EXCHANGE AND TERMINATION AGREEMENT

 

This EXCHANGE AND TERMINATION AGREEMENT (this “Agreement”) dated as of October
27, 2017 (the “Agreement Date”), is by and among Windtree Therapeutics, Inc., a
Delaware corporation (f/k/a Discovery Laboratories, Inc.) (“Borrower”),
Deerfield Private Design Fund II, L.P. (“DPDF II”), Deerfield Private Design
International II, L.P. (“DPDI II”) and Deerfield Special Situations Fund, L.P.
(“DSSF,” and together with DPDF II and DPDI II, “Lenders,” and each, a
“Lender”), and as expressly provided herein, Deerfield PDI Financing II, L.P.
(“DPDI Financing II”). Capitalized terms used but not otherwise defined herein
shall have the meanings ascribed to them in the Facility Agreement (as defined
below).

 

RECITALS:

 

A.     Borrower and Lenders have entered into that certain Facility Agreement,
dated as of February 13, 2013, as amended pursuant to a First Amendment to
Facility Agreement dated as of July 9, 2015 and a Second Amendment to Facility
Agreement dated as of July 22, 2015 (the “Facility Agreement”).

 

B.     The Facility Agreement provides for the issuance of Notes, and the
advancement of funds to Borrower in two disbursements, of $10 million and $20
million, respectively, each of which has been made prior to the Agreement Date.

 

C.     Prior to the Agreement Date, Borrower has repaid $5,000,000 in principal
under the Notes, and Lenders have collectively converted an additional
$5,000,000 in prepaid interest under the Notes into shares of Common Stock (as
defined below), Class A Warrants, pre-funded Series B Warrants and Series B
Warrants. As of the Agreement Date, the aggregate outstanding principal, accrued
and unpaid interest, and outstanding fees due and owing Lenders under the Notes
is $25,000,000 (the “Outstanding Indebtedness”).

 

D.     As of August 14, 2017, Borrower, Lenders and Lee’s Pharmaceutical (HK)
Ltd., a Hong Kong company (“Lee’s”), executed that certain Subordination
Agreement whereby Lenders agreed to subordinate their right to certain payments
under the Facility Agreement to the payment by Borrower of all liabilities and
obligations owing to Lee’s pursuant to that certain Senior Loan Agreement, dated
as of August 14, 2017, between Borrower and Lee’s.

 

E.     Concurrent with, and conditioned upon, the execution of this Agreement,
Borrower and Lee’s have entered enter into a Share Purchase Agreement, dated of
even date herewith, pursuant to which (and subject to the terms and conditions
set forth therein) Lee’s, either directly or through an affiliate, has agreed to
purchase from Borrower, and Borrower has agreed to sell to Lee’s, 46,232,085
shares of Common Stock, for an aggregate purchase price of $10,000,000 (the
“Share Purchase Consideration”), which will result in Lee’s owning a controlling
interest in Borrower following the closing thereof (such agreement, in the form
provided to the Lenders prior to the date hereof, the “Share Purchase
Agreement”).

 

F.     Pursuant to this Agreement (and subject to the terms and conditions
hereof), the Lenders collectively have agreed to terminate the Facility
Agreement and related agreements and exchange their respective Notes for (i) a
cash payment in the aggregate amount of $2,500,000 at Closing (the “Cash
Payment”), (ii) an aggregate of 1,422,250 shares of Common Stock (the “Exchange
Shares”) and (iii) the right to receive certain Milestone Payments (as defined
below), as hereinafter set forth.

 

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NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:

 

ARTICLE I.      

 

DEFINITIONS

 

Section 1.01.     Capitalized terms used in this Agreement shall have the
meanings set forth below.

 

“8-K Filing” has the meaning set forth in Section 6.03.

 

“2019 Warrants” means the warrants to purchase shares of Common Stock held by
Lenders that have an exercise price of $39.34 per share and expire on February
13, 2019.

 

“Affiliate” means any corporation or other business entity controlled by,
controlling, or under common control with a party to this Agreement. For this
purpose, “control” means (i) direct or indirect beneficial ownership of more
than fifty percent (50%) of the voting stock in such corporation or other
business entity, or (ii) the possession, directly or indirectly, of any other
power to direct or cause the direction of the management and policies of such
corporation or other business entity, whether through ownership of voting
securities, by contract or otherwise.

 

“Applicable Law” means any applicable law, rule or regulation of any
Governmental Authority of competent jurisdiction, or judgment, order, writ,
decree, permit or license of any Governmental Authority of competent
jurisdiction.

 

“Average Sale Price” means the weighted average sale price of the Product,
Bundled Product or other product or service included in a Bundled Product, as
applicable, sold by Borrower or a Distributor during a defined period, and
determined by dividing (i) the total gross sales of such Bundled Product or
other product or service during such period by Borrower or such Distributor by
(ii) the units of the Product, such Bundled Product or other product or service
sold during such period by Borrower or such Distributor. When determining the
gross sales for the Product included in a Bundled Product, the methodology used
to allocate a portion of the gross proceeds of the Bundled Product to the
Product, as set forth in the definition of Net Sales, shall be used to allocate
gross sales proceeds to the Product.

 

“Borrower” has the meaning set forth in the Preamble.

 

“Bundled Product” means the Product, together with any other product(s) and/or
service(s) that are sold at a single unit price, whether packaged together or
separately.

 

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“Business Day” means any day other than Saturday and Sunday and any other day on
which commercial banks located in New York are authorized or required by law to
be closed.

 

“Bylaws” has the meaning set forth in Section 5.02(g).

 

“Capital Stock” means any and all shares, interests, participations or other
equivalents (however designated) of capital stock of Borrower and any and all
equivalent ownership interests in Borrower.

 

“Cash Payment” has the meaning set forth in the Recitals.

 

“Certificate of Incorporation” has the meaning set forth in Section 5.02(g).

 

“Closing” has the meaning set forth in Section 2.03.

 

“Closing Date” has the meaning set forth in Section 2.03.

 

“Code” means the Internal Revenue Code of 1986, as amended, and any Treasury
Regulations promulgated thereunder.

 

“Collateral” has the meaning set forth in the Security Agreement.

 

“Common Stock” means the common stock, par value $0.001 per share, of Borrower.

 

“Convertible Securities” means any stock or securities (other than Options)
directly or indirectly convertible into or exchangeable or exercisable for
Capital Stock.

 

“Cover” means that the use, manufacture, sale, offer for sale, development,
commercialization or importation of the subject matter in question by an
unlicensed entity would infringe a claim of a Patent or other intellectual
property right.

 

“CRE Considerations” means issues relating to safety, efficacy, the regulatory
requirements and other scientific and technical factors, and, with respect to
commercialization in markets other than the U.S. and the EU3, the anticipated
viability and profitability of the Product in a particular market, including the
projected cost to develop and gain approval of the Product, the forecasted
market value and revenue potential compared to other potential opportunities,
and the expected exclusivities, including regulatory and IP Rights.

 

“Develop” or “Developing” or “Development” means engaging in manufacturing,
preclinical, clinical and other research and development activities directed
towards obtaining either U.S. Approval or E.U. Approval.

 

“Distributor” means a Third Party or Affiliate of Borrower which Borrower
selects to market, promote and/or distribute the Product on Borrower’s behalf.

 

“DPDF II” has the meaning set forth in the Preamble.

 

“DPDI II” has the meaning set forth in the Preamble.

 

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“DPDI Financing II” has the meaning set forth in the Preamble.

 

“DSSF” has the meaning set forth in the Preamble.

 

“DTC” has the meaning set forth in Section 5.02(m).

 

“DWTC” has the meaning set forth in Section 5.02(m).

 

“EMA” means the European Medicines Agency, or any successor agency thereto.

 

“Effective Date” has the meaning set forth in Section 6.04(b).

 

“EU3” means the United Kingdom, Germany and France; provided that, in the event
that (i) the United Kingdom withdraws from the E.U., and (ii) in order to market
and sell the Product in the United Kingdom, the Company would need to obtain the
approval of a regulatory authority other than the EMA of a type similar to the
approval resulting from a submission to the EMA and the Company reasonably and
in good faith determines that it is not in the best interests of the Company to
pursue such approval ((i) and (ii), collectively, a “Brexit Event”), thereafter,
“EU3” shall mean the United Kingdom, Germany, France and Italy.

 

“European Union” or “E.U.” means the European Union, as its membership may be
constituted from time to time, and any successor thereto, and which, as of the
Agreement Date, consists of Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech
Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland,
Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal,
Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom. For the
purposes of this Agreement, the United Kingdom shall at all times be deemed to
be a member of the European Union, except following a Brexit Event.

 

“Exchange” has the meaning set forth in Section 2.02.

 

“Exchange Shares” has the meaning set forth in the Recitals.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“E.U. Approval” means (i) the approval resulting from the submission of a single
marketing authorization application or applications to EMA (including
supplements, amendments, pre- and post-approvals, licenses, registrations and
other authorizations of the EMA), and, (ii) any other national, supra-national
(e.g., the European Commission or the Council of the European Union), regional,
state or local regulatory agency, department, bureau, commission, council or
other governmental entity; in each case that are necessary and appropriate for
the manufacture, distribution, use, storage, transport, sale and marketing of
the Product within the E.U. Borrower plans to seek marketing approval in the
E.U. using the centralized process of the EMA.

 

“FDA” means the United States Food and Drug Administration.

 

“Facility Agreement” has the meaning set forth in the Recitals.

 

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“First Commercial Sale” means the first bona fide commercial sale invoiced to a
Third Party or otherwise made by Borrower or a Distributor with respect to the
Product after receiving U.S. Approval or E.U. Approval, as the case may be.

 

“Fully Diluted Shares” means, as of the Closing Date, giving effect to the
issuance of shares of Common Stock pursuant to this Agreement and the Share
Purchase Agreement, the sum of (i) the number of shares of Common Stock
outstanding (ii) the number of shares of Common Stock directly or indirectly
issuable upon exercise, conversion or exchange of outstanding Options and
Convertible Securities (without giving effect to any limitations on exercise,
conversion or exchange thereof as of such date), excluding any such Options and
Convertible Securities that have a conversion or exercise price that is equal to
or greater than $0.6475, and (iii) the number of shares issued or issuable
pursuant to preemptive rights, rights of participation or similar rights as
result of, or in connection with, the issuance of shares of Common Stock
pursuant to this Agreement or the Share Purchase Agreement (“Preemptive
Rights”).

 

“Fraud Policy” has the meaning set forth in Section 5.02(s)(iii).

 

“GAAP” means United States generally accepted accounting principles, or, for
purposes of the calculation of Net Sales made by any direct or indirect assignee
or licensee of Borrower and not reported as net sales by the Company in its own
financial statements, the national or international accounting standards used by
such assignee or licensee in connection with reporting to the Company of such
assignee’ or licensee’s sales of the Product, in each case consistently
applied,.

 

“Governmental Authority” means any supranational (e.g., the European Union),
national, regional, state, provincial, local or other government, or other court
of competent jurisdiction, legislature, governmental, administrative or
regulatory agency, department, body, bureau, council or commission or any other
supranational, national, regional, state, provincial, local or other
governmental authority or instrumentality, or securities exchange or
self-regulatory authority, in each case having jurisdiction in any country or
other jurisdiction.

 

“Investment Company Act” means the Investment Company Act of 1940, as amended.

 

"Knowledge of Borrower" or “Borrower’s Knowledge” means the knowledge, after due
inquiry, of the President and Chief Executive Officer, the Senior Vice President
and Chief Financial Officer, the Senior Vice President and General Counsel, the
Senior Vice President and Chief Medical Officer and any other Senior Vice
President or Person holding comparable positions in the Company.

 

“Lee’s” has the meaning set forth in the Recitals.

 

“Lender” and “Lenders” has the meaning set forth in the Preamble.

 

 

“MAA” means a ‘Marketing Authorization Application’ submitted to the EMA for
purposes of obtaining E.U. Approval of a newly developed medicinal product.

 

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“Material Adverse Effect” means a material adverse effect on (i) the validity or
enforceability of this Agreement or any of the other Transaction Documents, (ii)
the ability of Borrower to perform any of its material obligations under this
Agreement or any of the other Transaction Documents, (iii) on Borrower’s
business, operations, Product Assets, results of operations, condition
(financial or otherwise) or prospects, or (iv) the Development, marketing, sale
or other commercialization of the Product; provided, however, that changes
relating to the economy in general or Borrower’s industry in general shall not
in themselves be deemed to arise to a Material Adverse Effect unless such
changes have a materially disproportionate impact on Borrower.

 

“Milestone Event” has the meaning set forth in Section 2.02(b).

 

“Milestone Payment” has the meaning set forth in Section 2.02(b).

 

“NDA” means a ‘New Drug Application’ submitted to the FDA for purposes of
obtaining U.S. Approval of a newly developed medicinal product.

 

“Net Sales” means, without duplication, the gross amount (calculated in U.S.
Dollars) invoiced or otherwise recorded by or on behalf of Borrower or any
direct or indirect assignee or licensee of Borrower for the Product sold
globally in bona fide, arm’s length transactions, less customary deductions
determined without duplication in accordance with GAAP and reported on a
quarterly basis. Customary deductions include, among others, (i) cash or terms
discounts, (ii) sales, use and value added taxes (if and only to the extent
included in the gross invoice amount), (iii) reasonable and customary accruals
for third party rebates and chargebacks, (iv) returns and (v) recalls.

 

With respect to a Bundled Product, the Net Sales of such Bundled Product shall
first be calculated in accordance with the definition of Net Sales above, and
then the Net Sales of the Product as included in such Bundled Product shall be
determined, on a territory by territory basis, as follows:

 

(i)     multiply the Net Sales of such Bundled Product in the territory by the
fraction A/(A+B) where “A” is the Average Sale Price of the Product when sold
separately in the territory and “B” is the total of the Average Sale Prices of
each of the other products(s) and/or services(s) included in such Bundled
Product when sold separately in the territory;

 

(ii)     if the Average Sale Price of the Product included in such Bundled
Product can be determined but the Average Sale Price of the other product(s)
and/or services(s) included in such Bundled Product cannot be determined, then
multiply the Net Sales of such Bundled Product in the territory by the fraction
A/C where “A” is the Average Sale Price of the Product when sold separately in
the territory and “C” is the Average Sale Price of such Bundled Product in the
territory; or

 

(iii)     if (x) the Average Sale Price of the Product in the territory is not
available for such period or (y) the Product included in such Bundled Product is
not sold separately in the territory, then multiply the Net Sales of such
Bundled Product in the territory by a percentage, determined by Borrower
reasonably and in good faith and disclosed by Borrower to the Lenders, that
represents the proportionate economic value of the Product included in such
Bundled Product relative to the economic value contributed by the other
product(s) and/or service(s) included in such Bundled Product.

 

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“Options” means any rights, warrants or options to subscribe for or purchase
Capital Stock or Convertible Securities.

 

“Outstanding Indebtedness” has the meaning set forth in the Recitals.

 

“Patents” means all patents (including all reissues, extensions, substitutions,
confirmations, re-registrations, re-examinations, revalidations, supplementary
protection certificates and patents of addition) and patent applications
(including all provisional applications, continuations, continuations-in-part
and divisions).

 

“Person” means any natural person, corporation, trust, joint venture,
association, unincorporated organization, cooperative, company, partnership,
trust, limited liability company, government (domestic or foreign), or any
agency or instrumentality thereof, or any other entity recognized by law.

 

“Product” means AEROSURF, a drug/device combination product being Developed by
Borrower for the treatment of respiratory distress syndrome in premature
infants.

 

“Product Assets” means all assets owned by, licensed to or otherwise controlled
by Borrower or any Affiliate of Borrower related to the Product, including
Product IP Rights, Product IP Agreements (subject to their terms), regulatory
filings, product packaging, product inserts, product labels, regulatory approval
applications, regulatory approvals, regulatory exclusivity, copies of
correspondence with regulatory authorities, copies of pre-clinical and clinical
data, copies of pharmacology and biology data, agreements related to the
Development, marketing, promotion, manufacture, sale or distribution of the
Product and inventory.

 

“Product IP Agreements” means any contract pursuant to which Borrower or any
Affiliate of Borrower have been granted, assigned or otherwise conveyed any
right, title or interest in or to any Product IP Rights.

 

“Product IP Rights” means all intellectual property relating to the Product that
is owned or licensed by Borrower or any Affiliate of Borrower and is material to
the Development or commercialization of the Product, including (i) the Product
Know-How, (ii) Patents Covering the Product (including its composition,
formulation, delivery, manufacture or use), and (iii) trademarks, service marks,
trade names and works protectable under copyright laws relating to the Product.

 

“Product Know-How” means material to the Development and commercialization of
the Product, all technical information and know-how, including analytical
methods, inventions, discoveries, trade secrets, specifications, instructions,
processes, formulae, materials (including cell lines, vectors, plasmids, nucleic
acids and the like), methods, protocols, expertise and other technology
applicable to formulations, compositions or products or to their manufacture,
development, registration, use or marketing or to methods of assaying or testing
them or processes for their manufacture, formulations containing them or
compositions incorporating or comprising them, and including all biological,
chemical, pharmacological, biochemical, toxicological, pharmaceutical, physical
and analytical, safety, quality control, manufacturing, preclinical and clinical
data, instructions, processes, formula and expertise.

 

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“Pro Rata Share” means, with respect to each Lender, the percentage set forth
opposite such Lender’s name on Schedule I hereto.

 

“Registration Rights Agreement” has the meaning set forth in Section
2.02(a)(ii).

 

“Regulatory Agency” means any federal, state or local regulatory agency,
department, bureau or other Governmental Authority in the United States or the
European Union, as applicable, including the FDA and the EMA, in each case which
is responsible for issuing approvals, licenses, registrations, permits or
authorizations necessary for, or otherwise governs, the manufacture, handling,
use, storage, import, transport, distribution or sale of the Product.

 

“Responsible Parties” means (i) Borrower and its Affiliates and (ii) Lee’s and
each other Third Party that is licensee of any of the Product Assets or
otherwise engaged by Borrower or any of its Affiliates, in each case to perform
services for or on behalf of Borrower, for purposes of the Development,
manufacture, distribution, use, storage, transport, sale or marketing of the
Product or otherwise in connection with the commercialization thereof (in any
case, in whole or in part).

 

“SEC” has the meaning set forth in Section 5.01(f).

 

“SEC Reports” has the meaning set forth in Section 5.02(h).

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Security Agreement” means that certain Security Agreement, dated as of February
13, 2013, among Borrower and Lenders.

 

“Share Purchase Agreement” has the meaning set forth in the Recitals.

 

“Share Purchase Consideration” has the meaning set forth in the Recitals.

 

“Surviving Provisions” has the meaning set forth in Section 3.01.

 

“Third Party” means any Person, including a Governmental Authority, other than
Borrower, Lenders and their respective Affiliates.

 

“Transaction Documents” means, collectively, this Agreement, the Registration
Rights Agreement, the Share Purchase Agreement, and any other agreements entered
into by Borrower in connection with the transactions contemplated hereby and
thereby.

 

“Transfer Agent” has the meaning set forth in Section 2.02(a)(ii).

 

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“United States” or “U.S.” means the United States of America, including its
territories and possessions.

 

“Unrestricted Conditions” has the meaning set forth in Section 6.04(b).

 

“U.S. Approval” means any and all approvals (including supplements, amendments,
pre- and post-approvals), licenses, registrations or authorizations of the FDA
and any other federal, regional, state or local regulatory agency, department,
bureau, commission, council or other governmental entity, that are necessary and
appropriate for the manufacture, distribution, use, storage, transport, sale and
marketing of the Product within the U.S.

 

ARTICLE II.      

 

CASH PAYMENT AND EXCHANGE

 

Section 2.01.     Cash Payment. At the Closing, Borrower shall pay to each
Lender in cash, by wire transfer of immediately available funds to an account or
accounts designated by such Lender in writing, the applicable amount set forth
opposite such Lender’s name on Schedule I hereto, representing such Lender’s Pro
Rata Share of the Cash Payment.

 

Section 2.02.     Exchange. Subject to the terms and conditions hereof, each
Lender hereby agrees to exchange such Lender’s Notes and the right to collect
such Lender’s allocable portion of the remaining Outstanding Indebtedness (after
applying the Cash Payment in accordance with the terms of the Facility
Agreement), for the following consideration (the “Exchange”):

 

(a)     Issuance of Shares. At the Closing, Borrower shall, in accordance with
this Section 2.02(a), issue to each Lender the number of shares of Common Stock
set forth opposite such Lender’s name on Schedule I hereto, representing such
Lender’s Pro Rata Share of the Exchange Shares.

 

(i)     Delivery of Exchange Shares. On the Closing Date, Borrower shall cause
the transfer agent for the Common Stock (the “Transfer Agent”) to deliver to the
Lenders’ custodian (as directed prior to the Closing by the Lenders) stock
certificates, in the names of the respective Lenders, duly executed on behalf of
Borrower and by the Transfer Agent, representing the Exchange Shares to which
each Lender is entitled pursuant to the Exchange. In the event that any of the
Exchange Shares or any portion of the Cash Payment are not delivered on the
Closing Date in accordance herewith (x) the Lenders shall have the right to
rescind and terminate any or all of this Agreement and the transactions
contemplated hereby and/or to exercise any and all other rights and remedies
available at law or in equity and (y) the Notes shall not be terminated and
Borrower’s obligations thereunder shall not be released pursuant to Article III.
Notwithstanding the foregoing, if any shares of Common Stock are issued after
the Closing Date pursuant to Preemptive Rights (any such shares “Preemptive
Shares”), Borrower shall, within five (5) Business Days thereafter, issue to
each Lender its Pro Rata Share of such additional shares of Common Stock as
shall be necessary to cause the Lenders to have been issued two percent (2%) of
the Fully Diluted Shares, as if such Preemptive Shares had been outstanding as
of the Closing Date, such additional shares to be deemed Exchange Shares for all
purposes hereunder.

 

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(ii)     Registration Rights Agreement. On or before the Closing Date, Borrower
and Lenders will execute and deliver a Registration Rights Agreement, in the
form attached hereto as Exhibit A (as the same may be amended, supplemented,
restated or modified and in effect from time to time, the “Registration Rights
Agreement”), pursuant to which Borrower will provide certain registration rights
with respect to the Exchange Shares under the Securities Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.

 

(b)     Milestone Payments. In accordance with this Section 2.02(b), in
connection with the occurrence of a Milestone Event, Borrower shall make a
non-refundable cash payment to each Lender in the amount of such Lender’s Pro
Rata Share of the amount set forth opposite such Milestone Event in the table
below (each, a “Milestone Payment”), by wire transfer of immediately available
funds to an account or accounts designated by such Lender; provided, however,
that Borrower shall only be required to make one (1) Milestone Payment to each
Lender per Milestone Event. Notwithstanding the foregoing, DPDI II hereby
assigns its entire right, title and interest in and to the right to receive its
Pro Rata Share of any Milestone Payments (including information and audit
rights) to DPDI Financing II, which hereby accepts such assignment, and Borrower
hereby acknowledges such assignment, and the parties hereto accordingly
acknowledge and agree that all amounts that, but for such assignment would have
been paid to DPDI II pursuant to this Section 2.02(b), shall instead be paid to
an account or accounts designated by DPDI Financing II and that DPDI Financing
II shall succeed to and be entitled to directly enforce the right to receive
payment of, and exercise all applicable rights and remedies with respect to,
DPDI II’s Pro Rata Share of the Milestone Payments. Milestone Payments under
this Section 2.02(b) shall be paid no later than fifteen (15) days following the
occurrence of such Milestone Event; provided, however, that Milestone Payments
in respect of Net Sales Milestone Events shall be paid no later than thirty (30)
days following the end of the calendar quarter in which such Milestone Event
shall occur; and provided, further, that if such fifteenth (15th) day or
thirtieth (30th) day should fall on a day that is not a Business Day, then such
Milestone Payment may be paid on the next Business Day. The first occurrence of
each of the following events shall be deemed a “Milestone Event” for purposes of
this Agreement for which the applicable Milestone Payment is due and payable in
accordance with this Section 2.02(b):

 

Milestone Event

Milestone Payment

 

Acceptance of filing of an NDA for the Product at the FDA.

$2,500,000

 

First Commercial Sale of the Product in the U.S.

$2,500,000

 

Acceptance of filing of a MAA for the Product at the EMA.

$1,000,000

 

First Commercial Sale of the Product in one (1) EU3 country.

$1,500,000

 

First Commercial Sale of the Product in a second (2nd) EU3 country.

$1,500,000

 

Net Sales first equals or exceeds $50,000,000.

$500,000

 

Net Sales first equals or exceeds $75,000,000.

$1,000,000

 

Net Sales first equals or exceeds $150,000,000.

$1,000,000

 

Net Sales first equals or exceeds $250,000,000.

$1,500,000

 

Net Sales first equals or exceeds $500,000,000.

$2,000,000

 

 

 

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(c)     Withholding. Any and all Milestone Payments pursuant to this Agreement
shall be made free and clear of and without deduction for any taxes except as
required by applicable tax law. Borrower shall provide the applicable payee with
ten (10) Business Days’ advance notice of any such required withholding and
shall reasonably cooperate with the payee to mitigate or reduce such
withholding.

 

Section 2.03.     Closing. Subject to the satisfaction (or waiver) of all of the
conditions to the Exchange set forth in Section 7.01 and Section 7.02, the
delivery of the Cash Payment and the Exchange shall be consummated (the
“Closing”) on the Agreement Date or such other date as is mutually agreed to by
Borrower and Lenders (the “Closing Date”). The Closing shall occur on the
Closing Date at the offices of Katten Muchin Rosenman LLP, 575 Madison Avenue,
New York, New York 10022-2585 or at such other place as Borrower and Lenders may
collectively designate in writing.

 

Section 2.04.     Deliverables at Closing.

 

(a)     Deliverables by Borrower. On the Closing Date, Borrower shall deliver to
Lenders:

 

(i)     the Cash Payment, in accordance with Section 2.01;

 

(ii)     the Exchange Shares, in accordance with Section 2.02(a)(i);

 

(iii)     the Registration Rights Agreement, duly executed by Borrower;

 

(iv)     a secretary’s certificate, dated as of the Agreement Date, certifying
as to: (i) the resolutions of the board of directors of Borrower authorizing and
approving this Agreement and the other Transaction Documents and the
transactions contemplated hereby and thereby; (ii) the Certificate of
Incorporation; and (iii) the Bylaws, each as in effect on the Closing Date; and

 

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(v)     such other documents relating to the transactions contemplated by this
Agreement as such Lender or its counsel may reasonably request.

 

(b)     Deliveries by Lenders. On or before the Closing Date, each Lender shall
deliver to Borrower’s counsel, to hold in escrow pending the Closing, the
Registration Rights Agreement, duly executed by such Lender, and no later than
the third Business Day following the Closing Date, each Lender shall deliver to
Borrower such Lender’s Notes and such Lender’s 2019 Warrants (as set forth on
Schedule I hereto).

 

ARTICLE III.      

 

TERMINATION OF FACILITY AGREEMENT AND NOTES

 

Section 3.01.     Termination of Facility Agreement and 2019 Warrants. Subject
to the terms and conditions hereof, including receipt of the Cash Payment and
Exchange Shares at the Closing, each Lender hereby agrees that, effective on the
Closing Date, (i) the Facility Agreement shall terminate and shall have no
further force or effect, (ii) all Outstanding Indebtedness under the Facility
Agreement shall be deemed satisfied in full and discharged, terminated and
released, (iii) all security interests and other liens granted to or held by
Lenders in any Collateral as security for such Outstanding Indebtedness shall be
satisfied, released and discharged, (iv) the Security Agreement shall
immediately terminate and shall have no further force or effect, and (v) the
2019 Warrants shall immediately terminate and shall have no further force or
effect (in each case, regardless of when the Notes and the 2019 Warrants are
delivered by the Lenders to Borrower). Thereafter, each of the Lenders agrees to
take all reasonable additional steps requested by Borrower as may be necessary
to release its security interests in the Collateral and hereby authorize
Borrower to file any necessary UCC-3 termination statements. Borrower hereby
confirms that any commitments and obligations of Lenders under the Facility
Agreement shall terminate as of the Closing Date, and as of the Closing Date, no
Lender shall have any further obligation to make loans, or otherwise advance
funds, to Borrower.

 

Section 3.02.     Release by Lenders. Lenders agree that, subject to the terms
and conditions hereof, including receipt of the Cash Payment and the Exchange
Shares, each Lender hereby releases Borrower and its Affiliates and their
respective officers, directors, employees, shareholders, agents and
representatives, as well as their respective successors and assigns, from any
and all claims, obligations, rights, causes of action, and liabilities, of
whatever kind or nature, whether known or unknown, whether foreseen or
unforeseen, arising on or before the date hereof, which such Lender ever had,
now has or hereafter can, shall or may have for, upon or by reason of any
matter, cause or thing whatsoever, which are based upon, arise under or are
related to the Facility Agreement or the Security Agreement, other than the
Surviving Provisions (and, for the avoidance of doubt, any claims, obligations,
rights, causes of action and liabilities based upon, arising under or related to
this Agreement or any of the other Transaction Documents).

 

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Section 3.03.     Release by Borrower. Borrower agrees that, subject to the
terms and conditions hereof, Borrower (on its own behalf and behalf of its
Affiliates) hereby releases each of the Lenders and their respective Affiliates
and their officers, directors, employees, partners, members, managers, equity
holders, agents and representatives, as well as their respective successors and
assigns, from any and all claims, obligations, rights, causes of action, and
liabilities, of whatever kind or nature, whether known or unknown, whether
foreseen or unforeseen, arising on or before the date hereof, which Borrower or
any of its Affiliates ever had, now has or hereafter can, shall or may have for,
upon or by reason of any matter, cause or thing whatsoever, which are based
upon, arise under or are related to the Facility Agreement or the Security
Agreement (other than, for the avoidance of doubt, those obligations and any
claims, obligations, rights, causes of action and liabilities based upon,
arising under or related to this Agreement or any of the other Transaction
Documents).

 

ARTICLE IV.      

 

DEVELOPMENT AND COMMERCIALIZATION

 

Section 4.01.     Efforts to Develop and Commercialize.

 

(a)     Development. Borrower shall use commercially reasonable efforts (taking
into account the CRE Considerations) to (and shall ensure that each other
Responsible Party shall use commercially reasonable efforts to) Develop the
Product in a manner that is intended to ensure that Borrower is reasonably
likely to achieve U.S. Approval and E.U. Approval. Such activities shall include
(i) performing or arranging for all manufacturing, preclinical, clinical or
other research and Development activities, (ii) filing an NDA for the Product
with the FDA and a MAA with the EMA as soon as reasonably practicable following
completion of the AEROSURF Development program for such market and (iii)
submitting all additional documentation to the applicable Regulatory Agencies as
shall be necessary to obtain the requisite approvals of the FDA and EMA.
Borrower agrees to use commercially reasonable efforts to raise adequate cash to
fund any and all necessary or desirable activities in connection with the
Development of the Product.

 

(b)     Commercialization. Borrower shall use commercially reasonable efforts
(taking into account the CRE Considerations) to (and shall ensure that each
other Responsible Party shall use commercially reasonable efforts to) launch,
market, promote, sell and otherwise commercialize the Product in all of the U.S.
and appropriate markets of the E.U. (including, for the avoidance of doubt, each
of the EU3, but excluding the United Kingdom following a Brexit Event).

 

Section 4.02.     Achievement of Milestones. Without limiting Borrower’s
obligations under Section 4.01 and elsewhere in this Agreement, Borrower shall
use commercially reasonable efforts to cause each of the Milestones to be
satisfied as reasonably possible after the Closing Date, taking into account the
CRE Considerations.          

 

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Section 4.03.     Commercially Reasonable Efforts. Without limiting Borrower’s
obligations under Sections 4.01 and 4.02 or elsewhere in this Agreement,
Borrower’s obligation to exercise “commercially reasonable efforts” hereunder
shall require Borrower to (i) except where CRE Considerations would indicate
otherwise, assume the commercial viability of the Product and (ii) (a) promptly
assign responsibility for all Development and commercialization activities with
respect to the Product to appropriate employees or Third Parties, (b) establish
a Development plan with meaningful objectives and timelines for carrying out
such Development and commercialization activities, (c) allocate appropriate
resources designed to advance progress with respect to such objectives and
timelines, (d) employ (and/or cause the applicable Third Parties to employ)
compensation systems for its sales representatives and other employees and
agents that are no less favorable than the compensation systems that Borrower
and its Affiliates and/or the Third Parties, as applicable, apply to their other
comparable Development and commercialization programs, in order to reasonably
incentivize such sales representatives and other employees and agents to achieve
such objectives and timelines and (e) use reasonable care in (x) selecting any
Distributor or other Third Party (in addition to Lee’s) to which Borrower may
grant any rights with respect to the Development, marketing, sale, distribution
or other commercialization of the Product, and (y) negotiating and enforcing the
terms of any license or other agreement entered into between Borrower and any
Distributor or other Third Party with respect thereto.

 

ARTICLE V.      

 

REPRESENTATIONS AND WARRANTIES

 

Section 5.01.     Representations and Warranties of Lenders. Each Lender hereby
represents and warrants to Borrower as of the Agreement Date and as of the
Closing Date as follows:

 

(a)     Organization and Good Standing. Such Lender is a limited partnership
duly organized, validly existing and in good standing under the laws of
Delaware, with the requisite power and authority to own and use its properties
and assets and to carry on its business as currently conducted.

 

(b)     Authority. Such Lender has the requisite limited partnership power and
authority to enter into and to consummate the transactions contemplated by this
Agreement and the other Transaction Documents to which such Lender is a party
and otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of this Agreement and the other Transaction Documents to
which such Lender is a party by such Lender and the consummation by such Lender
of the transactions contemplated hereby and thereby have been duly authorized by
all necessary action on the part of such Lender.

 

(c)     Valid and Binding Agreement. This Agreement has been duly executed and
delivered by such Lender and constitutes the valid and binding obligations of
such Lender, enforceable against such Lender in accordance with its terms,
except (i) as limited by general equitable principles and applicable bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and other laws of
general application affecting enforcement of creditors’ rights generally and
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies. As of the Closing Date, each of
the other Transaction Documents to which such Lender is a party will have been
duly executed and delivered by such Lender and will constitute valid and binding
obligations of such Lender, enforceable against such Lender in accordance with
its terms, except: (y) as limited by general equitable principles and applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
other laws of general application affecting enforcement of creditors’ rights
generally and (z) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies.

 

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(d)     Non-Contravention. The execution and delivery of this Agreement and the
other Transaction Documents to which such Lender is a party, and the performance
by such Lender of its obligations hereunder and thereunder do not and will not
(i) violate any provision of such Lender’s limited partnership agreement, or
(ii) conflict with or result in a material violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which such Lender is subject.

 

(e)     No Public Sale or Distribution. Such Lender is acquiring its Pro Rata
Share of the Exchange Shares in the ordinary course of business for its own
account and not with a view towards, or for resale in connection with, the
public sale or distribution thereof, except pursuant to sales registered or
exempted under the Securities Act, and such Lender does not have a present
arrangement to effect any distribution of the Exchange Shares to or through any
Person; provided, however, that by making the representations herein, such
Lender does not agree to hold any of the Exchange Shares for any minimum or
other specific term and reserves the right to dispose of the Exchange Shares at
any time in accordance with or pursuant to a registration statement or an
exemption under the Securities Act.

 

(f)     Accredited Investor Status; Not a Broker or Dealer. Such Lender is an
“accredited investor” as that term is defined in Rule 501(a) of Regulation D as
promulgated by the United States Securities and Exchange Commission (the “SEC”)
under the Securities Act. Such Lender is not a broker or dealer registered
pursuant to Section 15 of the Exchange Act and is not affiliated with any
registered broker-dealer.

 

(g)     Reliance on Exemptions. Such Lender understands that the Exchange Shares
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of the United States federal and state securities laws
and that Borrower is relying in part upon the truth and accuracy of such
Lender’s representations and warranties set forth herein in order to determine
the availability of such exemptions.

 

(h)     Title to Notes. Such Lender holds its Notes free and clear of all
claims, liens, security interests, objections or any other encumbrance of any
kind or nature whatsoever.

 

Section 5.02.     Representations and Warranties of Borrower. Borrower hereby
represents and warrants to each Lender as of the Agreement Date and the Closing
Date as follows:

 

(a)     Organization and Good Standing. Borrower is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.

 

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(b)     Authority. Borrower has the requisite corporate power and authority, as
applicable, to enter into and to consummate the transactions contemplated by
this Agreement and the other Transaction Documents and otherwise to carry out
its obligations hereunder and thereunder. The execution and delivery of this
Agreement and the other Transaction Documents by Borrower and the consummation
by it of the transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of Borrower, and no further
action of Borrower, its board of directors or stockholders is required in
connection herewith or therewith.

 

(c)     Consents. Borrower is not required to obtain any consent from,
authorization or order of, or make any filing or registration with any
Governmental Authority or any Regulatory Agency or any other Person (including
Lee’s) in order for it to execute, deliver or perform any of its respective
obligations under or contemplated by this Agreement or the other Transaction
Documents, in each case, in accordance with the terms hereof or thereof, except
for E.U. Approval and U.S. Approval required with respect to the Product, the
filings and listings contemplated by the Registration Rights Agreement and the
8-K Filing with the SEC as contemplated by Section 6.03 hereof.

 

(d)     Valid and Binding Agreement. Each of this Agreement and the Share
Purchase Agreement has been duly executed and delivered by Borrower and
constitutes the valid and binding obligations of Borrower, enforceable against
Borrower in accordance with its terms, except: (i) as limited by general
equitable principles and applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies. As of the Closing Date, each of the other Transaction
Documents will have been duly executed and delivered by Borrower and will
constitute valid and binding obligations of Borrower, enforceable against
Borrower in accordance with its terms, except: (y) as limited by general
equitable principles and applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally and (z) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.

 

(e)     Non-Contravention. The execution and delivery of this Agreement and the
other Transaction Documents and the performance by Borrower of its obligations
hereunder and thereunder does not and will not (i) violate any provision of
Borrower’s Certificate of Incorporation, Bylaws or other organizational
documents, (ii) conflict with or result in a material violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction of
any court or Governmental Authority to which Borrower is subject, or by which
any property or asset of Borrower is bound or affected, or (iii) violate,
conflict with, result in a material breach of, or constitute (with or without
notice or lapse of time or both) a material default under, or an event which
would give rise to any right of notice, modification, acceleration, payment,
cancellation or termination under, or in any manner release any party thereto
from any material obligation under any permit, agreement, instrument or contract
to which Borrower is a party or by which any of its properties or assets are
bound.

 

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(f)     Issuance of Exchange Shares. The Exchange Shares are duly authorized
and, when issued in accordance with this Agreement, will be duly and validly
issued, fully paid and nonassessable, free and clear of all liens or
encumbrances, and will not be issued in violation of, or subject to, any
preemptive or similar rights of any Person. Borrower has reserved from its duly
authorized Common Stock the Exchange Shares issuable pursuant to this Agreement.

 

(g)     Capitalization. As of the Agreement Date, the authorized, issued and
outstanding shares of Capital Stock of Borrower are as set forth on Schedule II
hereto. As of the Closing Date, taking into account all issuances of Capital
Stock pursuant to the Share Purchase Agreement, the authorized, issued and
outstanding shares of Capital Stock of Borrower will be as set forth on Schedule
II hereto. All of such outstanding shares are, validly issued, fully paid and
nonassessable. Upon payment of any required consideration therefor, all such
issuable shares, upon issuance, will be validly issued, fully paid and
nonassessable. Except as disclosed in Schedule II hereto and except as provided
in this Agreement and the Share Purchase Agreement: (A) no shares of Borrower’s
Capital Stock are subject to preemptive rights or any other similar rights or
any liens or encumbrances suffered or permitted by Borrower; (B) there are no
outstanding Options or Convertible Securities, or contracts, commitments,
understandings or arrangements by which Borrower is or may become bound to issue
additional shares of Capital Stock, Options or Convertible Securities or
commitments of any character whatsoever relating to any shares of Capital Stock,
Options or Convertible Securities; (C) there are no agreements or arrangements
under which Borrower is obligated to register the offer and/or sale of any of
its securities under the Securities Act (except the Registration Rights
Agreement); (D) there are no outstanding securities or instruments of Borrower
which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which Borrower or any of its
Affiliates is or may become bound to redeem a security of Borrower; (E) there
are no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of the Exchange Shares; and (G) Borrower
does not have any stock appreciation rights or “phantom stock” plans or
agreements or any similar plans or agreements. The Exchange Shares will
represent two percent (2%) of the Fully Diluted Shares. Borrower has furnished
to each Lender true and correct copies of Borrower’s certificate of
incorporation, as amended and as in effect on the date hereof (the “Certificate
of Incorporation”), and Borrower’s bylaws, as amended and as in effect on the
date hereof (the “Bylaws”), and the terms of all Options and Convertible
Securities (including their exercise and conversion prices).

 

(h)     SEC Reports. Borrower has filed all reports, schedules, forms,
statements and other documents required to be filed by it under the Securities
Act and Section 13(a) or 15(d) of the Exchange Act for the two years preceding
the date hereof (including, in each case, the exhibits thereto and documents
incorporated by reference therein, being collectively referred to herein as the
“SEC Reports”). As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the Exchange
Act, as applicable, and none of the SEC Reports, when filed, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.

 

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(i)     Certain Fees. No brokerage or finder’s fees or commissions are or will
be payable by Borrower or any of its Affiliates or representatives to any
broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions contemplated by
this Agreement. Lenders shall have no obligation with respect to any fees or
with respect to any claims made by or on behalf of other Persons for fees of a
type contemplated in this Section 5.02(i) that may be due in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
Borrower or any Affiliate of Borrower.

 

(j)     Exemption from Registration. No registration under the Securities Act is
required for the offer and issuance of the Exchange Shares by Borrower to
Lenders as contemplated hereby.

 

(k)     Not Investment Company. None of Borrower, any subsidiary of Borrower or
any Person controlling Borrower is (a) an “investment company,” or a company
“controlled” by an “investment company,” within the meaning of the Investment
Company Act, or otherwise registered or required to be registered, or subject to
the restrictions imposed, by the Investment Company Act.

 

(l)     Not Shell Company. Borrower is not, and never has been, a “shell
company” (as defined in Rule 12b-2 under the Exchange Act).

 

(m)     DTC Eligibility. The Common Stock is eligible for clearing through The
Depository Trust Company (“DTC”), through its Deposit/Withdrawal At Custodian
(“DWAC”) system. The transfer agent for the Common Stock is a participant in,
and the Common Stock is eligible for transfer pursuant to, DTC’s Fast Automated
Securities Transfer Program. The Common Stock is not, and, since obtaining DWAC
eligibility, has not at any time been, subject to any DTC “chill,” “freeze” or
similar restriction with respect to any DTC services, including the clearing of
transactions in shares of Common Stock through DTC.

 

(n)     OTCQB Quotation. Borrower is not in material violation of any of the
rules, regulations or requirements of the OTCQB Market, and, to Borrower’s
Knowledge, there are no facts or circumstances that could reasonably lead to
suspension or termination of trading of the Common Stock on the OTCQB Market.
Since May 5, 2017, (i) the Common Stock has been designated for quotation on the
OTCQB Market, (ii) trading in the Common Stock has not been suspended or
deregistered by the SEC or OTC Markets Group, and (iii) the Company has received
no communication, written or oral, from the SEC or OTC Markets Group regarding
the suspension or termination of trading of the Common Stock on the OTCQB
Market.

 

(o)     No Integrated Offering. Neither Borrower, nor any of its Affiliates, nor
any Person acting on its or their behalf has, directly or indirectly, has made,
or will make, any offers or sales of any security or solicited any offers to buy
any security, under circumstances that would cause this offering and issuance of
the Exchange Shares to be integrated with other offerings of securities by
Borrower for purposes of the Securities Act and which would require the
registration of any such securities under the Securities Act.

 

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(p)     Product Property. Borrower has licensed or otherwise legally controls
the right, title and interest in and to (i) the Product, (ii) Patents that Cover
the manufacture, use or sale of the Product and (iii) material data, trade
secrets, Product Know-How and other intellectual property rights used in the
research, Development and manufacture of Product.

 

(q)     Litigation. There is no action, suit, claim, proceeding or investigation
pending or, to the Knowledge of Borrower, threatened against Borrower or any
Affiliate of Borrower, at law or in equity, arbitration proceeding to which
Borrower is a party, or Governmental Authority inquiry pending or, to the
Knowledge of Borrower, threatened against Borrower or any Affiliate of Borrower,
that, if adversely determined, would (i) question or defeat the validity or
enforceability of, or Borrower’s ownership of, any Patent Covering the Product
or any Product Know-How owned by Borrower, (ii) prevent the consummation of the
transactions contemplated by this Agreement and the other Transaction Documents;
(iii) prevent the Development or commercialization of the Product or (iv)
otherwise adversely affect in any material respect any Product Assets.

 

(r)     Infringement. Neither Borrower or any Affiliate of Borrower has received
written notice from any Third Party claiming that the making, use, sale, offer
for sale and import of the Product by Borrower or any Affiliate of Borrower
infringes any patent claim of any Third Party or misappropriates or makes any
unauthorized use of any patent or intellectual property rights of any Third
Party. To the Knowledge of Borrower, the manufacture, formulation, sale or use
of the Product does not infringe any patent or other intellectual property right
of any Third Party. To the Knowledge of Borrower, no Third Party is infringing,
misappropriating or making any unauthorized use of a Patent Covering the Product
or Product Know-How. None of the Patents Covering the Product or Product
Know-How is subject to any outstanding decree, order, judgment or stipulation
restricting in any manner the use or licensing thereof by Borrower.

 

(s)     Other Agreements. Borrower has not entered into, or is currently
negotiating, any contract, agreement, commitment or undertaking that does or
could limit or restrict Borrower’s ability to Develop or commercialize the
Product or perform any of its obligations under this Agreement or any of the
other Transaction Documents.

 

(t)     Compliance with Law; Certain Regulatory Matters.

 

(i)     The Product is being and at all times has been Developed, tested,
manufactured, labeled, stored and distributed in compliance in all material
respects with all Applicable Law, including with respect to investigational use,
good clinical practices, good laboratory practices, good manufacturing
practices, record keeping, security and filing of reports, and Borrower and its
Affiliates are, and have been at all times been, otherwise in compliance with
all Applicable Law applicable to the ownership or use of any Product Asset,
except where any non-compliance with Applicable Law would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.

 

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(ii)     Other than E.U. Approval and U.S. Approval with respect to the Product,
Borrower holds all material approvals and authorizations from Governmental
Authorities reasonably necessary for Borrower to conduct its business in the
manner in which such business is being conducted with respect to the Product,
including the Development, manufacture and testing of the Product, and all such
approvals and authorizations are in good standing and in full force and effect.
Borrower has not received any notice or any other communication from any
Governmental Authority regarding any actual or possible revocation, withdrawal,
suspension, cancellation, termination or material modification of any such
approvals or authorizations.

 

(iii)     Borrower has not, with respect to the Product, knowingly made any
untrue statement of a material fact or fraudulent statement to the FDA, the EMA
or any other Governmental Authority, failed to disclose a material fact required
to be disclosed to the FDA, the EMA or other Governmental Authority, or
committed an act, made a statement or failed to make a statement, that provides
or would reasonably be expected to provide a basis for the FDA, the EMA or other
Governmental Authority to invoke the FDA’s policy respecting “Fraud, Untrue
Statements of Material Facts, Bribery, and Illegal Gratuities” set forth in 56
Fed. Reg. 46191 (September 10, 1991) (“Fraud Policy”) or any similar policy of
the EMA or any other Governmental Authority.

 

(iv)     Borrower is not, and has never been, (A) debarred by a Governmental
Authority, (B) a party to a settlement, consent or similar agreement with a
Governmental Authority regarding the Product, or (C) charged with, or convicted
of, violating Applicable Law with respect to the Product.

 

(v)     The Product has not been the subject of or subject to any recall,
suspension, market withdrawal, seizure, warning letter, or other written
communication asserting lack of compliance with any Applicable Law in any
material respect or serious adverse event. No clinical trial of the Product has
been suspended, put on hold or terminated prior to completion as a result of any
action by the FDA, the EMA or any other Governmental Authority or voluntarily.
To the Knowledge of Borrower or any Affiliate of Borrower, no event has occurred
or circumstance exists that is reasonably likely to give rise to or serve as a
basis for any of the foregoing events.

 

(vi)     Neither Borrower nor any Affiliate of Borrower has received any
material adverse written notice from the FDA, the EMA or any other Governmental
Authority regarding the approvability or approval of the Product.

 

ARTICLE VI.  

    

COVENANTS

 

Section 6.01.     Blue Sky Filings. Borrower shall take such action as is
necessary in order to obtain an exemption for, or to qualify the Exchange Shares
for, issuance and sale to Lenders under applicable securities or “Blue Sky” laws
of the states of the United States, and shall provide evidence of such actions
promptly upon request of Lenders.

 

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Section 6.02.     Record Keeping; Reporting; Audit and Other Information Rights.

 

(a)     Records. Borrower shall keep and maintain until the later of (i) ten
(10) years after the Agreement Date and (ii) the payment of each of the
Milestone Payments, accounts and records of all data reasonably required to
verify (x) any information required to be provided to Lenders under this
Agreement and (y) (A) the gross amounts invoiced or otherwise sold in respect of
the Product and (B) the calculation of cumulative Net Sales.

 

(b)     Reporting of Milestone Events. Borrower shall, within two (2) Business
Days of (i) the occurrence of any of the Milestone Events or (ii) in the case of
Milestone Events relating to Net Sales thresholds, the good faith determination
by Borrower of the achievement of such threshold within thirty (30) days
following the end of the calendar quarter in which such Milestone Event shall
occur, but in no event later than the payment of the Milestone Payment
associated with such Milestone Event, notify Lenders of each occurrence of a
Milestone Event (and, upon any Lender’s reasonable request, shall promptly
provide material documents and information related to such Milestone Event
including, in the case of Net Sales, as to the calculation thereof, with respect
to Bundled Products or otherwise), and shall make public disclosure thereof (in
the form of a widely disseminated press release or filing of a Form 8-K with the
SEC) on or prior to the notification thereof to Lenders.

 

(c)     Audit Rights. From the Agreement Date until the termination of this
Agreement, upon prior written notice to Borrower, Lenders shall have the right,
no more than once in any twelve (12) month period, to audit, through an
independent certified public accountant selected by Lenders and reasonably
acceptable to Borrower, those financial accounts and records of Borrower and any
Affiliate of Borrower (excluding Lee’s or other licensee) relating to Net Sales
of the Product as may be reasonably necessary to verify Borrower’s and any
Affiliates’ of Borrower’s compliance with Section 2.02(b) of this Agreement
(including any accounts or records of Borrower and any Affiliate of Borrower
relating to sales of the Product by any Distributors); provided, however, that
Lenders may conduct an additional “for cause” audit upon written notice to
Borrower if the final report of the independent certified public accountant on
the prior audit shows that, in respect of any audit then being reviewed, a
Milestone Payment was due and owning by Borrower, but was not timely paid within
fifteen (15) or thirty (30) days of the due date therefor as herein provided.
Such audits must occur during normal business hours, shall be concluded as
expeditiously as possible under the circumstances and shall be conducted in a
manner so as not to disrupt the ongoing operations of Borrower. Lenders shall be
solely responsible for all the expenses of any such audit, unless the
independent certified public accountant’s report shows, in respect of any period
then being reviewed, that a Milestone Payment was due and owing by Borrower, but
was not timely paid within fifteen (15) or thirty (30) days of the due date
therefor as herein provided, in which case Borrower shall be responsible for the
reasonable expenses incurred by Lenders for the independent certified public
accountant’s services. At least ten (10) Business Days prior to providing
Lenders with the final audit report, the independent certified public accountant
shall provide Borrower with a preliminary report, in order to ensure Borrower
has provided, and the independent certified public accountant has received and
properly considered, all necessary information to make its conclusion in the
final audit report. A copy of the independent certified public accountant’s
final report shall be provided to the Lenders and Borrower simultaneously. If
the final report shows that Borrower failed to make a Milestone Payment, then
Borrower will pay the amount of such Milestone Payment to Lenders within five
(5) days after receipt of the audit report (without limiting Lender’s rights and
remedies with respect to Borrower’s failure to timely make such Milestone
Payment). All accounting hereunder, including all determinations of Net Sales
(including all adjustments and deductions permitted to be made hereunder in
calculating the same), and all calculations underlying such determinations,
shall be made in accordance with GAAP as consistently applied by Borrower in the
preparation of its financial statements at the time of such payment.

 

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(d)     Information Rights. In addition to Borrower’s reporting requirements
under Section 6.02(b) and Lender’s audit rights under Section 6.02(c), Borrower
shall provide to each Lender access to view (through Borrower’s virtual document
review facility (VDR) any material documents related to, and any other
documentation, records and information related to the Development or
commercialization of the Product, as may be reasonably requested by such Lender,
provided that such Lender enters into a confidentiality agreement in customary
form with the Company (a “Confidentiality Agreement”) in connection therewith.
Notwithstanding the foregoing, Borrower shall not be obligated to provide any
materials that constitute trade secrets of Borrower or that otherwise are the
subject of a third party confidentiality agreement that prohibits such
disclosure. Each of the Lenders acknowledges and agrees that it will not create
or permit the creation of screen prints of any of Borrower’s confidential
materials and will not share the contents thereof with any persons except on a
need to know basis.

 

Section 6.03.     Disclosure; Material Non-public Information. On or before 7:00
a.m., New York time, on the Business Day after the Closing Date, Borrower shall
file one or more Current Reports on Form 8-K describing all the material terms
of the transactions contemplated by this Agreement and the other Transaction
Documents (including the consummation thereof), attaching this Agreement and the
other Transaction Documents and disclosing any other presently material
non-public information (if any) provided or made available to Lenders (or
Lenders’ agents or representatives) on or prior to the Closing Date
(collectively, the “8-K Filing”). From and after the 8-K Filing, Borrower shall
have disclosed all material, non-public information (if any) provided or made
available to Lenders (or Lenders’ agents or representatives) by Borrower or any
of its respective officers, directors, employees, Affiliates or agents in
connection with the transactions contemplated by this Agreement or the other
Transaction Documents or otherwise on or prior to the Agreement Date. In the
event that Borrower believes that a notice or communication to any such Lender
contains material non-public information relating to Borrower or any of its
Affiliates, Borrower shall so indicate to such Lender and shall not effect
delivery of such notice or communication unless such Lender expressly agrees in
writing to make such matters subject to a Confidentiality Agreement or Borrower
shall contemporaneously with delivery of such notice or communication publicly
discloses such material non-public information (provided, for the avoidance of
doubt, that the foregoing shall not affect Borrower’s filing and public
disclosure obligations under Section 6.02(b), the first sentence of this Section
6.03 and Section 6.05). In the absence of any such indication, such Lender shall
be allowed to presume that all matters relating to such notice or communication
do not constitute material non-public information relating to Borrower or any of
its Affiliates. In the event of a breach of the covenants set forth in this
Section 6.03 by Borrower or any of its Affiliates, agents, advisors, attorneys
or other representatives acting on Borrower’s behalf, in addition to, and
without limiting, any other remedy provided herein or in the other Transaction
Documents, and notwithstanding anything to the contrary contained herein, a
Lender shall have the right to make a public disclosure, in the form of a press
release, public advertisement or otherwise, of material non-public information
disclosed to such Lender in violation of this Section 6.03 without the prior
approval of any of Borrower or any of its Affiliates, agents, advisors,
attorneys or representatives; provided that, in the event of a breach of this
Section 6.03 by Borrower, such Lender shall first provide Borrower with an
opportunity to make immediate public disclosure of such information in lieu of
such Lender making public disclosure of such information in accordance with this
Section 6.03. No Lender shall have any liability to Borrower or any of its
Affiliates, officers, directors, employees, stockholders, agents, advisors,
attorneys or other representatives for any public disclosure made in accordance
with this Section 6.03. Notwithstanding anything contained in this Agreement to
the contrary and without implication that the contrary would otherwise be true,
after giving effect to the 8-K Filing, Borrower expressly acknowledges and
agrees that no Lender shall have (unless expressly agreed to by such Lender
after the date hereof in a Confidentiality Agreement) any duty of trust or
confidence with respect to, or a duty not to trade on the basis of, any
information regarding Borrower that such Lender has received from Borrower or
any of its Affiliates, agents, advisors, attorneys or other representatives
acting on Borrower’s behalf.

 

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Section 6.04.     Legends.

 

(a)     Restrictive Legend. Each Lender understands that until such time as the
resale of the Exchange Shares has been registered under the Securities Act as
contemplated by the Registration Rights Agreement or the Exchange Shares
otherwise may be sold pursuant to Rule 144 under the Securities Act or an
exemption from registration under the Securities Act without any restriction as
to the number of securities as of a particular date that can then be immediately
sold, the Exchange Shares may bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of the
certificates for such securities):

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, OR APPLICABLE STATE SECURITIES LAWS. THESE
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER SAID ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SAID ACT INCLUDING, WITHOUT LIMITATION, PURSUANT TO RULE 144 UNDER SAID
ACT OR PURSUANT TO A PRIVATE SALE EFFECTED UNDER SECTION 4(a)(7) OF THE
SECURITIES ACT OR APPLICABLE FORMAL OR INFORMAL SEC INTERPRETATION OR GUIDANCE,
SUCH AS A SO-CALLED “4[(a)](1) AND A HALF SALE.” NOTWITHSTANDING THE FOREGOING,
THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

 

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(b)     Removal of Restrictive Legends. The certificates evidencing the Exchange
Shares shall not contain any legend restricting the transfer thereof (including
the legend set forth above in Subsection 6.04(a)): (A) while a registration
statement covering the resale of such Exchange Shares by the Lender is effective
under the Securities Act, or (B) following any sale of such Exchange Shares
pursuant to Rule 144, or (C) if such Exchange Shares are eligible for sale under
rule 144(b)(1) (collectively, the “Unrestricted Conditions”). Each Lender agrees
that the removal of the restrictive legend from the Exchange Shares in
accordance with the immediately preceding sentence is predicated upon Borrower’s
reliance that (i) such Lender will dispose of such Exchange Shares pursuant to
either the registration requirements of the Securities Act, including any
applicable prospectus delivery requirements, or an exemption therefrom, and that
if such Exchange Shares are sold pursuant to a registration statement, they will
be sold in compliance with the plan of distribution set forth therein. Borrower
agrees that, following the Effective Date or at such time as any of the
Unrestricted Conditions are otherwise met or such legend is otherwise no longer
required under this Section 7.03, it will, no later than two (2) Trading Days
following the delivery by any Lender to Borrower or the transfer agent for the
Common Stock of any certificate representing Exchange Shares, as applicable,
issued with a restrictive legend, deliver or cause to be delivered the Exchange
Shares to such Lender’s or its designee’s balance account with DTC through its
DWAC system, free from all restrictive and other legends and stop transfer
instructions. For purposes hereof, “Effective Date” shall mean the date that the
first registration statement that Borrower is required to file pursuant to the
Registration Rights Agreement has been declared effective by the SEC.

 

Section 6.05.     Public Filings. During the period commencing on the Agreement
Date and ending on the later of (a) the first (1st) anniversary of the Closing
Date and (b) the first date on which the Lenders collectively hold no more than
ten percent (10%) of the Exchange Shares, but in no event later than the third
(3rd) anniversary of the Closing Date, Borrower shall (a) timely file all
reports required to be filed with the SEC pursuant to the Exchange Act, (b) not
terminate the registration of the Common Stock under the Exchange Act or
otherwise terminate its status as an issuer required to file reports under the
Exchange Act, even if the securities laws would otherwise permit any such
termination, and (c) take all commercially reasonable actions necessary to cause
the Common Shares to remain at all times quoted on the OTCQB Market or listed on
a U.S. national securities exchange.

 

Section 6.06.     Material Contracts. Borrower shall observe and perform, and to
cause its Affiliates to observe and perform, all of the conditions and
obligations to be observed and performed by Borrower or any Affiliate of
Borrower under any material contract, license or other agreement relating to the
Product, all in accordance with the terms and conditions thereof.

 

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Section 6.07.     Compliance with Laws.

 

(a)     Borrower shall (and shall cause the other Responsible Parties to) at all
times comply in all material respects with Applicable Law applicable to the
ownership or use of any Product Assets, (ii) the Development, manufacture,
marketing, sale of other commercialization of the Product, or (iii) the
performance of Borrower’s obligations under this Agreement and the other
Transaction Documents.

 

(b)     Borrower shall (and shall cause the other Responsible Parties to)
maintain all material approvals and authorizations from Governmental Authorities
reasonably necessary for Borrower to conduct its business in the manner in which
such business is being conducted with respect to the Product, including the
Development, manufacture and testing of the Product.

 

(c)     Borrower shall not (and shall cause the other Responsible Parties to
not), with respect to the Product, knowingly make any untrue statement of a
material fact or fraudulent statement to the FDA, the EMA or any other
Governmental Authority, fail to disclose a material fact required to be
disclosed to the FDA, the EMA or other Governmental Authority, or commit an act,
make a statement or fail to make a statement, that provides or would reasonably
be expected to provide a basis for the FDA, the EMA or other Governmental
Authority to invoke the Fraud Policy or any similar policy of the EMA or any
other Governmental Authority.

 

(d)     Borrower shall (and shall cause the other Responsible Parties to)
Develop, test, manufacture, label, store and distribute the Product in
compliance in all material respects with all Applicable Laws, including with
respect to investigational use, good clinical practices, good laboratory
practices, good manufacturing practices, record keeping, security and filing of
reports.

 

Section 6.08.     No Disposition of Rights. Borrower shall not encumber, sell,
assign, transfer, license, sublicense, deliver, or otherwise dispose of all or
any of Borrower’s or any Affiliate’s right, title, or interest in or to any
Product Assets that are material to the manufacture, Development or
commercialization of the Product if such disposition would prevent, or
otherwise, materially impair or delay Borrower in the performance of any of its
obligations under this Agreement or the achievement of any of the Milestone
Events.

 

Section 6.09.     IP Obligations. Borrower shall use (and shall cause the other
Responsible Parties to use) commercially reasonable efforts to:

 

(a)     prosecute and maintain in full force and effect the Patents Covering the
Product that are material to the performance of its obligations under this
Agreement and that are owned or controlled by it on or after the Agreement Date;

 

(b)     maintain, keep in full force and effect and seek available patent term
extensions for any such Patents Covering the Product that are material to the
performance of its obligations under this Agreement and that are owned or
controlled by it on or after the Agreement Date;

 

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(c)     maintain, enforce and protect the Product IP Rights; and

 

(d)     maintain all material Product Know-How in confidence.

 

Section 6.10.     Taxes. Borrower shall be responsible for timely paying all
present or future stamp, court or documentary, intangible, recording, filing or
similar taxes that arise from any payment or issuance made under, from the
execution, delivery, performance or enforcement of, or otherwise with respect
to, this Agreement, including the issuance of the Exchange Shares to the
Lenders.

 

Section 6.11.     Efforts. Subject to the terms and conditions of this
Agreement, each of Borrower and each Lender agrees to use commercially
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective, as soon as practicable after the Agreement Date, the
transactions contemplated hereby and by the other Transaction Documents,
including using commercially reasonable efforts to satisfy the conditions to
closing set forth in Article VII.

 

Section 6.12.     Termination of Facility Agreement, Notes, and Security
Interests.  Borrower and each Lender agree, upon the reasonable request of the
other such party, at any time and from time to time after the Closing, to
promptly execute and deliver all such further documents (including, without
limitation, lien releases, Uniform Commercial Code termination statements and
other similar documents, instruments and agreements), and to promptly take all
such other action, as may be reasonably necessary or appropriate in order to
carry out the purposes of terminating the Facility Agreement and the Notes,
including without limitation the discharge and release of all liens thereunder.
In furtherance of the foregoing, subject to the terms and conditions hereof,
including receipt of the Cash Payment and Exchange Shares at the Closing,
effective on the Closing Date, each Lender hereby irrevocably authorizes
Borrower, its successors and assigns, and their respective counsel, agents and
designees to file or record lien releases, Uniform Commercial Code termination
statements and such other documents, instruments and agreements, in any
jurisdiction, as Borrower may deem necessary or appropriate to effectuate,
evidence or reflect the satisfaction, release and discharge of any and all liens
arising under or in connection with the Facility Agreement and the Notes.

 

ARTICLE VII.      

 

CONDITIONS PRECEDENT.

 

Section 7.01.     Conditions to Borrower’s Obligation. The obligation of
Borrower to consummate the Exchange with each Lender is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for Borrower’s sole benefit and
may be waived by Borrower at any time in its sole discretion by providing each
Lender with prior written notice thereof:

 

(a)     The representations and warranties of such Lender contained in Section
5.01 herein shall be true and correct in all material respects as of the date
when made and as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date, which shall be
true and correct as of such date), and such Lender shall have performed,
satisfied and complied with the covenants, agreements and conditions required by
the Transaction Documents to be performed, satisfied or complied with by such
Lender on or prior to the Closing Date; and

 

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(b)     The Lenders shall have delivered to Borrower at Closing the Registration
Rights Agreement, duly executed by the Lenders;

 

Section 7.02.     Conditions to Lenders’ Obligation. The obligation of each
Lender to consummate the Exchange is subject to the satisfaction, at or before
the Closing Date, of each of the following conditions, provided that these
conditions are for such Lender’s sole benefit and may be waived by such Lender
at any time in its sole discretion by providing Borrower with prior written
notice thereof:

 

(a)     The representations and warranties of Borrower contained in Section 5.02
herein shall be true and correct in all material respects as of the date when
made and as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date, which shall be
true and correct as of such date), Borrower shall have performed, satisfied and
complied with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by Borrower on
or prior to the Closing Date, and such Lender shall have received an officer’s
certificate, executed by the President and Chief Executive Officer of Borrower,
dated the Closing Date, to the foregoing effect and as to such other matters as
may be reasonably requested by such Lender;

 

(b)     Borrower shall have delivered to Lenders at Closing the deliverables set
forth in Section 2.04(a);

 

(c)     Borrower and Lee’s shall contemporaneously consummate the transactions
contemplated by the Share Purchase Agreement and Borrower shall
contemporaneously receive the Share Purchase Consideration;

 

(d)     No stock split, stock dividend, stock combination, recapitalization or
similar event of Borrower or its Capital Stock, and no liquidation, dissolution
or similar event of Borrower shall have been effected or authorized during the
period commencing on (and including) the Agreement Date and ending at (and
including) the Closing Date; and

 

(e)     Borrower shall have paid all interest and other amounts due under the
Facility Agreement through the Closing Date.

 

ARTICLE VIII.      

 

MISCELLANEOUS

 

Section 8.01.     Entire Agreement. This Agreement (including the exhibits and
schedules hereto) and the other Transaction Documents constitute the entire
agreement, and supersede all other prior and contemporaneous agreements and
understandings, both oral and written, among Lenders and Borrower with respect
to the subject matter hereof.

 

Section 8.02.     Amendments and Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed by the parties hereto.
No waiver of any default with respect to any provision, condition or requirement
of this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any subsequent default or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of either party to
exercise any right hereunder in any manner impair the exercise of any such
right.

 

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Section 8.03.     Successors and Assigns. Neither this Agreement nor any rights
or obligations hereunder may be assigned in whole or in part by any party
hereto, by operation of law or otherwise, without the prior written consent of
the other parties hereto; provided, however, that (a) the parties acknowledge
that DPDI II has assigned certain rights as provided in Section 2.02(b), and (b)
after the Closing, without the prior written consent of Borrower, but on [ ]
days prior written notice to Borrower, each of the Lenders and DPDI Financing
II, respectively, may assign, sell, pledge, contribute or otherwise transfer, in
whole or in part, any of such Person’s rights hereunder to any Person, other
than a Person that is engaged in (a) the business of developing, manufacturing,
importing or exporting, marketing or distributing or selling any product for (i)
the prevention and/or treatment of respiratory distress syndrome (“RDS”) in
premature infants, or diseases and conditions (other than RDS) in humans, in
either case, that administers, utilizes or contains pulmonary surfactant, or (b)
the development of (1) surfactants for research purposes, (2) any device or
system (including related methods and processes) using, based on, or similar to
(x) Borrower’s capillary generation technology or (y) Borrower's aerosolized
pulmonary surfactant delivery system; or a controlled Affiliate of any such
Person (any such Person or controlled Affiliate, a “Competitor of Borrower”);
provided, however, that no Person (nor an Affiliate thereof) shall be deemed a
Competitor of Borrower if such Person engages in such business or development,
or owns equity interests in a Person that engages in such business or
development, as part of (A) a brokerage, insurance business, pension fund (or
other benefit fund), or investment banking, investment management, investment
advisory or private equity vehicle or enterprise or (B) a non-profit research or
non-profit vehicle or enterprise; and each of the Lenders and DPDI Financing II
may assign, sell, pledge, contribute or otherwise transfer, in whole or in part,
its rights to receive Milestone Payments under Section 2.02(b) to any Person,
including a Competitor of Borrower (or an Affiliate thereof).

 

Section 8.04.     This Agreement shall be binding upon, and subject to the terms
of the foregoing sentence, inure to the benefit of the parties hereto, their
permitted successors, legal representatives and assigns. Any assignment or
attempted assignment not in accordance with this Section 8.03 shall be null and
void.

 

Section 8.05.     Notices. Any notices required or permitted to be given under
the terms hereof shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile or by electronic mail and shall be
effective five (5) days after being placed in the mail, if mailed by regular
United States mail, or upon receipt, if delivered personally or by courier
(including a recognized overnight delivery service) or by facsimile, or when
received by electronic mail in each case addressed to a party as follows (or
such other address, facsimile or electronic mail address provided by such party
to such other parties pursuant to the below (or such later address, facsimile or
electronic mail address provided in accordance herewith):

 

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If to Borrower:

 

Windtree Therapeutics, Inc.

2600 Kelly Road

Suite 100

Warrington, PA 18976-3622

Facsimile: 215-488-9557

Attn: John Tattory, Senior Vice President and Chief Financial Officer

E-mail: jtattory@windtreetx.com

Attn: Mary B. Templeton, Senior Vice President and General Counsel

E-mail: mtempleton@windtreetx.com

With a copy (which shall not constitute notice) to:

 

Dentons US LLP

1221 Avenue of the Americas

New York, NY 10020-1089

Attention:     Ira L. Kotel

Telephone:     (212) 398-5787

Facsimile:     (212) 768-6800

Email:      ira.kotel@dentons.com

 

If to any Lender of DPDI Financing II:

 

c/o Deerfield Management Company, L.P.

780 Third Avenue, 37th Floor

New York, NY 10017

Facsimile: 212-599-3075

E-mail: dclark@deerfield.com

Attn: David J. Clark, Esq.

 

With a copy (which shall not constitute notice) to:

 

Katten Muchin Rosenman LLP

575 Madison Avenue

New York, NY 10022-2585

Facsimile: 212-894-5877

E-mail: mark.fisher@kattenlaw.com and mark.wood@kattenlaw.com

Attn: Mark I. Fisher, Esq.

Attn: Mark D. Wood, Esq.

 

Section 8.06.     Applicable Law; Consent to Jurisdiction.

 

(a)     As part of the consideration and mutual promises being exchanged and
given in connection with this Agreement, the parties hereto agree that all
claims, controversies and disputes of any kind or nature arising under or
relating in any way to the enforcement or interpretation of this Agreement or to
the parties’ dealings, rights or obligations in connection herewith, including
disputes relating to the negotiations for, inducements to enter into, or
execution of, this Agreement, and disputes concerning the interpretation,
enforceability, performance, breach, termination or validity of all or any
portion of this Agreement shall be governed by the laws of the State of New York
without regard to its choice or conflicts of laws principles.

 

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(b)     The parties hereto agree to submit to the exclusive jurisdiction of the
commercial division, New York State Supreme Court, or the federal courts, in
each case sitting in the City of New York, borough of Manhattan (and, in each
case, the applicable state and federal appeals courts sitting in the City of New
York or, if not available or applicable, the State of New York), which shall
hear any dispute, claim or controversy arising in connection with or related to
this Agreement, including the validity, breach, enforcement or termination
hereof. With respect to any such disputes, claims or controversies, each of the
parties hereby irrevocably:

 

(i)     submits itself and its property, generally and unconditionally, to the
personal jurisdiction of the aforesaid courts and agrees that it will not bring
any action in any court or tribunal other than the aforesaid courts;

 

(ii)     waives, and agrees not to assert, by way of motion, as a defense,
counterclaim or otherwise, in any action or proceeding (A) any claim that it is
not personally subject to the jurisdiction of the above named court for any
reason other than the failure to serve process in accordance with this Section
8.05, (B) any claim that it or its property is exempt or immune from
jurisdiction of any such court or from any legal process commenced in any such
court (whether through service of notice, attachment prior to judgment,
attachment in aid of execution of judgment, execution of judgment or otherwise)
and (C) to the fullest extent permitted by the applicable law, any claim that
(1) the suit, action or proceeding in any such court is brought in an
inconvenient forum, (2) the venue of such suit, action or proceeding is improper
or (3) this Agreement, or the subject matter hereof, may not be enforced in or
by any such court; and

 

(iii)     WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT. EACH PARTY TO THIS AGREEMENT CERTIFIES AND
ACKNOWLEDGES THAT (I) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE
FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (II) SUCH PARTY HAS CONSIDERED
THE IMPLICATIONS OF THIS WAIVER, (III) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY
AND (IV) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 8.05.

 

(iv)     Notwithstanding the foregoing in this Section 8.05, a party may
commence any action or proceeding in a court other than the above-named courts
solely for the purpose of enforcing an order or judgment issued by one of the
above-named courts.

 

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Section 8.07.     Counterparts; Effectiveness. This Agreement and any amendment
hereto may be executed and delivered in any number of counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original, but all of which taken together shall
constitute one and the same agreement. In the event that any signature to this
Agreement or any amendment hereto is delivered by facsimile transmission or by
e-mail delivery of a “.pdf” format data file, such signature shall create a
valid and binding obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such facsimile or
“.pdf” signature page were an original thereof. No party hereto shall raise the
use of a facsimile machine or e-mail delivery of a “.pdf” format data file to
deliver a signature to this Agreement or any amendment hereto or the fact that
such signature was transmitted or communicated through the use of a facsimile
machine or e-mail delivery of a “.pdf” format data file as a defense to the
formation or enforceability of a contract, and each party hereto forever waives
any such defense.

 

Section 8.08.     No Third Party Beneficiaries. Nothing in this Agreement,
express or implied, is intended to or shall confer upon the Person (other than
the parties to this Agreement) any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement, except as provided in Section
8.09.

 

Section 8.09.     Specific Performance. The parties to this Agreement agree that
irreparable damage would occur and that the parties to this Agreement would not
have any adequate remedy at law in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties to this Agreement
shall be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions of this
Agreement, in each case without the necessity of posting bond or other security
or showing actual damages, and this being in addition to any other remedy to
which they are entitled at law or in equity.

 

Section 8.10.     Indemnification. Borrower hereby agree to indemnify, defend,
hold harmless and reimburse each Lender and its Affiliates, and their respective
managers, directors, officers, employees, agents and its and their respective
successors, heirs and assigns, from and against any losses, costs, claims,
damages, liabilities or expenses (including reasonable attorneys’ and
professional fees and other expenses of litigation) arising out of claims,
suits, actions or demands, in each case brought by a Third Party, or settlements
or judgments arising therefrom (including personal injury, products liability
and intellectual property infringement or misappropriation claims) as a result
or arising out of (i) any Responsible Party’s or its or agent’s or contractor’s
development, promotion, marketing, handling, manufacture, packaging, labeling,
storage, distribution, pricing, reimbursement, transport, use, sale or other
disposition of the Product; (ii) any breach by Borrower of a representation or
warranty of Borrower contained in this Agreement; (iii) any breach by Borrower
of any covenant, agreement or obligation of Borrower contained in this
Agreement; (iv) any Responsible Party’s failure to comply with Applicable Law in
the performance of its obligations related to the Product; or (v) any negligence
or willful misconduct by a Responsible Party or the directors, officers,
employees or agents of any Responsible Party in the performance of its or their
obligations related to the Product; provided, however, that Borrower shall have
no obligation to indemnify any Lender for any losses, costs, claims, damages,
liabilities or expenses (including reasonable attorneys’ and professional fees
and other expenses of litigation) which are finally judicially determined by a
court of competent jurisdiction to have resulted primarily from Lenders’ willful
misconduct, negligence or material breach of this Agreement or a Confidentiality
Agreement.

 

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Section 8.11.     Effect of Headings. The section and subsection headings herein
are for convenience only and not part of this Agreement and shall not affect the
interpretation thereof.

 

Section 8.12.     Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
Applicable Law, but if any provision of this Agreement is held to be prohibited
by or invalid under Applicable Law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement so long as this Agreement as so modified continues to express,
without material change, the original intentions of the parties as to the
subject matter hereof and the prohibited nature, invalidity or unenforceability
of the provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).

 

Section 8.13.     Further Assurances. Borrower and Lenders hereby agree, from
time to time, as and when requested by another party, to execute and deliver or
cause to be executed and delivered, all such documents, instruments and
agreements, including secretary’s certificates, stock powers and transfer agent
instructions, and to take or cause to be taken such further or other action, as
such party may reasonably deem necessary or desirable in order to carry out the
intent and purposes of this Agreement.

 

Section 8.14.     No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rule of strict construction will be applied against any party.

 

Section 8.15.     Interpretative Matters. Unless otherwise indicated or the
context otherwise requires, (i) all references to Sections, Schedules or
Exhibits are to Sections, Schedules, Appendices or Exhibits contained in or
attached to this Agreement, (b) words in the singular or plural include the
singular and plural and pronouns stated in either the masculine, the feminine or
neuter gender shall include the masculine, feminine and neuter, (c) the words
“hereof,” “herein” and words of similar effect shall reference this Agreement in
its entirety, and (d) the use of the word “including” in this Agreement shall be
by way of example rather than limitation.

 

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IN WITNESS WHEREOF, each party hereto has caused this Exchange and Termination
Agreement to be duly executed as of the date first written above.

 

 

BORROWER:

 

WINDTREE THERAPEUTICS, INC.

 

By:/s/ Craig Fraser

 

Name: Craig Fraser

 

Title: President and Chief Executive Officer

 

 

DEERFIELD PRIVATE DESIGN FUND II, L.P.

 

By: Deerfield Mgmt, L.P., its General Partner

 

By: J.E. Flynn Capital, LLC, its General Partner

 

By:/s/ David J. Clark

 

Name: David J. Clark

 

Title: Authorized Signatory

 

 

DEERFIELD PRIVATE DESIGN INTERNATIONAL II, L.P.

 

By: Deerfield Mgmt, L.P., its General Partner

 

By: J.E. Flynn Capital, LLC, its General Partner

 

By:/s/ David J. Clark

 

Name: David J. Clark, Authorized Signatory

 

 

DEERFIELD SPECIAL SITUATIONS FUND, L.P.

 

By: Deerfield Mgmt, L.P., its General Partner

 

By: J.E. Flynn Capital, LLC, its General Partner

 

By:/s/ David J. Clark

 

Name: David J. Clark

 

Title: Authorized Signatory

 

DEERFIELD PDI FINANCING II, L.P.

By:     Deerfield Mgmt, L.P., its General Partner

By:     J.E. Flynn Capital, LLC, its General Partner

 By:/s/ David J. Clark

 Name: David J. Clark

 Title: Authorized Signatory

 

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SCHEDULE I

 

LENDERS’ PRO RATA SHARES

 

 

 

 

 

Outstanding Indebtedness

 

Pro Rata Share

 

Cash
Payment

 

Exchange Shares

 

2019 Warrants

 

 

Deerfield Special Situations Fund, L.P.

 

$ 3,750,000

 

15.00%

 

$ 375,000

 

  213,338 

 

        75,000

 

 

Deerfield Private Design Fund II, L.P.

 

      9,902,500

 

39.61%

 

         990,250 

 

  563,353 

 

      198,050

 

 

Deerfield Private Design International II, L.P.

 

    11,347,500

 

45.39%

 

  1,134,750

 

 645,559 

 

      226,950

 

 

Total

 

$  25,000,000

 

100.00%

 

$  2,500,000

 

   1,422,250 

 

      500,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

       

 

 

 

 

 

 

 

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SCHEDULE II

 

CAPITALIZATION

 

 

 

Conversion and Exercise Price

 

Expiration

Date

 

Agreement Date

 

Closing

Date

Authorized Shares

 

 

 

 

Preferred Stock

 

 

5,000,000

5,000,000

Common Stock

 

 

120,000,000

120,000,000

Outstanding Shares and Derivatives

 

 

 

 

Series A Preferred Stock, as converted*

 

 

3,203,000

3,203,000

Common Stock

 

 

15,559,638

63,213,973

Prefunded Warrants

 

 

892,857

892,857

Warrants

 

 

 

 

2017 February Financing (Series A-1)

$ 1.37

02/15/24

7,049,000

7,049,000

2015 July Financing (Series A & Series B)

$ 9.80

07/22/22

4,791,667

4,791,667

2014 Battelle Collaboration Agreement

$ 70.00

10/10/24

71,429

71,429

2013 February Deerfield Loan

$ 39.34

02/13/19

167,143

-

2013 December Deerfield Loan

$ 39.34

02/13/19

332,857 

-

Employee Options

       

February 2017 grant

$ 1.23

03/01/27

677,000

677,000

August 2016 BOD grant

$ 1.84

08/04/26

60,000

60,000

July 2016 grant

$ 1.77

07/28/26

209,017

209,017

February 2016 grant

$ 2.33

02/02/26

163,149

163,149

Fraser Inducement

$ 2.33

02/02/26

204,863

204,863

Miscellaneous new hire grants 2015-2016

$ 1.78 – 

 $ 6.86

08/03/25 - 07/25/26

18,471

18,471

Other

 > $16

08/14/25

373,649

373,649

 

 

Grant Price

 

Vesting

Date

 

Agreement Date

 

Closing

Date

Employee RSUs

       

Executive RSUs

$ 0.2163

3/15/2018

3/15/2019

3,799,635

3,799,635

Fully Diluted Equity Capitalization

 

 

37,573,375

84,727,710

Treasury Stock

 

 

1,492

1,492

 

 

 

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EXHIBIT A

 

REGISTRATION RIGHTS AGREEMENT