizes the use of the Patents and any LMS IP by a Third Party, LMS shall ensure that such Third-Party license, sub-license or other authorization does not adversely impact or otherwise restrict Protea's rights under this Agreement.
 
7.2
Off Project License granted by Protea
 
7.2.1
Protea Off Project License
 
 
(a)
Protea grants to LMS and its Affiliates an irrevocable right and license to any Protea IP, which is licensed under Section 3.2, to develop and use, manufacture and Commercialize:
 
 
(i)
any Side Products; and
 
 
(ii)
any Products;
 
hereafter referred to as the " Protea Off Project License". For the avoidance of doubt, the Protea IP licensed under this Section 7.2.1 is the same as the Protea IP which is licensed under the Protea License, and does not extend to Protea IP which (1) may be developed separately by Protea and which (2) is not Needed (2a) under the Development Program to develop and use any Products, or (2b) to manufacture any Products developed under the Development Program, or (2c) to Commercialize any Products developed under the Development Program. LMS may have access to such separately developed Protea IP under the conditions set out in Section 12.4.
 
 
(b)
The Protea Off Project License cannot be used to develop, manufacture and Commercialize:
 
 
(i)
Side Products, unless:
 
 
(1)
Stage 1 has been completed; or
 
 
(2)
the Development Program ends, either due to (1) a decision of the Parties during Stage 1, (2) a breach of Protea, or (3) a Force Majeure Event;
 
 
(ii)
Products, unless the Development Program ends with Stage 2 not being completed due to (1) a decision of the Parties to end the Development Program without prohibiting a Party from continuing a separate development of Products, (2) a breach of Protea, (3) Protea's withdrawal, or (4) a Force Majeure Event.
 
 
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(c)
The Protea   Off Project License shall be:
 
 
(i)
exclusive (even as to Protea) for the LMS Assigned Territory, except that Protea shall be entitled to grant licenses to the Protea IP in the LMS Assigned Territory in connection with:
 
 
(1)
pre-clinical, pharmaceutical and manufacturing processes development work contracted with entities located in the LMS Assigned Territory. However, Protea cannot license the Protea IP to any other entity than LMS to carry out clinical development work in the LMS Assigned Territory in relation to Side Products and Products; and
 
 
(2)
manufacturing of Side Products and Products contracted with entities located in the LMS Assigned Territory, provided that such Side Products and Products are manufactured solely for the purpose of being sold outside of the LMS Assigned Territory.
 
 
(ii)
non exclusive for:
 
 
(1)
the Joint Assigned Territory; and
 
 
(2)
the Protea Assigned Territory, but only to the extent permitting LMS to:
 
 
-
carry out pre-clinical, pharmaceutical and manufacturing processes development work contracted with entities located in the Protea Assigned Territory. However, LMS cannot use the Protea IP to carry out clinical development work in the Protea Assigned Territory in relation to Side Products and Products; and
 
 
-
manufacture of Side Products and Products contracted with entities located in the Protea Assigned Territory, provided that such Side Products and Products are manufactured solely for the purpose of being sold outside of the Protea Assigned Territory.
 
LMS not having any right to Commercialize Side Products and Products in the Protea Assigned Territory.
 
7.2.2
Sublicensing rights
 
 
(a)
The rights granted under the Protea Off Project License may be sub-licensed by LMS to any Third Parties without the need to obtain prior consent from Protea. LMS shall inform Protea of the name of the sub-licensee and the scope of the rights sub-licensed. However, LMS must ask Protea's prior written consent if LMS wishes to sub-license said rights to the Protea restricted entities referred to in Exhibit D.
 
 
(b)
Notwithstanding the foregoing, in the event LMS grants the sub-license referred to in the preceding sub-Section, LMS shall ensure that such sub-license does not adversely impact or otherwise restrict Protea's rights under this Agreement.
 
 
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7.2.3
Miscellaneous
 
Notwithstanding the foregoing, in the event Protea licenses, sub-licenses, or otherwise authorizes the use of any Protea IP by a Third Party, Protea shall ensure that such Third-Party license, sub-license or other authorization does not adversely impact or otherwise restrict LMS' rights under this Agreement.
 
8.
Right of Withdrawal
 
8.1
Right of Withdrawal
 
Either Party may withdraw from the Development Program with 3 months prior written notice to the other Party (a " Withdrawal ") at any time and for any reason after completion of Stage 1.
 
8.2
Consequences of Withdrawal
 
8.2.1
In case of Withdrawal by Protea, Protea shall:
 
 
(a)
not be entitled to continue the Development Program alone or with any Third Party(ies);
 
 
(b)
continue to benefit from the LMS Off Project License, and be entitled to carry out or continue any other ongoing development program alone or with any Third Party(ies) in connection with any Side Product, under the terms provided in Section 7.1.
 
8.2.2
In case of Withdrawal by LMS, LMS shall:
 
 
(a)
not be entitled to continue the Development Program alone or with any Third Party(ies);
 
 
(b)
continue to benefit from the Protea Off Project License, and be entitled to carry out or continue any other ongoing development program alone or with any Third Party(ies) in connection with any Side Product, under the terms provided in Section 7.2.
 
8.2.3
In case of Withdrawal by either Party:
 
 
(a)
each Party shall continue to fund any work under the Development Program which was decided to be carried out prior to the Withdrawal, and which is ongoing at the time of Withdrawal, until completion of such work;
 
 
(b)
any clinical trials ongoing at the time of Withdrawal shall continue up until their completion, and the terms of the Agreement governing the carrying out of such trials, including provisions relating to Shared Costs as well as ownership and licensing of Technology and Patent Rights stemming from such trials, shall continue to apply to such trials, as if the Withdrawal had not occurred, until these trials are completed; and
 
 
(c)
subject to the other provisions of this Section 8, the Development Program shall be deemed to end and Sections 3 to 6 shall no more apply, each Party being released of its obligations with respect to the carrying out of the Development Program.
 
8.2.4
Notwithstanding any provision to the contrary in this Agreement, in the event of a Withdrawal, the Parties shall cooperate for the orderly termination of their participation to the Development Program. In particular, any Party which exercises its right of Withdrawal shall:
 
 
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(a)
provide to the other Party up-to-date copies of its materials (such as data and documentation) relating to the Development Program that are available and relevant; and
 
 
(b)
execute and deliver to the other Party any such instruments as may be requested by the other Party;
 
for enabling such other Party to pursue separately, alone or with a third party, the development of Products upon termination of the Development Program, to the extent permitted under this Agreement.
 
9.
Royalties
 
9.1
Royalties payable for Net Sales of Products if a US MA is granted during the Development Program
 
If a US MA is granted to Protea during the Development Program:
 
 
(a)
Protea shall pay to LMS a royalty calculated on the Protea Net Sales of Products, as follows:
 
 
(i)
[*****]% up to EUR[*****];
 
 
(ii)
[*****]% between [*****] and EUR[*****]; and
 
 
(iii)
[*****]% above EUR[*****].
 
 
(b)
LMS shall not pay any royalties to Protea in relation to LMS Net Sales of Products.
 
9.2
Royalties payable for Net Sales of Products if a US MA is not granted during the Development Program
 
9.2.1
If a US MA is not granted during the Development Program, but thereafter a Marketing Authorization for the Product is granted to Protea:
 
 
(a)
if LMS issues a Caller Request under Section 12.4 for a license regarding such Product:
 
 
(i)
LMS shall pay to Protea:
 
 
(1)
at the start of the applicable Off Project Product License, a one-time payment of 30% of the costs incurred by Protea in the development of such Product minus the Shared Costs paid by LMS under the Development Program; and
 
 
(2)
a royalty of [*****]% calculated on the annual LMS Net Sales of Products; and
 
 
(ii)
Protea shall not pay any royalties to LMS in relation to Protea Net Sales of Products.
 
 
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(b)
if LMS does not issue a Caller Request under Section 12.4 for a license regarding such Product, Protea shall pay to LMS a royalty calculated on the annual Protea Net Sales of Products as follows:
 
 
(i)
[*****]% up to EUR[*****];
 
 
(ii)
[*****]% between EUR[*****] and EUR[*****]; and
 
 
(iii)
[*****]% above EUR[*****].
 
9.2.2
If the Development Program has ended, without Stage 2 being completed, but thereafter a Marketing Authorization for the Product is granted to LMS:
 
 
(a)
if Protea issues a Caller Request under Section 12.4 for a license regarding such Product:
 
 
(i)
Protea shall pay to LMS:
 
 
(1)
at the start of the applicable Off Project Product License, a one-time payment of 70% of the costs incurred by LMS in the development of such Product minus the Shared Costs paid by Protea under the Development Program;
 
 
(2)
a royalty of [*****]% calculated on the annual Protea Net Sales of Products; and
 
 
(ii)
LMS shall not pay any royalties to Protea in relation to LMS Net Sales of Products.
 
 
(b)
if Protea does not issue a Caller Request under Section 12.4 for a license regarding such Product, LMS shall not pay any royalties to Protea in relation to LMS Net Sales of Products.
 
9.3
Royalties payable for Net Sales of Side Products
 
9.3.1
If a Marketing Authorization for a Side Product is granted to Protea:
 
 
(a)
if LMS issues a Caller Request under Section 12.4 for a license regarding such Side Product:
 
 
(i)
LMS shall pay to Protea:
 
 
(1)
at the start of the applicable Off Project Product License, a one-time payment of 30% of the costs incurred by Protea in the development of such Side Product; and
 
 
(2)
a royalty of [*****]% calculated on the annual LMS Net Sales of such Side Product; and
 
 
(ii)
Protea shall not pay any royalties to LMS in relation to Protea Net Sales of such Side Product.
 
 
(b)
if LMS does not issue a Caller Request under Section 12.4 for a license regarding such Side Product, then if said Marketing Authorization was granted to Protea:
 

 
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(i)
after a US MA is granted to Protea during the Development Program, the royalty set out in Section 9.1(a) shall be calculated on the basis of the Protea Net Sales of Products and of such Side Product (the aggregate amount of such Net Sales being taken into account to determine whether the royalty percentage thresholds set out in that Section are reached); or
 
 
(ii)
before a US MA is granted to Protea during the Development Program, Protea shall pay to LMS a royalty of 15% calculated on the annual Protea Net Sales of such Side Product.
 
9.3.2
If a Marketing Authorization for a Side Product is granted to LMS:
 
 
(a)
if Protea issues a Caller Request under Section 12.4 for a license regarding such Side Product:
 
 
(i)
Protea shall pay to LMS:
 
 
(1)
at the start of the applicable Off Project Product License, a one-time payment of 70% of the costs incurred by LMS in the development of such Side Product; and
 
 
(2)
a royalty of [*****]% calculated on the annual Protea Net Sales of such Side Product; and
 
 
(ii)
LMS shall not pay any royalties to Protea in relation to LMS Net Sales of such Side Product.
 
 
(b)
if Protea does not issue a Caller Request under Section 12.4 for a license regarding such Side Product, then if said Marketing Authorization was granted to LMS:
 
 
(i)
after a EU MA is granted to LMS during the Development Program, LMS shall not pay any royalties to Protea in relation to LMS Net Sales of such Side Product.
 
 
(ii)
before a EU MA is granted to LMS during the Development Program, LMS shall pay to Protea a royalty of 15% calculated on the annual LMS Net Sales of such Side Product.
 
9.4
Deduction of development costs
 
9.4.1
The royalties payable by a Party in relation to Net Sales of Products shall not begin to accrue until after all expenses incurred by such Party with respect to the Development Program since 2009 (including all costs incurred in the framework of the Development Program in connection with (1) obtaining, or trying to obtain, Marketing Authorizations in such Party's Assigned Territory for the Product, and (2) any intellectual property expenses), have been covered by the Gross Profit Margin earned further to said Net Sales. Exhibit F sets out an example of calculation reflecting the provisions set out in this paragraph.
 
9.4.2
A Party's obligation to pay royalties set out in this Section 9 in relation to Net Sales of Products, or Side Products (as applicable), in a given country shall end after the Patent Rights applicable to such Products, or Side Products (as applicable), have expired, or otherwise been declared invalid and/or unenforceable by a court, tribunal, or other agency of competent jurisdiction, in such country. For the avoidance of doubt, the preceding sentence does not apply to one-time payments which are in any case payable as set out in this Section 9.
 
 
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9.5
One-time payment
 
Upon issuance of a first US MA, Protea shall pay a one-time payment to LMS in the amount of 1,000,000€.
 
10.
Payments, records and audits
 
10.1
Payment, reports
 
Once a Party (the " Owing Party ") has started Commercialization of Products and/or Side Products that may be subject to royalties payable by such Party pursuant to Section 9, at the end of the month immediately following the end of each calendar quarter, such Party shall provide to the other Party a report setting forth the Net Sales achieved during such calendar quarter. The Party to whom royalties are payable pursuant to Section 9 shall then issue an invoice for the royalties determined in accordance with Section 9. The Owing Party shall pay such invoice within 45 days, end of the month.
 
10.2
Exchange rate, manner and place of payment
 
All payments hereunder shall be payable in euros. All payments owed under this Agreement shall be made by wire transfer to a bank and account designated in writing by the receiving Party, unless otherwise specified in writing by the receiving Party.
 
10.3
Late payments
 
If a Party fails to pay any sums provided for in this Agreement when due, the other Party shall be entitled to (i) late payment interest at the rate of 3 times the French legal interest rate, and to (ii) lump compensation of 40 euros for recovery costs incurred due to the failing Party's late payment.
 
10.4
Payment default
 
If a Party fails to pay any undisputed sums provided for in this Agreement when due, and still does not pay such sums, after the other Party has sent a further notice to the failing Party requesting payment, within 15 calendar days from the notice, then such failure to pay shall be automatically considered as a material breach of the Agreement.
 
10.5
Records and Audits
 
Each Party shall keep for a period covering at least the preceding 3 years complete and accurate records pertaining to the development and sale or other disposition of Products and Side Products in sufficient detail to permit any other Party and INRA TRANSFERT to confirm the accuracy of all payments due hereunder. Each Party shall have the right to cause an independent, certified public accountant reasonably acceptable to the other Party to audit such records, no more than once annually, for the purpose of verifying any amounts payable. Such audits may be exercised during normal business hours upon reasonable prior written notice. As a condition to such examination, such independent accountant shall execute a written agreement, satisfactory to the audited Party, obligating such accountant to maintain in strict confidence all information disclosed to such accountant pursuant to the examination.  Notwithstanding the foregoing, the accountant shall be permitted to issue a written statement to the Parties to the effect that they have reviewed the books and records of the audited Party and either (a) that the amounts of the payments made to the Party conducting the audit are in conformity with the books and records and the applicable provisions of this Agreement, or (b) that adjustments of specified amounts should be made. Prompt adjustments shall be made by the Parties to reflect the results of such audit. The Party conducting the audit shall bear the full cost of such audit, unless such audit discloses an underpayment of more than 10% from the amounts actually due, in which case the audited Party shall bear the reasonable costs of such audit.

 
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10.6
Taxes
 
All taxes levied on account of the royalties and other payments accruing to the receiving Party under this Agreement shall be paid by the receiving Party for its own account, including taxes levied thereon as income to the receiving Party. If provision is made in law or regulation for withholding, such tax shall be deducted by the Party paying the royalties and other payments from the sums otherwise payable by it hereunder for payment to the proper taxing authority and a receipt of payment of the tax secured and promptly delivered to the other Party. Each Party agrees to assist any other Party in claiming exemption from such deductions or withholdings under any double taxation or similar agreement or treaty from time to time in force.
 
10.7
Access to records/information
 
To the extent possible, without jeopardizing any past, current or future rights in or to any Technology and Patent Rights, the Parties shall grant to the other Party unrestricted access on a need-to-know basis for the purposes of the licenses set out in Sections 3 and 7, without additional charge, cost or expense, to any and all Technology and Patent Rights in its possession and/or under its Control to compile and file applications for Marketing Authorization, and marketing and sales information. Each Party shall provide free of charge any and all assistance that the other Party may reasonably request in order for the other Party to perform their obligations under this Agreement and to enable the other Party to manufacture (or have manufactured), market, sell and distribute the Product and Side Products in their exclusive Assigned Territory.
 
11.
Confidentiality
 
11.1
Confidential Information
 
" Confidential Information " means any confidential or proprietary information of a Party, including any materials or any information related to the Technology, and/or Patent Rights of such Party, and any information relating to any compound, research project, work in process, future development, scientific engineering, manufacturing, marketing, business plan, financial or personnel matter of such Party, its present or future products, sales, suppliers, customers, employees, investors or business, whether in oral, written, graphic or electronic form.
 
Notwithstanding the foregoing, Confidential Information shall not include any information that the receiving Party can prove:
 
 
(a)
is now, or hereafter becomes, through no act or failure to act on the part of the receiving Party, generally known or publicly available;
 
 
(b)
is known by the receiving Party at the time of receiving such information, as evidenced by its records;
 
 
(c)
is hereafter furnished to the receiving Party by a Third Party, as a matter of right and without restriction on disclosure;
 
 
(d)
is independently developed by the receiving Party, as evidenced by its records, without knowledge of, and without the aid, application or use of, the Confidential Information of the disclosing Party; or
 
 
(e)
is the subject of a written permission to disclose provided by the disclosing Party.
 
 
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11.2
Confidentiality Obligations
 
Each Party hereto will maintain in confidence all Confidential Information of any other Party, unless or until such information falls within the exceptions set forth above through no fault of the receiving Party. No Party shall disclose to a Third Party Confidential Information of the other Party without the express written consent of such other Party, except as required by law or as provided herein and except that (i) such consent shall not be required to a Party's accountants, attorneys and other professional advisors, and (ii) such consent shall not be unreasonably withheld for disclosure to actual or prospective investors or lenders. Each Party will obtain prior agreement from its employees, agents or consultants to whom disclosure of any other Party's Confidential Information (each, a " Representative ") is to be made to hold in confidence and not make use of such information for any purpose other than those permitted by this Agreement. Each Party will use at least the same standard of care as it uses to protect its own Confidential Information to ensure that such employees, agents or consultants do not disclose or make any unauthorized use of such Confidential Information. Each Party will promptly notify the other upon discovery of any unauthorized use or disclosure of the Confidential Information and will be responsible for any breach of this Section by its Representatives.
 
11.3
Authorized Disclosure
 
To the extent consistent with the terms of this Agreement, each Party may disclose the other Party’s Confidential Information to the extent such disclosure is reasonably necessary in filing or prosecuting patent applications (subject to Section 12), filing an application for Marketing Authorization or responding to any request from any Government Authority, prosecuting or defending litigation or complying with applicable law or governmental regulations, or with the disclosing Party's pre-existing contractual obligations (such as those undertaken towards other co-owners of Patents and their representatives (i.e. INRA, CNRS and INRA Transfert)), provided that if a Party is required to make any such disclosure of the Confidential Information such Party shall use its best efforts to (i) so notify the other Party, and (ii) secure confidential treatment of such information required to be disclosed.
 
11.4
Confidentiality of the Agreement and of the Project
 
11.4.1
The terms of this Agreement and Confidential Information resulting from the performance of the Project shall be considered Confidential Information of the Parties, and each Party agrees not to disclose such Confidential Information of the Parties to any Third Party without the consent of the other Party, except that such consent shall not be required for disclosure to actual or prospective investors or lenders or to a Party's accountants, attorneys and other professional advisors or disclosure required by any applicable stock exchange rules. In addition, such Confidential Information of the Parties may be disclosed to actual or potential Third Party licensees and sub-licensees, actual or potential acquirers or acquirees, and actual or prospective investors or lenders, provided such recipients are bound by confidentiality obligations at least as strict as are set forth herein.
 
11.4.2
Subject to the preceding paragraph:
 
 
(a)
a Party may, with the prior written consent of the other Party, issue a limited press release or similar public announcement of this Agreement; and
 
 
(b)
no press release shall include the financial details of the transaction unless the other Party expressly consent to such disclosure, which they may withhold in their sole discretion.
 
 
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12.
Technology and Patent Rights
 
12.1
Ownership
 
12.1.1
Each Party shall retain ownership and Control of its Background and Sideground.
 
12.1.2
All rights to Foreground shall be owned and Controlled by Protea in an initial phase, and then shared between the Parties as provided in Section 12.1.6.
 
12.1.3
Each of LMS and Protea represents and agrees that all employees and others acting on its behalf, including Third Parties, in performing its obligations under this Agreement shall be obligated to assign to Protea (with no obstacles to a further assignment to LMS under Section 12.1.6) all Foreground that are discovered, made or conceived by such employee or other person, including Third Parties. In the case of non-employees working for other companies or institutions on behalf of LMS or Protea, LMS and Protea, as applicable, shall use commercially reasonable and diligent efforts to obtain the right and title for all Foreground for Protea (with no obstacles to a further assignment to LMS under Section 12.1.6) that are discovered, made or conceived by such non-employees in performing their obligations on behalf of LMS or Protea under this Agreement, or obtain licenses to the same as applicable, in accordance with the policies of said company or institution. LMS and Protea agree to use commercially reasonable and diligent efforts to enforce such agreements (including, where appropriate, by legal action) considering, among other things, the commercial value of such Foreground.
 
12.1.4
Each Party agrees to execute and deliver any such instruments of transfer and assignment as may be requested by the other Party to ensure enforcement of the provisions of this Section 12.
 
12.1.5
The Review Committee shall decide on the filing of patents on the Foreground in the name of Protea, or of any other appropriate mode of protection considering the nature of the Foreground in question.
 
12.1.6
After application of Section 12.1.5 (and subject to Section 12.1.7):
 
 
(a)
Protea shall proceed with filing of any patents in its name, as decided by the Review Committee. Protea undertakes to state the names of the inventors in its patent application. If and when such Patent Rights are granted and when patent applications enter into national examination phase, Protea shall assign to LMS such rights to the extent granted for the LMS Assigned Territory on a royalty-free basis; and
 
 
(b)
with respect to Foreground that is not subject to Patent Rights, Protea shall assign to LMS such rights for the LMS Assigned Territory.
 
12.1.7
In case the Development Program ends before Stage 2 is completed:
 
 
(a)
without prejudice to Section 8.2.4:
 
 
(i)
the Parties shall within 60 days from the end of the Development Program (the " Inventory Period "):
 
 
(1)
make an inventory of all Foreground; and
 
 
(2)
mutually disclose and give access to each other to all information that they may possess in relation to such Foreground and which is relevant to the other Party’s Assigned Territory.
 

 
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(ii)
within 60 days from the end of the Inventory Period (the " Filing Notice Period "), each Party (the " Filing Party ") shall notify to the other Party the Foreground for which it will seek Patent Rights in its Assigned Territory (the " Filing Notice "). For any Foreground for which the Filing Party has not sent a Filing Notice, the other Party (the " Counterfiling Party ") shall have the right to seek Patent Rights in said Assigned Territory, provided that the Counterfiling Party notifies such intent to seek Patent Rights within 60 days from the end of the Filing Notice Period (the " Counterfiling Notice "). Failing such notice, the Filing Party shall solely decide on the appropriate mode of protection, considering the nature of the Foreground in question, in its exclusive Assigned Territory.
 
 
(iii)
if a Party has sent a Filing Notice or a Counterfiling Notice, as applicable, and has not carried out the applicable filing within 6 months of the notice, then the Counterfiling Party (where the Filing Party has not carried out the applicable filing) or the Filing Party (where the Counterfiling Party has not carried out the applicable filing), as applicable, shall solely decide on the appropriate mode of protection, considering the nature of the Foreground in question, in the Assigned Territory subject to the said Filing Notice or Counterfiling Notice.
 
 
(iv)
If, pursuant to the above provisions, the Counterfiling Party, with respect to the applicable Assigned Territory:
 
 
(1)
has carried out the applicable filing within said 6 months of the Counterfiling Notice; or
 
 
(2)
is the Party which solely decides on the appropriate mode of protection of the Foreground;
 
then, notwithstanding any other provisions of this Agreement, such Counterfiling Party shall be free to carry out development, use, manufacturing and Commercialization activities relating to such Foreground, or grant a license to one or more Third Parties to carry out such activities, in such Assigned Territory.
 
 
(b)
Protea shall follow through any pending patent application up to the national examination stage and shall execute and deliver to LMS any instruments of transfer and assignment as may be requested by LMS to vest fully in LMS any Foreground in its exclusive Assigned Territory. LMS shall send to Protea a Filing Notice with respect to said patent application and Foreground, and sub-Sections (a)(ii) to (a)(iv) above shall apply mutatis mutandis .
 
 
(c)
Each Party shall have the right to freely use all non-patentable Foreground, subject (i) to the restrictions applicable under any licenses relating to Background and Sideground granted under this Agreement, and (ii) to sub-Sections (a) and (b) above. Furthermore, any non-patentable Foreground cannot be disclosed by a Party to any Third Party for any use in the other Party's Assigned Territory, except where such disclosure is made by a Counterfiling Party exercising its rights under sub-Sections (a)(iv) and (b) above. The Party disclosing such information and data shall (i) require any Third Party recipient to explicitly commit to comply with such restrictions of use, and (ii) be jointly and severally liable for any breach by such Third Party of such restriction of use.
 

 
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12.1.8
For any Joint Assigned Territory, at such time as the Parties deem appropriate, the Parties shall meet and develop an agreement(s) that addresses all aspects of strategies for protecting Foreground in the Joint Assigned Territories, in a coordinated and consistent manner.
 
12.2
Cooperation between the Parties
 
Without prejudice to any other obligations set out in this Agreement, the Parties shall cooperate, at their own cost, in case of any claims brought by Third Parties with respect to the Technology and Patent Rights granted under this Agreement. In particular, in case of a claim by a Third Party challenging the rights of a Party under this Agreement, the other Party shall use their best efforts to provide assistance to such Party, notably by participating to any court hearings or gathering relevant information in their possession, in order to facilitate defense against said Third Party claim.
 
12.3
Use
 
Each Party shall be free to use and practice its Background and Sideground in any manner not inconsistent with the terms of this Agreement without the consent of the other Party and without an obligation to notify the other Party of such intended use or to pay royalties or other compensation to the other Party by reason of such use.
 
12.4
Right of first refusal for Off Project Products
 
 
12.4.1
Additional definitions
 
For the purposes of this Section:
 
 
(a)
" Caller " has the meaning set out in Section 12.4.2;
 
 
(b)
" Licensor " has the meaning set out in Section 12.4.2 ;
 
 
(c)
" Off Project Product " means a Product not developed under the Development Program or a Side Product.
 
 
(d)
Off Project IP ” means:
 
 
(i)
where the Caller is LMS, Protea IP which is developed by Protea using LMS IP, the Patents and/or Foreground, and which relates to an Off Project Product;
 
 
(ii)
where the Caller is Protea, LMS IP which is developed by LMS using Protea IP and/or Foreground, and which relates to an Off Project Product.
 
 
12.4.2
Mechanics of right of first refusal
 
Each Party (" Caller ") shall have the right to obtain a license from the other Party (" Licensor ") on Off Project IP in accordance with the terms and conditions set out below:
 
 
(a)
Licensor shall notify Caller no later than 90 days after any development program relating to an Off Project Product of Licensor has reached a Phase III clinical trial;
 
 
(b)
Licensor shall notify Caller no later than 30 days after the Marketing Authorization for the Off Project Product is granted to Licensor (the " Call Notice ");
 
 
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(c)
Caller shall then have the right, within 30 days of the receipt of the Call Notice, to request (the " Caller Request ") Licensor to grant a license on the Licensor's Off Project IP related to such Off Project Product for the marketing of the Off Project Product in Caller's Assigned Territory (the " Off Project Product License ");
 
 
(d)
Upon receiving a valid Caller Request, Licensor shall draft the agreement governing the Off Project Product License, and such agreement (the " Off Project License Agreement "):
 
 
(i)
shall contain terms substantially similar to the following terms of this Agreement:
 
 
(1)
as regards the terms of use of the Off Project IP: Section 7.1 if the Caller is Protea and Section 7.2 if the Caller is LMS;
 
 
(2)
as regards terms of payment, records and audits: Section 10;
 
 
(3)
as regards confidentiality: Section 11;
 
 
(4)
as regards representations and warranties: Section 13;
 
 
(5)
as regards indemnification and insurance: Section 14;
 
 
(6)
as regards termination: Sections 15.2.3, 15.3 and 15.5;
 
 
(7)
as regards governing law and dispute resolution: Section 16;
 
 
(8)
as regards miscellaneous provisions: Section 17.
 
 
(ii)
shall incorporate by reference the provisions on royalties set out in Section 9, which shall govern the royalties payable under the Off Project Product License depending on the circumstances in which the Off Project Product License is granted;
 
For example, pursuant to Section 9.3.1(a), if LMS is Caller and the Off Project Product is a Side Product, then under the Off Project Product License (1) LMS shall pay to Protea (1a) at the start of such Off Project Product License, a one-time payment of 30% of the costs incurred by Protea in the development of such Side Product, and (1b) a royalty of 15% calculated on the annual LMS Net Sales of such Side Product; and (ii) Protea shall not pay any royalties to LMS in relation to Protea Net Sales of such Side Product.
 
 
(iii)
shall be entered into for the duration of the legal protection of the rights on the Off Project IP;
 
 
(iv)
shall provide that Caller shall use its best efforts to optimize the sales of the Off Project Product and, in particular, carry out all activities required to market the Off Project Product to the best of its abilities and to a standard which is not less than the standard that Caller applies to its best products, which standard shall in no event be less than good industry practice.
 

 
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(e)
Licensor shall send the Off Project License Agreement to Caller within 30 days of the Caller Request. Licensor and Caller shall then discuss and finalize the provisions of the Off Project License Agreement so as to enter into the Off Project License Agreement within 90 days of the Caller Request. The Parties expressly agree that if they fail to enter into such agreement, the Off Project Product License shall nevertheless apply in the terms set out in Section 12.4.2(d).
 
 
(f)
If Caller does not notify the Caller Request to Licensor within 30 days from the receipt of the Call Notice then, notwithstanding any other provisions of this Agreement, Licensor shall be free to carry out development, use, manufacturing and Commercialization activities relating to the Off Project Product, or grant a license to one or more Third Parties to carry out such activities, in the Caller's Assigned Territory and in the Joint Territory. In such case, Licensor’s Net Sales relating to the Off Project Product in such Assigned Territory and Joint Territory shall be subject to royalties calculated in accordance with the rates set out in sub-Sections Error! Reference source not found. to 9.1(a)(i) (such Net Sales being added up to any other Net Sales being taken into account to determine whether the royalty percentage thresholds set out in those sub-Sections are reached).
 
 
12.4.3
Exceptions
 
A Party shall not be entitled to be Caller under this Section 12.4 if the Development Program has been terminated because of such Party's breach.
 
13.
Representations, warranties, covenants
 
13.1
Corporate power
 
Each Party hereby represents and warrants that it is duly organized, validly existing and in good standing under the laws of the country, state or jurisdiction of its incorporation or formation and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof.
 
13.2
Due authorization
 
Each Party hereby represents and warrants that such Party is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder.
 
13.3
Binding agreement
 
Each Party hereby represents and warrants that this Agreement is a legal and valid obligation binding upon it and is enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by such Party does not conflict with any agreement, instrument or understanding, oral or written, to which it is a Party or by which it may be bound, nor violate any law or regulation of any court, governmental body or administrative or other agency having authority over it.

 
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13.4
LMS warranties and representations
 
13.4.1
LMS represents and warrants that, to the best of its knowledge, information, and belief, on the Effective Date the development, manufacture, marketing, promotion, use, sale, offer for sale, importation or Commercialization of the Active Ingredient, API and/or Product and/or Side Product, by or on behalf of Protea or its Affiliates, any licensee or sub-licensee of Protea or of its Affiliates, or any Third Party authorized to act on behalf of or for Protea:
 
 
(a)
does not constitute infringement of the INRA-CNRS/LMS Technology or any patents issued purporting to cover the INRA-CNRS/LMS Technology by virtue of its sub-license to Protea for the same;   and
 
 
(b)
does not constitute infringement of any Technology or Patent Rights owned, licensed or Controlled by any Third Party.
 
13.4.2
LMS represents and warrants that:
 
 
(a)
it possesses the right and interest to use the INRA-CNRS/LMS Technology and to develop, manufacture, sell, offer for sale, market, import and Commercialize products made with and/or from INRA-CNRS/LMS Technology;
 
 
(b)
it has the right and interest necessary to sub-license the INRA-CNRS/LMS Technology and any patents purporting to cover the INRA-CNRS/LMS Technology to Protea;
 
 
(c)
LMS has the right to enter into the obligations set forth in this Agreement and to grant the rights, licenses and sub-licenses set forth herein; and
 
 
(d)
LMS shall at all times comply with the terms and conditions of the Reciprocal License Agreement.
 
13.5
Step-in right with regard to INRA/CNRS licenses
 
13.5.1
LMS warrants and represents that it will immediately notify Protea of any revisions to the Reciprocal License Agreement and that no revisions will be made to such agreement without first consulting with Protea. In the event of any claimed breaches, or risk of a claim, under the Reciprocal License Agreement, LMS shall immediately notify Protea of any such claim or risk, cure such breach or take measures to remove such risk, and keep Protea informed of the ongoing status of the measures taken to cure said breach or remove said risk. LMS shall consider and discuss with Protea any issues that Protea may raise with LMS as regards the Reciprocal License Agreement, including any preventive measures that may be needed to cure or anticipate any such issues. LMS shall not oppose, in case of said risk of a claim, that INRA TRANSFERT, INRA and/or CNRS, and Protea, discuss such risk in full transparency with LMS. If LMS fails to cure any claimed breaches under the Reciprocal License Agreement, LMS will permit Protea to act on its behalf and LMS will provide its cooperation, as requested by Protea. Where Protea elects to cure said breach, Protea will have the right to exercise a step-in right by stepping into the shoes of LMS in the Reciprocal License Agreement solely for the purposes of providing said cure (the " Step In ").
 
 
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13.5.2
If Protea has exercised its Step-In right referred to in Section 13.5.1 in relation to the Reciprocal License Agreement:
 
 
(a)
Protea shall not be entitled to claim from LMS any indemnification for any alleged infringement, having its cause in events occurring during and to the extent related to such Step In, of the INRA-CNRS/LMS Technology or any patents issued purporting to cover the INRA-CNRS/LMS Technology by virtue of its sub-license to Protea for the same; and
 
 
(b)
Protea will assume any liability arising from such Step In;
 
provided that such infringement and liability do not arise from a failure by LMS to comply with this Agreement or from a breach of any representations and warranties of LMS under this Agreement.
 
13.5.3
Throughout the Term, LMS shall provide Protea with an annual statement, at the end of each calendar year, setting out:
 
 
(a)
the amounts paid by LMS under the Reciprocal License Agreement;
 
 
(b)
any particular details on issues encountered in the performance of the Reciprocal License Agreement; and
 
 
(c)
an assessment with regards to any potential issues that may arise and which may need to be addressed to secure the continuity of the rights granted under the Reciprocal License Agreement.
 
13.6
Disclaimer of Warranties
 
Except as expressly set forth in this Agreement, neither Party makes any representation or warranty to the other Party of any kind, including any warranty for non-infringement or fitness for particular purpose.
 
14.
Indemnification, insurance
 
14.1
Each Party (the " Indemnifying Party ") shall indemnify, hold harmless and defend any other Party (the " Indemnified Party ") against any and all Third Party claims resulting from the Indemnifying Party's breach of a representation, warranty or any obligations under this Agreement.
 
14.2
All claims for indemnification shall be asserted and resolved as follows:
 
 
(a)
upon receipt or notification of any claim for which an Indemnifying Party would be liable to an Indemnified Party hereunder, the Indemnified Party shall with reasonable promptness notify the Indemnifying Party of such claim, including a copy of the claim made if the claim was made in writing, specifying the nature of such claim and relevant facts known to the Indemnified Party (the " Claim Notice ").
 
 
(b)
the Indemnifying Party shall have the sole right to defend, control and manage by appropriate proceedings with counsel of the Indemnifying Party's choice, or settle or otherwise resolve such claim.
 

 
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(c)
if the Indemnified Party desires to hire additional counsel of its choice, the Indemnified Party may do so at the Indemnified Party's sole cost and expense. Upon a determination of an Indemnifying Party's liability under this Section, that Indemnifying Party shall reimburse the Indemnified Party for all indemnifiable costs and expenses incurred by the Indemnified Party.
 
14.3
The Indemnified Party's failure to give reasonably prompt notice to the Indemnifying Party of any actual, threatened or possible claim or demand which may give rise to a right of indemnification hereunder shall not relieve the Indemnifying Party of any liability which the Indemnifying Party may have to the Indemnified Party unless the failure to give such notice materially and adversely prejudiced the Indemnifying Party.
 
14.4
Each Party represents and warrants that it is covered and will continue to be covered by a comprehensive general liability insurance program that covers all of such Party's activities and obligations hereunder, including adequate products liability coverage in accordance with industry standards.  Each Party shall provide the other with written notice at least 15 days prior to any cancellation or material change in such insurance program.
 
15.
Term, termination
 
15.1
Term
 
15.1.1
This Agreement shall commence on the Effective Date and shall continue for the duration of the Term.
 
15.1.2
Subject to the other provisions of this Agreement on termination, the Agreement shall continue to apply until the end of the Term even if the Development Program ends.
 
15.1.3
The Parties benefit only from the termination rights expressly set out under this Agreement, and waive any other right that they may have to judicially request termination of this Agreement ( résolution judiciaire ).
 
15.2
Termination for material breach
 
15.2.1
Each Party may terminate the Agreement if any other Party commits a material breach of any of its obligations under the Agreement, and fails to remedy such breach (if such breach is capable of remedy) within a period of 90 days after being notified in writing to do so, without prejudice to any other rights the terminating Party may have.
 
15.2.2
Each Party may terminate the Development Program if any other Party commits a material breach of any of its obligations under the Development Program, and fails to remedy such breach (if such breach is capable of remedy) within a period of 90 days after being notified in writing to do so, without prejudice to any other rights the terminating Party may have. In case of such termination of the Development Program, notwithstanding any other provisions of this Agreement:
 
 
(a)
the non-breaching Party shall be free to carry out development, use, manufacturing and Commercialization activities relating to the Product and Side Products, or grant a license to one or more Third Parties to carry out such activities, in the breaching Party's Assigned Territory and in the Joint Territory; and
 
 
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(b)
the non-breaching Party’s Net Sales relating to the sales of such Product and Side Products shall be subject to royalties calculated in accordance with the rates set out in sub-Sections Error! Reference source not found. to 9.1(a)(i) (the aggregate amount of such Net Sales being added up to any other Net Sales being taken into account to determine whether the royalty percentage thresholds set out in those sub-Sections are reached).
 
15.2.3
Each Party may terminate a license granted hereunder if any other Party commits a material breach in connection with such license, and fails to remedy such breach (if such breach is capable of remedy) within a period of 90 days after being notified in writing to do so, without prejudice to any other rights the terminating Party may have. In case of such termination, notwithstanding any other provisions of this Agreement:
 
 
(a)
the non-breaching Party shall be free to carry out development, use, manufacturing and Commercialization activities relating to the element which is the subject matter of the license (for example, Protea IP, LMS IP or the Patents), or grant a license to one or more Third Parties to carry out such activities, in the breaching Party's Assigned Territory and in the Joint Territory; and
 
 
(b)
the non-breaching Party’s Net Sales relating to the sales of Product and Side Products developed, used, manufactured and/or Commercialized using the above mentioned element, shall be subject to royalties calculated in accordance with the rates set out in sub-Sections Error! Reference source not found. to 9.1(a)(i) (the aggregate amount of such Net Sales being added up to any other Net Sales being taken into account to determine whether the royalty percentage thresholds set out in those sub-Sections are reached).
 
15.3
Termination for insolvency
 
Protea shall have the right, subject to mandatory public policy rules and at its option, to terminate this Agreement, the Development Program or a license granted hereunder, immediately by written notice to the other Party, in the event LMS institutes or becomes subject to any action or any legal procedure or any other step taken with a view to (i) it being subject to pre-insolvency relief or found insolvent or (ii) it benefiting from any other relief affecting creditors' rights, (iii) its winding-up, liquidation or dissolution, or (iv) any event or proceedings (by whatever name known) which has an effect equivalent or similar to the events listed in (i) to (iii). If Protea is subject to the above events or proceedings, LMS shall have the right to exercise the same termination right, the above provisions being applicable mutatis mutandis .
 
15.4
Termination decided by the Review Committee
 
The Review Committee may decide to terminate the Agreement if the Review Committee fails to agree on a decision relating to the conduct of the Development Program. However, such decision to terminate requires that all the members of the Review Committee vote in favor of such termination. Such termination decision may be made at any time during the Term.
 
15.5
Consequences of termination
 
15.5.1
Within 30 days following the termination of this Agreement, for whatever cause, each Party shall return to the other Party, or destroy, upon the written request of the other Party, any and all Confidential Information of the other Party in its possession, except as may be useful or desirable to continue to exercise the rights and fulfill its obligations.
 
 
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15.5.2
It is expressly agreed that any royalties accrued up to the date of any termination of this Agreement will be due and payable within 45 days, end of the month following such termination.
 
16.
Governing law and dispute resolution
 
16.1
Governing law
 
This Agreement shall be governed by the laws of France.
 
16.2
Dispute resolution
 
16.2.1
All disputes arising out of or in connection with this Agreement shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by three arbitrators appointed in accordance with the said Rules.
 
16.2.2
The place of arbitration shall be in Paris, France. The arbitration shall be conducted in English.
 
16.2.3
The Parties shall hold confidential the arbitration proceedings and the arbitral award, subject to any mandatory disclosures required by law, regulations and stock exchange rules. Notwithstanding the foregoing, each Party shall have the right to pursue an action in a court of competent jurisdiction to obtain any urgent decision to preserve the status quo during the resolution of any dispute under this provision.
 
17.
Miscellaneous
 
17.1
Assignment
 
No Party may assign this Agreement to any Third Party without the other Party’s prior written consent, which shall not be unreasonably withheld, except that each Party is entitled to assign its rights hereunder to actual or prospective investors or lenders, exclusively as a security for any financing project, provided such Party gives written notice of such assignment to the other Party. Subject to the preceding sentence, for the avoidance of doubt, no Party shall have the right to assign its rights ( cession de créance ) or delegate any of its obligations ( délégation ) relating to the development work during the Development Program without the other Party’s prior written consent, but each Party shall have the right to freely subcontract, under its own responsibility, development work during the Development Program.
 
17.2
Force majeure
 
17.2.1
No Party shall be liable for any failure to comply this Agreement so long as, and to the extent to which, such compliance is prevented due to a Force Majeure Event. A Party claiming the benefit of this provision shall, as soon as reasonably practicable after the occurrence of a Force Majeure Event:
 
 
(a)
notify the other Party of the nature and extent of such Force Majeure Event; and
 
 
(b)
use all best efforts to remove any such causes and resume performance as soon as feasible.
 

 
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17.2.2
For the purposes of this Section, a " Force Majeure Event " means a force majeure event as defined under the law governing this Agreement as well as an event beyond the reasonable control of a Party including war, fire, storm, flood, drought, earthquake, explosion, accident, sabotage, riots, strikes, lockouts, equipment or machinery failure, raw material or equipment shortages, interruption of power or water supply, transportation embargoes or delays, or regulations or injunctions of central or local government branches or agencies thereof.
 
17.2.3
The time for performance in the event of a Force Majeure Event shall be extended for a period equal to the time lost by reason of such event provided, however, that the continuation of a Force Majeure Event shall not entitle any Party to terminate this Agreement. The continuation, for a 90-period, of a Force Majeure Event preventing a Party to perform its obligations under the Development Program entitles any Party to terminate the Development Program.
 
17.3
Waiver
 
The waiver from time to time by a Party of any right or failure to exercise any remedy shall not operate or be construed as a continuing waiver of the same right or remedy or of any other of such Party's rights or remedies provided under this Agreement.
 
17.4
Severability
 
In case any provision of this Agreement shall be held invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
 
17.5
Independent Contractors
 
It is expressly agreed that Protea and LMS shall be independent contractors and that the relationship between the Parties shall not constitute a partnership, joint venture or agency of any kind. No Party shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other Party, without the prior written consent of the other Party.
 
17.6
Notices
 
17.6.1
Without prejudice to the specific means of notices provided elsewhere in the Agreement, any notice made under the Agreement must be in writing, in English, at the addresses set out below, and sent by recorded delivery with a request for notification of receipt, by fax, by express delivery (e.g., DHL, FedEx, UPS) or delivered by hand., addressed as follows:
 
 
(a)
If to Protea:
Proteabio Europe
290 chemin de Saint Dionisy- Jardin des Entreprises
30980 Langlade, France
To the attention of the President
 
 
(b)
If to LMS:
Laboratoires Mayoly Spindler
6 avenue de l'Europe
78401 Chatou, France
To the attention of the President
 
With a copy to the Legal Department

 
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17.6.2
The notice shall be deemed to have been validly made:
 
 
(a)
with respect to a recorded delivery with a request for notification of receipt, on the date on which the notice is first presented to the recipient;
 
 
(b)
with respect to a delivery by hand or an express delivery, on the date of signature of the receipt;
 
 
(c)
with respect to a fax, on the date and at the time that the notification of receipt is sent by the recipient.
 
17.7
Entire Agreement
 
This Agreement sets forth all of the agreements between the Parties hereto with respect to the subject matter hereof. There are no agreements with respect to the subject matter hereof between the Parties other than as set forth herein. Except as expressly set forth in this Agreement, no subsequent modification to this Agreement shall be binding upon the Parties hereto unless reduced to writing and signed by the respective authorized officers of the Parties. This Agreement supersedes and terminates all prior agreements between the Parties with respect to the subject matter.
 
17.8
Third Parties
 
The Parties acknowledge that provisions of the Agreement confer benefits on Affiliates of each Party (in particular as regards licences granted to Affiliates under this Agreement) who have declared that they wish to benefit from the Agreement ( stipulation pour autrui ) and that, consequently, neither Party shall be entitled to revoke such provisions.
 
17.9
Liability
 
17.9.1
Protea and LMS each represent themselves to be professionals of the same specialty and consider the terms limiting their respective liability under the Agreement to be reasonable and a fair allocation of risk bearing in mind the nature of the contract and royalties payable.
 
17.9.2
Each Party’s liability under this Agreement shall be limited to 200,000€. This limitation of liability does not apply to any liability incurred by LMS in connection with a breach of its representations and warranties under Sections 13.4 and 13.5.
 
 
In 2 originals,

 
PROTEABIO EUROPE SAS
LABORATOIRES MAYOLY SPINDLER SAS
   
By: /      s/ Daniel Dupret
By:        /s/ Jean-Nicolas Vernin
Name:  Daniel Dupret
Name:   Jean-Nicolas Vernin
Title:    President
Title:      President
Date:    12 June 2014
Date:      12 June 2014
   

 
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Exhibit A
 
Assigned Territories
 
Region
Protea Assigned Territory
Joint Assigned Territories**
LMS Assigned Territory
       
North America
U.S.A. and Canada
None
Mexico
South America*
Entire Region excluding Brazil
Brazil
None
Europe
None
Italy, Portugal, Spain
Entire Region excluding Italy, Portugal, Spain
Asia
Entire Region excluding China and Japan
China and Japan
None
Rest of the world
Australia, New Zealand, Israel
None
Rest of the world, excluding Australia, New Zealand, Israel
 
* South America: includes Central America and Caribbean.
 
** Joint Assigned Territories: the terms and conditions governing marketing of the Product and Side Products will be set forth in a co-commercialization agreement between Protea and LMS, which shall notably:
 
 
(a)
provide a mechanism setting out a 50/50 sharing of the profit generated within the territory. For the avoidance of doubt, any license fees paid by a Party pursuant to any license agreed under Section 12.4 shall not be taken into account for the calculation of the shared profit;
 
 
(b)
be consistent with the terms of the Agreement; and
 
 
(c)
aim at appointing one or several entities (one of the Parties, their Affiliates or a Third Party) which are best qualified in terms of professional competence and most likely to secure the best return on investment for all the Parties.
 

 
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Exhibit B
 
Core Program
 
The Core Program is made of the following elements only:
 
i.
each Party's share in the Program Budget;

ii.
each Party's Overrun Share (as defined in Section 4.2.1);

iii.
LMS Reportable Overrun Share (as defined in Section 4.2.1);

iv.
the Field for which the Development Program is carried out, i.e. treatment of a patient population suffering from exocrine pancreatic insufficiency in chronic pancreatitis and/or cystic fibrosis.
 

 
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Exhibit C
 
Program Budget for the period 2009 – 2019
 

 
*****
 


 
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Exhibit D
 
Restricted entities
 
*****


 
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Exhibit E
 
Form of balance statement of Shared Costs
 
Note: figures set out in this form are only provided as hypothetical examples.
 
EXHIBIT E________________________________________________________________________
 
EXPENSE REPORT_________________________________________________________________
 
Project MS1819___________________________________________________________________
 

 
****
 

 
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Exhibit F

Deduction of development costs (example)
Ref. to art.9.4.1.

*****
 

 
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Exhibit G
 
Reciprocal License Agreement
 
LICENSE AND CROSS-LICENSES
 

 
Between:
(1)
INRA TRANSFERT, a French Société Anonyme with a capital of 1 829 388€, having its registered office at 10 rue Vivienne 75002 Paris, France,
SIRET n°43 960 762 00022
   
represented for the purposes of this Agreement by Mr. Philippe Lenee, in the capacity of Directeur Général,
   
hereinafter referred to as “ INRA TRANSFERT ”;
 
Acting for and on behalf of
 
CENTRE NATIONAL DE LA RECHERCHE SCIENTIFIQUE,
A French Etablissement public à caractere scientifique et technologique (EPST)
Hereinafter referred to as “ CNRS
Having a registered office 3 rue Michel Ange 75794 Paris Cedex 16
 
And
 
INSTITUT NATIONAL DE LA RECHERCHE AGRONOMIQUE
A French Etablisement public à caractere scientifique et technologique
Hereinafter referred to as “ INRA
Having a registered office 147 rue de l’Université 75338 Paris Cedex 07
     
And:
(2)
LES LABORATOIRES MAYOLY SPINDLER SAS, a French Société par Actions Simplifiée , having a registered office 6 avenue de l’Europe BP 51 78401 Chatou Cedex,   SIRET n°B709 807 408
   
hereinafter referred to as “ LMS
represented by : Mr. Jean-Gilles Vernin
in his capacity of President
 
 
 
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WHEREAS :
 
 
LMS has characterized and isolated a lipase gene of Candida ernobii, which was filed on 19 November 1996 in the collections of Institut Pasteur under the reference I-1785.
 
INRA has characterized and isolated a lipase gene of Yarrownia lipolytica , which was filed on 19 November 1996 in the collections of Institut Pasteur.
 
Pursuant to a research contract of 3 December 1997, INRA, in the Laboratory of “Microbiology and Molecular Genetic” represented by Jean-Marc Nicaud UMR 1238, and LMS engaged into a joint research on the overexpression of acid-resistant lipase genes in the yeast of Yarrownia lipolytica by a systrain of non homologous transformation. This 1 year contract was renewed until 1 March 1999 by amendment n°1 of 3 November 1989. By amendment n°2 of 3 March 1999, LMS was authorized to increase its financial contribution to the project.
 
Within their collaboration scheme, on 1 September 1998 INRA and CNRS filed a French patent application named “process of non homologous transformation of Yarrowia lipolytica” , which was registered under number FR9810900. In parallel, LMS filed on 28 April 2000 in its own name a patent application named “Cloning and expression of an extracellular acid resistant lipase of Yarrowia lipolytica” , which was registered under number WO2000FR0001148.
 
Pursuant to a research contract of 2 April 2003, LMS entrusted INRA with the task of obtaining a strain of Yarrowia lipolytica overexpressing the acid-resistant lipase lip2 of Candida Ernobii.
 
In accordance with article 8.2 of the above mentioned research contract, LMS has the full benefit of an exclusive right of industrial exploitation worldwide of the strain of Yarrowia lipolytica overexpressing the acid-resistant lipase lip2 in the fields of human therapeutics and cosmetology.
 
In parallel, the stipulations of article 8.3 give INRA the exclusive right to exploit the Yarrowia lipolytica strain overexpressing the acid-resistant lipase lip2 in the veterinary or agronomic fields, the cleaning or transformation processes of food products for humans and animals as well as any other application, which is not within the field defined in article 8.2.
 
By a joint ownership agreement of 17 August 1999, CNRS entrusted INRA with the management and development of the CNRS INRA patent.
 
INRA TRANSFERT, a wholly owned subsidiary of INRA, is in charge of the development of INRA patent portfolio and know-how, which includes the power to negotiate, sign and manage related licenses.
 
Since LMS wishes to promot lip2, the acid resistant lipase obtained from recombining strains of Yarrowia lipolytica, in the fields of human therapeutics, neutraceuticals and cosmetology and INRA wishes to license the Yarrowia lipolytica strain, which overexpresses the acid resistant lipase lip2 in the other fields defined in the preliminary article, the Parties have decided to define under this agreement their respective rights and obligations with regards to the exploitation of the INRA CNRS patent and of the LMS patent.
 
 
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THEREFORE, THE PARTIES HAVE AGREED AS FOLLOWS:

 
PRELIMINARY ARTICLE – DEFINITIONS
 
For the enforcement and interpretation of this agreement, the following terms will have the following definitions:
 
 
Ø
INRA CNRS PATENT: French patent application INRA CNRS filed on 1 September 1998 n°FR9810900 with the title: “ process of non homologous transformation of Yarrowia lipolytica ” and PCT extension filed on 1 September 1999 under n° PCT/FR99/02079 and designating Canada, USA and Europe, including Germany, Austria, Belgium, Cyprus, Denmark, Spain, Finland, France, Greece, Ireland, Italy, Luxembourg, Monaco, Holland, Portugal, the United Kingdom, Sweden and Switzerland. National procedures of the PCT were initiated in the USA (n°99/786,048), Canada (n°2,341,776) and in Europe (n°99.940.267.0).
 
 
Ø
LMS PATENT: the international patent application filed by LMS on 28 April 2000 n°WO2000FR0001148, published under n°WO0183773 with the title “ Cloning and expressing an extra cellulous acid resistant lipase of Yarrowia lipolytica” and designating Europe and Hong Kong. National procedures were initiated in Europe (n°EP1276874). The national procedure in Japan was ended.
 
 
Ø
The INRA CNRS PATENT and the LMS PATENT are hereinafter designated as the PATENTS.
 
 
Ø
INRA CNRS LMS TECHNOLOGY: the INRA CNRS PATENT and the LMS PATENT and their associated know-how for the production of acid resistant lipase lip2.
 
 
Ø
The INRA CNRS LMS KNOW-HOW: the strains obtained from the collaboration with LMS and listed in Annex 1 of this agreement.
 
 
Ø
CONTRACTUAL PRODUCTS: the lipase proteins produced with the INRA CNRS LMS TECHNOLOGY. An acid resistant lipase is defined as a sequence of amino acids and a set of mutant or protein sequences with a protein sequence homology, which is 90% higher than the acid resistant lipase lip2 described in the LMS PATENT.
 
 
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Ø
EXPLOITATION: the term exploitation of the INRA CNRS LMS TECHNOLOGY defines the all purpose use, directly or indirectly of the INRA CNRS LMS TECHNOLOGY, the products, processes, results and/or applications issued from the INRA CNRS LMS TECHNOLOGY, separately or in conjunction with other products, applications and/or processes, patented or non patented, including but not limited to:
 
 
-
marketing, import and/or export of products, applications, results issued from the INRA CNRS LMS TECHNOLOGY,
 
 
-
advertising, promotion and communication on any support and for any purpose in relation with the products or applications, results issued from the INRA CNRS LMS TECHNOLOGY,
 
 
-
manufacturing, directly or through a subcontractor of products issued from the INRA CNRS LMS TECHNOLOGY and the use of processes issued from INRA CNRS LMS TECHNOLOGY within a manufacturing process,
 
 
-
improving, enhancing, adapting the INRA CNRS LMS TECHNOLOGY,
 
 
-
research and/or development directly or indirectly involving INRA CNRS LIMS TECHNOLOGY.
 
 
Ø
LMS FIELDS OF EXPLOITATION: the human therapeutical, nutraceutical and cosmetic fields.
 
 
Ø
FIELDS OF EXPLOITATION OF INRA TRANSFERT: (a) the use of lipase in an enzymatic catalysis in any field, including the production of pharmaceutical products (b) the treatment of environment, food processes, cleaning processes and other fields to the exception of the human therapeutical, neutraceutical and cosmetic fields.
 
 
Ø
SHARED FIELD OF EXPLOITATION: production of lipase in the veterinary field (production animals and pets)
 
 
Ø
LABORATORY: Laboratory of microbiology and molecular genetic UMR 1238 INRA-CNRS-INAPG.
 
 
Ø
MARKETING AUTHORIZATION: hereinafter designated as “MA” and defined as the authorization to market a product granted by each national authority in charge of the deliverance of authorizations allowing companies to market a pharmaceutical product or composition for human health.
 
 
ARTICLE 1 – INTENTIONS OF THE PARTIES
 
Both parties agree to develop as widely as possible the INRA CNRS LMS TECHNOLOGY and, for this purpose, to grant each other the necessary licenses and to share the fields of exploitation based on their knowledge of these fields.
 
This development shall be made through a direct exploitation by LMS or through licensees and/or sublicenses in the conditions defined hereafter.
 
 
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In all cases, a fair return on investment must be provided to both parties in accordance with the terms herein defined.
 
LMS shall dedicate its best effort to develop and exploit as widely as possible the CONTRACTUAL PRODUCTS. INRA TRANSFERT shall introduce a similar clause in the licenses and sub-licenses granted to third parties.
 
 
TITLE I
 
LICENSE OF THE INRA CNRS PATENT
 
ARTICLE 2 – NATURE AND SCOPE OF THE AGREEMENT
 
2.1.            INRA TRANSFERT grants to LMS, who accepts it:
 
a) the right to exploit the INRA CNRS LMS TECHNOLOGY;
 
b) the authorization to use all the information and technical data related to the INRA CNRS PATENT, which will be disclosed by INRA.
 
INRA TRANSFERT gives not other warranty than the material existence of the INRA CNRS PATENT and no claim shall be brought by LMS against INRA TRANSFERT in the case of a third party claiming industrial property rights. INRA TRANSFERT declares that, to its knowledge, at the date of signature of this contract no third party rights affects the validity of the INRA CNRS PATENT.
 
The INRA CNRS PATENT shall remain the property of INRA and CNRS.
 
2.2.            The license shall be exclusive in all the LMS FIELDS OF EXPLOITATION and non- exclusive in the SHARED FIELD OF EXPLOITATION, for the duration of the INRA CRNS PATENT, for the manufacture and sale of THE CONTRACTUAL PRODUCTS in the geographical territory defined in article 2.3.
 
2.3.            The license is granted for the following territory: worldwide
 
In the countries where no patent application has been filed, LMS shall be authorized to exploit the CONTRACTUAL PRODUCTS under its sole responsibility towards third parties and without any warranty from INRA.
 
2.4.            The license is granted intuitu personae. It is personal and cannot be assigned or transferred, except in the following circumstances:
 
If LMS is subject to a merger, absorption, transformation or a transfer of activity to a third party, in which case this agreement shall not be transferred without INRA TRANSFERT prior written approval.
 
If INRA TRANSFERT does not answer within 1 month, the authorization shall be considered as granted.
 

 
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Provided, however, that this provision (i.e. INRA TRANSFERT prior written consent ) shall not apply to the operations concluded with a company, which is a subsidiary or an affiliate of LMS. A subsidiary or affiliate of LMS shall be defined as any company for which LMS controls directly or indirectly 50% of the capital or voting rights or any company or any company controlling directly or indirectly 50% of the capital or voting rights of LMS.
 
2.5.            No provision of this agreement can be interpreted as providing rights or obligations in other fields that the LMS FIELDS OF EXPLOITATION, as defined in the preliminary article.
 
 
ARTICLE 3 – TERMS OF THE LICENSE IN THE  SHARED FIELD OF EXPLOITATION
 
For the production of lipase in the veterinary field (production animals and pets), INRA TRANSFERT grants to LMS a license in the following conditions:
 
 
-
the development projects and/or research/development and/or exploitation by INRA and/or CNRS alone shall be proposed to LMS in priority. LMS shall announce its decision within 6 weeks. If LMS answer is positive, the Parties shall conclude a specific agreement defining their respective rights and obligations. The Parties shall endeavour to refer to the terms of this agreement. If LMS declines the proposal, the rights shall be granted to third parties by INRA TRANSFERT in accordance with Article 9.
 
 
-
the development projects and/or research/development and/or exploitation by INRA and/or CNRS partners shall be conducted by LMS, who shall have the right to grant the corresponding rights, including under the form of sublicenses of the INRA CNRS LMS TECHNOLOGY.
 
 
-
the development projects and/or research/development and/or exploitation projects originating from LMS shall be conducted by LMS, who will have the right to grant the corresponding rights, including by a sub-licence of INRA CNRS LMS TECHNOLOGY.
 
In any case, the rights shall be strictly limited to the SHARED FIELD OF EXPLOITATION, shall be non-exclusive unless otherwise agreed between the Parties and the Party who will grant the exploitation rights shall give to the other Party a fair financial compensation for all the sums received from the exploitation of the INRA CNRS LMS TECHNOLOGY.
 
 
ARTICLE 4 – SUBLICENSES
 
LMS shall grant sub-licenses to its subsidiaries and affiliates, subject to prior information given to INRA TRANSFERT. The terms “subsidiaries and affiliates” shall designate the companies in which LMS holds a power of decision, either by participation or management.
 
LMS shall be authorized to grant sub-licences to independent third parties, subject to INRA TRANFERT agreeing in writing to this third party being granted a license and to the terms of the license.
 
Failing a response within 1 month from the receipt of information by INRA TRANSFERT, the authorization shall be considered as granted. Any refusal shall be expressly motivated.
 

 
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LMS shall include in the sub-licenses a provision allowing INRA TRANSFERT to verify the accounts of the sub-licensee.
 
For the CONTRACTUAL PRODUCTS sold by sub-licensees, LMS shall owe to INRA TRANSFERT:
 
 
-
if the sub-licensee is a subsidiary or an affiliate:
 
 
o
the same sums as provided under article 5
 
 
-
if the sub-licensee is an independent party:
 
 
o
30% of the sums of any nature received by LMS as a compensation for granting rights on the CONTRACTUAL PRODUCTS in accordance with this agreement (including fixed sums and royalties),
 
 
o
the same sums as those provided for under article 5 if the rights granted to the sub-licensee were limited either to the manufacture or to the sale or limited to a specific territory and/or a specific technical field.
 
 
 
ARTICLE 5 – FINANCIAL CONDITIONS
 
This agreement is entered at the following financial conditions.
 
5.1 Fixed amounts
 
As a compensation for this license, LMS shall pay to INRA TRANSFERT an annual fixed sum of 5000€ HT (five thousand euros tax excluded), from the date of signature until the marketing of the products.
 
In addition, when the products are sold for the first time in the USA or in a country, which is a member of the European Union, LMS shall pay to INRA TRANSFERT a fixed sum of 100 000€ HT (one hundred thousand euros tax excluded).
 
VAT shall be added to these sums.
 
A first payment of 5000€HT shall be made upon the signature of this license and on each anniversary date of the license. The payment of 100 000€ tax excluded shall be made within three months from the date of the first marketing of the products on the territories mentioned above.
 
All payments shall be made in accordance with the terms of payment specified in article 5.3.
 
Furthermore, the non-payment of these sums shall entitle INRA TRANSFERT to either transform the exclusive license of EXPLOITATION into a non-exclusive license of EXPLOITATION or to terminate the EXPLOITATION license in accordance with termination clauses.
 

 
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5.2 Royalties
 
5.2.1 LMS shall pay to INRA TRANSFERT a royalty for each CONTRACTUAL PRODUCT, which is subject to a commercial transaction or a purchasing order before the expiry of this contract, in any of the territories protected by the INRA CNRS PATENT as defined in the preliminary article.
 
This royalty shall be equal to 1% of the sale price of the CONTRACTUAL PRODUCTS invoiced and paid, ex-works, tax excluded.
 
5.2.2
 
LMS shall pay to INRA TRANSFERT a royalty for each CONTRACTUAL PRODUCT, which is subject to a commercial transaction or a purchasing order before the expiry of this contract, in any of the territories protected by the INRA CNRS PATENT as defined in the preliminary article, in consideration of the know-how.
 
This royalty shall be of 0,25% of the sales price of the CONTRACTUAL PRODUCTS invoiced and paid ex-works, tax excluded.
 
5.3 Guaranteed minimum
 
In consideration of LMS exclusive license, INRA TRANSFERT shall have the right to ask for an annual minimum royalty, as indicated in article 5.2.1
 
This minimum shall be determined, by mutual agreement between the Parties, by an amendment within the three last months of the second year of marketing of the CONTRACTUAL PRODUCTS.
 
Failing an agreement on this minimum, the Parties shall nominate a third party as an expert acting in their common interest. This expert shall be chosen by mutual agreement or, in case of disagreement, by the President of the Tribunal de Grande Instance de Paris , at the request of the first Party to act. This expert shall have two months from his designation to render his decision.
 
Besides, in case of non-payment of the minimum guaranteed within the contractual time limit INRA TRASFERT shall have the right to either change the exclusive license of EPLOITATION into a non-exclusive license or to terminate the EXPLOITATION agreement pursuant to the contractual termination clause in the territories where LMS has defaulted.
 
5.4 Balancing payment in discharge
 
LMS shall have the right, at any time during this contract, to pay INRA TRANSFERT a balancing payment in discharge of all obligations of 700 000 HT (seven hundred thousand euros tax excluded).
 
From the date of this balancing payment, the provisions of articles 5.1, 5.2 and 5.3 will no longer be applicable and no other sum shall be owed pursuant to these provisions. The payments made to INRA TRANSFERT at the date of the balancing payment shall be owned by INRA TRANSFERT.
 

 
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Other terms and conditions of this contract shall remain in force to the exception of articles 22.2 and 19.2 and LMS shall defend its own interests from the date of payment of the balancing payment provided under this article 5.4.
 
 
ARTICLE 6 – ACCOUNTING
 
6.1            LMS shall keep a separate accounting containing all the elements, which are necessary for assessing the value of business transactions made under this agreement.
 
6.2            This separate accounting, a well as the related elements of general accounting and analytical accounting will be kept at all times at the disposal of INRA TRANSFERT or of one of its designated representative until the expiry of this agreement, with a one (1) year extension.
 
6.3            This separate accounting shall be drawn up every year on 31 December and LMS shall send to INRA TRANSFERT on 31 January of the following year a detail record of the sales of CONTRACTUAL PRODUCTS in each country. This record shall be confidential and shall be kept secret in accordance with the provisions of article 15 above. The accounting shall contain the annual turnover under tax deduction allowing the calculation of total royalty owed to INRA TRANSFERT.
 
Upon receipt of the sales record, INRA TRANSFERT shall send the corresponding invoice for the amount of royalty owed.
 
The sums owed by LMS shall be paid to INRA TRANSFERT within thirty (30) days from the end of the month following the invoicing to the following bank account:
 
Bank account references
 
Expenses incurred as a result of a delayed or late payment will be charged to LMS with an interest rate of 1% for each calendar month of late payment.
 
This provision shall apply subject to the right of INRA TRANSFERT to terminate the exploitation agreement pursuant to the termination clauses.
 
6.4 In the absence of sales, LMS shall nevertheless send to INRA TRANSFERT within the time limit mentioned above, a record certifying the absence of sales during the relevant year.
 
 
ARTICLE 7 - PATENT
 
INRA and CNRS shall pay for the filing and maintenance costs related to the INRA CNRS PATENT.
 

 
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TITLE II
 
LICENSE OF THE LMS PATENT
 
 
ARTICLE 8 – NATURE AND SCOPE OF THE AGREEMENT
 
8.1            LMS grants to INRA TRANSFERT, who accepts it:
 
a) a commercial license for exploiting the INRA CNRS LMS TECHNOLOGY outside LMS EXPLOITATION FIELDS;
 
b) the authorization to use all information and technical data related to the LMS PATENT, which will be disclosed by LMS.
 
This right is granted under the sole guarantee of the material existence of the LMS PATENT and without any right for INRA TRANSFERT to call for LMS guarantee if a third parties invokes its industrial property rights.
 
The LMS PATENT shall remain LMS property.
 
8.2            This right is granted on a non-exclusive basis in the INRA TRANSFERT FIELDS OF EXPLOITATION and in the SHARED FIELD OF EXPLOITAITON for the duration of the LMS PATENT for the manufacturing and sale of the CONTRACTUAL PRODUCTS in the geographical fields defined in article 8.3 below.
 
8.3            This right is granted to INRA TRANSFERT for the following territories: worldwide .
 
In the countries were no patent has been filed, INRA TRANSFERT shall have the right to exploit or have a third party exploit the CONTRACTUAL PRODUCTS under its sole liability towards third parties without any right to call for LMS guarantee.
 
8.4            This license   is concluded intuitu personae . It is personal and cannot be transferred or assigned, except as provided hereafter.
 
In case of a merger, absorption, transformation of INRA TRANSFERT or a transfer of activity to another company, this agreement shall not be assigned without LMS prior authorization in writing.
 
Failing a response form LMS within one month, the authorization shall be considered as granted.
 
8.5            No provision of this agreement can be interpreted as implying rights or obligations outside the INRA TRANSFERT EXPLOTIATION FIELDS or the SHARED FIELDS OF EXPLOITATION, as defined above in the preliminary article.
 

 
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ARTICLE 9 – CONDITIONS OF THE LICENSE IN THE SHARED FIELD OF EXPLOITATION
 
For the production of lipase in the veterinary field (production animals and pets), LMS shall grant to INRA TRANSFERTS a license with the right to sub-license as follows:
 
 
-
for the projects of development and/or research/development by INRA and/or CNRS alone, in which LMS does not want to participate in accordance with article 3.
 
 
-
for the projects of development and/or research/development by the partners of INRA and/or CNRS.
 
In both cases, INRA TRANSFERT shall have the right to grant to third parties EXPLOITATION rights, which shall be strictly limited to the SHARED EXPLOITATION FIELD and shall not be exclusive without a new agreement between the Parties allowing LMS to receive a fair financial compensation as defined in article 11.
 
 
ARTICLE 10 – SUB-LICENSES
 
10.1            It is specified between the Parties that the conclusion of sublicenses shall not be useful or necessary when LMS supplies the sub-licensee with CONTRACTUAL PRODUCTS. The monitoring committee mentioned in article 16 shall assess whether a sub-license is necessary.
 
10.2            In all other cases, INRA TRANSFERT shall grant sub-licenses to independent third parties, provided that LMS gives its prior written consent to the designated sub-licensee and to the terms of the sublicense agreement.
 
Failing an answer within one month from the receipt of information by LMS, the authorization shall be considered as granted.
 
Any refusal shall be motivated.
 
INRA TRANSFERT shall include in such sub-license a clause allowing LMS to verify the separating accounting drawn up by the sub-licensee under its contract.
 
 
ARTICLE 11 – FINANCIAL CONDITIONS
 
As a compensation for the EXPLOITATION by its sub-licensees, INRA TRANSFERT shall pay to LMS 20% of all sums received by INRA TRANSFERT for granting the rights provided under this agreement (including flat sums and royalties).
 
 
ARTICLE 12 – ACCOUNTING
 
12.1            INRA TRANSFERT shall   keep a separate accounting containing all the elements, which are necessary for assessing the value of business transactions made under this agreement.
 
12.2 This separate accounting, a well as the related elements of general accounting and analytical accounting will be kept at all times at the disposal of LMS or of one of its designated representative until the expiry of this agreement, with a one (1) year extension.
 

 
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12.3 This separate accounting shall be drawn up every year on 31 December and INRA TRANSFERT shall send to LMS on 31 January of the following year a detail record of the sales of CONTRACTUAL PRODUCTS in each country. This record shall be confidential and shall be kept secret in accordance with the provisions of article 15 above. The accounting shall contain the annual turnover under tax deduction allowing the calculation of total royalty owed to LMS.
 
LMS shall, upon receipt of the sales record send the corresponding invoice for the amount of royalty owed.
 
The sums owed by INRA TRANSFERT shall be paid to LMS within thirty (30) days from the end of the month following the invoicing to the following bank account:
 
Bank account references
 
Expenses incurred as a result of a delayed or late payment will be charged to INRA TRANSFERT with an interest rate of 1% for each calendar month of late payment.
 
This provision shall apply subject to the right of LMS to terminate the exploitation agreement pursuant to termination clauses.
 
12.4 In the absence of sales, INRA TRANSFERT shall nonetheless send to LMS within the time limit mentioned above, a record certifying the absence of sales during the relevant year.
 
 
ARTICLE 13 – PATENT
 
LMS shall pay for the filing and maintenance costs related to the LMS PATENT.
 
 
TITLE III
 
GENERAL PROVISIONS
 
 
ARTICLE 14 – JOINT AND MUTUAL UNDERTAKINGS
 
The Parties agree that TITLES I and II above shall be considered as joint.
 
As a consequence, the two licenses granted cannot be implemented separately by one Party except if the LMS PATENT lasts for longer that the INRA CNRS PATENT, in which case the rights granted by INRA TRANSFERT to third parties shall last for the duration of the LMS patent.
 

 
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ARTICLE 15 – SECRET
 
The Parties shall keep secret all the information related to this Agreement and which are not in the public domain or belong to the other party, except the information contained in the PATENTS, which can be published by INRA, CNRS in scientific press. LMS, INRA TRANSFERT, INRA and CNRS shall only communicate the secret information to third parties, in whole or in part, with the prior written consent of the two other Parties.
 
This obligation includes information related to LMS or INRA TRANSFERT sub-licences, their identity, their field of activity and the nature of the contract concluded with LMS or INRA TRANSFERT.
 
This obligation shall remain in effect even after the expiry of the agreement and for as long as this information shall not be in the public domain.
 
LMS and INRA TRANSFERT shall include this clause in their respective sublicense agreements.
 
 
ARTICLE 16 – MONITORING COMMITTEE
 
Within the frame of this exploitation agreement, a monitoring committee shall be set up with:
 
 
-
2 representatives of INRA and/or INRA TRANSFERT
 
 
-
2 representatives of LMS.
 
The purpose of this committee shall be to:
 
 
-
monitor the implementation of the exploitation agreement;
 
 
-
facilitate the exchange of information between the Parties, including the improvements obtained;
 
 
-
inform about the status of the procedures concerning the INRA CNRS PATENT and the LMS PATENT (issue, opposition, withdrawal);
 
 
-
conduct a scientific, technical and economical watch in the fields of INRA CNRS LMS TECHNOLOGY;
 
 
-
determine whether the conclusion of a sublicense contract is necessary (article 10.1)
 
 
-
identify cases of infringement and inform the Parties;
 
 
-
suggest to the executive officers of the Parties adaptations of the contracts, which the committee considers as necessary.
 
The Monitoring Committee shall meet regularly and at least once a year and in any case at the request of the first Party to act. Minutes of these meetings shall be circulated to the Parties. The committee can also meet by exchange of emails sent to all its members, by telephone conference or any electronic means.
 

 
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ARTICLE 17 – IMPROVEMENTS
 
17.1            If the improvements result from the existing or future research contracts between INRA and LMS, these improvements shall be ruled by these research contracts.
 
17.2            In all other cases, the improvements shall be considered as innovations or ameliorations of the INRA CNRS LMS TECHNOLOGY, patentable or not, dependant, as defined by law, and shall be ruled by the following provisions:
 
17.2.1                       INRA CNRS and LMS shall communicate to each other these improvements within sixty (60) days.
 
The improvements to the PATENTS made by INRA, CNRS or LMS shall have no incidence on the validity of this agreement, even if they are subject to further patent applications. Nevertheless, depending on the importance of these improvements, the Parties may negotiate an amendment with the financial conditions of a license of the improvement patent, provided that, save for such license, the amendment shall not modify the main conditions of the contract.
 
The owner of the improvement patent shall be authorized to use it with the INRA CNRS patent or the LMS patent, notwithstanding the other Party’s opposition, as long as the Party abides by all terms and obligations of the contract.
 
17.2.2 INRA CNRS and LMS shall be free to file or not the patent applications on the improvements that they have made to the INRA CNRS PATENT as far as INRA is concerned and to the LMS PATENT as far as LMS is concerned. For those improvements made by INRA and/or CNRS, the applications shall be filed in the name and at the expenses of INRA and/or CNRS, and for those made by LMS, in the name and at the expenses of LMS.
 
Each Party shall inform the other Party within thirty (30) days following the date of filing of the patent application related to such improvements.
 
 
ARTICLE 18 – NULLITY
 
18.1            If the INRA CNRS PATENT is annulled by a final court decision or if the INRA CNRS PATENT is not delivered, LMS shall not have the right to claim from INRA TRANSFERT or INRA or CNRS an indemnity, a reimbursement or a reduction of the sums owed at the date of such final decision declaring the patent application null or rejecting the patent application.
 
18.2            If the LMS   PATENT is annulled by a final court decision or if the LMS PATENT is not delivered, INRA TRANFERT shall not have he right to claim from LMS an indemnity, a reimbursement or a reduction of the sums owed at the date of such final decision declaring the patent application null or rejecting the patent application.
 
18.3            The annulment of an improvement patent shall have no consequence on the provisions of this agreement.
 

 
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ARTICLE 19 – INFRINGEMENT
 
19.1           Infringement by a third party
 
19.1.1                       INRA and/or INRA TRANSFERT and LMS shall inform each other reciprocally promptly in case of an infringement by a third Party, which comes to their knowledge.
 
19.1.2 If, after verification, the suspected infringement is confirmed, INRA or LMS, depending on the patent concerned, shall inform the infringer and shall try to end the infringement by any means available. Nevertheless, if the infringement persists, INRA, INRA TRANSFERT and LMS shall meet in order to determine if they wish to initiate proceedings or participate to the resolution of the dispute. It is agreed that in certain cases only one of the Parties shall conduct such actions (patent owner or exclusive licensee). They will determine first the portion of costs, which shall be borne by each party. The indemnities, which the Courts may award shall be shared between the Parties in proportion to their participation in the costs.
 
Failing such agreement, the other Party shall continue all one if the Law so authorizes. This Party shall do it in its name, at its costs and risks and shall receive the entire indemnity awarded to it by Courts.
 
If LMS or INRA/INRA TRANSFERT supports the other Party in an infringement claim and incurs procedural expenses (lawyer’s fees…), these fees can be deducted from sums owed.
 
19.2 Infringement against the licensee
 
If an infringement claim is filed against LMS or one of INRA TRANSFERT licensees in relation with the manufacturing and sale of the CONTRACTUAL PRODUCTS, the Party who owns the patent involved shall bring to the other party its technical and legal assistance to prepare its defence, subject tot article 5.4.
 
From the date of the commencement of the proceedings, the defending Party shall be authorized to put all sum owed on a frozen account, which interests shall be shared equally between the two Parties. These sums shall be taken out at the final resolution of the litigation and shall be paid to the beneficiary if the third party claim in infringement is dismissed.
 
If the third party is awarded damages for infringement, the defending Party shall not claim from the other Party any indemnity or reimbursement of the sums paid  or reduction of the sums owed at the time of the final court decision.
 
19.3 The Parties shall provide each other as soon as possible all the documents, powers of attorney and signatures, which may be useful for the proceedings described above.
 

 
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ARTICLE 20 - DURATION
 
This agreement shall commence on the date of its signature and shall remain in effect for the duration of validity of the PATENTS in each country for which a license was granted.
 
 
ARTICLE 21 - GUARANTY - RESPONSIBILITY
 
This agreement shall not be interpreted as implying any responsibility of INRA TRANSFER or INRA, including but not limited to the quality or reliability of the CONTRACTUAL PRODUCTS exploited by LMS, all such responsibility lying with LMS as the manufacturer.
 
LMS and its sub-licensees shall indemnify INRA, INRA TRANSFERT and the members of their staff against any claim, which could be filed against them in relation with corporal and material damages as a result of the holding or use and marketing of the CONTRACTUAL PRODUCTS by LMS, its subsidiaries or sub-licensees.
 
LMS, its affiliates and sub-licensees waive any right to initiate a proceeding against INRA and/or INRA TRANSFERT in case of a claim, demand, pursuit, action initiated against LMS or its subsidiaries or sub-licensee by a third party. LMS shall procure that LMS, its subsidiaries and sub-licensees are covered by an insurance policy covering their liability in relation with this exclusive license agreement.
 
INRA TRANSFERT shall procure that the licenses and/or sublicenses of the LMS PATENT granted to third parties contain a provision whereby LMS shall not be responsible for its patent (except if LMS supplies CONTRACTUAL PRODUCTS, in which case LMS shall bear the liability of a supplier).
 
 
ARTICLE 22 – TERMINATION
 
22.1            Each Party may terminate this agreement if the other Party does not perform one or several of the obligations provided in the various contractual provisions. This termination shall be effective only three months from the date of dispatch of a notice by the suffering Party, made by registered letter with acknowledgment of receipt and indicating the reasons of its complaint, unless the defaulting Party has in between times performed its obligation or brought the proof of a legitimate cause due to a case of force majeure. The right to terminate the contract shall not prevent the defaulting party to perform its obligations until the effective date of the termination and without prejudice to damages suffered by the suffering Party as a result of the early termination of the exploitation agreement.
 
22.2 In LMS FIELDS OF EXPLOITATION, INRA TRANSFERT   can transform the exclusive license into a non-exclusive license for each territory (to the exception of USA and Europe) if LMS has not performed continuous sales for a period of two (2) consecutive years from the date of the AMM (on the relevant territory) and has not allowed the EXPLOITATION of the CONTRACTUAL PRODUCTS, provided that LMS is responsible for this non performance.
 

 
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ARTICLE 23 – PROVISIONS FOR THE TERM OF THE EXPOITATION AGREEMENT
 
If this agreement is terminated because of the non performance of LMS obligations, LMS shall not use or allow the use of the INRA CNRS PATENT directly or indirectly and for as long as this INRA CNRS PATENT shall not be in the public domain.
 
At the date of termination of the exploitation agreement, LMS shall give back to INRA all the documentation and various materials that it will have received from INRA or the LABORATORY and shall not keep any copy of the same.
 
INRA TRANSFERT shall have the right to verify or have a third party verify in LMS premises that LMS complies with this obligation.
 
INRA TRANSFERT shall have all licenses and sublicenses of the LMS PATENT undertake the same obligation.
 
 
ARTICLE 24 – LITIGATIONS - DISPUTES
 
24.1 The Parties shall endeavour to resolve amicably all disputes which may arise between them concerning the interpretation or the enforcement of the provisions of this agreement.
 
24.2 In case of a persistent disagreement, the Parties shall submit the disputes to the courts having jurisdiction.
 
 
ARTICLE 25 – REGISTRATION
 
All powers are hereby given to the bearer of a copy of this agreement to obtain its registration with the tax authorities and the national patent registers in the countries concerned by this exploitation agreement.
 
 
In Paris, on 2 February 2006
 
In two original copies
 
 
 
For LMS
INRA TRANSFERT
Jean-Gilles VERNIN
Philippe Lénée
President
Directeur Général

 
Page 64 of 65

 


 
Description
Name
Results
Classification
Initial clones
     
Strains MS4
JMY329
15 copies, instable flask and fermenter
DTS
Subclones
     
Strain MS6-1
JMY1193
7 copies, stable in flask and MCB, instable fermenter (50%)
DTS
Strain MS6-2
JMY1194
5 copies, stable in flask
DTS
Strain MS4-15
JMY1200
7 copies, stable 95%flask, MCB, fermenter (strain used for MCB PX1 and the production of the pre-clinical batch of 100g)
License
Sub-sub-clones
     
Strain MS4-15-4
JMY1295
5 copies, production similar to MS4-15, stability study in the suggested fermenter
DTS/license
Strain MS4-15-37
JMY1296
5 copies, production similar to MS4-15
DTS/license
Strain MS4-15-44
JMY1297
6 copies, production similar to MS4-15
DTS/License

 
 
 
 
Page 65 of 65

Exhibit 10.3
 
AZURRX BIOPHARMA, INC.
 
AMENDED AND RESTATED
 
2014 OMNIBUS EQUITY INCENTIVE PLAN
 
 
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AZURRX BIOPHARMA, INC.
AMENDED AND RESTATED
2014 OMNIBUS EQUITY INCENTIVE PLAN
 
ARTICLE I
 
PURPOSE
 
The purpose of this AzurRx BioPharma, Inc. Amended and Restated 2014 Omnibus Equity Incentive Plan (the “ Plan ”) is to benefit AzurRx BioPharma, Inc., a Delaware corporation (the “ Company ”) and its shareholders, by assisting the Company and its subsidiaries to attract, retain and provide incentives to key management employees, directors, and consultants of the Company and its Affiliates, and to align the interests of such service providers with those of the Company’s shareholders.  Accordingly, the Plan provides for the granting of Non-qualified Stock Options, Incentive Stock Options, Restricted Stock Awards, Restricted Stock Unit Awards, Stock Appreciation Rights, Performance Stock Awards, Performance Unit Awards, Unrestricted Stock Awards, Distribution Equivalent Rights or any combination of the foregoing.
 
ARTICLE II
 
DEFINITIONS
 
The following definitions shall be applicable throughout the Plan unless the context otherwise requires:
 
2.1           “ Affiliate ” shall mean any corporation which, with respect to the Company, is a “subsidiary corporation” within the meaning of Section 424(f) of the Code or other entity in which the Company has a controlling interest in such entity or another entity which is part of a chain of entities in which the Company or each entity has a controlling interest in another entity in the unbroken chain of entities ending with the applicable entity.
 
2.2           “ Award ” shall mean, individually or collectively, any Option, Restricted Stock Award, Restricted Stock Unit Award, Performance Stock Award, Performance Unit Award, Stock Appreciation Right, Distribution Equivalent Right or Unrestricted Stock Award.
 
2.3           “ Award Agreement ” shall mean a written agreement between the Company and the Holder with respect to an Award, setting forth the terms and conditions of the Award, as amended.
 
2.4           “ Board ” shall mean the Board of Directors of the Company.
 
2.5           “ Base Value ” shall have the meaning given to such term in Section 14.2.
 
 
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2.6           “ Cause ” shall mean (i) if the Holder is a party to an employment or service agreement with the Company or an Affiliate which agreement defines “Cause” (or a similar term), “ Cause ” shall have the same meaning as provided for in such agreement, or (ii) for a Holder who is not a party to such an agreement, “ Cause ” shall mean termination by the Company or an Affiliate of the employment (or other service relationship) of the Holder by reason of the Holder’s (A) intentional failure to perform reasonably assigned duties, (B) dishonesty or willful misconduct in the performance of the Holder’s duties, (C) involvement in a transaction which is materially adverse to the Company or an Affiliate, (D) breach of fiduciary duty involving personal profit, (E) willful violation of any law, rule, regulation or court order (other than misdemeanor traffic violations and misdemeanors not involving misuse or misappropriation of money or property), (F) commission of an act of fraud or intentional misappropriation or conversion of any asset or opportunity of the Company or an Affiliate, or (G) material breach of any provision of the Plan or the Holder’s Award Agreement or any other written agreement between the Holder and the Company or an Affiliate, in each case as determined in good faith by the Board, the determination of which shall be final, conclusive and binding on all parties.
 
2.7           “ Change of Control ” shall mean:  (i) for a Holder who is a party to an employment or consulting agreement with the Company or an Affiliate which agreement defines “Change of Control” (or a similar term), “ Change of Control ” shall have the same meaning as provided for in such agreement, or (ii) for a Holder who is not a party to such an agreement, “ Change of Control ” shall mean the satisfaction of any one or more of the following conditions (and the “Change of Control” shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied):
 
(a)           Any person (as such term is used in paragraphs 13(d) and 14(d)(2) of the Exchange Act, hereinafter in this definition, “ Person ”), other than the Company or an Affiliate or an employee benefit plan of the Company or an Affiliate, becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities;
 
(b)           The closing of a merger, consolidation or other business combination (a “ Business Combination ”) other than a Business Combination in which holders of the Shares immediately prior to the Business Combination have substantially the same proportionate ownership of the common stock or ordinary shares, as applicable, of the surviving corporation immediately after the Business Combination as immediately before;
 
(c)           The closing of an agreement for the sale or disposition of all or substantially all (50% or more) of the Company’s assets to any entity that is not an Affiliate;
 
 
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(d)           The approval by the holders of Shares of a plan of complete liquidation of the Company, other than a merger of the Company into any subsidiary or a liquidation as a result of which persons who were shareholders of the Company immediately prior to such liquidation have substantially the same proportionate ownership of shares of common stock or ordinary shares, as applicable, of the surviving corporation immediately after such liquidation as immediately before; or
 
(e)           Within any twenty-four (24) month period, the Incumbent Directors shall cease to constitute at least a majority of the Board or the board of directors of any successor to the Company; provided , however , that any director elected to the Board, or nominated for election, by a majority of the Incumbent Directors then still in office, shall be deemed to be an Incumbent Director for purposes of this paragraph (e), but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, entity or “group” other than the Board (including, but not limited to, any such assumption that results from paragraphs (a), (b), (c), or (d) of this definition).
 
2.8           “ Code ” shall mean the United States of America Internal Revenue Code of 1986, as amended.  Reference in the Plan to any section of the Code shall be deemed to include any amendments or successor provisions to any section and any regulation under such section.
 
2.9           “ Committee ” shall mean a committee comprised of not less than two (2) members of the Board who are selected by the Board as provided in Section 4.1.
 
2.10           “ Company ” shall have the meaning given to such term in the introductory paragraph, including any successor thereto.
 
2.11           “ Consultant ” shall mean any non-Employee (individual or entity) advisor to the Company or an Affiliate who or which has contracted directly with the Company or an Affiliate to render bona fide consulting or advisory services thereto.
 
2.12           “ Director ” shall mean a member of the Board or a member of the board of directors of an Affiliate, in either case, who is not an Employee.
 
2.13           “ Distribution Equivalent Right ” shall mean an Award granted under Article XIII of the Plan which entitles the Holder to receive bookkeeping credits, cash payments and/or Share distributions equal in amount to the distributions that would have been made to the Holder had the Holder held a specified number of Shares during the period the Holder held the Distribution Equivalent Right.
 
2.14           “ Distribution Equivalent Right Award Agreement ” shall mean a written agreement between the Company and a Holder with respect to a Distribution Equivalent Right Award.
 
 
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2.15            “ Effective Date ” shall mean May 12, 2014.
 
2.16           “ Employee ” shall mean any employee, including any officer, of the Company or an Affiliate.
 
2.17           “ Exchange Act ” shall mean the United States of America Securities Exchange Act of 1934, as amended.
 
2.18           “ Fair Market Value ” shall mean, as of any specified date, the closing sales price of the Shares for such date (or, in the event that the Shares are not traded on such date, on the immediately preceding trading date) on the Nasdaq Stock Market or a domestic or foreign national securities exchange (including London’s Alternative Investment Market) on which the Shares may be listed, as reported in The Wall Street Journal or The Financial Times.  If the Shares are not listed on the Nasdaq Stock Market or on a national securities exchange, but are quoted on the OTC Bulletin Board or by the National Quotation Bureau, the Fair Market Value of the Shares shall be the mean of the highest bid and lowest asked prices per Share for such date.  If the Shares are not quoted or listed as set forth above, Fair Market Value shall be determined by the Board in good faith by any fair and reasonable means (which means may be set forth with greater specificity in the applicable Award Agreement).  The Fair Market Value of property other than Shares shall be determined by the Board in good faith by any fair and reasonable means consistent with the requirements of applicable law.
 
2.19           “ Family Member ” of an individual shall mean any child, stepchild, grandchild, parent, stepparent, 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, including adoptive relationships, any person sharing the Holder’s household (other than a tenant or employee of the Holder), a trust in which such persons have more than fifty percent (50%) of the beneficial interest, a foundation in which such persons (or the Holder) control the management of assets, and any other entity in which such persons (or the Holder) own more than fifty percent (50%) of the voting interests.
 
2.20           “ Holder ” shall mean an Employee, Director or Consultant who has been granted an Award or any such individual’s beneficiary, estate or representative, who has acquired such Award in accordance with the terms of the Plan, as applicable.
 
2.21            “ Incentive Stock Option ” shall mean an Option which is intended by the Committee to constitute an “incentive stock option” and conforms to the applicable provisions of Section 422 of the Code.
 
2.22           “ Incumbent Director ” shall mean, with respect to any period of time specified under the Plan for purposes of determining whether or not a Change of Control has occurred, the individuals who were members of the Board at the beginning of such period.
 
 
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2.23           “ Non-qualified Stock Option ” shall mean an Option which is not an Incentive Stock Option or which is designated as an Incentive Stock Option but does not meet the applicable requirements of Section 422 of the Code.
 
2.24           “ Option ” shall mean an Award granted under Article VII of the Plan of an option to purchase Shares and shall include both Incentive Stock Options and Non-qualified Stock Options.
 
2.25           “ Option Agreement ” shall mean a written agreement between the Company and a Holder with respect to an Option.
 
2.26           “ Performance Criteria ” shall mean the criteria selected by the Committee for purposes of establishing the Performance Goal(s) for a Holder for a Performance Period.
 
2.27           “ Performance Goals ” shall mean, for a Performance Period, the written goal or goals established by the Committee for the Performance Period based upon the Performance Criteria, which may be related to the performance of the Holder, the Company or an Affiliate.
 
2.28           “ Performance Period ” shall mean one or more periods of time, which may be of varying and overlapping durations, selected by the Committee, over which the attainment of the Performance Goals shall be measured for purposes of determining a Holder’s right to, and the payment of, a Qualified Performance-Based Award.
 
2.29           “ Performance Stock Award ” or “ Performance Stock ” shall mean an Award granted under Article XII of the Plan under which, upon the satisfaction of predetermined Performance Goals, Shares are paid to the Holder.
 
2.30           “ Performance Stock Agreement ” shall mean a written agreement between the Company and a Holder with respect to a Performance Stock Award.
 
2.31           “ Performance Unit ” shall mean a Unit awarded to a Holder pursuant to a Performance Unit Award.
 
2.32           “ Performance Unit Award ” shall mean an Award granted under Article XI of the Plan under which, upon the satisfaction of predetermined Performance Goals, a cash payment shall be made to the Holder, based on the number of Units awarded to the Holder.
 
2.33           “ Performance Unit Agreement ” shall mean a written agreement between the Company and a Holder with respect to a Performance Unit Award.
 
2.34           “ Plan ” shall mean this AzurRx BioPharma, Inc. Amended and Restated 2014 Omnibus Equity Incentive Plan, as amended from time to time, together with each of the Award Agreements utilized hereunder.
 
 
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2.35           “ Qualified Performance-Based Award ” shall mean an Award that is intended to qualify as “performance-based” compensation under Section 162(m) of the Code.
 
2.36           “ Restricted Stock Award ” and “ Restricted Stock ” shall mean an Award granted under Article VIII of the Plan of Shares, the transferability of which by the Holder is subject to Restrictions.
 
2.37           “ Restricted Stock Agreement ” shall mean a written agreement between the Company and a Holder with respect to a Restricted Stock Award.
 
2.38           “ Restricted Stock Unit Award ” and “ RSUs ” shall refer to an Award granted under Article X of the Plan under which, upon the satisfaction of predetermined individual service-related vesting requirements, a cash payment shall be made to the Holder, based on the number of Units awarded to the Holder.
 
2.39           “ Restricted Stock Unit Agreement ” shall mean a written agreement between the Company and a Holder with respect to a Restricted Stock Award.
 
2.40            “ Restriction Period ” shall mean the period of time for which Shares subject to a Restricted Stock Award shall be subject to Restrictions, as set forth in the applicable Restricted Stock Agreement.
 
2.41           “ Restrictions ” shall mean the forfeiture, transfer and/or other restrictions applicable to Shares awarded to an Employee, Director or Consultant under the Plan pursuant to a Restricted Stock Award and set forth in a Restricted Stock Agreement.
 
2.42           “ Rule 16b-3 ” shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Exchange Act, as such may be amended from time to time, and any successor rule, regulation or statute fulfilling the same or a substantially similar function.
 
2.43           “ Shares ” or “ Stock ” shall mean the shares of the Company’s common stock, par value $0.0001 per share.
 
2.44           “ Stock Appreciation Right ” or “ SAR ” shall mean an Award granted under Article XIV of the Plan of a right, granted alone or in connection with a related Option, to receive a payment equal to the increase in value of a specified number of Shares between the date of Award and the date of exercise.
 
2.45           “ Stock Appreciation Right Agreement ” shall mean a written agreement between the Company and a Holder with respect to a Stock Appreciation Right.
 
2.46           “ Tandem Stock Appreciation Right ” shall mean a Stock Appreciation Right granted in connection with a related Option, the exercise of some or all of which results in termination of the entitlement to purchase some or all of the Shares under the related Option, all as set forth in Article XIV.
 
 
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2.47            “ Ten Percent Shareholder ” shall mean an Employee who, at the time an Option is granted to him or her, owns shares possessing more than ten percent (10%) of the total combined voting power of all classes of shares of the Company or of any parent corporation or subsidiary corporation thereof (both as defined in Section 424 of the Code), within the meaning of Section 422(b)(6) of the Code.
 
2.48           “ Termination of Service ”  shall mean a termination of a Holder’s employment with, or status as a Director or Consultant of, the Company or an Affiliate, as applicable, for any reason, including, without limitation, Total and Permanent Disability or death, except as provided in Section 6.4.  In the event Termination of Service shall constitute a payment event with respect to any Award subject to Code Section 409A, Termination of Service shall only be deemed to occur upon a “separation from service” as such term is defined under Code Section 409A and applicable authorities.
 
2.49           “ Total and Permanent Disability ” of an individual shall mean the inability of such individual to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months, within the meaning of Section 22(e)(3) of the Code.
 
2.50           “ Unit ” shall mean a bookkeeping unit, which represents such monetary amount as shall be designated by the Committee in each Performance Unit Agreement, or represents one Share for purposes of each Restricted Stock Unit Award.
 
2.51           “ Unrestricted Stock Award ” shall mean an Award granted under Article IX of the Plan of Shares which are not subject to Restrictions.
 
2.52           “ Unrestricted Stock Agreement ” shall mean a written agreement between the Company and a Holder with respect to an Unrestricted Stock Award.
 
ARTICLE III
 
EFFECTIVE DATE OF PLAN
 
The Plan shall be effective as of the Effective Date.
 
 
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ARTICLE IV
 
ADMINISTRATION
 
4.1            Composition of Committee . The Plan shall be administered by the Board until such time that the Committee is appointed by the Board, and shall at all times thereafter be administered by the Committee.  If necessary, in the Board’s discretion, to comply with Rule 16b-3 under the Exchange Act and Section 162(m) of the Code, the Committee shall consist solely of three (3) or more Directors who are each (i) “outside directors” within the meaning of Section 162(m) of the Code (“ Outside Directors ”), (ii) “non-employee directors” within the meaning of Rule 16b-3 (“ Non-Employee Directors ”) and (iii) “independent” for purposes of any applicable listing requirements; provided , however , that the Board or the Committee may delegate to a committee of one or more members of the Board who are not (x) Outside Directors, the authority to grant Awards to eligible persons who are not (A) then “covered employees” within the meaning of Section 162(m) of the Code and are not expected to be “covered employees” at the time of recognition of income resulting from such Award, or (B) persons with respect to whom the Company wishes to comply with the requirements of Section 162(m) of the Code, and/or (y) Non-Employee Directors, the authority to grant Awards to eligible persons who are not then subject to the requirements of Section 16 of the Exchange Act.  If a member of the Committee shall be eligible to receive an Award under the Plan, such Committee member shall have no authority hereunder with respect to his or her own Award.
 
4.2            Powers . Subject to the provisions of the Plan, the Committee shall have the sole authority, in its discretion, to make all determinations under the Plan, including but not limited to determining which Employees, Directors or Consultants shall receive an Award, the time or times when an Award shall be made (the date of grant of an Award shall be the date on which the Award is awarded by the Committee), what type of Award shall be granted, the term of an Award, the date or dates on which an Award vests (including acceleration of vesting), the form of any payment to be made pursuant to an Award, the terms and conditions of an Award (including the forfeiture of the Award (and/or any financial gain) if the Holder of the Award violates any applicable restrictive covenant thereof), the Restrictions under a Restricted Stock Award and the number of Shares which may be issued under an Award, Performance Goals applicable to any Award and certification of the achievement of such goals, and the waiver of any Restrictions or Performance Goals, subject to compliance with applicable laws, all as may be applicable.  In making such determinations the Committee may take into account the nature of the services rendered by the respective Employees, Directors and Consultants, their present and potential contribution to the Company’s (or the Affiliate’s) success and such other factors as the Committee in its discretion may deem relevant.
 
 
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4.3            Additional Powers . The Committee shall have such additional powers as are delegated to it under the other provisions of the Plan.  Subject to the express provisions of the Plan, the Committee is authorized to construe the Plan and the respective Award Agreements executed hereunder, to prescribe such rules and regulations relating to the Plan as it may deem advisable to carry out the intent of the Plan, to determine the terms, restrictions and provisions of each Award and to make all other determinations necessary or advisable for administering the Plan.  The Committee may correct any defect or supply any omission or reconcile any inconsistency in any Award Agreement in the manner and to the extent the Committee shall deem necessary, appropriate or expedient to carry it into effect.  The determinations of the Committee on the matters referred to in this Article IV shall be conclusive and binding on the Company and all Holders.
 
4.4            Committee Action . Subject to compliance with all applicable laws, action by the Committee shall require the consent of a majority of the members of the Committee, expressed either orally at a meeting of the Committee or in writing in the absence of a meeting.  No member of the Committee shall have any liability for any good faith action, inaction or determination in connection with the Plan.
 
ARTICLE V
 
SHARES SUBJECT TO PLAN AND LIMITATIONS THEREON
 
5.1            Authorized Shares and Award Limits . The Committee may from time to time grant Awards to one or more Employees, Directors and/or Consultants determined by it to be eligible for participation in the Plan in accordance with the provisions of Article VI.  Subject to Article XV, the aggregate number of Shares that may be issued under the Plan shall not exceed ten percent (10%) of the issued and outstanding shares of the Company’s common stock on an as converted basis (the “ As Converted Shares ”) on a rolling basis. For calculation purposes, the As Converted Shares shall include all shares of the Company’s common stock and all shares of the Company’s common stock issuable upon the conversion of outstanding preferred stock and other convertible securities, but shall not include any shares of common stock issuable upon the exercise of options and other convertible securities issued pursuant to the Plan. The number of authorized shares of common stock reserved for issuance under the Plan shall automatically be increased concurrently with the Company’s issuance of fully paid and non- assessable shares of As Converted Shares.  Shares shall be deemed to have been issued under the Plan solely to the extent actually issued and delivered pursuant to an Award.  To the extent that an Award lapses, expires, is canceled, is terminated unexercised or ceases to be exercisable for any reason, or the rights of its Holder terminate, any Shares subject to such Award shall again be available for the grant of a new Award.  Notwithstanding any provision in the Plan to the contrary, the maximum number of Shares that may be subject to Awards of Options under Article VII and/or Stock Appreciation Rights under Article XIV, in either or both cases granted to any one person during any calendar year, shall be 300,000 Shares (subject to adjustment in the same manner as provided in Article XV with respect to Shares subject to Awards then outstanding). The limitation set forth in the preceding sentence shall be applied in a manner which shall permit compensation generated in connection with the exercise of Options or Stock Appreciation Rights to constitute “performance-based” compensation for purposes of Section 162(m) of the Code, including, but not limited to, counting against such maximum number of Shares, to the extent required under Section 162(m) of the Code, any Shares subject to Options or Stock Appreciation Rights that are canceled or re-priced.
 
 
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ARTICLE VI
 
ELIGIBILITY AND TERMINATION OF SERVICE
 
6.1            Eligibility . Awards made under the Plan may be granted solely to individuals or entities who, at the time of grant, are Employees, Directors or Consultants.  An Award may be granted on more than one occasion to the same Employee, Director or Consultant, and, subject to the limitations set forth in the Plan, such Award may include, a Non-qualified Stock Option, a Restricted Stock Award, a Restricted Stock Unit Award, an Unrestricted Stock Award, a Distribution Equivalent Right Award, a Performance Stock Award, a Performance Unit Award, a Stock Appreciation Right, a Tandem Stock Appreciation Right, or any combination thereof, and solely for Employees, an Incentive Stock Option.
 
6.2            Termination of Service .  Except to the extent inconsistent with the terms of the applicable Award Agreement and/or the provisions of Sections 6.3 or 6.4, the following terms and conditions shall apply with respect to a Holder’s Termination of Service with the Company or an Affiliate, as applicable:
 
(i)           The Holder’s rights, if any, to exercise any then exercisable Options and/or Stock Appreciation Rights shall terminate:
 
(A)           If such termination is for a reason other than the Holder’s Total and Permanent Disability or death, ninety (90) days after the date of such Termination of Service;
 
(B)           If such termination is on account of the Holder’s Total and Permanent Disability, one (1) year after the date of such Termination of Service; or
 
(C)           If such termination is on account of the Holder’s death, one (1) year after the date of the Holder’s death.
 
Upon such applicable date the Holder (and such Holder’s estate, designated beneficiary or other legal representative) shall forfeit any rights or interests in or with respect to any such Options and Stock Appreciation Rights. Notwithstanding the forgoing, the Committee, in its sole discretion, may provide for a different time period in the Award Agreement, or may extend the time period, following a Termination of Service, during which the Holder has the right to exercise any vested Non-qualified Stock Option or Stock Appreciation Right, which time period may not extend beyond the expiration date of the Award term.
 
 
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(ii)           In the event of a Holder’s Termination of Service for any reason prior to the actual or deemed satisfaction and/or lapse of the Restrictions, vesting requirements, terms and conditions applicable to a Restricted Stock Award and/or Restricted Stock Unit Award, such Restricted Stock and/or RSUs shall immediately be canceled, and the Holder (and such Holder’s estate, designated beneficiary or other legal representative) shall forfeit any rights or interests in and with respect to any such Restricted Stock and/or RSUs.  Notwithstanding the immediately preceding sentence, the Committee, in its sole discretion, may determine, prior to or within thirty (30) days after the date of such Termination of Service that all or a portion of any such Holder’s Restricted Stock and/or RSUs shall not be so canceled and forfeited.
 
6.3            Special Termination Rule . Except to the extent inconsistent with the terms of the applicable Award Agreement, and notwithstanding anything to the contrary contained in this Article VI, if a Holder’s employment with, or status as a Director of, the Company or an Affiliate shall terminate, and if, within ninety (90) days of such termination, such Holder shall become a Consultant, such Holder’s rights with respect to any Award or portion thereof granted thereto prior to the date of such termination may be preserved, if and to the extent determined by the Committee in its sole discretion, as if such Holder had been a Consultant for the entire period during which such Award or portion thereof had been outstanding.  Should the Committee effect such determination with respect to such Holder, for all purposes of the Plan, such Holder shall not be treated as if his or her employment or Director status had terminated until such time as his or her Consultant status shall terminate, in which case his or her Award, as it may have been reduced in connection with the Holder’s becoming a Consultant, shall be treated pursuant to the provisions of Section 6.2, provided, however, that any such Award which is intended to be an Incentive Stock Option shall, upon the Holder’s no longer being an Employee, automatically convert to a Non-qualified Stock Option.  Should a Holder’s status as a Consultant terminate, and if, within ninety (90) days of such termination, such Holder shall become an Employee or a Director, such Holder’s rights with respect to any Award or portion thereof granted thereto prior to the date of such termination may be preserved, if and to the extent determined by the Committee in its sole discretion, as if such Holder had been an Employee or a Director, as applicable, for the entire period during which such Award or portion thereof had been outstanding, and, should the Committee effect such determination with respect to such Holder, for all purposes of the Plan, such Holder shall not be treated as if his or her Consultant status had terminated until such time as his or her employment with the Company or an Affiliate, or his or her Director status, as applicable, shall terminate, in which case his or her Award shall be treated pursuant to the provisions of Section 6.2.
 
6.4            Termination for Cause . Notwithstanding anything in this Article VI or elsewhere in the Plan to the contrary, and unless a Holder’s Award Agreement specifically provides otherwise, in the event of a Holder’s Termination for Cause, all of such Holder’s then outstanding Awards shall expire immediately and be forfeited in their entirety upon such termination.
 
 
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ARTICLE VII
 
OPTIONS
 
7.1            Option Period . The term of each Option shall be as specified in the Option Agreement; provided , however , that except as set forth in Section 7.3, no Option shall be exercisable after the expiration of ten (10) years from the date of its grant.
 
7.2            Limitations on Exercise of Option .  An Option shall be exercisable in whole or in such installments and at such times as specified in the Option Agreement.
 
7.3            Special Limitations on Incentive Stock Options .  To the extent that the aggregate Fair Market Value (determined at the time the respective Incentive Stock Option is granted) of Shares with respect to which Incentive Stock Options are exercisable for the first time by an individual during any calendar year under all plans of the Company and any parent corporation or subsidiary corporation thereof (both as defined in Section 424 of the Code) which provide for the grant of Incentive Stock Options exceeds One Hundred Thousand Dollars ($100,000) (or such other individual limit as may be in effect under the Code on the date of grant), the portion of such Incentive Stock Options that exceeds such threshold shall be treated as Non-qualified Stock Options.  The Committee shall determine, in accordance with applicable provisions of the Code, Treasury Regulations and other administrative pronouncements, which of a Holder’s Options, which were intended by the Committee to be Incentive Stock Options when granted to the Holder, will not constitute Incentive Stock Options because of such limitation, and shall notify the Holder of such determination as soon as practicable after such determination.  No Incentive Stock Option shall be granted to an Employee if, at the time the Incentive Stock Option is granted, such Employee is a Ten Percent Shareholder, unless (i) at the time such Incentive Stock Option is granted the Option price is at least one hundred ten percent (110%) of the Fair Market Value of the Shares subject to the Incentive Stock Option, and (ii) such Incentive Stock Option by its terms is not exercisable after the expiration of five (5) years from the date of grant.  No Incentive Stock Option shall be granted more than ten (10) years from the earlier of the Effective Date or date on which the Plan is approved by the Company’s shareholders.  The designation by the Committee of an Option as an Incentive Stock Option shall not guarantee the Holder that the Option will satisfy the applicable requirements for “incentive stock option” status under Section 422 of the Code.
 
 
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7.4            Option Agreement . Each Option shall be evidenced by an Option Agreement in such form and containing such provisions not inconsistent with the provisions of the Plan as the Committee from time to time shall approve, including, but not limited to, provisions intended to qualify an Option as an Incentive Stock Option. An Option Agreement may provide for the payment of the Option price, in whole or in part, by the delivery of a number of Shares (plus cash if necessary) that have been owned by the Holder for at least six (6) months and having a Fair Market Value equal to such Option price, or such other forms or methods as the Committee may determine from time to time, in each case, subject to such rules and regulations as may be adopted by the Committee. Each Option Agreement shall, solely to the extent inconsistent with the provisions of Sections 6.2, 6.3, and 6.4, as applicable, specify the effect of Termination of Service on the exercisability of the Option.  Moreover, without limiting the generality of the foregoing, a Non-qualified Stock Option Agreement may provide for a “cashless exercise” of the Option, in whole or in part, by (a) establishing procedures whereby the Holder, by a properly-executed written notice, directs (i) an immediate market sale or margin loan as to all or a part of Shares to which he is entitled to receive upon exercise of the Option, pursuant to an extension of credit by the Company to the Holder of the Option price, (ii) the delivery of the Shares from the Company directly to a brokerage firm and (iii) the delivery of the Option price from sale or margin loan proceeds from the brokerage firm directly to the Company, or (b) reducing the number of Shares to be issued upon exercise of the Option by the number of such Shares having an aggregate Fair Market Value equal to the Option price (or portion thereof to be so paid) as of the date of the Option’s exercise.  An Option Agreement may also include provisions relating to:  (i) subject to the provisions hereof, accelerated vesting of Options, including but not limited to, upon the occurrence of a Change of Control, (ii) tax matters (including provisions covering any applicable Employee wage withholding requirements and requiring additional “gross-up” payments to Holders to meet any excise taxes or other additional income tax liability imposed as a result of a payment made upon a Change of Control resulting from the operation of the Plan or of such Option Agreement) and (iii) any other matters not inconsistent with the terms and provisions of the Plan that the Committee shall in its sole discretion determine.  The terms and conditions of the respective Option Agreements need not be identical.
 
7.5            Option Price and Payment.   The price at which an Share may be purchased upon exercise of an Option shall be determined by the Committee; provided , however , that such Option price (i) shall not be less than the Fair Market Value of an Share on the date such Option is granted (or 110% of Fair Market Value for an Incentive Stock Option held by Ten Percent Shareholder, as provided in Section 7.3), and (ii) shall be subject to adjustment as provided in Article XV.  The Option or portion thereof may be exercised by delivery of an irrevocable notice of exercise to the Company.  The Option price for the Option or portion thereof shall be paid in full in the manner prescribed by the Committee as set forth in the Plan and the applicable Option Agreement, which manner, with the consent of the Committee, may include the withholding of Shares otherwise issuable in connection with the exercise of the Option.  Separate share certificates shall be issued by the Company for those Shares acquired pursuant to the exercise of an Incentive Stock Option and for those Shares acquired pursuant to the exercise of a Non-qualified Stock Option.
 
 
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7.6            Shareholder Rights and Privileges .  The Holder of an Option shall be entitled to all the privileges and rights of a shareholder of the Company solely with respect to such Shares as have been purchased under the Option and for which share certificates have been registered in the Holder’s name.
 
7.7            Options and Rights in Substitution for Stock or Options Granted by Other Corporations .  Options may be granted under the Plan from time to time in substitution for stock options held by individuals employed by entities who become Employees, Directors or Consultants as a result of a merger or consolidation of the employing entity with the Company or any Affiliate, or the acquisition by the Company or an Affiliate of the assets of the employing entity, or the acquisition by the Company or an Affiliate of stock or shares of the employing entity with the result that such employing entity becomes an Affiliate.
 
7.8            Prohibition Against Re-Pricing .  Except to the extent (i) approved in advance by holders of a majority of the shares of the Company entitled to vote generally in the election of directors, or (ii) as a result of any Change of Control or any adjustment as provided in Article XV, the Committee shall not have the power or authority to reduce, whether through amendment or otherwise, the exercise price under any outstanding Option or Stock Appreciation Right, or to grant any new Award or make any payment of cash in substitution for or upon the cancellation of Options and/or Stock Appreciation Rights previously granted.
 
ARTICLE VIII
 
RESTRICTED STOCK AWARDS
 
8.1            Award .  A Restricted Stock Award shall constitute an Award of Shares to the Holder as of the date of the Award which are subject to a “substantial risk of forfeiture” as defined under Section 83 of the Code during the specified Restriction Period.  At the time a Restricted Stock Award is made, the Committee shall establish the Restriction Period applicable to such Award.  Each Restricted Stock Award may have a different Restriction Period, in the discretion of the Committee.  The Restriction Period applicable to a particular Restricted Stock Award shall not be changed except as permitted by Section 8.2.
 
8.2            Terms and Conditions .  At the time any Award is made under this Article VIII, the Company and the Holder shall enter into a Restricted Stock Agreement setting forth each of the matters contemplated thereby and such other matters as the Committee may determine to be appropriate.  Shares awarded pursuant to a Restricted Stock Award shall be represented by a share certificate registered in the name of the Holder of such Restricted Stock Award.  If provided for under the Restricted Stock Agreement, the Holder shall have the right to vote Shares subject thereto and to enjoy all other shareholder rights, including the entitlement to receive dividends on the Shares during the Restriction Period, except that (i) the Holder shall not be entitled to delivery of the share certificate until the Restriction Period shall have expired, (ii) the Company shall retain custody of the share certificate during the Restriction Period (with a share power endorsed by the Holder in blank), (iii) the Holder may not sell, transfer, pledge, exchange, hypothecate or otherwise dispose of the Shares during the Restriction Period and (iv) a breach of the terms and conditions established by the Committee pursuant to the Restricted Stock Agreement shall cause a forfeiture of the Restricted Stock Award.  At the time of such Award, the Committee may, in its sole discretion, prescribe additional terms and conditions or restrictions relating to Restricted Stock Awards, including, but not limited to, rules pertaining to the effect of Termination of Service prior to expiration of the Restriction Period.  Such additional terms, conditions or restrictions shall, to the extent inconsistent with the provisions of Sections 6.2, 6.3 and 6.4, as applicable, be set forth in a Restricted Stock Agreement made in conjunction with the Award.  Such Restricted Stock Agreement may also include provisions relating to:  (i) subject to the provisions hereof, accelerated vesting of Awards, including but not limited to accelerated vesting upon the occurrence of a Change of Control, (ii) tax matters (including provisions covering any applicable Employee wage withholding requirements and requiring additional “gross-up” payments to Holders to meet any excise taxes or other additional income tax liability imposed as a result of a payment made in connection with a Change of Control resulting from the operation of the Plan or of such Restricted Stock Agreement) and (iii) any other matters not inconsistent with the terms and provisions of the Plan that the Committee shall in its sole discretion determine.  The terms and conditions of the respective Restricted Stock Agreements need not be identical.  All Shares delivered to a Holder as part of a Restricted Stock Award shall be delivered and reported by the Company or the Affiliate, as applicable, to the Holder at the time of vesting.
 
8.3            Payment for Restricted Stock .  The Committee shall determine the amount and form of any payment from a Holder for Shares received pursuant to a Restricted Stock Award, if any, provided that in the absence of such a determination, a Holder shall not be required to make any payment for Shares received pursuant to a Restricted Stock Award, except to the extent otherwise required by law.
 
 
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ARTICLE IX
 
UNRESTRICTED STOCK AWARDS
 
9.1            Award .  Shares may be awarded (or sold) to Employees, Directors or Consultants under the Plan which are not subject to Restrictions of any kind, in consideration for past services rendered thereby to the Company or an Affiliate or for other valid consideration.
 
9.2            Terms and Conditions.   At the time any Award is made under this Article IX, the Company and the Holder shall enter into an Unrestricted Stock Agreement setting forth each of the matters contemplated hereby and such other matters as the Committee may determine to be appropriate.
 
9.3            Payment for Unrestricted Stock .  The Committee shall determine the amount and form of any payment from a Holder for Shares received pursuant to an Unrestricted Stock Award, if any, provided that in the absence of such a determination, a Holder shall not be required to make any payment for Shares received pursuant to an Unrestricted Stock Award, except to the extent otherwise required by law.
 
ARTICLE X
 
RESTRICTED STOCK UNIT AWARDS
 
10.1            Award .  A Restricted Stock Unit Award shall constitute a promise to grant Shares (or cash equal to the Fair Market Value of Shares) to the Holder at the end of a specified Restriction Period.  At the time a Restricted Stock Unit Award is made, the Committee shall establish the Restriction Period applicable to such Award.  Each Restricted Stock Unit Award may have a different Restriction Period, in the discretion of the Committee.  A Restricted Stock Unit shall not constitute an equity interest in the Company and shall not entitle the Holder to voting rights, dividends or any other rights associated with ownership of Shares prior to the time the Holder shall receive a distribution of Shares pursuant to Section 10.3.
 
10.2            Terms and Conditions .  At the time any Award is made under this Article X, the Company and the Holder shall enter into a Restricted Stock Unit Agreement setting forth each of the matters contemplated thereby and such other matters as the Committee may determine to be appropriate.  The Restricted Stock Unit Agreement shall set forth the individual service-based vesting requirement which the Holder would be required to satisfy before the Holder would become entitled to distribution pursuant to Section 10.3 and the number of Units awarded to the Holder.  Such conditions shall be sufficient to constitute a “substantial risk of forfeiture” as such term is defined under Section 409A of the Code.  At the time of such Award, the Committee may, in its sole discretion, prescribe additional terms and conditions or restrictions relating to Restricted Stock Unit Awards in the Restricted Stock Unit Agreement, including, but not limited to, rules pertaining to the effect of Termination of Service prior to expiration of the applicable vesting period.  The terms and conditions of the respective Restricted Stock Unit Agreements need not be identical.
 
 
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10.3            Distributions of Shares .  The Holder of a Restricted Stock Unit shall be entitled to receive a cash payment equal to the Fair Market Value of one Share, as determined in the sole discretion of the Committee and as set forth in the Restricted Stock Unit Agreement, for each Restricted Stock Unit subject to such Restricted Stock Unit Award, if the Holder satisfies the applicable vesting requirement.  Such distribution shall be made no later than by the fifteenth (15 th ) day of the third (3 rd ) calendar month next following the end of the calendar year in which the Restricted Stock Unit first becomes vested (i.e., no longer subject to a “substantial risk of forfeiture”).
 
ARTICLE XI
 
PERFORMANCE UNIT AWARDS
 
11.1            Award .  A Performance Unit Award shall constitute an Award under which, upon the satisfaction of predetermined individual and/or Company (and/or Affiliate) Performance Goals based on selected Performance Criteria, a cash payment shall be made to the Holder, based on the number of Units awarded to the Holder.  At the time a Performance Unit Award is made, the Committee shall establish the Performance Period and applicable Performance Goals.  Each Performance Unit Award may have different Performance Goals, in the discretion of the Committee.  A Performance Unit Award shall not constitute an equity interest in the Company and shall not entitle the Holder to voting rights, dividends or any other rights associated with ownership of Shares.
 
11.2            Terms and Conditions .  At the time any Award is made under this Article XI, the Company and the Holder shall enter into a Performance Unit Agreement setting forth each of the matters contemplated thereby and such other matters as the Committee may determine to be appropriate.  The Committee shall set forth in the applicable Performance Unit Agreement the Performance Period, Performance Criteria and Performance Goals which the Holder and/or the Company would be required to satisfy before the Holder would become entitled to payment pursuant to Section 11.3, the number of Units awarded to the Holder and the dollar value or formula assigned to each such Unit.  Such payment shall be subject to a “substantial risk of forfeiture” under Section 409A of the Code.  At the time of such Award, the Committee may, in its sole discretion, prescribe additional terms and conditions or restrictions relating to Performance Unit Awards, including, but not limited to, rules pertaining to the effect of Termination of Service prior to expiration of the applicable performance period.  The terms and conditions of the respective Performance Unit Agreements need not be identical.
 
11.3            Payments .  The Holder of a Performance Unit shall be entitled to receive a cash payment equal to the dollar value assigned to such Unit under the applicable Performance Unit Agreement if the Holder and/or the Company satisfy (or partially satisfy, if applicable under the applicable Performance Unit Agreement) the Performance Goals set forth in such Performance Unit Agreement.  If necessary to satisfy the requirements of Code Section 162(m), if applicable, the achievement of such Performance Goals shall be certified in writing by the Committee prior to any payment.  All payments shall be made no later than by the fifteenth (15 th ) day of the third (3 rd ) calendar month next following the end of the Company’s fiscal year to which such performance goals and objectives relate.
 
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ARTICLE XII
 
PERFORMANCE STOCK AWARDS
 
12.1            Award .  A Performance Stock Award shall constitute a promise to grant Shares (or cash equal to the Fair Market Value of Shares) to the Holder at the end of a specified Performance Period subject to achievement of specified Performance Goals.  At the time a Performance Stock Award is made, the Committee shall establish the Performance Period and applicable Performance Goals based on selected Performance Criteria.  Each Performance Stock Award may have different Performance Goals, in the discretion of the Committee.  A Performance Stock Award shall not constitute an equity interest in the Company and shall not entitle the Holder to voting rights, dividends or any other rights associated with ownership of Shares unless and until the Holder shall receive a distribution of Shares pursuant to Section 11.3.
 
12.2            Terms and Conditions .  At the time any Award is made under this Article XII, the Company and the Holder shall enter into a Performance Stock Agreement setting forth each of the matters contemplated thereby and such other matters as the Committee may determine to be appropriate.  The Committee shall set forth in the applicable Performance Stock Agreement the Performance Period, selected Performance Criteria and Performance Goals which the Holder and/or the Company would be required to satisfy before the Holder would become entitled to the receipt of Shares pursuant to such Holder’s Performance Stock Award and the number of Shares subject to such Performance Stock Award.  Such distribution shall be subject to a “substantial risk of forfeiture” under Section 409A of the Code.  If such Performance Goals are achieved, the distribution of Shares (or the payment of cash, as determined in the sole discretion of the Committee), shall be made no later than by the fifteenth (15 th ) day of the third (3 rd ) calendar month next following the end of the Company’s fiscal year to which such goals and objectives relate.  At the time of such Award, the Committee may, in its sole discretion, prescribe additional terms and conditions or restrictions relating to Performance Stock Awards, including, but not limited to, rules pertaining to the effect of the Holder’s Termination of Service prior to the expiration of the applicable performance period.  The terms and conditions of the respective Performance Stock Agreements need not be identical.
 
12.3            Distributions of Shares .  The Holder of a Performance Stock Award shall be entitled to receive a cash payment equal to the Fair Market Value of a Share, or one Share, as determined in the sole discretion of the Committee, for each Performance Stock Award subject to such Performance Stock Agreement, if the Holder satisfies the applicable vesting requirement.  If necessary to satisfy the requirements of Code Section 162(m), if applicable, the achievement of such Performance Goals shall be certified in writing by the Committee prior to any payment.  Such distribution shall be made no later than by the fifteenth (15 th ) day of the third (3 rd ) calendar month next following the end of the Company’s fiscal year to which such performance goals and objectives relate.
 
 
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ARTICLE XIII
 
DISTRIBUTION EQUIVALENT RIGHTS
 
13.1            Award .  A Distribution Equivalent Right shall entitle the Holder to receive bookkeeping credits, cash payments and/or Share distributions equal in amount to the distributions that would have been made to the Holder had the Holder held a specified number of Shares during the specified period of the Award.
 
13.2            Terms and Conditions .  At the time any Award is made under this Article XIII, the Company and the Holder shall enter into a Distribution Equivalent Rights Award Agreement setting forth each of the matters contemplated thereby and such other matters as the Committee may determine to be appropriate.  The Committee shall set forth in the applicable Distribution Equivalent Rights Award Agreement the terms and conditions, if any, including whether the Holder is to receive credits currently in cash, is to have such credits reinvested (at Fair Market Value determined as of the date of reinvestment) in additional Shares or is to be entitled to choose among such alternatives.  Such receipt shall be subject to a “substantial risk of forfeiture” under Section 409A of the Code and, if such Award becomes vested, the distribution of such cash or Shares shall be made no later than by the fifteenth (15 th ) day of the third (3 rd ) calendar month next following the end of the Company’s fiscal year in which the Holder’s interest in the Award vests.  Distribution Equivalent Rights Awards may be settled in cash or in Shares, as set forth in the applicable Distribution Equivalent Rights Award Agreement.  A Distribution Equivalent Rights Award may, but need not be, awarded in tandem with another Award (other than an Option or a SAR), whereby, if so awarded, such Distribution Equivalent Rights Award shall expire, terminate or be forfeited by the Holder, as applicable, under the same conditions as under such other Award.
 
13.3            Interest Equivalents .  The Distribution Equivalent Rights Award Agreement for a Distribution Equivalent Rights Award may provide for the crediting of interest on a Distribution Rights Award to be settled in cash at a future date (but in no event later than by the fifteenth (15 th ) day of the third (3 rd ) calendar month next following the end of the Company’s fiscal year in which such interest is credited and vested), at a rate set forth in the applicable Distribution Equivalent Rights Award Agreement, on the amount of cash payable thereunder.
 
ARTICLE XIV
 
STOCK APPRECIATION RIGHTS
 
14.1            Award .  A Stock Appreciation Right shall constitute a right, granted alone or in connection with a related Option, to receive a payment equal to the increase in value of a specified number of Shares between the date of Award and the date of exercise.
 
 
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14.2            Terms and Conditions .  At the time any Award is made under this Article XIV, the Company and the Holder shall enter into a Stock Appreciation Right Agreement setting forth each of the matters contemplated thereby and such other matters as the Committee may determine to be appropriate.  The Committee shall set forth in the applicable Stock Appreciation Right Agreement the terms and conditions of the Stock Appreciation Right, including (i) the base value (the “ Base Value ”) for the Stock Appreciation Right, which shall be not less than the Fair Market Value of an Share on the date of grant of the Stock Appreciation Right, (ii) the number of Shares subject to the Stock Appreciation Right, (iii) the period during which the Stock Appreciation Right may be exercised; provided , however , that no Stock Appreciation Right shall be exercisable after the expiration of ten (10) years from the date of its grant, and (iv) any other special rules and/or requirements which the Committee imposes upon the Stock Appreciation Right.  Upon the exercise of some or all of the portion of a Stock Appreciation Right, the Holder shall receive a payment from the Company, in cash or in the form of Shares having an equivalent Fair Market Value or in a combination of both, as determined in the sole discretion of the Committee, equal to the product of:
 
(a)           The excess of (i) the Fair Market Value of an Share on the date of exercise, over (ii) the Base Value, multiplied by,
 
(b)           The number of Shares with respect to which the Stock Appreciation Right is exercised.
 
14.3            Tandem Stock Appreciation Rights .  If the Committee grants a Stock Appreciation Right which is intended to be a Tandem Stock Appreciation Right, the Tandem Stock Appreciation Right shall be granted at the same time as the related Option, and the following special rules shall apply:
 
(a)           The Base Value shall be equal to or greater than the per Share exercise price under the related Option;
 
(b)           The Tandem Stock Appreciation Right may be exercised for all or part of the Shares which are subject to the related Option, but solely upon the surrender by the Holder of the Holder’s right to exercise the equivalent portion of the related Option (and when a Share is purchased under the related Option, an equivalent portion of the related Tandem Stock Appreciation Right shall be canceled);
 
(c)           The Tandem Stock Appreciation Right shall expire no later than the date of the expiration of the related Option;
 
(d)           The value of the payment with respect to the Tandem Stock Appreciation Right may be no more than one hundred percent (100%) of the difference between the per Share exercise price under the related Option and the Fair Market Value of the Shares subject to the related Option at the time the Tandem Stock Appreciation Right is exercised, multiplied by the number of the Shares with respect to which the Tandem Stock Appreciation Right is exercised; and
 
 
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(e)           The Tandem Stock Appreciation Right may be exercised solely when the Fair Market Value of the Shares subject to the related Option exceeds the per Share exercise price under the related Option.
 
ARTICLE XV
 
RECAPITALIZATION OR REORGANIZATION
 
15.1            Adjustments to Shares .  The shares with respect to which Awards may be granted under the Plan are Shares as presently constituted; provided , however , that if, and whenever, prior to the expiration or distribution to the Holder of Shares underlying an Award theretofore granted, the Company shall effect a subdivision or consolidation of the Shares or the payment of an Share dividend on Shares without receipt of consideration by the Company, the number of Shares with respect to which such Award may thereafter be exercised or satisfied, as applicable, (i) in the event of an increase in the number of outstanding Shares, shall be proportionately increased, and the purchase price per Share shall be proportionately reduced, and (ii) in the event of a reduction in the number of outstanding Shares, shall be proportionately reduced, and the purchase price per Share shall be proportionately increased. Notwithstanding the foregoing or any other provision of this Article XV, any adjustment made with respect to an Award (x) which is an Incentive Stock Option, shall comply with the requirements of Section 424(a) of the Code, and in no event shall any adjustment be made which would render any Incentive Stock Option granted under the Plan to be other than an “incentive stock option” for purposes of Section 422 of the Code, and (y) which is a Non-qualified Stock Option, shall comply with the requirements of Section 409A of the Code, and in no event shall any adjustment be made which would render any Non-qualified Stock Option granted under the Plan to become subject to Section 409A of the Code.
 
15.2            Recapitalization .  If the Company recapitalizes or otherwise changes its capital structure, thereafter upon any exercise or satisfaction, as applicable, of a previously granted Award, the Holder shall be entitled to receive (or entitled to purchase, if applicable) under such Award, in lieu of the number of Shares then covered by such Award, the number and class of shares and securities to which the Holder would have been entitled pursuant to the terms of the recapitalization if, immediately prior to such recapitalization, the Holder had been the holder of record of the number of Shares then covered by such Award.
 
 
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15.3            Other Events .  In the event of changes to the outstanding Shares by reason of an extraordinary cash dividend, reorganization, merger, consolidation, combination, split-up, spin-off, exchange or other relevant change in capitalization occurring after the date of the grant of any Award and not otherwise provided for under this Article XV, any outstanding Awards and any Award Agreements evidencing such Awards shall be adjusted by the Board in its discretion in such manner as the Board shall deem equitable or appropriate taking into consideration the applicable accounting and tax consequences, as to the number and price of Shares or other consideration subject to such Awards.  In the event of any adjustment pursuant to Sections 15.1, 15.2 or this Section 15.3, the aggregate number of Shares available under the Plan pursuant to Section 5.1 (and the Code Section 162(m) limit set forth therein) may be appropriately adjusted by the Board, the determination of which shall be conclusive.  In addition, the Committee may make provision for a cash payment to a Holder or a person who has an outstanding Award.  The number of Shares subject to any Award shall be rounded to the nearest whole number.
 
15.4            Powers Not Affected .  The existence of the Plan and the Awards granted hereunder shall not affect in any way the right or power of the Board or of the shareholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change of the Company’s capital structure or business, any merger or consolidation of the Company, any issue of debt or equity securities ahead of or affecting Shares or the rights thereof, the dissolution or liquidation of the Company or any sale, lease, exchange or other disposition of all or any part of its assets or business or any other corporate act or proceeding.
 
15.5            No Adjustment for Certain Awards .  Except as hereinabove expressly provided, the issuance by the Company of shares of any class or securities convertible into shares of any class, for cash, property, labor or services, upon direct sale, upon the exercise of rights or warrants to subscribe therefor or upon conversion of shares or obligations of the Company convertible into such shares or other securities, and in any case whether or not for fair value, shall not affect previously granted Awards, and no adjustment by reason thereof shall be made with respect to the number of Shares subject to Awards theretofore granted or the purchase price per Share, if applicable.
 
 
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ARTICLE XVI
 
AMENDMENT AND TERMINATION OF PLAN
 
The Plan shall continue in effect, unless sooner terminated pursuant to this Article XVI, until the tenth (10 th ) anniversary of the date on which it is adopted by the Board (except as to Awards outstanding on that date).  The Board in its discretion may terminate the Plan at any time with respect to any shares for which Awards have not theretofore been granted; provided , however , that the Plan’s termination shall not materially and adversely impair the rights of a Holder with respect to any Award theretofore granted without the consent of the Holder.  The Board shall have the right to alter or amend the Plan or any part hereof from time to time; provided , however , that without the approval by holders of a majority of the shares of the Company entitled to vote generally in the election of directors, no amendment or modification of the Plan may (i) materially increase the benefits accruing to Holders, (ii) except as otherwise expressly provided in Article XV, materially increase the number of Shares subject to the Plan or the individual Award Agreements specified in Article V, (iii) materially modify the requirements for participation in the Plan, or (iv) amend, modify or suspend Section 7.7 (re-pricing prohibitions) or this Article XVI.  In addition, no change in any Award theretofore granted may be made which would materially and adversely impair the rights of a Holder with respect to such Award without the consent of the Holder (unless such change is required in order to cause the benefits under the Plan to qualify as “performance-based” compensation within the meaning of Section 162(m) of the Code or to exempt the Plan or any Award from Section 409A of the Code).
 
ARTICLE XVII
 
MISCELLANEOUS
 
17.1            No Right to Award .  Neither the adoption of the Plan by the Company nor any action of the Board or the Committee shall be deemed to give an Employee, Director or Consultant any right to an Award except as may be evidenced by an Award Agreement duly executed on behalf of the Company, and then solely to the extent and on the terms and conditions expressly set forth therein.
 
17.2            No Rights Conferred .  Nothing contained in the Plan shall (i) confer upon any Employee any right with respect to continuation of employment with the Company or any Affiliate, (ii) interfere in any way with any right of the Company or any Affiliate to terminate the employment of an Employee at any time, (iii) confer upon any Director any right with respect to continuation of such Director’s membership on the Board, (iv) interfere in any way with any right of the Company or an Affiliate to terminate a Director’s membership on the Board at any time, (v) confer upon any Consultant any right with respect to continuation of his or her consulting engagement with the Company or any Affiliate, or (vi) interfere in any way with any right of the Company or an Affiliate to terminate a Consultant’s consulting engagement with the Company or an Affiliate at any time.

 
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17.3            Other Laws; No Fractional Shares; Withholding .  The Company shall not be obligated by virtue of any provision of the Plan to recognize the exercise of any Award or to otherwise sell or issue Shares in violation of any laws, rules or regulations, and any postponement of the exercise or settlement of any Award under this provision shall not extend the term of such Award.  Neither the Company nor its directors or officers shall have any obligation or liability to a Holder with respect to any Award (or Shares issuable thereunder) (i) that shall lapse because of such postponement, or (ii) for any failure to comply with the requirements of any applicable law, rules or regulations, including but not limited to any failure to comply with the requirements of Section 409A of this Code.  No fractional Shares shall be delivered, nor shall any cash in lieu of fractional Shares be paid.  The Company shall have the right to deduct in cash (whether under this Plan or otherwise) in connection with all Awards any taxes required by law to be withheld and to require any payments required to enable it to satisfy its withholding obligations.  In the case of any Award satisfied in the form of Shares, no Shares shall be issued unless and until arrangements satisfactory to the Company shall have been made to satisfy any tax withholding obligations applicable with respect to such Award.  Subject to such terms and conditions as the Committee may impose, the Company shall have the right to retain, or the Committee may, subject to such terms and conditions as it may establish from time to time, permit Holders to elect to tender, Shares (including Shares issuable in respect of an Award) to satisfy, in whole or in part, the amount required to be withheld.
 
17.4            No Restriction on Corporate Action .  Nothing contained in the Plan shall be construed to prevent the Company or any Affiliate from taking any corporate action which is deemed by the Company or such Affiliate to be appropriate or in its best interest, whether or not such action would have an adverse effect on the Plan or any Award made under the Plan.  No Employee, Director, Consultant, beneficiary or other person shall have any claim against the Company or any Affiliate as a result of any such action.
 
17.5            Restrictions on Transfer .  No Award under the Plan or any Award Agreement and no rights or interests herein or therein, shall or may be assigned, transferred, sold, exchanged, encumbered, pledged or otherwise hypothecated or disposed of by a Holder except (i) by will or by the laws of descent and distribution, or (ii) where permitted under applicable tax rules, by gift to any Family Member of the Holder, subject to compliance with applicable laws.  An Award may be exercisable during the lifetime of the Holder only by such Holder or by the Holder’s guardian or legal representative unless it has been transferred by gift to a Family Member of the Holder, in which case it shall be exercisable solely by such transferee.  Notwithstanding any such transfer, the Holder shall continue to be subject to the withholding requirements provided for under Section 17.3 hereof.
 
17.6            Beneficiary Designations .  Each Holder may, from time to time, name a beneficiary or beneficiaries (who may be contingent or successive beneficiaries) for purposes of receiving any amount which is payable in connection with an Award under the Plan upon or subsequent to the Holder’s death.  Each such beneficiary designation shall serve to revoke all prior beneficiary designations, be in a form prescribed by the Company and be effective solely when filed by the Holder in writing with the Company during the Holder’s lifetime.  In the absence of any such written beneficiary designation, for purposes of the Plan, a Holder’s beneficiary shall be the Holder’s estate.
 
17.7            Rule 16b-3 .  It is intended that the Plan and any Award made to a person subject to Section 16 of the Exchange Act shall meet all of the requirements of Rule 16b-3.  If any provision of the Plan or of any such Award would disqualify the Plan or such Award under, or would otherwise not comply with the requirements of, Rule 16b-3, such provision or Award shall be construed or deemed to have been amended as necessary to conform to the requirements of Rule 16b-3.
 
 
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17.8            Section 162(m) .  The following conditions shall apply if it is intended that the requirements of Section 162(m) of the Code be satisfied such that Awards under the Plan which are made to Holders who are “covered employees” (as defined in Section 162(m) of the Code) shall constitute “performance-based” compensation within the meaning of Section 162(m) of the Code:  Any Performance Goal(s) applicable to Qualified Performance-Based Awards shall be objective, shall be established not later than ninety (90) days after the beginning of any applicable Performance Period (or at such other date as may be required or permitted for “performance-based” compensation under Section 162(m) of the Code) and shall otherwise meet the requirements of Section 162(m) of the Code, including the requirement that the outcome of the Performance Goal or Goals be substantially uncertain (as defined in the regulations under Section 162(m) of the Code) at the time established.  The Performance Criteria to be utilized under the Plan to establish Performance Goals shall consist of objective tests based on one or more of the following: earnings or earnings per share, cash flow or cash flow per share, operating cash flow or operating cash flow per share revenue growth, product revenue growth, financial return ratios (such as return on equity, return on investment and/or return on assets), share price performance, shareholder return, equity and/or value, operating income, operating margins, earnings before interest, taxes, depreciation and amortization, earnings, pre- or post-tax income, economic value added (or an equivalent metric), profit returns and margins, credit quality, sales growth, market share, working capital levels, comparisons with various share market indices, year-end cash, debt reduction, assets under management, operating efficiencies, strategic partnerships or transactions (including co-development, co-marketing, profit sharing, joint venture or other similar arrangements), and/or financing and other capital raising transaction.  Performance criteria may be established on a Company-wide basis or with respect to one or more Company business units or divisions or subsidiaries; and either in absolute terms, relative to the performance of one or more similarly situated companies, or relative to the performance of an index covering a peer group of companies.  When establishing Performance Goals for the applicable Performance Period, the Committee may exclude any or all “extraordinary items” as determined under U.S. generally accepted accounting principles including, without limitation, the charges or costs associated with restructurings of the Company, discontinued operations, other unusual or non-recurring items, and the cumulative effects of accounting changes, and as identified in the Company’s financial statements, notes to the Company’s financial statements or management’s discussion and analysis of financial condition and results of operations contained in the Company’s most recent annual report filed with the U.S. Securities and Exchange Commission pursuant to the Exchange Act.  Holders who are “covered employees” (as defined in Section 162(m) of the Code) shall be eligible to receive payment under a Qualified Performance-Based Award which is subject to achievement of a Performance Goal or Goals only if the applicable Performance Goal or Goals are achieved within the applicable Performance Period, as determined by the Committee.  If any provision of the Plan would disqualify the Plan or would not otherwise permit the Plan to comply with Section 162(m) of the Code as so intended, such provision shall be construed or deemed amended to conform to the requirements or provisions of Section 162(m) of the Code.  The Committee may postpone the exercising of Awards, the issuance or delivery of Shares under any Award or any action permitted under the Plan to prevent the Company or any subsidiary from being denied a federal income tax deduction, provided that such deferral satisfies the requirements of Section 409A of the Code.
 
 
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17.9            Section 409A .  Notwithstanding any other provision of the Plan, the Committee shall have no authority to issue an Award under the Plan with terms and/or conditions which would cause such Award to constitute non-qualified “deferred compensation” under Section 409A of the Code unless such Award shall be structured to be exempt from or comply with all requirements of Code Section 409A.  The Plan and all Award Agreements are intended to comply with the requirements of Section 409A of the Code (or to be exempt therefrom) and shall be so interpreted and construed and no amount shall be paid or distributed from the Plan unless and until such payment complies with all requirements of Code Section 409A.  It is the intent of the Company that the provisions of this Agreement and all other plans and programs sponsored by the Company be interpreted to comply in all respects with Code Section 409A, however, the Company shall have no liability to the Holder, or any successor or beneficiary thereof, in the event taxes, penalties or excise taxes may ultimately be determined to be applicable to any payment or benefit received by the Holder or any successor or beneficiary thereof.
 
17.10            Indemnification .  Each person who is or shall have been a member of the Committee or of the Board shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred thereby in connection with or resulting from any claim, action, suit, or proceeding to which such person may be made a party or may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid thereby in settlement thereof, with the Company’s approval, or paid thereby in satisfaction of any judgment in any such action, suit, or proceeding against such person; provided , however , that such person shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf.  The foregoing right of indemnification shall not be exclusive and shall be independent of any other rights of indemnification to which such persons may be entitled under the Company’s Articles of Incorporation or By-laws, by contract, as a matter of law, or otherwise.
 
17.11            Other Benefit Plans .  No Award, payment or amount received hereunder shall be taken into account in computing an Employee’s salary or compensation for the purposes of determining any benefits under any pension, retirement, life insurance or other benefit plan of the Company or any Affiliate, unless such other plan specifically provides for the inclusion of such Award, payment or amount received.  Nothing in the Plan shall be construed to limit the right of the Company to establish other plans or to pay compensation to its employees, in cash or property, in a manner which is not expressly authorized under the Plan.
 
17.12            Limits of Liability .  Any liability of the Company with respect to an Award shall be based solely upon the contractual obligations created under the Plan and the Award Agreement.  None of the Company, any member of the Board nor any member of the Committee shall have any liability to any party for any action taken or not taken, in good faith, in connection with or under the Plan.
 
 
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17.13            Governing Law .  Except as otherwise provided herein, the Plan shall be construed in accordance with the laws of the State of New York, without regard to principles of conflicts of law.
 
17.14            Severability of Provisions .  If any provision of the Plan is held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of the Plan, and the Plan shall be construed and enforced as if such invalid or unenforceable provision had not been included in the Plan.
 
17.15            No Funding .  The Plan shall be unfunded.  The Company shall not be required to establish any special or separate fund or to make any other segregation of funds or assets to ensure the payment of any Award.  Prior to receipt of Shares or a cash distribution pursuant to the terms of an Award, such Award shall represent an unfunded unsecured contractual obligation of the Company and the Holder shall have no greater claim to the Shares underlying such Award or any other assets of the Company or Affiliate than any other unsecured general creditor.
 
17.16            Headings .  Headings used throughout the Plan are for convenience only and shall not be given legal significance.

 
Exhibit 10.4
 
AZURRX BIOPHARMA, INC.
EMPLOYMENT AGREEMENT
 
This Employment Agreement (this “Agreement” ) is made and entered into on January 3, 2016, effective as of January 1, 2016 (the “ Effective Date ”) by and between AzurRx Biopharma, Inc. (the “Company” ) and Johan (Thijs) Spoor ( “Executive” ).  The Company and Executive are hereinafter collectively referred to as the “Parties” , and individually referred to as a “Party” .
 
Recitals
 
A.            The Company desires assurance of the association and services of Executive in order to retain Executive’s experience, skills, abilities, background and knowledge, and is willing to engage Executive’s services on the terms and conditions set forth in this Agreement.
 
B.            Executive desires to be in the employ of the Company, and is willing to accept such employment on the terms and conditions set forth in this Agreement.
 
Agreement
 
In consideration of the foregoing Recitals and the mutual promises and covenants herein contained, and for other good and valuable consideration, the Parties, intending to be legally bound, agree as follows:
 
1.   Employment.
 
1.1             Title.   Effective as of the Effective Date, Executive’s position shall be President and Chief Executive Officer, subject to the terms and conditions set forth in this Agreement.
 
1.2             Term.   The term of this Agreement shall begin on the Effective Date and shall continue for a period of three (3) years or until it is terminated pursuant to Section 4 herein (the “Term” ).
 
1.3             Duties.   Executive shall have the customary powers, responsibilities and authorities of President and Chief Executive Officer of corporations of the size, type and nature of the Company, as it exists from time to time.  Executive shall report to the Company’s board of directors (the “ Board ”).
 
1.4             Governing Agreement.   The employment relationship between the Parties shall be governed by this Agreement
 
2.   Loyalty; Noncompetition; Nonsolicitation.

 
 

 
 
2.1             Loyalty .  During Executive’s employment by the Company, Executive shall devote substantially all his business time to the performance of Executive’s duties under this Agreement. Notwithstanding the foregoing, except as otherwise agreed to in writing, Executive shall have the right to perform such incidental services as are necessary in connection with (a) his private passive investments, (b) his charitable or community activities, (c) his participation in trade or professional organizations, and (d) his service on the board of directors (or comparable body) of any third-party corporate entity that is not a Competitive Entity (as defined in Section 2.3), so long as these activities do not materially interfere with Executive’s duties hereunder and, with respect to (d), Executive obtains prior Company consent, which consent will not be unreasonably withheld.  Executive may also provide limited services to other parties provided such services are without remuneration.
 
2.2             Agreement not to Participate in Company’s Competitors .  During the Term, Executive agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or interest known by Executive to be adverse or antagonistic to the Company, its business, or prospects, financial or otherwise, or in any company, person, or entity that is, directly or indirectly, in competition with the business of the Company or any of its Affiliates (as defined below).  Ownership by Executive, in professionally managed funds over which the Executive does not have control or discretion in investment decisions, or as a passive investment, of less than five percent (5%) of the outstanding shares of capital stock of any corporation with one or more classes of its capital stock listed on a national securities exchange or publicly traded on a national securities exchange or in the over-the-counter market shall not constitute a breach of this Section. For purposes of this Agreement, “Affiliate,” means, with respect to any specific entity, any other entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such specified entity.
 
2.3             Covenant not to Compete .  During the Term and for a period of twelve  (12) months thereafter (the “ Restricted Period ”), Executive shall not engage in competition with the Company   and/or any of its Affiliates, either directly or indirectly, in any manner or capacity, as adviser, principal, agent, affiliate, promoter, partner, officer, director, employee, stockholder, owner, co-owner, consultant, or member of any association or otherwise, in any phase of the business of researching and developing non-systemic biologics for the treatment of patients with gastrointestinal disorders (a “ Competitive Entity ”), except with the prior written consent of the Board.
 
2.4             Nonsolicitation.   During the Restricted Period, Executive shall not:  (i) solicit or induce, or attempt to solicit or induce, any employee of the Company or its Affiliates to leave the employ of the Company or such Affiliate; or (ii) solicit or attempt to solicit the business of any client or customer of the Company or its Affiliates with respect to products, services, or investments similar to those provided or supplied by the Company or its Affiliates.
 
2.5             Acknowledgements.   Executive acknowledges and agrees that his services to the Company pursuant to this Agreement are unique and extraordinary and that in the course of performing such services Executive shall have access to and knowledge of significant confidential, proprietary, and trade secret information belonging to the Company.  Executive agrees that the covenant not to compete and the nonsolicitation obligations imposed by this Section 2 are reasonable in duration, geographic area, and scope and are necessary to protect the Company’s legitimate business interests in its goodwill, its confidential, proprietary, and trade secret information, and its investment in the unique and extraordinary services to be provided by Executive pursuant to this Agreement.  If, at the time of enforcement of this Section 2, a court holds that the covenant not to compete and/or the nonsolicitation obligations described herein are unreasonable or unenforceable under the circumstances then existing, then the Parties agree that the maximum duration, scope, and/or geographic area legally permissible under such circumstances will be substituted for the duration, scope and/or area stated herein.

 
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3.   Compensation of the Executive.
 
3.1             Base Salary.   The Company shall pay Executive a base salary (the “Base Salary” ) at the annualized rate of Three Hundred and Fifty Thousand Dollars ($350,000), which Base Salary shall automatically increase to Four Hundred and Twenty-Five Thousand Dollars ($425,000) upon (i) consummation of the Company’s initial public offering which results in the listing of the Company’s common stock on The NASDAQ Stock Market or NYSE MKT, or (ii) consummation of a merger or consolidation of the Company with or into any other corporation or corporations, or a sale of all or substantially all of the assets of the Company, or the effectuation by the Company of a transaction or series of related transactions in which more than 50% of the voting shares of the Company is disposed of or conveyed, and in each such case the Company becomes a public reporting company which results in the listing of the Company’s shares (or shares of the Company’s parent company) on The NASDAQ Stock Market or NYSE MKT (a “ Public Event ”), less payroll deductions and all required withholdings, payable in regular periodic payments in accordance with the Company’s normal payroll practices.  The Base Salary shall be prorated for any partial year of employment on the basis of a 365-day fiscal year.  The Company may increase, but not decrease (except in connection with a Company-wide decrease in executive compensation), Executive’s Base Salary from time to time, and if so increased, “Base Salary” shall include such increases for purposes of this Agreement.
 
3.2             Bonuses.   At the sole discretion of the Board or the compensation committee of the Board (the “ Compensation Committee ”), following each calendar year of employment, Executive shall be eligible to receive an additional cash bonus (the “ Annual Milestone Bonus ”), based (in whole or in part) on Executive’s attainment of certain financial, clinical development, and/or business milestones (the “ Milestones ”) to be established annually by the Board or the Compensation Committee. The determination of whether Executive has met the Milestones, and if so, the bonus amount (if any) that will be paid, shall be determined by the Board or the Compensation Committee in its sole and absolute discretion. Any Annual Milestone Bonuses shall be paid in cash as either single lump-sum payments or in installments, as determined by the Board or the Compensation Committee.
 
3.3             Restricted Stock.   Subject to any required consents from third parties, on or as promptly as practicable following the Effective Date, Executive shall be issued 100,000 shares of common stock, which shares (the “ Restricted Shares ”) shall vest as follows: (i) 50,000 Restricted Shares upon the first commercial sale in the United States of MS1819, and (ii) 50,000 Restricted Shares upon the total market capitalization of the Company exceeding $1 billion dollars for 20 consecutive trading days, in each case subject to the earlier determination of a majority of the Board.  Notwithstanding the foregoing to the contrary, in the event of a Change of Control (as hereafter defined), all of the Restricted Shares shall vest in full.

 
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3.4             Stock Options. Subject to any required consents from third parties, on or as promptly as practicable following the Effective Date, Executive shall be issued 380,000 10-year stock options pursuant to the Company’s Amended and Restated Stock Option Plan (the “Plan” ), which options shall vest as follows so long as the Executive is serving as Chief Executive Officer or President at such time: (i) 100,000 of such stock options shall vest upon consummation of the Public Event, (ii) 50,000 of such stock options shall vest upon the Company initiating a Phase II clinical trial in the United States for MS1819 (i.e., upon the first individual enrolled in the trial), (iii) 50,000 of such stock options shall vest upon the Company completing a Phase II clinical trial in the United States for MS1819, (iv) 100,000 of such stock options shall vest upon the Company initiating a Phase III clinical trial in the United States for MS1819, (v) 50,000 of such stock options shall vest upon the Company initiating a Phase I clinical trial in the United States for any product other than MS1819, and (vi) 30,000 of such stock options shall vest upon the upon the determination of a majority of the Board. The stock options shall be exercisable at $3.19 per share. In the event of any conflict between this Agreement and the terms of the Plan and/or any award agreement, the terms of this Agreement shall control. In addition, the Executive may elect to exercise some or all of the stock options by making a net exercise, in which case the Company shall issue to the Executive a number of shares of unencumbered common stock of the Company equal to: (x) the total number of shares underlying the portion of the stock option being exercised less (y) the number of shares whose fair market value is equal to the sum of (A) the exercise price of the stock options being exercised, plus (B) any required tax withholding amounts in respect of such exercise.  In the event Executive’s employment is terminated under the provisions of Sections 4.5.3 or 4.5.4 hereof, all vested options will remain exercisable for a period of twelve (12) months following termination.
 
3.5             Expense Reimbursements. The Company will reimburse Executive for all reasonable business expenses Executive incurs in conducting his duties hereunder, pursuant to the Company’s usual expense reimbursement policies, but in no event later than ninety (90) days after the end of the calendar month following the month in which such expenses were incurred by Executive; provided that Executive supplies the appropriate substantiation for such expenses no later than the end of the calendar month following the month in which such expenses were incurred by Executive.
 
3.6             Changes to Compensation.   As described above, Executive’s compensation will be reviewed at least on an annual basis and the Base Salary may be increased, but not decreased (except in connection with a Company-wide decrease in executive compensation), from time to time in the Company’s sole discretion.
 
3.7             Employment Taxes .  All of Executive’s compensation shall be subject to customary withholding taxes and any other employment taxes as are commonly required to be collected or withheld by the Company.
 
3.8             Benefits . The Executive shall, in accordance with Company policy and the applicable plan documents, be eligible to participate in benefits under any benefit plan or arrangement, including medical, dental, vision, disability and life insurance programs, that may be in effect from time to time and made available to the Company’s senior management employees, subject to the terms and conditions of those benefit plans.
 
3.9             Holidays and Vacation.   Executive shall receive twenty (20) days of paid vacation per calendar year, which cannot be taken in one increment, but which shall accrue if not used in any calendar year but only up to a maximum of ten (10) days, and be paid to Executive or carried forward to subsequent calendar years consistent with Company policy. In addition to such paid vacation, Executive shall receive all paid Company holidays in the United States in accordance with Company policy.

 
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4.   Termination.
 
4.1             Termination by the Company .  Executive’s employment with the Company is at will and may be terminated by the Company at any time and for any reason, or for no reason, including, but not limited to, under the following conditions:
 
4.1.1             Termination by the Company for Cause .  The Company may terminate Executive’s employment under this Agreement for “Cause” by delivery of written notice to Executive.  Any notice of termination given pursuant to this Section 4.1.1 shall effect termination as of the date of the notice, or as of such other date as specified in the notice.
 
4.1.2             Termination by the Company without Cause .  The Company may terminate Executive’s employment under this Agreement without Cause at any time and for any reason, or for no reason.  Such termination shall be effective on the date Executive is so informed, or as otherwise specified by the Company.
 
4.2             Termination by Resignation of Executive .  Executive’s employment with the Company is at will and may be terminated by Executive at any time and for any reason, or for no reason, including via a resignation for Good Reason in accordance with the procedures set forth in Section 4.6.3 below.
 
4.3             Termination for Death or Complete Disability .  Executive’s employment with the Company shall automatically terminate effective upon the date of Executive’s death or Complete Disability (as defined below).
 
4.4             Termination by Mutual Agreement of the Parties .  Executive’s employment with the Company may be terminated at any time upon a mutual agreement in writing of the Parties.  Any such termination of employment shall have the consequences specified in such agreement.

 
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4.5           Compensation Upon Termination.
 
4.5.1             Death or Complete Disability .  If, during the Term of this Agreement, Executive’s employment shall be terminated by death or Complete Disability, the Company shall pay to Executive, his estate, or his heirs, as applicable, (i) any Base Salary owed to Executive through the date of termination; (ii) expenses reimbursement amounts owed to Executive; (iii) all unpaid amounts of any Annual Milestone Bonus(es) Executive earned prior to the termination date; (iv) a cash lump sum in respect to accrued and unused vacation benefits earned through the date of termination at the rate in effect at the time of termination; (v) any payments and benefits to which Executive (or his estate) is entitled pursuant to the terms of any employee benefit or compensation plan or program in which he participates (or participated); and (vi) any amount to which Executive is entitled pursuant to any other written agreements between the Company or any of its affiliates and Executive (the amounts in (i) through (vi) above being the “ Termination Amounts ”). The Company shall pay Executive: (A) the amounts contained in items (i) through (iv) within ten (10) days following such termination; (B) any payments associated with (v) in accordance to the terms of such plans or programs; and (C) any such amounts in (vi) in accordance with the terms of such agreements, with the Termination Amounts being subject to the standard deductions and withholdings (as applicable).  In addition, subject to Executive (or his estate or heirs, as applicable) furnishing to the Company an executed waiver and release of claims in the form attached hereto as Exhibit A (the “ Release ”) within the time period specified therein, and allowing the Release to become effective in accordance with its terms, then Executive, his estate, or his heirs, as applicable, shall also be entitled to: (1) continuation of Executive’s salary (at the Base Salary rate in effect at the time of termination) for a period of ninety (90) days following the termination date; and (2) a prorated annual bonus equal to the Annual Milestone Bonus, if any, for the year of termination multiplied by a fraction, the numerator of which shall be the number of full and partial months Executive worked for the Company and the denominator of which shall be 12. The Base Salary payments will be subject to standard payroll deductions and withholdings and will be made on the Company’s regular payroll cycle, provided, however, that any payments otherwise scheduled to be made prior to the effective date of the Release shall accrue and be paid in the first payroll period that follows such effective date. The prorated annual bonus payment will be subject to standard payroll deductions and withholdings and will paid at the same time as the Annual Milestone Bonus, if any, would have been paid to Executive under Section 3.2 above, had Executive remained employed with the Company.
 
4.5.2             Termination For Cause or Resignation without Good Reason.   If, during the Term of this Agreement, Executive’s employment is terminated by the Company for Cause, or Executive resigns his employment hereunder without Good Reason, the Company shall pay Executive the Termination Amounts, less standard deductions and withholdings. The Company shall thereafter have no further obligations to Executive under this Agreement, except as otherwise provided by law.
 
4.5.3             Termination Without Cause or Resignation For Good Reason Not In Connection with a Change of Control.   If the Company terminates Executive’s employment without Cause, or if Executive resigns for Good Reason, at any time other than upon the occurrence of, or within thirty (30) days prior to, or six (6) months following, the effective date of a Change of Control (as defined below), the Company shall pay Executive the Termination Amounts, less standard deductions and withholdings. In addition, subject to Executive furnishing to the Company an executed Release within the time period specified therein, and allowing the Release to become effective in accordance with its terms, Executive shall be entitled to: (1) severance in the form of continuation of his salary (at the Base Salary rate in effect at the time of termination, but prior to any reduction triggering Good Reason) for a period of twelve (12) months following the termination date; (2) payment of Executive’s premiums to cover COBRA for a period of twelve (12) months following the termination date; and (3) a prorated annual bonus equal to the target Annual Milestone Bonus, if any, for the year of termination multiplied by a fraction, the numerator of which shall be the number of full and partial months Executive worked for the Company and the denominator of which shall be 12.  These payments under (1), (2) and (3) above will be subject to standard payroll deductions and withholdings and will be made on the Company’s regular payroll cycle, provided, however, that any payments otherwise scheduled to be made prior to the effective date of the Release shall accrue and be paid in the first payroll period that follows such effective date.

 
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4.5.4             Termination Without Cause or Resignation For Good Reason In Connection with a Change of Control.   If the Company terminates Executive’s employment without Cause, or if Executive resigns for Good Reason, upon the occurrence of, or within thirty (30) days prior to, or within six (6) months following, the effective date of a Change of Control, the Company shall pay Executive the Termination Amounts, less standard deductions and withholdings.  In addition, subject to Executive furnishing to the Company an executed Release within the time period specified therein, and allowing the Release to become effective in accordance with its terms, then Executive shall be entitled to: (1) severance in the form of a lump sum payment equivalent to eighteen (18) months of his Base Salary (at the Base Salary rate in effect at the time of termination, but prior to any reduction triggering Good Reason); (2) payment of Executive’s premiums to cover COBRA for a period of eighteen (18) months following the termination date; (3) a prorated annual bonus equal to the target Annual Milestone Bonus, if any, for the year of termination multiplied by a fraction, the numerator of which shall be the number of full and partial months Executive worked for the Company and the denominator of which shall be 12, and (4) immediate accelerated vesting of any unvested Restricted Shares and unvested outstanding stock option(s).  These payments under (1), (2) and (3) above will be subject to standard payroll deductions and withholdings and will be made on the Company’s regular payroll cycle, provided, however, that any payments otherwise scheduled to be made prior to the effective date of the Release shall accrue and be paid in the first payroll period that follows such effective date.
 
4.6             Definitions .  For purposes of this Agreement, the following terms shall have the following meanings:
 
4.6.1             Complete Disability .  “ Complete Disability ” means that Executive is determined to be permanently disabled pursuant to the Company’s long term disability plan and is receiving disability benefits under such plan.
 
4.6.2             Cause .   “Cause”   for the Company to terminate Executive’s employment hereunder shall mean the occurrence of any of the following events, as determined by the Company and/or the Board in its and/or their sole and absolute discretion:
 
(i)           The willful failure, disregard or refusal by Executive to perform his material duties or obligations under this Agreement or to follow lawful directions received by Executive from the Board;
 
(ii)           Any grossly negligent act by Executive having the effect of materially injuring (whether financially or otherwise) the business or reputation of the Company or any willful act by Executive intended to cause such material injury, except any acts (A) made by Executive in connection with the enforcement of his rights, whether under this Agreement, any other agreement between the Company or any affiliate and Executive, or pursuant to applicable law (e.g. disparagement, etc.) or (B) which are required by law or pursuant to a subpoena or demand by a governmental or regulatory body;

 
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(iii)           Executive’s indictment of any felony involving moral turpitude (including entry of a nolo contendere plea);
 
(iv)           The determination, after a reasonable and good-faith investigation by the Company, that the Executive engaged in discrimination prohibited by law (including, without limitation, age, sex or race discrimination);
 
(v)           Executive’s material misappropriation or embezzlement of the property of the Company or its Affiliates (whether or not a misdemeanor or felony); or
 
(vi)           Material breach by Executive of this Agreement and/or of his Proprietary Information and Inventions Agreement ( “PIIA ”); provided, however, that, any such termination of Executive shall only be deemed for Cause pursuant to this definition if: (1) the Company gives the Executive written notice of the condition(s) alleged to constitute Cause, which notice shall describe such condition(s); and (2) the Executive fails to remedy such condition(s) (if curable) within thirty (30) days following receipt of the written notice.
 
For purposes of this definition, the Parties agree that (1) a change in Executive’s role and/or title to no less than President shall not constitute Cause under this Agreement; and (2) any breach of Sections 2 or 5 of this Agreement shall be deemed a material breach that is not capable of cure by Executive.
 
4.6.3             Good Reason.   For purposes of this Agreement, and subject to the caveat at the end of this Section, “Good Reason” for Executive to terminate his employment hereunder shall mean the occurrence of any of the following events without Executive’s prior written consent:
 
(i)           any reduction by the Company of Executive’s Base Salary as initially set forth herein or as the same may be increased from time to time, provided, however, that if such reduction occurs in connection with a Company-wide decrease in executive compensation, such reduction shall not constitute Good Reason for Executive to terminate his employment;
 
(ii)           a material breach by the Company (or any of its affiliates) of this Agreement or any other written agreement between the Company or any of its affiliates and Executive; or
 
(iii)           a material adverse change in Executive’s duties, titles, authority, responsibilities or reporting relationships, with such determination being made with reference to the greatest extent of your duties, titles, authority, responsibilities or reporting relationships, etc. as increased (but not decreased) from time to time; provided, however, a change in Executive’s role and/or title to no less than President shall not constitute Good Reason under this Agreement;
 
(iv)           any failure of the Company or any affiliate to pay Executive any amount owed to Executive under this Agreement or any other written agreement plan or program between the Company, any affiliates and Executive;
 
(v)           any reduction in Executive’s bonus eligibility; or

 
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(vi)           the assignment to Executive of duties materially inconsistent with his position with the Company.
 
Provided, however , that, any such termination by the Executive shall only be deemed for Good Reason pursuant to this definition if: (1) the Executive gives the Company written notice of his intent to terminate for Good Reason; which notice shall describe such condition(s); (2) the Company fails to remedy such condition(s) within thirty (30) days following receipt of the written notice the “ Cure Period ”); and (3) Executive voluntarily terminates his employment within thirty (30) days following the end of the Cure Period.
 
4.6.4             Change of Control.   For purposes of this Agreement, “Change of Control” shall mean the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events (excluding in any case transactions in which the Company or its successors issues securities to investors primarily for capital raising purposes):
 
(i)           the acquisition by a third party (or more than one party acting as a group) of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities other than by virtue of a merger, consolidation or similar transaction;
 
(ii)           a merger, consolidation or similar transaction following which the stockholders of the Company immediately prior thereto do not own at least fifty percent (50%) of the combined outstanding voting power of the surviving entity (or that entity’s parent) in such merger, consolidation or similar transaction;
 
(iii)           the dissolution or liquidation of the Company; or
 
(iv)           the sale, lease, exclusive license or other disposition of all or substantially all of the assets of the Company.
 
4.7             Survival of Certain Sections.   Sections 3, 4, 5, 6, 7, 8, 9, 12, 13, 16, 17, 19 and 21 of this Agreement will survive the termination of this Agreement.
 
4.8             Parachute Payment.   If any payment or benefit the Executive would receive pursuant to this Agreement ( “Payment” ) would (i) constitute a Parachute Payment within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code” ), and (ii) be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax” ), then the Executive shall be entitled to receive an additional payment from the Company (the “ Gross-Up Payment ”) in an amount such that the net amount of such additional payment retained by the Executive, after payment of all federal, state and local income and employment and Excise Taxes imposed on the Gross-Up Payment, shall be equal to the Excise Tax imposed on the Payment. The Company shall pay Executive the Gross-Up Payment as soon as practicable following the date Executive’s right to the applicable Payment is triggered, but in no event will the Company make such Gross-Up Payment later than the time required by the rules governing Section 409A, including, but not limited to, Treasury Regulation 1.409A-3(i)(1)(v).

 
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Unless Executive and the Company agree on an alternative accounting, law or consulting firm, the accounting firm then engaged by the Company for general tax compliance purposes shall perform the Gross-Up Payment calculations.  If the accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Company shall appoint a nationally recognized accounting, law or consulting firm to make the determinations required hereunder.  The Company shall bear all expenses with respect to the determinations by such accounting, law or consulting firm required to be made hereunder.
 
The Company shall use commercially reasonable efforts such that the accounting, law or consulting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to Executive and the Company within fifteen (15) calendar days after the date on which Executive’s right to a Payment is triggered (if requested at that time by the Executive or the Company) or such other time as requested by the Executive or the Company.
 
4.9             Application of Internal Revenue Code Section 409A.   Notwithstanding anything to the contrary set forth herein, any payments and benefits provided under this Agreement (the “ Severance Benefits ”) that constitute “deferred compensation” within the meaning of Section 409A of the Code and the regulations and other guidance thereunder and any state law of similar effect (collectively “ Section 409A ”) shall not commence in connection with Executive’s termination of employment unless and until Executive has also incurred a “separation from service” (as such term is defined in Treasury Regulation Section 1.409A-1(h) (“ Separation From Service ”), unless the Company reasonably determines that such amounts may be provided to Executive without causing Executive to incur the additional 20% tax under Section 409A.
 
It is intended that each installment of the Severance Benefits payments provided for in this Agreement is a separate “payment” for purposes of Treasury Regulation Section 1.409A-2(b)(2)(i).  For the avoidance of doubt, it is intended that payments of the Severance Benefits set forth in this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Section 409A provided under Treasury Regulation Sections 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9).  However, if the Company (or, if applicable, the successor entity thereto) determines that the Severance Benefits constitute “deferred compensation” under Section 409A and Executive is, on the termination of service, a “specified employee” of the Company or any successor entity thereto, as such term is defined in Section 409A(a)(2)(B)(i) of the Code, then, solely to the extent necessary to avoid the incurrence of the adverse personal tax consequences under Section 409A, the timing of the Severance Benefit payments shall be delayed until the earlier to occur of: (i) the date that is six months and one day after Executive’s Separation From Service, or (ii) the date of Executive’s death (such applicable date, the “ Specified Employee Initial Payment Date ”), the Company (or the successor entity thereto, as applicable) shall (A) pay to Executive a lump sum amount equal to the sum of the Severance Benefit payments that Executive would otherwise have received through the Specified Employee Initial Payment Date if the commencement of the payment of the Severance Benefits had not been so delayed pursuant to this Section and (B) commence paying the balance of the Severance Benefits in accordance with the applicable payment schedules set forth in this Agreement.

 
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Notwithstanding anything to the contrary set forth herein, Executive shall receive the Severance Benefits described above, if and only if Executive duly executes and returns to the Company within the applicable time period set forth therein, but in no event more than forty-five days following Separation From Service, the Release and permits the release of claims contained therein to become effective in accordance with its terms.  Notwithstanding any other payment schedule set forth in this Agreement, none of the Severance Benefits will be paid or otherwise delivered prior to the effective date of the Release.  Except to the extent that payments may be delayed until the Specified Employee Initial Payment Date pursuant to the preceding paragraph, on the first regular payroll pay day following the effective date of the Release, the Company will pay Executive the Severance Benefits Executive would otherwise have received under the Agreement on or prior to such date but for the delay in payment related to the effectiveness of the Release, with the balance of the Severance Benefits being paid as originally scheduled.  All amounts payable under the Agreement will be subject to standard payroll taxes and deductions.
 
All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A to the extent that such reimbursements or in-kind benefits are subject to Section 409A. All reimbursements for expenses paid pursuant hereto that constitute taxable income to Executive shall in no event be paid later than the end of the calendar year next following the calendar year in which Executive incurs such expense or pays such related tax. Unless otherwise permitted by Section 409A, the right to reimbursement or in-kind benefits under this Agreement shall not be subject to liquidation or exchange for another benefit and the amount of expenses eligible for reimbursement, or in-kind benefits, provided during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, respectively, in any other taxable year.
 
5.   Confidential And Proprietary Information.
 
As a condition of employment Executive agrees to execute and abide by the PIIA.
 
6.   Assignment and Binding Effect.
 
This Agreement shall be binding upon and inure to the benefit of Executive and Executive’s heirs, executors, personal representatives, assigns, administrators and legal representatives.  Because of the unique and personal nature of Executive’s duties under this Agreement, neither this Agreement nor any rights or obligations under this Agreement shall be assignable by Executive.  This Agreement shall be binding upon and inure to the benefit of the Company and its successors, assigns and legal representatives.  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.
 
7.   Notices.
 
All notices or demands of any kind required or permitted to be given by the Company or Executive under this Agreement shall be given in writing and shall be personally delivered (and receipted for) or faxed during normal business hours or mailed by certified mail, return receipt requested, postage prepaid, addressed as follows:

 
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If to the Company:
 
AzurRx BioPharma, Inc.
760 Parkside Avenue
Downstate Biotechnology Incubator, Suite 217
Brooklyn, New York 11226
(646) 699-7855
Attn: CEO and Board of Directors
 
If to Executive:

Johan (Thijs) Spoor
[______________]
 
Any such written notice shall be deemed given on the earlier of the date on which such notice is personally delivered or three (3) days after its deposit in the United States mail as specified above.  Either Party may change its address for notices by giving notice to the other Party in the manner specified in this Section.
 
8.   Choice of Law.
 
This Agreement shall be construed and interpreted in accordance with the internal laws of the State of New York without regard to its conflict of laws principles.
 
9.   Integration.
 
This Agreement, including Exhibit A and the PIIA, contains the complete, final and exclusive agreement of the Parties relating to the terms and conditions of Executive’s employment and the termination of Executive’s employment, and supersedes all prior and contemporaneous oral and written employment agreements or arrangements between the Parties.
 
10.   Amendment.
 
This Agreement cannot be amended or modified except by a written agreement signed by Executive and the Company.
 
11.   Waiver.
 
No term, covenant or condition of this Agreement or any breach thereof shall be deemed waived, except with the written consent of the Party against whom the wavier is claimed, and any waiver or any such term, covenant, condition or breach shall not be deemed to be a waiver of any preceding or succeeding breach of the same or any other term, covenant, condition or breach.

 
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12.   Severability.
 
The finding by a court of competent jurisdiction of the unenforceability, invalidity or illegality of any provision of this Agreement shall not render any other provision of this Agreement unenforceable, invalid or illegal.  Such court shall have the authority to modify or replace the invalid or unenforceable term or provision with a valid and enforceable term or provision, which most accurately represents the Parties’ intention with respect to the invalid or unenforceable term, or provision.
 
13.   Interpretation; Construction.
 
The headings set forth in this Agreement are for convenience of reference only and shall not be used in interpreting this Agreement.  This Agreement has been drafted by legal counsel representing the Company, but the Executive has been encouraged to consult with, and has consulted with, Executive’s own independent counsel and tax advisors with respect to the terms of this Agreement.  The Parties acknowledge that each Party and its counsel has reviewed and revised, or had an opportunity to review and revise, this Agreement, and any rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement.
 
14.   Representations and Warranties.
 
Executive represents and warrants that Executive is not restricted or prohibited, contractually or otherwise, from entering into and performing each of the terms and covenants contained in this Agreement, and that Executive’s execution and performance of this Agreement will not violate or breach any other agreements between the Executive and any other person or entity.
 
15.   Counterparts.
 
This Agreement may be executed in two counterparts, each of which shall be deemed an original, all of which together shall contribute one and the same instrument. Signatures to this Agreement transmitted by fax, by email in “portable document format” (“.pdf”) or by any other electronic means intended to preserve the original graphic and pictorial appearance of this Agreement shall have the same effect as physical delivery of the paper document bearing original signature.

 
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16.   Arbitration.
 
To ensure the rapid and economical resolution of disputes that may arise in connection with the Executive’s employment with the Company, Executive and the Company agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to Executive’s employment, or the termination of that employment, will be resolved, to the fullest extent permitted by law, by final, binding and confidential arbitration pursuant to the Federal Arbitration Act in New York, New York conducted by the Judicial Arbitration and Mediation Services/Endispute, Inc. ( “JAMS” ), or its successors, under the then current rules of JAMS for employment disputes; provided that the arbitrator shall:  (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award.  Accordingly, Executive and the Company hereby waive any right to a jury trial.  Both Executive and the Company shall be entitled to all rights and remedies that either Executive or the Company would be entitled to pursue in a court of law.  The Company shall pay any JAMS filing fee and shall pay the arbitrator’s fee.  The arbitrator shall have the discretion to award attorneys fees to the party the arbitrator determines is the prevailing party in the arbitration.  Nothing in this Agreement is intended to prevent either Executive or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration.  Notwithstanding the foregoing, Executive and the Company each have the right to resolve any issue or dispute involving confidential, proprietary or trade secret information, or intellectual property rights, by Court action instead of arbitration.
 
17.   Indemnification.
 
The Company shall defend and indemnify Executive in his capacity as President and Chief Executive Officer of the Company to the fullest extent permitted under the Delaware General Corporation Law (“DGCL”).  The Company shall also maintain a policy for indemnifying its officers and directors, including but not limited to the Executive, for all actions permitted under the DGCL taken in good faith pursuit of their duties for the Company, including but not limited to maintaining an appropriate level of Directors and Officers Liability coverage and maintaining the inclusion of such provisions in the Company’s by-laws or articles of incorporation, as applicable and customary.  The rights to indemnification shall survive any termination of this Agreement.
 
18.   Trade Secrets Of Others.
 
It is the understanding of both the Company and Executive that Executive shall not divulge to the Company and/or its subsidiaries any confidential information or trade secrets belonging to others, including Executive’s former employers, nor shall the Company and/or its Affiliates seek to elicit from Executive any such information.  Consistent with the foregoing, Executive shall not provide to the Company and/or its Affiliates, and the Company and/or its Affiliates shall not request, any documents or copies of documents containing such information.
 
19.   Advertising Waiver.
 
Executive agrees to permit the Company, and persons or other organizations authorized by the Company, to use, publish and distribute advertising or sales promotional literature concerning the products and/or services of the Company, or the machinery and equipment used in the provision thereof, in which Executive’s name and/or pictures of Executive taken in the course of Executive’s provision of services to the Company appear.  Executive hereby waives and releases any claim or right Executive may otherwise have arising out of such use, publication or distribution.

 
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20.   NO MITIGATION.
 
Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise after the termination of his employment hereunder, and any amounts earned by Executive, whether from self-employment, as a common-law employee or otherwise, shall not reduce the amount of any payment otherwise payable to him.
 
[signature page follows]

 
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In Witness Whereof , the Parties have executed this Agreement as of the date first above written.
 
AzurRx Biopharma, Inc.
 
By:   /s/ Edward Borkowski                          
Name: Edward Borkowski
Its: Chairman of the Board
 
Dated:  January 6, 2016                                 
 
 
Executive:

/s/ Johan Spoor                                             
Johan (thijs) Spoor
 
Dated:  January 3, 2016                                 

 
 
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EXHIBIT A
 
RELEASE AND WAIVER OF CLAIMS
 
TO BE SIGNED ON OR FOLLOWING THE SEPARATION DATE ONLY
 
In consideration of the payments and other benefits set forth in the Employment Agreement effective as of January 1, 2016, to which this form is attached, I, Johan (Thijs) Spoor, hereby furnish AzurRx Biopharma, Inc. (the “Company” ), with the following release and waiver ( “Release and Waiver” ).
 
In exchange for the consideration provided to me by the Employment Agreement that I am not otherwise entitled to receive, I hereby generally and completely release the Company and its current and former directors, officers, employees, stockholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns (collectively, the “ Released Parties ”) from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to or on the date that I sign this Agreement (collectively, the “ Released Claims ”).  Except as provided below, the Released Claims include, but are not limited to:  (a) all claims arising out of or in any way related to my employment with the Company, or the termination of that employment; (b) all claims related to my compensation or benefits from the Company including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (c) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (d) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (e) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, misclassification, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (the “ ADEA ”), the fair employment practices statutes of the state or states in which I have provided services to the Company and/or any other federal, state or local law, regulation or other requirement.  Notwithstanding the foregoing, the following are not included in the Released Claims (the “ Excluded Claims ”): (a) any rights or claims under the Agreement or any other written agreement between the Company and me, including any stock option award agreement or plan, (b) any rights or claims that may arise as a result of events occurring after the date this Release and Waiver is executed or which otherwise cannot lawfully be waived, (c) any indemnification rights I may have as a former officer or director of the Company or its subsidiaries or affiliated companies, including any rights or claims for indemnification I may have pursuant to any written indemnification agreement with the Company to which I am a party, the charter, bylaws, or operating agreements of the Company, or under applicable law; (d) any claims for benefits under any directors’ and officers’ liability policy maintained by the Company or its subsidiaries or affiliated companies in accordance with the terms of such policy, (e) any rights or claims under any employee benefit or compensation plan or program in which I participate or participated (or was eligible to participate), (f) any rights or claims to unemployment compensation, and (g) reimbursement for business expenses which are consistent with the Company’s reimbursement policy.  I hereby represent and warrant that, other than the Excluded Claims, I am not aware of any claims I have or might have against any of the Released Parties that are not included in the Released Claims.

 
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I expressly waive and relinquish any and all rights and benefits under any applicable law or statute providing, in substance, that a general release does not extend to claims which a party does not know or suspect to exist in his or his favor at the time of executing the release, which if known by him or his would have materially affected the terms of such release.
 
I acknowledge that, among other rights, I am waiving and releasing any rights I may have under ADEA, that this Release and Waiver is knowing and voluntary, and that the consideration given for this Release and Waiver is in addition to anything of value to which I was already entitled as an executive of the Company.  If I am 40 years of age or older upon execution of this Release and Waiver, I further acknowledge that I have been advised, as required by the Older Workers Benefit Protection Act, that: (a) the release and waiver granted herein does not relate to claims under the ADEA which may arise after this Release and Waiver is executed; (b) I should consult with an attorney prior to executing this Release and Waiver; and (c) I have twenty-one (21) days from the date of termination of my employment with the Company in which to consider this Release and Waiver (although I may choose voluntarily to execute this Release and Waiver earlier); (d) I have seven (7) days following the execution of this Release and Waiver to revoke my consent to this Release and Waiver; and (e) this Release and Waiver shall not be effective until the seven (7) day revocation period has expired without my having previously revoked this Release and Waiver.
 
I acknowledge my continuing obligations under my Proprietary Information and Inventions Agreement.  Pursuant to the Proprietary Information and Inventions Agreement I understand that among other things, I must not use or disclose any confidential or proprietary information of the Company and I must immediately return all Company property and documents (including all embodiments of proprietary information) and all copies thereof in my possession or control.  I understand and agree that my right to the severance pay I am receiving in exchange for my agreement to the terms of this Release and Waiver is contingent upon my continued compliance with my Proprietary Information and Inventions Agreement.
 
This Release and Waiver constitutes the complete, final and exclusive embodiment of the entire agreement between the Company and me with regard to the subject matter hereof.  I am not relying on any promise or representation by the Company that is not expressly stated herein.  This Release and Waiver may only be modified by a writing signed by both me and a duly authorized officer of the Company.
 
Date: __________________                                                       By:                                                                    
        Johan (Thijs) Spoor

 
 
 
18

Exhibit 14.1
 
CODE OF ETHICS OF
AZURRX BIOPHARMA, INC.
APPLICABLE TO DIRECTORS, OFFICERS AND EMPLOYEES
 
To promote the ethical conduct and integrity generally of AzurRx BioPharma, Inc. (the “Company”), and to promote accurate, fair and timely reporting of the Company's financial results and condition and other information the Company releases to the public market and include in reports it files with the Securities and Exchange Commission (the “SEC”), all directors, officers and employees of the Company are bound by the following Code of Ethics, under which each agrees that he or she shall:
 
 
·
Act with honesty and integrity, avoiding actual or apparent conflicts of interest in personal and professional relationships, including disclosure to the Chairman of the Audit Committee of any material transaction or relationship that reasonably could be expected to give rise to such a conflict.
 
 
·
Be prohibited from: personally taking advantage of business opportunities that are discovered through the use of corporate property, information or his or her position with the Company; using corporate property, information or his or her position for personal gain; or competing against the Company while an employee.
 
 
·
Provide information within the scope of his or her duties in a manner which promotes full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, government agencies and in the Company's other public communications.
 
 
·
Comply with rules and regulations of foreign, federal, state, provincial and local governments, and other appropriate private and public regulatory agencies, including insider trading laws and the Company’s insider trading policy.
 
 
·
Act in good faith, responsibly, with due care, competence and diligence, without misrepresenting material facts or allowing one's independent judgment to be subordinated.
 
 
·
Deal fairly with the Company’s customers, suppliers, competitors and employees, and not take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other unfair dealings.
 
 
·
Keep confidential all confidential information, as discussed in more detail below.
 
 
·
Proactively promote and be an example of ethical behavior.
 
 
·
Achieve responsible use of and control over all assets and resources employed or entrusted.
 
 
·
Promptly report to the Chairman of the Audit Committee any conduct that the individual believes to be or would give rise to a violation of law or business ethics or of any provision of this Code of Ethics or the Company's general code of conduct.

 
 
 

 
 

 
 
Confidential Information and Public Disclosures
 
As an employee of the Company, you may learn of information about the Company that is confidential and proprietary.  You also may learn of information before that information is released to the general public.  Employees who have received or have access to confidential information should take care to keep this information confidential.  Confidential information includes non-public information that might be of use to competitors or harmful to the Company or its suppliers, vendors or partners if disclosed, such as business, marketing and service plans, financial information, product development, scientific data, manufacturing, clinical trial results, regulatory developments, databases, customer lists, pricing strategies, personnel data, personally identifiable information pertaining to our employees, patients or other individuals (including, for example, names, addresses, telephone numbers and social security numbers), and similar types of information provided to us by our customers, suppliers and partners.  This information may be protected by patent, trademark, copyright and trade secret laws.  In addition, because the Company interacts with other companies and organizations, there may be times when you learn confidential information about other companies before that information has been made available to the public.  You must treat this information in the same manner as you are required to treat the Company’s confidential and proprietary information.  There may even be times when you must treat as confidential the fact that the Company has an interest in, or is involved with, another company.
 
You have a duty to keep confidential and proprietary information confidential unless and until that information is released to the public through approved channels (usually through a press release, an SEC filing or a formal communication from a member of senior management, as further described below).  This policy requires you to refrain from discussing confidential or proprietary information with outsiders and even with other Company employees, unless those fellow employees have a legitimate need to know the information in order to perform their job duties.  Unauthorized use or distribution of this information could also be illegal and result in civil liability and/or criminal penalties.
 
You should also take care not to inadvertently disclose confidential information.  Materials that contain confidential information, such as memos, notebooks, computer disks and laptop computers, should be stored securely.  Unauthorized posting or discussion of any information concerning the Company’s business, information or prospects on the Internet is prohibited.  You may not discuss the Company’s business, information or prospects in any “chat room,” regardless of whether you use your own name or a pseudonym.  Be cautious when discussing sensitive information in public places like elevators, airports, restaurants and “quasi-public” areas within the Company, or in and around the Company’s facilities.  All Company emails, voicemails and other communications are presumed confidential and should not be forwarded or otherwise disseminated outside of the Company, except where required for legitimate business purposes.
 
In addition to the above responsibilities, if you are handling information protected by any privacy policy published by the Company, then you must handle that information in accordance with the applicable policy.
 
It is the Company’s policy to disclose material information concerning the Company   to the public only through specific limited channels to avoid inappropriate publicity and to ensure that all those with an interest in the Company will have equal access to information.  All inquiries or calls from the press and financial analysts should be referred to the Chief Executive Officer or Chief Financial Officer.  The Company has designated our Chief Executive Officer and Chief Financial Officer as our official spokespersons for questions concerning the financial performance, strategic direction or operating performance of the Company, and operational issues such as research and development, regulatory developments, sales and marketing, etc. You also may not provide any information to the media about the Company off the record, for background, confidentially or secretly, including, without limitation, by way of postings on Internet websites, chat rooms or “blogs.”
 
 
 
 

 
 

 
 
Action by members of your family, significant others or other persons who live in your household also may potentially result in ethical issues to the extent that they involve the Company’s business.  Consequently, in complying with the Code of Ethics, you should consider not only your own conduct, but also that of your family members, significant others and other persons who live in your household.
 
It is against the Company's policy to retaliate against any employee for good faith reporting of violations of this Code.  Violations of this Code of Ethics, including failures to report potential violations by others, will be viewed as a severe disciplinary matter that may result in personnel action, including termination of employment.  Any waiver of this Code for executive officers or directors may be made only by the board of directors or an authorized committee of the board of directors and will be disclosed as required by applicable laws.
 
If you believe that a violation of the Code of Ethics has occurred, please contact the Chairman of the Audit Committee.
 
Adopted: September 4, 2015

Exhibit 21.1
 
Subsidiaries of the Registrant
 
AzurRx BioPharma SAS, a company incorporated under the laws of France.
 

Exhibit 23.1
 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


We hereby consent to the use in the Prospectus constituting part of the Registration Statement on Form S-1 of our report dated June 15, 2016, related to the financial statements of Protea Europe SAS (“Predecessor”) for the period January 1, 2014 through May 31, 2014; and our report dated June 15, 2016, related to the consolidated financial statements of AzurRx BioPharma, Inc. as of December 31, 2015 and 2014 and for the year ended December 31, 2015 and the period January 30, 2014 (date of inception) through December 31, 2014 which appear in such Prospectus. The report for AzurRx BioPharma, Inc. includes an explanatory paragraph about the existence of substantial doubt concerning its ability to continue as a going concern. We also consent to the reference to our Firm under the caption “Experts” in such Prospectus.


/s/ WeiserMazars LLP
Edison, New Jersey
July 13, 2016