Document:

Exhibit 4.1

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (I) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II) AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.

 

AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. HOLDERS MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS INVOLVED.

 

Warrant to Purchase

	
___________ shares

	
Warrant Number ______

Warrant to Purchase Common Stock

of

 Discovery Laboratories, Inc.

 

THIS CERTIFIES that ____________ or any subsequent holder hereof (“Holder”) has the right to purchase from Discovery Laboratories, Inc., a Delaware corporation, (the “Company”), ________ (______) fully paid and nonassessable shares of the Company’s common stock, $0.001 par value per share (“Common Stock”), subject to adjustment as provided herein, at a price equal to the Exercise Price as defined in Section 3 below, at any time during the Term (as defined below).

 

Holder agrees with the Company that this Warrant to Purchase Common Stock of the Company (this “Warrant” or this “Agreement”) is issued and all rights hereunder shall be held subject to all of the conditions, limitations and provisions set forth herein.

 

1.  Date of Issuance and Term.

 

This Warrant shall be deemed to be issued on December 3, 2013 (“Date of Issuance”). The term of this Warrant begins on the Date of Issuance and ends at 5:00 p.m., New York City time, on February 13, 2019 (the “Term”). This Warrant was issued in conjunction with that certain Facility Agreement (the “Facility Agreement”) and the Registration Rights Agreement (“Registration Rights Agreement”) by and between the Company, Deerfield Special Situations Fund, L.P., Deerfield Special Situations International Master Fund, L.P., Deerfield Private Design Fund II, L.P. and Deerfield Private Design International II, L.P., each dated February 13, 2013, entered into in conjunction herewith.

 

Notwithstanding anything herein to the contrary, the Company shall not issue to the Holder, and the Holder may not acquire, a number of shares of Common Stock upon exercise of this Warrant to the extent that, upon such exercise, the number of shares of Common Stock then beneficially owned by the Holder and its Affiliates and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (including shares held by any “group” of which the Holder is a member, but excluding shares beneficially owned by virtue of the ownership of securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein) would exceed 9.985% of the total number of shares of Common Stock then issued and outstanding (the “9.985% Cap”), provided, however, that the 9.985% Cap shall not apply with respect to the issuance of shares of Common Stock pursuant to a Cashless Major Exercise (as defined below) in connection with a Major Transaction (as defined below) covered by the provisions of Section 5(c)(i)(A)(1) below in which the Company is not the surviving entity (a “Qualified Change of Control Transaction”) to the extent that the number of shares beneficially owned by the Holder and its Affiliates in the successor entity immediately following consummation of such Qualified Change of Control Transaction does not exceed 9.985% of the outstanding common stock of such successor entity and provided, further, that the 9.985% Cap shall only apply to the extent that the Common Stock is deemed to constitute an “equity security” pursuant to Rule 13d-1(i) promulgated under the Exchange Act.  For purposes hereof, “group” has the meaning set forth in Section 13(d) of the Exchange Act and applicable regulations of the Securities and Exchange Commission (the “SEC”), and the percentage held by the Holder shall be determined in a manner consistent with the provisions of Section 13(d) of the Exchange Act. Upon the written request of the Holder, the Company shall, within two (2) Trading Days, confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  Each delivery of an Exercise Form by the Holder will constitute a representation by the Holder that it has evaluated the limitation set forth in this paragraph and determined, based on the most recent public filings by the Company with the SEC (or any differing information received from the Company in accordance with the immediately preceding sentence), that the issuance of the full number of shares of Common Stock requested in such Exercise Form is permitted under this paragraph.

Further, notwithstanding anything to the contrary, the Company shall not issue pursuant to this Warrant and any other Warrants or other securities of the Company issued pursuant to the Facility Agreement, and the Holder shall have no right to acquire pursuant to this Warrant and any other Warrants or other securities of the Company issued pursuant to the Facility Agreement, any shares of Common Stock upon exercise and/or conversion of this Warrant and any other Warrants or other securities of the Company issued pursuant to the Facility Agreement, that would in the aggregate exceed 8,500,000 shares of Common Stock (which amount shall be adjusted from time to time as provided in Section 5(b)); and, provided further, that the foregoing limitation shall not be construed to require any other issuance or other payment, distribution or otherwise by the Company of any additional securities, payments or otherwise.

 

“Affiliate” means any person or entity that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a person or entity, as such terms are used in and construed under Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”). With respect to a Holder of Warrants, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Holder will be deemed to be an Affiliate of such Holder.

 

“Business Day” means any day on which both (a) the Common Stock is traded for at least two hours on NASDAQ, or on the principal securities exchange or other securities market on which the Common Stock is then being traded and (b) the Transfer Agent is open for business.

 

“Holder” means ______ and any transferee or assignee pursuant to the terms of this Warrant.

 

“Initial Holder” means [_____________].

 

2.  Exercise.

 

(a)  Manner of Exercise. Beginning on December 3, 2013 (the “Regular Exercise Date”) and during the remainder of the Term, this Warrant may be Exercised as to all or any lesser number of whole shares of Common Stock covered hereby (the “Warrant Shares” or the “Shares”) upon surrender of this Warrant, with the Exercise Form attached hereto as Exhibit A (the “Exercise Form”) duly completed and executed, together with the full Exercise Price (as defined below, which may be satisfied by a Cash Exercise or a Cashless Exercise, as each is defined below) for each share of Common Stock as to which this Warrant is Exercised, at the office of the Company, 2600 Kelly Road, Suite 100, Warrington, PA 18976, Phone: (215) 488-9300, Fax: (215) 488-9421, electronic mail (DF_Warrant@discoverylabs.com) or at such other office or agency as the Company may designate in writing, by overnight mail, with an advance copy of the Exercise Form sent to the Company by facsimile or electronic mail (such surrender and payment of the Exercise Price hereinafter called the “Exercise” of this Warrant); provided, however, that this Warrant may be Exercised prior to the Regular Exercise Date as a Cashless Major Exercise or a Cashless Default Exercise in connection with a Major Transaction or an Event of Default, as the case may be.

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(b)  Date of Exercise. The “Date of Exercise” of the Warrant shall be defined as the date that the Exercise Form attached hereto as Exhibit A, duly completed and executed, is received by facsimile or electronic mail by the Company, provided that the original Exercise Form is received by the Company and the Exercise Price is satisfied, each as soon as practicable thereafter but in any event no later than the close of business on the second Business Day thereafter. Alternatively, if Holder has not sent advance notice by facsimile or electronic mail, the Date of Exercise shall be defined as the date the original Exercise Form is received by the Company, provided that the Exercise Price is satisfied no later than the close of business on the second Business Day thereafter.  Upon delivery of the Exercise Form to the Company by facsimile, electronic mail or otherwise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been Exercised, irrespective of the date such Warrant Shares are credited to the Holder’s Depository Trust Company (“DTC”) account; provided, however, that (i) in the event of a Cashless Major Exercise in respect of a Qualified Change of Control Transaction, the Holder shall be deemed to have become the holder of record of the shares issuable upon such exercise immediately prior to the consummation of such Qualified Change of Control Transaction, (ii) in the event of a Cashless Major Exercise triggered by an event set forth in Section 5(c)(i)(E), the Holder shall be deemed to have become the holder of record of the shares issuable upon such exercise immediately following the occurrence of the Major Transaction and (iii) in the event that the Exercise Price is not satisfied by no later than the second Business Day following the delivery of the Exercise Form, as described above, the Holder shall not be deemed to have become a holder of record of such Warrant Shares until such time as the Exercise Price is received by the Company.  The Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case the Holder shall surrender this Warrant to the Company for cancellation within two (2) Business Days of the date the final Exercise Form is delivered to the Company. Execution and delivery of an Exercise Form with respect to a partial Exercise shall have the same effect as cancellation of the original Warrant and issuance of a New Warrant evidencing the right to purchase the remaining number of Warrant Shares.

 

(c)  Delivery of Common Stock Upon Exercise. Within three (3) Business Days after any Date of Exercise (but, in the case of a Cash Exercise, within two (2) Business Days following the Company’s receipt of the full Exercise Price, if later), or in the case of a Cashless Major Exercise or a Cashless Default Exercise (each as defined in Section 5(c) below), within the period provided in Section 5(c)(iii) or Section 3(c), as applicable (the “Delivery Period”), the Company shall issue and deliver (or cause its transfer agent (the “Transfer Agent”) to issue and deliver) in accordance with the terms hereof to or upon the order of the Holder that number of shares of Common Stock (“Exercise Shares”) for the portion of this Warrant converted as shall be determined in accordance herewith. Upon the Exercise of this Warrant or any part hereof, the Company shall, at its own cost and expense, take all necessary action, including obtaining and delivering an opinion of counsel, to assure that the Transfer Agent shall issue stock certificates in the name of Holder (or its nominee) or such other persons as designated by Holder and in such denominations to be specified at Exercise representing the number of shares of Common Stock issuable upon such Exercise. The Company warrants that no instructions other than these instructions have been or will be given to the Transfer Agent and that, unless waived by the Holder, this Warrant and the Exercise Shares will be free-trading, and freely transferable, and will not contain a legend restricting the resale or transferability of the Exercise Shares if the Unrestricted Conditions (as defined below) are met.

 

(d)  Delivery Failure. In addition to any other remedies which may be available to the Holder, in the event that the Company fails for any reason to effect delivery of the Exercise Shares by the end of the Delivery Period (a “Delivery Failure”), the Holder will be entitled, by notice to the Company made by electronic mail or facsimile prior to receipt by the Holder of the Exercise Shares,  to revoke all or part of the relevant Exercise Form by delivery of a notice to such effect to the Company whereupon the Company and the Holder shall each be restored to their respective positions immediately prior to the delivery of such notice, except that the liquidated damages described herein shall be payable through the date notice of revocation or rescission is given to the Company.

 

(e)  Legends.

 

(i)  Restrictive Legend. The Holder understands that until such time as this Warrant, the Exercise Shares and the Failure Payment Shares have been registered under the Securities Act as contemplated by the Registration Rights Agreement or 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, this Warrant, the Exercise Shares and the Failure Payment Shares, as applicable, 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):

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“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED 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 RULES 144 OR 144A UNDER SAID ACT OR PURSUANT TO A PRIVATE SALE EFFECTED UNDER APPLICABLE FORMAL OR INFORMAL SEC INTERPRETATION OR GUIDANCE, SUCH AS A SO-CALLED “4(1) AND A HALF” SALE.”

 

“THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN REGISTRATION RIGHTS AGREEMENT DATED AS OF FEBRUARY 13, 2013, AS AMENDED FROM TIME TO TIME, AMONG THE COMPANY AND CERTAIN HOLDERS OF ITS OUTSTANDING SECURITIES. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY.”

 

(ii)  Removal of Restrictive Legends. This Warrant and the certificates evidencing the Exercise Shares and the Failure Payment Shares, as applicable, shall not contain any legend restricting the transfer thereof (including the legend set forth above in subsection 2(e)(i)): (A) while a registration statement (including a Registration Statement, as defined in the Registration Rights Agreement) covering the resale of such security is effective under the Securities Act, or (B) following any sale of such Warrant, Exercise Shares and/or Failure Payment Shares pursuant to Rule 144, or (C) if such Warrant, Exercise Shares and/or Failure Payment Shares are eligible for sale under Rule 144(b)(1), or (D) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the SEC) and the Company shall have received an opinion of counsel of Holder to such effect (collectively, the “Unrestricted Conditions”).  The Company shall cause its counsel to issue a legal opinion to the Transfer Agent promptly after the Effective Date (as defined below) if required by the Company’s transfer agent to effect the issuance of this Warrant, the Exercise Shares or the Failure Payment Shares, as applicable, without a restrictive legend or removal of the legend hereunder.  If the Unrestricted Conditions are met at the time of issuance of the Exercise Shares or the Failure Payment Shares, then such Warrant, Exercise Shares or Failure Payment Shares, as applicable, shall be issued free of all legends.  The Company agrees that following the Effective Date at such time as the Unrestricted Conditions are met or such legend is otherwise no longer required under this Section 2(e), it will, no later than three (3) Trading Days following the delivery (the “Unlegended Shares Delivery Deadline”) by the Holder to the Company of this Warrant and a certificate representing Exercise Shares and/or Failure Payment Shares, as applicable, issued with a restrictive legend (such third Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Holder this Warrant and/or a certificate (or electronic transfer) representing such shares that is free from all restrictive and other legends.  For purposes hereof, “Effective Date” shall mean the date that the Registration Statement that the Company is required to file pursuant to the Registration Rights Agreement has been declared effective by the SEC. 

 

(iii)  Sale of Unlegended Shares.  Holder agrees that the removal of the restrictive legend from this Warrant and any certificates representing securities as set forth in Section 2(e) above is predicated upon the Company’s reliance that the Holder will sell this Warrant or any Exercise Shares and/or any Failure Payment Shares, as applicable, pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if such securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein.

 

(f)  Cancellation of Warrant. This Warrant shall be canceled upon the full Exercise of this Warrant, and, as soon as practicable after the Date of Exercise, Holder shall be entitled to receive Common Stock for the number of shares purchased upon such Exercise of this Warrant.  If this Warrant is not Exercised in full, Holder shall be entitled to receive a new Warrant (containing terms identical to this Warrant) representing any unexercised portion of this Warrant in addition to such Common Stock; provided, however, as set forth in Section 2(b), Holder shall not be required to physically surrender this warrant if the Warrant is not Exercised in full.

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(g)  Holder of Record. Each person in whose name any Warrant for shares of Common Stock is issued shall, for all purposes, be deemed to be the Holder of record of such shares from such time as provided in Section 2(b) hereof, irrespective of the date of delivery of the Common Stock purchased upon the Exercise of this Warrant.  Prior to the exercise of this Warrant, nothing in this Warrant shall be construed as conferring upon the Holder any rights as a stockholder of the Company.

 

(h)  Delivery of Electronic Shares. In lieu of delivering physical certificates representing the Common Stock issuable upon Exercise or legend removal, or representing Failure Payment Shares, provided the Transfer Agent is participating in the DTC Fast Automated Securities Transfer (“FAST”) program, upon written request of the Holder, the Company shall use its best efforts to cause its Transfer Agent to make available electronically, the Common Stock on DTC through DTC’s Deposit Withdrawal Agent Commission (DWAC) system for the prime broker. The time periods for delivery and penalties described herein shall apply to the electronic transmittals described herein.  Any delivery not effected by electronic transmission shall be effected by delivery of physical certificates.

 

(i)  Buy-In. In addition to any other rights available to the Holder, if the Company fails to cause its Transfer Agent to transmit to the Holder a certificate or certificates, or electronic shares through DWAC, representing the Exercise Shares pursuant to an Exercise on or before the expiration of the Delivery Period (provided that the Exercise Price has been satisfied as provided in Section 2(b) hereof), other than a failure caused by any incorrect or incomplete information provided by Holder to the Company hereunder, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Exercise Shares which the Holder anticipated receiving upon such Exercise (a “Buy-In”), then the Company shall (1) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of Exercise Shares that the Company was required to deliver to the Holder in connection with the Exercise at issue times and (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, by notice to the Company made by electronic mail or facsimile prior to receipt by the Holder of the Exercise Shares, either reinstate the portion of the Warrant and equivalent number of Exercise Shares for which such Exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its Exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted Exercise to cover the sale of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Company. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon Exercise of the Warrant as required pursuant to the terms hereof.

 

3.  Payment of Warrant Exercise Price for Cash Exercise or Cashless Exercise; Cashless Major Exercise and Cashless Default Exercise.

 

(a)  Exercise Price. The Exercise Price (“Exercise Price”) shall initially equal $2.81 per share, subject to adjustment pursuant to the terms hereof, including but not limited to Section 5 below.

 

Payment of the Exercise Price may be made by either of the following, or a combination thereof, at the election of Holder:

 

(i)  Cash Exercise: The Holder may exercise this Warrant in cash, bank or cashier’s check, wire transfer or through a reduction of an amount of principal outstanding under any Notes (as defined in the Facility Agreement) in accordance with Section 2.3(c) of the Facility Agreement, then held by the Holder (a “Cash Exercise”); or

 

(ii)  Cashless Exercise: The Holder, at its option, may exercise this Warrant in a cashless exercise transaction. In order to effect a Cashless Exercise, the Holder shall surrender this Warrant at the principal office of the Company together with notice of cashless election, in which event the Company shall issue Holder a number of shares of Common Stock computed using the following formula (a “Cashless Exercise”):

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X = Y (A-B)/A

 

where:      X = the number of shares of Common Stock to be issued to Holder.

 

Y = the number of shares of Common Stock for which this Warrant is being Exercised.

 

A = the Market Price of one (1) share of Common Stock (for purposes of this Section 3(a)(ii), where “Market Price,” as of any date, means the Volume Weighted Average Price (as defined herein) of the Company’s Common Stock during the ten (10) consecutive Trading Day period immediately preceding the date in question.

 

B = the Exercise Price.

 

As used herein, the “Volume Weighted Average Price” for any security as of any date means the volume weighted average sale price on The NASDAQ Capital Market (“NASDAQ”) as reported by, or based upon data reported by, Bloomberg Financial Markets or an equivalent, reliable reporting service mutually acceptable to and hereafter designated by holders of a majority in interest of the Warrants and the Company (“Bloomberg”) or, if NASDAQ is not the principal trading market for such security, the volume weighted average sale price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or, if no volume weighted average sale price is reported for such security, then the last closing trade price of such security as reported by Bloomberg, or, if no last closing trade price is reported for such security by Bloomberg, the average of the bid prices of any market makers for such security that are listed in the over the counter market by the Financial Industry Regulatory Authority, Inc. or on the OTC Pink Market operated by the OTC Markets Group, Inc. If the Volume Weighted Average Price cannot be calculated for such security on such date in the manner provided above, the volume weighted average price shall be the fair market value as mutually determined by the Company and the Holders of a majority in interest of the Warrants being Exercised for which the calculation of the volume weighted average price is required in order to determine the Exercise Price of such Warrants.   “Trading Day” shall mean any day on which the Common Stock is traded for any period on NASDAQ, or on the principal securities exchange or other securities market on which the Common Stock is then being traded.

 

For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended, understood and acknowledged that the Common Stock issuable upon Exercise of this Warrant in a Cashless Exercise transaction shall be deemed to have been acquired at the time this Warrant was issued. Moreover, it is intended, understood and acknowledged that the holding period for the Common Stock issuable upon Exercise of this Warrant in a Cashless Exercise transaction for purposes of such rule shall be deemed to have commenced on the date this Warrant was issued.

 

(b)  Cashless Major Exercise:  To the extent the Holder shall exercise this Warrant as a Cashless Major Exercise pursuant to Section 5(c)(i) below, the Holder shall send to the Company the original Warrant together with the Exercise Form indicating that the Holder is exercising this Warrant (or any portion thereof) pursuant to a Cashless Major Exercise, in which event the Company shall either (i) issue a number of shares of Common Stock equal to the Black-Scholes Value (as defined in Section 5(c)(ii) below) of the Warrant (or such applicable portion being exercised) divided by [ *** ] or (ii) redeem the Warrant (or such applicable portion) for an amount in cash equal to the Major Transaction Warrant Early Termination Price (as defined below).  The Company shall notify the Holder in writing within two (2) Business Days following receipt of the Exercise Form whether it is electing to treat such Major Transaction (or portion thereof) in accordance with clause (i) or (ii) above.

 

(c) [ *** ].

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(d)  Dispute Resolution. In the case of a dispute as to the determination of the closing price or the Volume Weighted Average Price of the Company’s Common Stock or the arithmetic calculation of the Exercise Price, Market Price or any Major Transaction Warrant Early Termination Price, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within two (2) Business Days of receipt of the Exercise Form or Major Transaction Early Termination Notice, or other event giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation within two (2) Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within two (2) Business Days thereafter submit via facsimile (i) the disputed determination of the closing price or the Volume Weighted Average Price of the Company’s Common Stock to an independent, reputable investment bank selected by the Company and approved by the Holder, which approval shall not be unreasonably withheld or (ii) the disputed arithmetic calculation of the Exercise Price, Market Price or any Major Transaction Warrant Early Termination Price to the Company’s independent, outside accountant. The Company shall use reasonable commercial efforts to cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than five (5) Business Days from the time it receives the disputed determinations or calculations.  Such investment bank’s or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error, and the Company and the Holder shall each pay one-half of the fees and costs of such investment bank or accountant.

 

4.  Transfer and Registration.

 

(a)  Transfer Rights. Subject to the provisions of Section 8 of this Warrant, this Warrant may be transferred on the books of the Company, in whole or in part, in person or by attorney, upon surrender of this Warrant properly completed and endorsed; provided however, that in the event that the Holder is not the Initial Holder or an Affiliate of the Initial Holder, the assignment form provided for in Section 8 hereof must include a signature guarantee, together with evidence of the authority of such endorser reasonably acceptable to the Company. This Warrant shall be canceled upon such surrender and, as soon as practicable thereafter, the person to whom such transfer is made shall be entitled to receive a new Warrant or Warrants as to the portion of this Warrant transferred, and Holder shall be entitled to receive a new Warrant as to the portion hereof retained.

 

(b)  Registrable Securities. The Common Stock issuable upon the Exercise of this Warrant has registration rights pursuant to the Registration Rights Agreement.

 

5.  Adjustments Upon Certain Events.

 

(a)  Participation. The Holder, as the holder of this Warrant, shall be entitled to receive such dividends paid and distributions of any kind made to the holders of Common Stock of the Company to the same extent as if the Holder had Exercised this Warrant into Common Stock (without regard to any limitations on exercise herein or elsewhere and without regard to whether or not a sufficient number of shares are authorized and reserved to effect any such exercise and issuance) and had held such shares of Common Stock on the record date for such dividends and distributions. Payments under the preceding sentence shall be made concurrently with the dividend or distribution to the holders of Common Stock.

 

(b)  Recapitalization or Reclassification. If the Company shall at any time effect a stock split, payment of stock dividend, recapitalization, reclassification or other similar transaction of such character that the shares of Common Stock shall be changed into or become exchangeable for a larger or smaller number of shares, then upon the effective date thereof, the number of shares of Common Stock which Holder shall be entitled to purchase upon Exercise of this Warrant shall be increased or decreased, as the case may be, in direct proportion to the increase or decrease in the number of shares of Common Stock by reason of such stock split, payment of stock dividend, recapitalization, reclassification or similar transaction, and the Exercise Price shall be, in the case of an increase in the number of shares, proportionally decreased and, in the case of decrease in the number of shares, proportionally increased. The Company shall give Holder the same notice it provides to holders of Common Stock of any transaction described in this Section 5(b).

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(c)  Rights Upon Major Transaction.

 

(i)  Major Transaction.  In the event that a Major Transaction (as defined below) occurs, then (1) in the case of a Cash-Out Major Transaction and in the case of a Mixed Major Transaction to the extent of the percentage of the cash consideration in the Mixed Major Transaction (determined in accordance with the definition of a Mixed Major Transaction below), the Holder, at its option, may require the Company to redeem the Holder’s outstanding Warrants in accordance with Section 5(c)(ii) below and (2) in the case of all other Major Transactions and in the case of a Mixed Major Transaction to the extent of the percentage of the consideration represented by securities of a Successor Entity in the Mixed Major Transaction, the Holder shall have the right to exercise this Warrant as a Cashless Major Exercise.  Notwithstanding anything herein to the contrary, the Holder shall have the right to waive its rights under this Section 5(c) with respect to all or any portion of any Major Transaction, in which event none of the provisions of this Section 5(c)(i) with respect to such rights shall apply to such Major Transaction or portion thereof.  The percentage of consideration represented by securities of such Successor Entity shall be equal to the percentage that the value of the aggregate anticipated number of shares of the Successor Entity to be issued to holders of Common Stock of the Company represents of the aggregate value of all consideration, including cash consideration, in such Major Transaction (determined in accordance with the definition of a Mixed Major Transaction below).

 

Each of the following events shall constitute a “Major Transaction”:

 

(A)   a consolidation, merger, exchange of shares, recapitalization, reorganization, business combination or other similar event, (1) following which the holders of Common Stock immediately preceding such consolidation, merger, exchange, recapitalization, reorganization, combination or event either (a) no longer hold a majority of the shares of Common Stock or (b) no longer have the ability to elect a majority of the board of directors of the Company or (2) as a result of which shares of Common Stock shall be changed into (or the shares of Common Stock become entitled to receive) the same or a different number of shares of the same or another class or classes of stock or securities of the Company or another entity (collectively, a “Change of Control Transaction”);

 

(B)  the sale or transfer in one transaction or a series of related transactions of (i) all or substantially all of the assets of the Company, or (ii) assets of the Company for a purchase price equal to more than [ *** ]. For purposes of this clause (B) [ *** ];

 

(C)  a purchase, tender or exchange offer made to the holders of outstanding shares of Common Stock, such that following such purchase, tender or exchange offer a Change of Control Transaction shall have occurred;

 

(D)  the liquidation, bankruptcy, insolvency, dissolution or winding-up (or the occurrence of any analogous proceeding) affecting the Company;  or

 

(E)  the Common Stock ceases to be registered under Section 12 of the Exchange Act.

 

(ii)  Notice; Major Transaction Early Termination Right; Notice of Cashless Major Exercise. At least thirty (30) days prior to the consummation of any Major Transaction, but, in any event, within five (5) Business Days following the first to occur of (x) the date of the public announcement of such Major Transaction if such announcement is made before 4:00 p.m., New York City time, or (y) the day following the public announcement of such Major Transaction if such announcement is made on and after 4:00 p.m., New York City time, the Company shall deliver written notice thereof via facsimile and overnight courier to the Holder (a “Major Transaction Notice”).  At any time during the period beginning after the Holder’s receipt of a Major Transaction Notice and ending five (5) Trading Days prior to the consummation of such Major Transaction (the “Early Termination Period”), the Holder may require the Company to redeem (an “Early Termination Upon Major Transaction”) all or any portion of this Warrant not eligible to be treated as a Cashless Major Exercise (for the sake of clarity, without taking into consideration the 9.985% Cap) by delivering written notice thereof (“Major Transaction Early Termination Notice”) to the Company, which Major Transaction Early Termination Notice shall indicate the portion of the principal amount (the “Early Termination Principal Amount”) of the Warrant that the Holder is electing to have redeemed. The portion of this Warrant subject to early termination pursuant to this Section 5(c)(ii) or clause (ii) of Section 3(b) above (the “Redeemable Shares”), shall be redeemed by the Company (for the sake of clarity, without taking into consideration the 9.985% Cap) at a price (the “Major Transaction Warrant Early Termination Price”) payable in cash equal to the “Black Scholes Value” of the Redeemable Shares determined by use of the Black Scholes Option Pricing Model using the criteria set forth in Schedule 1 hereto (the “Black Scholes Value”).

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To the extent the Holder shall elect to effect a Cashless Major Exercise in respect of a Major Transaction, the Holder shall deliver its exercise notice in accordance with Section 3(b), within the Early Termination Period.

 

Following a Major Transaction that constitutes a Qualified Change of Control Transaction, any portion of this Warrant then remaining outstanding that has not been redeemed pursuant to Section 5(c)(ii) or clause (ii) of Section 3(b)  or Exercised (whether by Cash Exercise, Cashless Exercise, Cashless Major Exercise or otherwise) shall (A) automatically and immediately convert into shares of Common Stock, and shall be deemed to have been exercised pursuant to a Cashless Exercise, immediately prior to the consummation of such Major Transaction if the aggregate consideration to be received for the Common Stock in such Major Transaction is equal to or greater than the aggregate Exercise Price for such shares, or (B) be cancelled and terminated without further action by the Holder or the Company upon consummation of such Major Transaction if the aggregate consideration to be received for the Common Stock in the Major Transaction is less than the aggregate Exercise Price for such shares.

 

(iii)  Escrow; Payment of Major Transaction Warrant Early Termination Price. Following the receipt of a Major Transaction Early Termination Notice or a Cashless Major Exercise from the Holder, the Company shall not effect a Major Transaction that is being treated as an early termination or is eligible to be treated as a Cashless Major Exercise unless either (a) it obtains the written agreement of the Successor Entity that payment of the Major Transaction Warrant Early Termination Price and/or issuance of the applicable Exercise Shares shall be made to the Holder prior to consummation of such Major Transaction and such issuance or payment shall be a condition precedent to consummation of such Major Transaction or (b) it shall first place into an escrow account with an independent escrow agent, at least three (3) Business Days prior to the closing date of the Major Transaction (the “Major Transaction Escrow Deadline”), an amount in shares of Common Stock or cash, as applicable, equal to the Major Transaction Warrant Early Termination Price and/or applicable Exercise Shares. Concurrently upon closing of such Major Transaction, the Company shall pay or shall instruct the escrow agent to pay the Major Transaction Warrant Early Termination Price and/or to deliver the applicable Exercise Shares to the Holder.  For purposes of determining the amount required to be placed in escrow pursuant to the provisions of this subsection (iii) and without affecting the amount of the actual Major Transaction Warrant Early Termination Price and/or applicable Exercise Shares, the calculation of the price referred to in clause (1) of the first column of Schedule 1 hereto with respect to Stock Price shall be determined based on the Closing Market Price (as defined on Schedule I) of the Common Stock on the Trading Day immediately preceding the date that the funds and/or applicable Exercise Shares, as applicable, are deposited with the escrow agent.

 

(iv)  Injunction. Following the receipt of a Major Transaction Early Termination Notice or notice of a Cashless Major Exercise from the Holder, in the event that the Company attempts to consummate a Major Transaction without either (a) placing the Major Transaction Warrant Early Termination Price or applicable Exercise Shares, as applicable, in escrow in accordance with subsection (iii) above, (b) paying the Major Transaction Warrant Early Termination Price or (c) issuing the applicable Exercise Shares, as applicable, to the Holder prior to consummation of such Major Transaction, or obtaining the written agreement of the Successor Entity described in subsection (iii) above, the Holder shall have the right to apply for an injunction in any state or federal courts sitting in the City of New York, borough of Manhattan to prevent the closing of such Major Transaction until the Major Transaction Warrant Early Termination Price is paid to the Holder, in full or the applicable Exercise Shares are delivered, as applicable.

 

An early termination required by this Section 5(c) shall be made in accordance with the provisions of Section 12 and shall have priority to payments to holders of Common Stock in connection with a Major Transaction.  To the extent an early termination required by this Section 5(c)(iv) are deemed or determined by a court of competent jurisdiction to be prepayments of the Warrant by the Company, such early termination shall be deemed to be voluntary prepayments.  Notwithstanding anything to the contrary in this Section 5, until the Major Transaction Warrant Early Termination Price is paid in full, this Warrant may be exercised, in whole or in part, by the Holder into shares of Common Stock, or in the event the Exercise Date is after the consummation of the Major Transaction, shares of publicly traded common stock (or their equivalent) of the Successor Entity pursuant to Section 5(c).  The parties hereto agree that in the event of the Company’s early termination of any portion of the Warrant under this Section 5(c), the Holder’s damages would be uncertain and difficult to estimate because of the parties’ inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for the Holder. Accordingly, any premium due under this Section 5(c) is intended by the parties to be, and shall be deemed, a reasonable estimate of the Holder’s actual loss of its investment opportunity and not as a penalty.

 

For purposes hereof:

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“Cash-Out Major Transaction” means a Major Transaction in which the consideration payable to holders of Common Stock in connection with the Major Transaction consists solely of cash.

 

“Cashless Default Exercise” shall mean an exercise of this Warrant as a “Cashless Default Exercise” in accordance with Section 3(c) and 11(b) hereof.

 “Cashless Major Exercise” shall mean an exercise of this Warrant or portion thereof as a “Cashless Major Exercise” in accordance with Section 3(b) and 5(c)(i) hereof.

 

“Eligible Market” means the over the counter Bulletin Board, the New York Stock Exchange, Inc., the NYSE Arca, the NASDAQ Capital Market, the NASDAQ Global Market, the NASDAQ Global Select Market or the NYSE Amex.

 

“Mixed Major Transaction” means a Major Transaction in which the consideration payable to the shareholders of the Company consists partially of cash and partially of securities of a Successor Entity. If the Successor Entity is a Publicly Traded Successor Entity, the percentage of consideration represented by securities of such Successor Entity shall be equal to the percentage that the value of the aggregate anticipated number of shares of the Publicly Traded Successor Entity to be issued to holders of Common Stock of the Company represents in comparison to the aggregate value of all consideration, including cash consideration, in such Mixed Major Transaction, as such values are set forth in any definitive agreement for the Mixed Major Transaction that has been executed at the time of the first public announcement of the Major Transaction or, if no such value is determinable from such definitive agreement, based on the closing market price for shares of the Publicly Traded Successor Entity on its principal securities exchange on the Trading Day preceding the first public announcement of the Mixed Major Transaction. If the Successor Entity is a Private Successor Entity, the percentage of consideration represented by securities of such Successor Entity shall be determined in good-faith by the Company's Board of Directors

 

“Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of a Major Transaction.

 

“Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.

 

“Private Successor Entity” means a Successor Entity that is not a Publicly Traded Successor Entity.

 

“Publicly Traded Successor Entity” means a Successor Entity that is a publicly traded corporation whose common stock is quoted on or listed for trading on an Eligible Market (as defined above).

 

“Successor Entity” means any Person purchasing the Company’s assets or Common Stock, or any successor entity resulting from such Major Transaction, or if the Warrant is to be exercisable for shares of capital stock of its Parent Entity (as defined above), its Parent Entity.

 

(d)  Exercise Price Adjusted. As used in this Warrant, the term “Exercise Price” shall mean the purchase price per share specified in Section 3(a) of this Warrant, until the occurrence of an event stated in Section 5(a) or (b) or otherwise set forth in this Warrant, and thereafter shall mean said price as adjusted from time to time in accordance with the provisions of said subsection.  No adjustment made pursuant to any provision of Section 5(a) or (b) shall have the net effect of increasing the Exercise Price in relation to the split adjusted and distribution adjusted price of the Common Stock.

 

(e)  Adjustments: Additional Shares, Securities or Assets. In the event that at any time, as a result of an adjustment made pursuant to Section 5(a) or (b) or otherwise, Holder shall, upon Exercise of this Warrant, become entitled to receive shares and/or other securities or assets (other than Common Stock) then, wherever appropriate, all references herein to shares of Common Stock shall be deemed to refer to and include such shares and/or other securities or assets (without duplication); and thereafter, to the extent that such shares and/or other securities have not been distributed to Holder, the number of such shares and/or other securities or assets shall be subject to adjustment from time to time in a manner and upon terms as nearly equivalent as practicable to the provisions of this Section 5.

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(f)  Notice of Adjustments. Whenever the Exercise Price is adjusted pursuant to the terms of this Warrant, the Company shall promptly mail to the Holder a notice (an “Exercise Price Adjustment Notice”) setting forth the Exercise Price after such adjustment and setting forth a statement of the facts requiring such adjustment. The Company shall, upon the written request at any time of the Holder, furnish to such Holder a like Warrant setting forth (i) such adjustment or readjustment, (ii) the Exercise Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon Exercise of the Warrant. For purposes of clarification, whether or not the Company provides an Exercise Price Adjustment Notice pursuant to this Section 5(f), upon the occurrence of any event that leads to an adjustment of the Exercise Price, the Holder would be entitled to receive a number of Exercise Shares based upon the new Exercise Price, as adjusted, for exercises occurring on or after the date of such adjustment, regardless of whether the Holder accurately refers to the adjusted Exercise Price in the Exercise Form.

 

6.  Fractional Interests.

 

No fractional shares or scrip representing fractional shares shall be issuable upon the Exercise of this Warrant, but on Exercise of this Warrant, Holder may purchase only a whole number of shares of Common Stock. If, on Exercise of this Warrant, Holder would be entitled to a fractional share of Common Stock or a right to acquire a fractional share of Common Stock, such fractional share shall be disregarded and the number of shares of Common Stock issuable upon Exercise shall be the next higher whole number of shares.

 

7.  Reservation of Shares.

 

From and after the date hereof, the Company shall at all times reserve for issuance such number of authorized and unissued shares of Common Stock (or other securities substituted therefor as herein above provided) as shall be sufficient for the Exercise of this Warrant and payment of the Exercise Price. If at any time the number of shares of Common Stock authorized and reserved for issuance is below the number of shares sufficient for the Exercise of this Warrant (a “Share Authorization Failure”) (based on the Exercise Price in effect from time to time), the Company will promptly take all corporate action necessary to authorize and reserve a sufficient number of shares, including, without limitation, calling a special meeting of stockholders to authorize additional shares to meet the Company’s obligations under this Section 7, in the case of an insufficient number of authorized shares, and using its best efforts to obtain stockholder approval of an increase in such authorized number of shares. The Company covenants and agrees that upon the Exercise of this Warrant, all shares of Common Stock issuable upon such Exercise shall be duly and validly issued, fully paid and nonassessable and not subject to preemptive rights, rights of first refusal or similar rights of any Person.

 

8.  Restrictions on Transfer.

 

(a)  Registration or Exemption Required. This Warrant has been issued in a transaction exempt from the registration requirements of the Securities Act by virtue of Section 4(2) thereof and/or Regulation D thereunder and exempt from state registration or qualification under applicable state laws. None of the Warrant, the Exercise Shares or Failure Payment Shares may be pledged, transferred, sold or assigned except pursuant to an effective registration statement or an exemption to the registration requirements of the Securities Act and applicable state laws including, without limitation, a so-called “4(1) and a half” transaction.

 

(b)  Assignment. Subject to Section 8(a), the Holder may sell, transfer, assign, pledge, or otherwise dispose of (a “Transfer”) this Warrant, in whole or in part; provided that Holder may not Transfer any portion of this Warrant with respect to less than [ *** ] or (y) all remaining Warrant Shares underlying this Warrant. Holder shall deliver to the Company (a) a written notice, substantially in the form of the Assignment attached hereto as Exhibit B, indicating the Person or Persons to whom the Warrant shall be assigned and the portion of the Warrant to be assigned to each assignee and (b) the original Warrant. The Company shall effect the assignment within three (3) Business Days of receipt of such written notice and the original Warrant (the “Transfer Delivery Period”), shall deliver to the assignee(s) designated by Holder a Warrant or Warrants of like tenor and terms for the appropriate number of shares, and shall deliver to the assignor a Warrant for the number of shares, if any, with respect to which the Warrant had not been assigned.  This Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors and assigns of the Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant, and shall be enforceable by any such Holder.  For avoidance of doubt, in the event Holder notifies the Company that such sale or transfer is a so called “4(1) and half” transaction, the parties hereto agree that a legal opinion from outside counsel for the Holder delivered to counsel for the Company substantially in the form attached hereto as Exhibit C shall be the only requirement to satisfy an exemption from registration under the Securities Act to effectuate such “4(1) and half” transaction.

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9.  Noncircumvention.

 

The Company hereby covenants and agrees that the Company will not, by amendment of its certificate of incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be reasonably required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, and (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant.

 

10.  Events of Failure; Definition of Black Scholes Value.

 

(a) Definition.

 

The occurrence of each of the following shall be considered to be an “Event of Failure.”

 

(i) A Delivery Failure occurs, where a “Delivery Failure” shall be deemed to have occurred if the Company fails to use its best efforts to deliver Exercise Shares to the Holder within any applicable Delivery Period;

 

(ii) A Legend Removal Failure occurs, where a “Legend Removal Failure” shall be deemed to have occurred if the Company fails to use its best efforts to issue this Warrant and/or Exercise Shares without a restrictive legend, or fails to use its best efforts to remove a restrictive legend, when and as required under Section 2(e) hereof;

 

(iii) a Transfer Delivery Failure occurs, where a “Transfer Delivery Failure” shall be deemed to have occurred if the Company fails to use its best efforts to deliver a Warrant within any applicable Transfer Delivery Period; and

 

(iv) a Registration Failure (as defined below).

 

For purpose hereof, “Registration Failure” means that (A) the Company fails to file with the SEC on or before the Filing Deadline (as defined in the Registration Rights Agreement) any Registration Statement required to be filed pursuant to Section 2(a) of the Registration Rights Agreement, (B) the Company fails to use its reasonable commercial efforts to obtain effectiveness with the SEC, prior to the Registration Deadline (as defined in the Registration Rights Agreement), and if such Registration Statement is not so filed prior to the Registration Deadline, as soon as possible thereafter, of any Registration Statement (as defined in the Registration Rights Agreement) that is required to be filed pursuant to Section 2(a) of the Registration Rights Agreement, or fails to use reasonable commercial efforts to keep such Registration Statement current and effective as required in Section 3 of the Registration Rights Agreement, (C) The Company fails to file any additional Registration Statements required to be filed pursuant to Section 2(a)(ii) of the Registration Rights Agreement on or before the Additional Filing Deadline or fails to use its reasonable commercial efforts to cause such new Registration Statement to become effective on or before the Additional Registration Deadline, and if such effectiveness does not occur within such period, as soon as possible thereafter, (D) the Company fails to file any amendment to any Registration Statement, or any additional Registration Statement required to be filed pursuant to Section 3(b) of the Registration Rights Agreement within twenty (20) days of the applicable Registration Trigger Date (as defined in the Registration Rights Agreement), or fails to use its reasonable commercial efforts to cause such amendment and/or new Registration Statement to become effective within sixty (60) days of the applicable Registration Trigger Date, and, if such effectiveness does not occur within such period, as soon as possible thereafter, (E) any Registration Statement required to be filed under the Registration Rights Agreement, after its initial effectiveness and during the Registration Period (as defined in the Registration Rights Agreement), lapses in effect or sales of all of the Registrable Securities (as defined in the Registration Rights Agreement) cannot otherwise be made thereunder (whether by reason of the Company’s failure to amend or supplement the prospectus included therein in accordance with the Registration Rights Agreement, the Company’s failure to file and, use reasonable commercial efforts to obtain effectiveness with the SEC of an additional Registration Statement or amended Registration Statement required pursuant to Sections 2(a)(ii) or 3(b) of the Registration Rights Agreement, as applicable, or otherwise, and (F) the Company fails to provide a commercially reasonable written response to any comments to any Registration Statement submitted by the SEC within twenty (20) days of the date that such SEC comments are received by the Company.

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(b) Failure Payments; Black-Scholes Determination. The Company understands that any Event of Failure (as defined above) could result in economic loss to the Holder. In the event that any Event of Failure occurs, as compensation to the Holder for such loss, the Company agrees to pay (as liquidated damages and not as a penalty) to the Holder an amount payable, at the Company’s option, either (i) in cash or (ii) in shares of Common Stock that are valued for these purposes at the Volume Weighted Average Price on the date of such calculation (“Failure Payments”)(which shares can be issued pursuant to a registration under the Securities Act or an exemption therefrom, at the option of the Company), in each case equal to 18% per annum (or the maximum rate permitted by applicable law, whichever is less) of the Black-Scholes value (as determined below) of the remaining unexercised portion of this Warrant on the date of such Event of Failure (as recalculated on the first Business Day of each month thereafter for as long as Failure Payments shall continue to accrue), which shall accrue daily from the date of such Event of Failure until the Event of Failure is cured, accruing daily and compounded monthly, provided, however, the Holder shall only receive up to such amount of shares of Common Stock in respect of Failure Payments such that Holder and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act (including shares held by any “group” of which the Holder is a member, but excluding shares beneficially owned by virtue of the ownership of securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein) shall not collectively beneficially own greater than 9.985% of the total number of shares of Common Stock of the Company then issued and outstanding.  For purposes of clarification, it is agreed and understood that Failure Payments shall continue to accrue following any Event of Default until the applicable Default Amount is paid in full.

 

Notwithstanding the above, (1) in the event that the Company (i) has, by the Filing Deadline (as defined the Registration Rights Agreement) filed a Registration Statement (as defined in the Registration Rights Agreement) covering the number of shares required by the Registration Rights Agreement, and (ii) has responded in writing to any comments to the Registration Statement that the Company has received from the SEC, within seven (7) Business Days of such receipt, and nevertheless the SEC has not declared effective a Registration Statement covering the full number of Warrant Shares issuable upon exercise of the Warrants by the Registration Deadline (as defined in the Registration Rights Agreement) then, the Failure Payments attributable to such late Registration Effectiveness shall be reduced from 18% to 15% (calculated as set forth above) and (2) in no event shall the aggregate Failure Payments attributable solely to the failure by the SEC to declare a Registration Statement effective exceed 10% of the Black Scholes value of the Warrant. The Company shall satisfy any Failure Payments under this Section pursuant to Section 10(c) below.  Failure Payments are in addition to any Shares that the Holder is entitled to receive upon Exercise of this Warrant.

 

For purposes hereof, the “Black-Scholes” value of a Warrant shall be determined by use of the Black Scholes Option Pricing Model using the criteria set forth on Schedule 1 hereto.

 

(c) Payment of Accrued Failure Payments. The Failure Payment Shares representing accrued Failure Payments for each Event of Failure shall be issued and delivered on or before the fifth (5th) Business Day of each month following a month in which Failure Payments accrued. Nothing herein shall limit the Holder’s right to pursue actual damages (to the extent in excess of the Failure Payments) for the Company’s Event of Failure, and the Holder shall have the right to pursue all remedies available at law or in equity (including a decree of specific performance and/or injunctive relief). Notwithstanding the above, if a particular Event of Failure results in an Event of Default pursuant to Section 11 hereof, then the Failure Payment, for that Event of Failure only, shall be considered to have been satisfied upon payment to the Holder of an amount equal to the greater of (i) the Failure Payment, or (ii) the Default Amount, payable in accordance with Section 11.

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(d) Maximum Interest Rate. Nothing contained herein or in any document referred to herein or delivered in connection herewith shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest or dividends required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Company to the Holder and thus refunded to the Company.

 

11.  Default.

 

(a) Events Of Default. Each of the following events shall be considered to be an “Event of Default,” unless waived by the Holder:

 

(i)  Failure To Effect Registration. With respect to all Registration Failures, a Registration Failure occurs and remains uncured for a period of more than forty-five (45) days (or sixty (60) days in the case where the Company (i) has, by the Filing Deadline (as defined the Registration Rights Agreement) filed a Registration Statement (as defined in the Registration Rights Agreement) covering this Warrant and the number of shares required by the Registration Rights Agreement, and (ii) has responded in writing to any comments to the Registration Statement that the Company has received from the SEC, within seven (7) Business Days of such receipt, and nevertheless the SEC has not declared effective a Registration Statement covering this Warrant and the Shares by the Registration Deadline (as defined in the Registration Rights Agreement)), and such Registration Failure relates solely to the Company’s failure to have the Registration Statement declared effective by the Registration Deadline (as defined in the Registration Rights Agreement) and with respect to a Registration Failure provided in clause (E) of the definition of “Registration Failure”, such Registration Failure occurs and remains uncured for a period of more than forty-five (45) days;

 

(ii)  Failure To Deliver Common Stock. A Delivery Failure (as defined above) occurs and remains uncured for a period of [ *** ]; or at any time, the Company announces or states in writing that it will not honor its obligations to issue shares of Common Stock to the Holder upon Exercise by the Holder of the Exercise rights of the Holder in accordance with the terms of this Warrant.

 

(iii)  Legend Removal Failure. A Legend Removal Failure (as defined above) occurs and remains uncured for a period of [ *** ]; and

 

(iv)  Corporate Existence; Major Transaction. The Company has failed to (1) place the Major Transaction Warrant Early Termination Price or the Exercise Shares issuable upon exercise of a Cashless Major Exercise, as the case may be, into escrow or (2) obtain the written agreement of the Successor Entity as described in Section 5(c)(iii) or the Company has failed to instruct the escrow agent to release such amount or such shares, as the case may be, to the Holder pursuant to Section 5(c)(iii).

 

(b)  (i) [ *** ].

 

(ii)  Liquidated Damages. The parties hereto acknowledge and agree that the sums payable as Failure Payments or pursuant to a Mandatory Early Termination shall give rise to liquidated damages and not penalties. The parties further acknowledge that (i) the amount of loss or damages likely to be incurred by the Holder is incapable or is difficult to precisely estimate, (ii) the amounts specified bear a reasonable proportion and are not plainly or grossly disproportionate to the probable loss likely to be incurred by the Holder, and (iii) the parties are sophisticated business parties and have been represented by sophisticated and able legal and financial counsel and negotiated this Agreement at arm’s length.

 

The Default Amount, together with all other amounts payable hereunder, shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

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(c)  Posting Of Bond. In the event that any Event of Default occurs hereunder, the Company may not raise as a legal defense (in any Lawsuit, as defined below, or otherwise) or justification to such Event of Default any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, unless the Company has posted a surety bond (a “Surety Bond”) for the benefit of such Holder in the amount of 130% of the aggregate Surety Bond Value (as defined below) of all of the Holder’s Warrants (the “Bond Amount”), which Surety Bond shall remain in effect until the completion of litigation of the dispute and the proceeds of which shall be payable to such Holder to the extent Holder obtains judgment.

 

For purposes hereof, a “Lawsuit” shall mean any lawsuit, arbitration or other dispute resolution filed by either party herein pertaining to any of this Warrant, the Facility Agreement and the Registration Rights Agreement.

 

“Surety Bond Value,” for the Warrants shall mean 130% of the of the Black-Scholes value of the remaining unexercised portion of this Warrant on the Trading Day immediately preceding the date that such bond goes into effect).

 

(d)  Remedies, Other Obligations, Breaches And Injunctive Relief. The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant, the Facility Agreement and the Registration Rights Agreement, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder to pursue actual damages for any failure by the Company to comply with the terms of this Warrant. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the holder of this Warrant shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

 

12.  Holder’s Early Terminations.

 

(a)  Mechanics of Holder’s Early Terminations.  In the event that the Company does not deliver the applicable Major Transaction Warrant Early Termination Price or Default Amount or the Exercise Shares in respect of a Cashless Major Exercise or a Cashless Default Exercise, as the case may be, to the Holder within the time period or as otherwise required pursuant to the terms hereof, at any time thereafter by notice to the Company made by electronic mail or facsimile prior to receipt by the Holder of such Major Transaction Warrant Early Termination Price or Default Amount or Exercise Shares, as applicable, the Holder shall have the option, in lieu of early termination, Cashless Major Exercise or Cashless Default Exercise, as the case may be, to require the Company to promptly return to the Holder all or any portion of this Warrant that was submitted for early termination or exercise. Upon the Company’s receipt of such notice, (x) the applicable early termination or exercise, as the case may be, shall be null and void with respect to such applicable portion of this Warrant and (y) the Company shall immediately return this Warrant, or issue a new Warrant to the Holder representing the portion of this Warrant that was submitted for early termination or exercise. The Holder’s delivery of a notice voiding an early termination or exercise and exercise of its rights following such notice shall not affect the Company’s obligations to make any payments of Failure Payments which have accrued prior to the date of such notice with respect to the Warrant subject to such notice.

 

13.  Benefits of this Warrant.

 

Nothing in this Warrant shall be construed to confer upon any person other than the Company and Holder any legal or equitable right, remedy or claim under this Warrant and this Warrant shall be for the sole and exclusive benefit of the Company and Holder.

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14.  Governing Law.

 

All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. The parties hereby waive all rights to a trial by jury. If either party shall commence an action or proceeding to enforce any provisions of this Agreement, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

 

15.  Loss of Warrant.

 

Upon receipt by the Company of evidence of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Company, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date.

 

16.  Notice or Demands.

 

Except as otherwise provided herein, notices or demands pursuant to this Warrant to be given or made by Holder to or on the Company shall be sufficiently given or made if sent by overnight delivery with a nationally recognized overnight courier service, certified or registered mail, return receipt requested, postage prepaid, and addressed, until another address is designated in writing by the Company, to the address set forth in Section 2(a) above. To the extent any notice or demand pursuant to this Warrant can be made by electronic mail, such notice or demand given or made by Holder to or on the Company shall be sufficiently given or made if it is sent by electronic mail to the addresses that the Company shall designate in writing from time to time.  Notices or demands pursuant to this Warrant to be given or made by the Company to or on Holder shall be sufficiently given or made if sent by certified or registered mail, return receipt requested, postage prepaid, and addressed, to the address of Holder set forth in the Company’s records, until another address is designated in writing by Holder.

16

IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the 13th day of February, 2013.

 

	
 

	
DISCOVERY LABORATORIES, INC.

 

 

	
	
 

	
By:

	
 

	
	
 

	
 

	
Print Name: John G. Cooper

	
	
 

	
 

	
Title: President and Chief Executive Officer

	

17

EXHIBIT  A

 

EXERCISE FORM FOR WARRANT

 

TO:  [                        ]

 

CHECK THE APPLICABLE BOX:

 

	o	Cash Exercise or Cashless Exercise

 

The undersigned hereby irrevocably exercises Warrant Number ___ (the “Warrant”) with respect to [_______]  shares of Common Stock (the “Common Stock”) of Discovery Laboratories, Inc., a Delaware corporation (the “Company”), and, if pursuant to a Cashless Exercise, herewith makes payment of the Exercise Price with respect to such shares in full, all in accordance with the conditions and provisions of said Warrant.

 

[IF APPLICABLE: The undersigned hereby encloses $____ as payment of the Exercise Price.]

 

[IF APPLICABLE: The undersigned hereby agrees to cancel $____ of principal outstanding under Notes of the Company held by the Holder.]

 

	o	Cashless Major Exercise

 

The undersigned hereby irrevocably exercises the Warrant with respect to ____% of the Warrant currently outstanding pursuant to a Cashless Major Exercise in accordance with the terms of the Warrant.

 

	o	[ *** ].

 

1.   [NOT REQUIRED IF 9.985% CAP NOT APPLICABLE UNDER SECTION 1] The undersigned represents that the beneficial ownership of Common Stock by the undersigned, its Affiliates (as defined in the Warrant) and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with the undersigned’s for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, would not exceed the 9.985% Cap (as defined in the Warrant), based on total outstanding shares of Common Stock of the Company as determined pursuant to the provisions of Section 1 of the Warrant, upon this exercise.

 

2.  The undersigned requests that any stock certificates for such shares be issued free of any restrictive legend, if appropriate, and, if requested by the undersigned, a warrant representing any unexercised portion hereof be issued, pursuant to the Warrant in the name of the undersigned and delivered to the undersigned at the address set forth below.

 

3.  Capitalized terms used but not otherwise defined in this Exercise Form shall have the meaning ascribed thereto in the Warrant.

 

	
Dated:

	 	
 

 

 

 Signature

 

 

 Print Name

 

Address

 

NOTICE

 

The signature to the foregoing Exercise Form must correspond to the name as written upon the face of the attached Warrant in every particular, without alteration or enlargement or any change whatsoever.

18

EXHIBIT  B

 

ASSIGNMENT

 

(To be executed by the registered holder

 desiring to transfer the Warrant)

 

FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the “Warrant”) hereby sells, assigns and transfers unto the person or persons below named the right to purchase __________ shares of the Common Stock of Discovery Laboratories, Inc., a Delaware corporation, evidenced by the attached Warrant and does hereby irrevocably constitute and appoint __________ attorney to transfer the said Warrant on the books of the Company, with full power of substitution in the premises.

	
Dated:

	 	
 

	
 

	
 

	
 

	
 

	
Signature

 

Fill in for new registration of Warrant:

 

	
 

	
 

	Name	
 

	 	
	
 

	
 

	Address	
 

	 	
	
 

	
 

	
Please print name and address of assignee

	
 

	
(including zip code number)

	
 

NOTICE

 

The signature to the foregoing Assignment must correspond to the name as written upon the face of the attached Warrant in every particular, without alteration or enlargement or any change whatsoever.

19

EXHIBIT  C

 

FORM OF OPINION

______, 20__

 

Discover Laboratories, Inc.

2600 Kelly Road, Suite 100

Warrington, PA  18976

	
Re:

	
Discovery Laboratories, Inc. (the “Company”)

 

Dear Sir:

 

[___________] (“[__________]”) intends to transfer _______ Warrants (the “Warrants”) of the Company to __________ (“________”) without registration under the Securities Act of 1933, as amended (the “Securities Act”).  In connection therewith, we have examined and relied upon the truth of representations contained in an Investor Representation Letter attached hereto and have examined such other documents and issues of law as we have deemed relevant.

 

Based on and subject to the foregoing, we are of the opinion that the transfer of the Warrants by _______ to ______ may be effected without registration under the Securities Act, provided, however, that the Warrants to be transferred to _______ contain a legend restricting its transferability pursuant to the Securities Act and that transfer of the Warrants is subject to a stop order.

 

The foregoing opinion is furnished only to ____________ and may not be used, circulated, quoted or otherwise referred to or relied upon by you for any purposes other than the purpose for which furnished or by any other person for any purpose, without our prior written consent.

 

Very truly yours,

20

[FORM OF INVESTOR REPRESENTATION LETTER]

 

_____, 20__

 

Discovery Laboratories, Inc.

2600 Kelly Road, Suite 100

Warrington, PA  18976

Gentlemen:

 

_________ (“___”) has agreed to purchase _________ Warrants (the “Warrants”) of Discovery Laboratories, Inc. (the “Company”) from [___________] (“[_________]”).  We understand that the Warrants are “restricted securities.” We represent and warrant that ______ is a sophisticated institutional investor that would qualify as an “Accredited Investor” as defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended (the “Securities Act”).

 

________ represents and warrants as of the date hereof as follows:

 

1.  That it is acquiring the Warrants and the shares of common stock, $0.001 par value per share underlying such Warrants (the “Exercise Shares”) solely for its account for investment and not with a view to or for sale or distribution of said Warrants or Exercise Shares or any part thereof. ________ also represents that the entire legal and beneficial interests of the Warrants and Exercise Shares _________ is acquiring is being acquired for, and will be held for, its account only;

 

2.  That the Warrants and the Exercise Shares have not been registered under the Securities Act on the basis that no distribution or public offering of the stock of the Company is to be effected. _______ realizes that the basis for the exemption may not be present if, notwithstanding its representations, _______ has a present intention of acquiring the securities for a fixed or determinable period in the future, selling (in connection with a distribution or otherwise), granting any participation in, or otherwise distributing the securities. _______ has no such present intention;

 

3.  That the Warrants and the Exercise Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. ________ recognizes that the Company has no obligation to register the Warrants, or to comply with any exemption from such registration;

 

4.  That neither the Warrants nor the Exercise Shares may be sold pursuant to Rule 144 adopted under the Securities Act unless certain conditions are met, including, among other things, the existence of a public market for the shares, the availability of certain current public information about Company, the resale following the required holding period under Rule 144 and the number of shares being sold during any three month period not exceeding specified limitations;

 

5.  That it will not make any disposition of all or any part of the Warrants or Exercise Shares in any event unless and until:

 

(i)            There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with said registration statement; or

 

(ii)            _________ shall have notified the Company of the proposed disposition and, in the case of a sale or transfer in a so called “4(1) and a half” transaction, shall have furnished counsel to the Company with an opinion of counsel, reasonably satisfactory to counsel to the Company.

21

We acknowledge that the Company will place stop orders with respect to the Warrants and the Exercise Shares, and if a registration statement is not effective, the Exercise Shares shall bear the following restrictive legend:

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED 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 RULES 144 OR 144A UNDER SAID ACT OR PURSUANT TO A PRIVATE SALE EFFECTED UNDER APPLICABLE FORMAL OR INFORMAL SEC INTERPRETATION OR GUIDANCE, SUCH AS A SO-CALLED “4(1) AND A HALF” SALE.”

 

“THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN REGISTRATION RIGHTS AGREEMENT DATED AS OF FEBRUARY 13, 2013, AS AMENDED FROM TIME TO TIME, AMONG THE COMPANY AND CERTAIN HOLDERS OF ITS OUTSTANDING SECURITIES. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY.”

 

At any time and from time to time after the date hereof, _________ shall, without further consideration, execute and deliver to [________] or the Company such other instruments or documents and shall take such other actions as they may reasonably request to carry out the transactions contemplated hereby.

 

Very truly yours,

22

Schedule 1

 

Black-Scholes Value

 

	
 

	
Calculation Under Section 5(c)(ii)

		
Calculation Under Section 10(b) or 11(b)

	 			
	
Remaining Term

	
Number of calendar days from date of public announcement of the Major Transaction until the last date on which the Warrant may be exercised.

		
Number of calendar days from date of the Event of Failure until the last date on which the Warrant may be exercised.

	 			
	
Interest Rate

	
A risk-free interest rate corresponding to the US$ LIBOR/Swap rate for a period equal to the Remaining Term.

		
A risk-free interest rate corresponding to the US$ LIBOR/Swap rate for a period equal to the Remaining Term.

	 			
	
Cost to Borrow

	
Zero

		
Zero

	 			
	
Volatility

	
If the first public announcement of the Major Transaction is made at or prior to 4:00 p.m., New York City time, [ *** ].

  

If the first public announcement of the Major Transaction is made after 4:00 p.m., New York City time, [ *** ].

		
[ *** ].

 

 

	 			
	
Stock Price

	
[ *** ].

		
[ *** ].

	 			
	
Dividends

	
Zero.

		
Zero.

	 			
	
Strike Price

	
Exercise Price as defined in section 3(a).

		
Exercise Price as defined in section 3(a).

 

 

23DISTRIBUTION

AND MARKETING
SERVICES AGREEMENT

 

THE
DISTRIBUTION AND MARKETING SERVICES AGREEMENT (“Agreement”) dated
as of April 30, 2013 is by and between Millennium Medical Devices LLC, a New York limited liability company
(“Distributor”), and Atossa Genetics Inc. a Delaware corporation (“Atossa”).
Distributor and Atossa are referred to as a “Party” or the “Parties.”

 

RECITALS

 

WHEREAS,
Atossa manufacturers and sells patented, FDA-cleared Class II
medical devices consisting of a hand-held pump (the “Pump”), and specimen collection kit (the “Collection
Kit”) which are sold separately or together along with related components such as fixative, packaging, instructions,
etc. (collectively, the “ForeCYTE Products”);

 

WHEREAS,
Atossa, through its wholly-owned CUA-certified laboratory, the National Reference Laboratory for Breast Health, Inc. (the
“NRLBH”), performs the ForeCYTE Breast Health Test (the “ForeCYTE Test”) on the patient
specimens submitted to the NRLBH with the Collection Kits (the “Lab Testing”) for physician practices and clinics
and other purchasers of laboratory testing services;

 

WHEREAS,
Distributor is a medical device distribution company performing certain marketing and distribution services in the New York
City and Northern New Jersey area (the “Territory”) for physicians practicing in
a managed care network (the “Distributor Customers”);

 

WHEREAS,
Atossa wishes to engage Distributor to distribute, promote and market ForeCYTE Products, as more fully described in Section
1 and Exhibit A hereto (the “Services”), and Distributor is willing to provide those Services in
accordance with the terms set forth herein.

 

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

 

		I.	ENGAGEMENT
                                                                                                                                        OF
                                                                                                                                        THE
                                                                                                                                        SERVICES.

 

A.           Engagement
of Distributor. Atossa hereby appoints Distributor as an authorized non-exclusive representative to use its best commercial
efforts to distribute market and promote the ForeCYTE Products to Distributor Customers in
the Territory and the Distributor hereby accepts such appointment.

 

B.           Scope
of Services. Distributor shall render the Services identified in the attached Exhibit A on behalf of Atossa to
the current and future Distributor Customers. Distributor shall use best commercial efforts to distribute, market and promote
the ForeCYTE Products to Distributor Customers in the Territory
and (a) exercise the highest degree of professionalism in the furnishing of the Services, (b) be responsible to provide the infrastructure
and personnel through which it shall furnish the Services at its sole expense, and (c) perform the Services in a timely and professional
manner consistent with similarly situated distributors and marketing consultants. Except as provided in Section III.D,
Distributor shall not sub-contract or otherwise delegate its obligations under this Agreement, without Atossa’s prior written
consent. Distributor shall not, directly or through others, distribute, market or promote products and services that are competitive,
directly or indirectly, with services and products provided by Atossa or the NRLBH.

 

C.           Legal
Compliance. The manner and means by which Distributor performs its Services for Atossa shall be in Distributor’s
sole discretion and control, subject to this Agreement, applicable law and in compliance with all related Federal and state regulations,
ethical business practices and Atossa’s regulatory compliance policies, including those set forth in the attached Exhibit
B.

 

    	Page | 1

    	 

    

 

D.           Distributor
Service Performance. On or before the fifth business day of each month, Distributor shall provide a written report
to Atossa covering activity for the prior month, in the form set forth in Exhibit C (the “Performance Report”).
If the Distributor fails, to perform the Services required by this
Agreement, taking into account the most recent Performance Report provided to Atossa, then Atossa shall notify Distributor in
writing of such nonperformance including reasonable detail and the dates of nonperformance (a “Service Deficiency”).

 

		II.	COMPENSATION FOR SERVICES.

 

A.           Fixed
Monthly Service Fee. In consideration for the provision by Distributor of the Services hereunder, Atossa
shall pay Distributor a fixed fee as set forth in the attached Exhibit D (each, a “Monthly Service Fee”),
which shall be paid by Atossa within 30 days of the end of the month for which the Monthly Service Fee applies. Payments not received
by Distributor within 30 days from due date shall be subject to a 2% per ·month interest charge for all amounts past due.
Atossa shall not be obligated to pay the Monthly Service Fee if Distributor is in breach of this Agreement or if there is a Service
Deficiency (the “Suspended Service Fee”). If a
Service Deficiency is remedied during the term of this Agreement then Atossa shall be obligated to pay the related Suspended Service
Fee within 30 days of such determination. If this Agreement is terminated
for cause Atossa shall pay Distributor the Monthly Service Fee owing, other than any Suspended Service Fees, for all Services
performed by Distributor prior to and including the effective date of termination.

 

B.           Compliance
with Law. It is the intention of the Parties that the Monthly Service Fee shall at all times be in compliance with
all applicable laws, rules, regulations, policies and interpretations and shall not exceed the fair market value for the Services
provided by Distributor hereunder, and shall not be determined in a manner that takes into account the volume or value of any
referrals or business that otherwise may be generated by either Party for which payment may be made in whole or in part under
the Federal Health Care Programs. The term “Federal Health Care Programs” is used herein as it is defined in 42 U.S.C.
1320a-7b(f), and includes any Plan or program that provides health benefits, whether directly, through insurance, or otherwise,
which is funded Directly, in whole or in part, by the United States
Government (e.g., Medicare, Medicaid, TRICARE). If either Party
determines at any time or is reliably informed by governmental authorities that the compensation arrangements or other terms set
forth herein violate or are likely to be determined by a governmental
authority to violate such laws, rules, regulations, policies or interpretations, the Parties agree to meet immediately and in
good faith to amend this Agreement so as to eliminate such concern or violation and to bring this Agreement into compliance with
the foregoing. Any such amendment shall, within lawful guidelines, have the same aggregate economic effect upon the Parties.

 

C.           Renewal.
The Parties agree that they shall have the right at the commencement of any Renewal Term, as provided in Section V.A
hereof, to review the Monthly Service Fee set forth in Exhibit D and to make a mutually agreeable adjustment to the
Monthly Service Fee, so long as the Monthly Service Fee as adjusted is consistent with fair market value.

 

		III.	DISTRIBUTION
                                                                              OF FORECYTE PRODUCTS.

 

A.           Purchase
and Distribution of ForeCYTE Products.
Distributor shall purchase the ForeCYTE Products only from Atossa and shall at all times maintain sufficient inventory
of the ForeCYTE Products to timely satisfy orders from Distributor Customers. Distributor shall from time to time place orders
for the ForeCYTE products using a form of purchase order reasonably acceptable to Atossa subject to the following:

 

1.            Purchase
Terms. All sales of the ForeCYTE Products to the Distributor shall be at the
price set forth on Exhibit C, subject to updating by Atossa with advance notice to Distributor. Sales to Distributor shall
be FOB Distributor, which shall be payable net 30 days from invoice date subject to a 2% per month interest charge for all amounts
past due. Each order of ForeCYTE Products shall have a total invoice price to the Distributor of not less than $———.

 

    	Page | 2

    	 

    

 

2.            Forecasts.
Distributor shall on or before the first business day of each month provide a 90 day rolling forecast of its good faith reasonable
estimate of its expected purchasing quantities and delivery dates in the upcoming 90 days, which must include the minimum quantities
set forth on Exhibit C. This 90 day rolling forecast shall not be binding on the Distributor but Atossa shall not be responsible
for filling any orders placed for ForeCYTE Products that exceed the quantities or don’t conform with the expected delivery
dates set forth in any such 90 day forecast delivered to Atossa.

 

3.            Minimum
Purchases. Exhibit C sets forth the minimum quantity of ForeCYTE Products that must be purchased by Distributor on or
before the dates and at the prices set forth in Exhibit C.

 

4.            Supply
Shortages. Supply of ForeCYTE Products may be disrupted from time to time because of regulatory issues, shortages of raw
materials or components or for other reasons beyond the reasonable control of Atossa and in event of such disruption Atossa shall
promptly notify the Distributor in writing as soon as practicable of such disruption and provide the estimated time to recommence
supply of ForeCYTE Products. The minimum purchases set forth on Exhibit C shall be reduced by the amount of any such shortages.

 

B.           Exclusivity;
Customer Conflicts. The Distributor acknowledges that Atossa distributes the ForeCYTE Products directly and through others
in the Territory and that others have been granted rights to sell the ForeCYTE Products nationally including to Distributor Customers.
If instructed to do so by Atossa, the Distributor shall refrain
from promoting, marketing or distributing the ForeCYTE Products to any potential customers if Atossa is notified the Distributor
that the particular customer has already purchased the ForeCYTE Products from another distributor.

 

1.            Exclusivity.
Subject to the above, the Distributor may obtain exclusive rights to sell ForeCYTE Products to certain Distributor Customers as
follows: If a Distributor Customer has purchased ForeCYTE Products
from the Distributor in the prior 90 days and if the Distributor Customer has provided Collection Kits to the NLRBH for completion
of the ForeCYTE Test then the Distributor shall inform Atossa in writing of the name and location of such Distributor customer.
Distributor shall update such l ist of such Distributor Customers on a monthly basis and provide a copy of such list to Atossa
on or before the fifth business day of each month, with such list being certified as being true and correct by an executive officer
of Distributor (the customers on such list, as updated, are referred to as “Distributor ForeCYTE Customers”).
Such Distributor ForeCYTE Customers shall be exclusive to Distributor and Atossa shall not distribute ForeCYTE Products directly
or through others to such Distributor ForeCYTE Customers. During the Term of this Agreement, Distributor ForeCYTE Customers that
contact Atossa for ForeCYTE Products shall be referred to Distributor for order fulfillment.

 

2.            Customer
Conflicts. Distributor shall have the right to inform Atossa in writing from time to time of the names and locations of
potential Distributor Customers that Distributor has established a relationship with and believes in good faith will purchase
ForeCYTE Products from Distributor within the next 90 days. The Parties acknowledge that it would create confusion and not be
in the best interest of physician’s and. patients if multiple sales representatives are soliciting such same potential customers.
Accordingly, during this 90-day period Atossa shall not solicit such customers to purchase the ForeCYTE Products from anyone other
than · the Distributor.

 

3.            Ethical
Obligations. Notwithstanding anything in this Agreement
to the contrary no customer shall be considered a Distributor ForeCYTE Customer if such customer is not satisfied with the service
provided by Distributor and the Parties acknowledge and agree that nothing in this Agreement shall limit the ethical obligation
of the NRLBH and its licensed physicians from providing medically useful services to patients including the ForeCYTE Test.

 

    	Page | 3

    	 

    

 

C.           Sales
                                                                                                                 Materials.
                                                                                                                 Atossa shall
                                                                                                                 make available
                                                                                                                 to the Distributor
                                                                                                                 brochures, product
                                                                                                                 literature, training
                                                                                                                 materials and
                                                                                                                 labeling which
                                                                                                                 may be copied,
                                                                                                                 but not altered
                                                                                                                 in anyway, by
                                                                                                                 Distributor and
                                                                                                                 utilized to distribute
                                                                                                                 market and promote
                                                                                                                 the ForeCYTE
                                                                                                                 Products. The
                                                                                                                 Distributor shall
                                                                                                                 use only such
                                                                                                                 sales materials
                                                                                                                 as are provided
                                                                                                                 by Atossa or
                                                                                                                 those materials
                                                                                                                 that are otherwise
                                                                                                                 approved in writing
                                                                                                                 in advance by
                                                                                                                 Atossa. All use
                                                                                                                 by the Distributor
                                                                                                                 of the name “Forecyte,”
                                                                                                                 “Atossa,”
                                                                                                                 “National
                                                                                                                 Reference Laboratory
                                                                                                                 for Breast Health”
                                                                                                                 or any other
                                                                                                                 name or mark
                                                                                                                 that is copyrighted,
                                                                                                                 trademarked or
                                                                                                                 service-marked
                                                                                                                 by Atossa shall
                                                                                                                 be subject to
                                                                                                                 the prior written
                                                                                                                 approval of Atossa.
                                                                                                                 Upon any termination
                                                                                                                 of this Agreement,
                                                                                                                 the Distributor
                                                                                                                 shall immediately
                                                                                                                 cease the use
                                                                                                                 of all such names
                                                                                                                 and marks and
                                                                                                                 shall return
                                                                                                                 to Atossa any
                                                                                                                 supplies, samples,
                                                                                                                 brochures, product
                                                                                                                 literature, training
                                                                                                                 materials and
                                                                                                                 other materials
                                                                                                                 bearing such
                                                                                                                 names or marks.

 

D.           Authorized
Sub-contractors and Sub-distributors. Distributor may delegate or assign some or all of its duties envisioned by this
Agreement hereunder to its qualified employees and independent Representatives and other personnel engaged and/or employed by
Distributor (“Distributor Representatives”), provided that:

 

1.            Such
representatives shall not be health care professionals or persons in a similar position who might be capable of exerting undue
influence on a Distributor Customer or its patients.

2.            Atossa
retains the right, at its sole discretion, to revoke permission for Distributor to allow any of Distributor’s independent
contractors or employees to take actions in furtherance of the Distributor’s duties under this Agreement, only if a breach
of this agreement or ethical issues are exposed.

3.            Distributor
must require its contractors, sub-distributors and/or employees to be bound by the terms and conditions of this Agreement relating
to Distributor, all in a document reasonably satisfactory to Atossa. Atossa retains the right to inspect and/or require modifications
to Distributor’s agreements with its independent contractors and sub-distributors and/or employees at any time.

4.            Distributor
shall remain liable as a principal and not as surety for all of its obligations hereunder.

5.            Distributor
shall indemnify, defend and hold harmless Atossa and its employees, shareholders, officers, directors, agents and other affiliates,
to the fullest extent permitted by law, against any and all claims, actions, demands, losses, costs, expenses, damages and claims
of any kind whatsoever which Atossa may sustain or incur, including reasonable legal fees and costs, as a result of or arising
from Distributor’s failure to fulfill its obligations or perform its duties with respect to its employees, contactors, shareholders,
officers, directors, agents, sub-distributors, and other affiliates of Distributor. Said indemnification by Distributor shall
include its negligent, willful or intentional action, and/or omission.  

E.      Lab
Testing. Consistent with good laboratory practices and applicable clinical and molecular laboratory laws Atossa
shall perform the ForeCYTE Test at the NRLBH for the Collection Kits submitted by the Distributor ForeCYTE Customers. Distributor
acknowledges that Atossa owns U.S. patents and patent applications on the ForeCYTE Test and ForeCYTE Products and that those patents
prohibit others from performing laboratory services on specimens collected with the Pump and the Collection Kits. Distributor
shall not cause, directly or indirectly, any Collection Kits to be provided to any laboratory other than the NRLBH.

 

F.      Atossa
as Provider of the ForeCYTE Testing.
Atossa shall have ultimate discretion regarding the acceptance by Atossa of requests for the ForeCYTE Test. ln exercising
such discretion, Atossa shall take into consideration such factors as it deems relevant, including but not limited to whether
it has the necessary licenses to deliver the ForeCYTE Test in the locations served by Distributor, and the necessary billing or
provider numbers to bill and be paid for such services by third party payers, and other relevant factors such as the n umber
and mix of ForeCYTE Tests requested by or at a given location. Atossa may require Distributor Customers to execute such typical
and customary form s of agreement as applicable to Atossa’s customers generally, including forms and formats for ordering
testing and for submitting billing information.

 

G.     Training.
During the first 60 days of the term of this Agreement, Atossa will provide Millennium’s sales personnel with training
geared toward reasonably preparing such personnel to market and sell the ForeCYTE Products in a manner generally accepted for
similar products in the industry.

 

    	Page | 4

    	 

    

 

		IV.	INDEPENDENT DISTRIBUTOR RELATIONSHIP.

 

Distributor’s
relationship with Atossa will be that of an independent contractor and nothing in this Agreement
should be construed to create a partnership, joint venture, franchise, or employer-employee relationship. Distributor is not authorized
to make any representation, contract, or commitment on behalf of Atossa not expressly authorized by Atossa. Distributor will not
be entitled to any of the benefits that Atossa may make available to its employees, such as group insurance, profit sharing or
retirement benefits. Distributor will be solely responsible for all tax
returns and payments required to be filed with or made to any federal, state or local tax authority with respect to Distributor’s
performance of services and receipt of fees under this Agreement. Atossa will regularly report amounts paid to Distributor by
filing Form 099-MlSC with the Internal Revenue Service as required by Jaw. Atossa will not withhold or make payments for social
security; make unemployment insurance or disability insurance contributions: or obtain worker’s compensation insurance
on Distributor’s behalf. Distributor agrees to accept exclusive
liability for complying with all applicable state and federal laws governing self-employed individuals, including obligations
such as payment of taxes, social security, disability and other contributions based on fees paid to Distributor, its agents or
employees under this Agreement. Distributor hereby agrees to indemnify and defend Atossa against any and all such taxes or contributions,
including penalties and interest.

 

		V.	CONFIDENTIALITY.

 

A.     Confidentiality.
The Parties acknowledge that the terms of this Agreement are confidential and will not be disclosed without the prior written
consent of the non-disclosing Party except as may otherwise be required by law. Further, during the Term of this Agreement, and
at all times following termination thereof, each Party shall keep strictly confidential all information which they obtain from
the other Party during the Term, including, in particular, “Proprietary Information” and “Third Party
Information,” as each of such terms is defined below. Neither Party shall use or disclose to any person, firm, or other
entity or permit any person to examine, copy or duplicate any such confidential information furnished by one Party to the other,
except as otherwise required by law. Upon the termination of this Agreement (irrespective of the reason or circumstances), unless
otherwise agreed to in writing by the Parties, each Party will return to the other Party all such confidential information in
its possession, as well as any copies or information derived there from. Without limiting any other provision herein, the provisions
of this Section shall survive any termination or expiration of this Agreement. Furthermore, upon termination of this Agreement,
unless otherwise agreed to in writing by the Parties, Atossa and Distributor shall immediately discontinue their use (if any)
of the name or trademarks of the other (or developed for Atossa by Distributor) and shall immediately discontinue all representation
s or statements from which it might be inferred that any relationship exists between Atossa and Distributor.

 

B.     Defined
Terms. For purposes of this Agreement:

 

“Proprietary
Information” includes, without limitation: (a) trade secrets, inventions, ideas, processes, formulas, source and object
codes, data, programs, other works of authorship, know-how, improvements, discoveries, developments, designs and techniques;
(b) information regarding plans for research, development, new products, marketing and selling, business plans, budgets and unpublished
financial statements, licenses, prices and costs, suppliers, customers and prospective customers; and (c) information regarding
the skills and compensation of employees and Distributors. Notwithstanding the other provisions of this Agreement, Proprietary
Information does not include (x) information that has been published or is otherwise readily available to the public other than
by a breach of this Agreement; (y) information independently developed by personnel or agents
of one Party having no access to the other Party’s Proprietary Information; or (z) information
known to the receiving Party prior to its receipt from the disclosing Party.

 

“Third
Party Information” means Proprietary Information received from a third party (i.e. a person or entity other than a Party
to this Agreement). The Parties each understand that shall maintain the confidentiality of Third Party Information in accordance
with the foregoing terms of this Section V.

 

C.     HIPAA
Compliance. In connection with the provision of the Services provided hereunder,
Distributor may have access to certain protected health information as defined by the Health Insurance Portability and Accountability
Act of 1996 (“HlPAA”), as amended. Distributor agrees to execute and comply
with the HIPAA Business Associate Agreement attached Exhibit F, which is hereby incorporated
by reference. This Section V.C. shall survive the termination of this Agreement.

 

    	Page | 5

    	 

    

  

D.           Ownership
of Proprietary Information. Each Party acknowledges that all data, documents (whether in draft or final form), databases,
storage media, files, electronic or otherwise, computers, equipment and accessories, pagers, personal digital assistants, telephones
and other property containing or referring to  Proprietary Information shall at all times be the exclusive property of
the disclosing Party.

 

E.     Remedies. Atossa and Distributor acknowledge and agree that the agreements, covenants and undertakings contained
in this Section V relate to matters which are of a special unique and extraordinary character and that a violation of the
terms of this Article will cause irreparable injury to the other Party, the amount of which may be extremely difficult, if not
impossible, to estimate or determine and may not be adequately compensated by monetary damages. Therefore, Atossa and Distributor
agree that either Party shall be entitled to an injunction, restraining order or other equitable relief from any court of competent
jurisdiction, restraining any violation or threatened violation of any such terms by the other Party or such other persons,
as the court will order. The rights and remedies provided by this Section V are cumulative and will be in addition to any
other rights and remedies which either Party may have at Jaw or equity.

 

		VI.	TERMINATION.

 

A.    Term.
Unless terminated by either Party in accordance with the terms of this Section VI, the initial term of this Agreement shall
be three (—) years (the “Initial Term”). Further, this Agreement
will automatically renew for additional one (1) year terms (each, a “Renewal Term”),
unless terminated by either Party upon ninety (90) days’ prior written notice prior to the expiration of the Initial Term
or the then-applicable Renewal Term. The Initial Term and the Renewal Term are sometimes referred to in
this Agreement together as the “Term.” Within the agreement timeline if Distributor enters a new market,
the Parties may mutually agree on an amended marketing fee schedule will be added to the
terms of this Agreement.

 

B.    Termination.
Following the one-year anniversary of the Effective Date, either Party may terminate this Agreement at any time upon thirty
(30) days’ prior written notice to other Party. Further, either Party may terminate this Agreement upon a material breach
of this Agreement by the other Party if such breach is not cured within thirty (30) days after written notice of said breach by
the non-breaching Party to the Party in breach (the “Cure
Period”).

 

C.    Termination
Without Cause. Notwithstanding the above, Atossa may terminate this Agreement without “Cause”
only upon providing Distributor with 18 months prior written notice of such termination. “Cause” shall mean a breach
of this Agreement by Distributor.

 

D.    Return
of Property. Upon termination of this Agreement or earlier if requested by the other Party, any and all notes, memoranda,
specifications, devices, formulas, and documents, together with all copies thereof in any form, and any other material containing
or disclosing any Third Party Information or Proprietary Information shall be returned to the Party that provided such information
to the other Party under this Agreement. In the case of devices, Atossa shall reimburse Distributor for any and all reasonable,
documented, out of pocket costs associated with the purchase, maintenance and logistics of the ForeCYTE Products returned.

 

    	Page | 6

    	 

    

 

		VII.	REPRESENTATIONS
                                                                                                                       AND WARRANTIES;
                                                                                                                       INSURANCE;
                                                                                                                       INDEMNITY

 

A.           Compliance
with Health Care Laws. The parties agree that at the time this Agreement is executed, the subject matter hereof is legal
and enforceable. It is expressly recognized and understood by the parties hereto that the prohibitions of the federal Anti-kickback
Statute and applicable state laws (the “Health Care Laws”) will affect the parties hereto except to the extent
the parties otherwise fall within a safe harbor or other exception to such Health Care Laws; therefore, the parties agree that
the terms and conditions of this Agreement must at all times comply with those exceptions. Specifically, it is intended that
at all times hereunder that this Agreement and the parties’ business arrangement hereunder shall meet the requirements of
the Personal Services and Management Contracts Safe Harbor to the federal Anti-kickback Statute (42 C.F.R. §
100l.952(d)). Accordingly, if either Party, in good faith, determines at any time or is reliably informed by governmental
authorities that the Agreement violates or is likely to be determined
by a third party to violate such laws, rules, regulations, policies or interpretations, this Agreement will be
deemed to be automatically modified to comply with such law or regulation. The parties further agree to meet immediately
upon such determination and in good faith to amend this Agreement so as to eliminate such concern or violation and to bring this
Agreement into compliance with the foregoing. If the Agreement
cannot be brought into compliance with such law or regulation, it shall be terminated.

 

B.           No
Debarment/Exclusion. Each Party certifies to the other that neither it nor any of its employees and agents is excluded
under 42 U.S.C. §I320(a)-7 from participation under any federal health care program
for the provision of items or services for which payment may be made under a federal health care program; and (ii) no action has
occurred or is pending or threatened against it or to its knowledge against any employee, Distributor or agent engaged to provide
items or services that could result in such exclusion (collectively, “Exclusions/Adverse Actions”). During
the term of this Agreement, Each Party agrees to notify the other Party in writing of any
Exclusions/Adverse Actions within twenty-one (21) days of learning of any such Exclusions/Adverse Actions and provide the basis
of the Exclusions/Adverse Actions. Each Party acknowledges that the exclusion of any of its personnel from participation in the
Medicare or Medicaid programs shall result in his or her immediate removal from work under this Agreement. Each Party acknowledges
and agrees that any unresolved Exclusions/Adverse Actions of or against it or any employee, agent or independent Distributor utilized,
directly or indirectly, in the performance of this Agreement may serve as the basis for the immediate termination of this Agreement
by the other Party.

 

C.           Insurance;
Expenses. Each Party shall carry general liability and professional liability (if applicable) insurance covering
liability for claims, causes of actions, actions, losses, liabilities, damages, and expenses arising out of, caused by or otherwise
resulting from the negligence or otherwise wrongful acts or omissions of its employees and/or agents occurring while each is engaged
in activities related to this Agreement. Said policies shall contain minimum limits of liability of one million dollars ($l,000,000) per occurrence and two million dollars ($2,000,000) in the aggregate, or as the Parties may otherwise mutually agree.
All expenses incurred by either Party, including for marketing, training and promotional purposes, shall be the sole responsibility
of the Party incurring such expenses.

 

D.           Atossa
Indemnity. Atossa shall indemnify and hold Distributor harmless from any claims arising out of the ForeCYTE Products provided
by Atossa from any third party, including government entities (including any fees, costs, including, without limitation, attorneys’
fees, expert witness fees and costs of court, and expenses associated with the defense against same), except to the extent such
claims arise from the negligence or willful misconduct of Distributor, including any breach of this Agreement.

 

E.           Authority.
Atossa represent s that it is a corporation duly organized under the laws of the State of Delaware and Distributor represents
that it is a limited liability company organized under the laws of the State of New York. Each party represents that (i) it has
all necessary corporate power to enter into this Agreement, (ii) the execution and delivery of this Agreement has been duly authorized
by all necessary corporate action, and (iii) this Agreement, once executed and delivered, shall be a legal, valid and binding
obligation of the respective Party enforceable in accordance with their respective terms.

 

F.           Distributor
Indemnity. Distributor shall indemnify and hold Atossa harmless from any claims arising out of the Services provided by
Distributor from any third party, including government entities (including any fees, costs, including, without limitation, attorneys
fees, expert witness fees and costs of court, and expenses associated with the defense against same), except to the extent such
claims arise from the negligence or willful misconduct of Atossa, including any breach of this agreement.

 

    	Page | 7

    	 

    

 

G.           Noninterference with Respective
Businesses. The Parties further recognize that, in conjunction with Distributor ’s provision of services to Atossa,
the Parties shall mutually benefit from their association with each respective Party’s goodwill with third parties in Distributor’s
and Atossa’s respective marketplaces. In recognition of the Parties’ exchange of Proprietary information and Third
Party Information and in recognition of each Party benefiting from the other Party’s goodwill in the marketplace, the Parties
agree to the following continuing rights and obligations and restrictions:

 

H.           Nonsolicitation.
During the Term of this Agreement and for a period of two (2) years following its termination by either Party for any reason,
neither Party shall solicit, recruit, hire, induce or interfere in any manner with the other Party’s relationship with any
employee or independent Distributor of the other Party as of the termination date of this Agreement.

 

I.     Goodwill. Each Party agrees that the goodwill and reputation of the other Party are essential and should
not be impaired at any time. Neither Party nor its agents shall communicate or cause or encourage others to communicate with any
person in a manner which: (i) disparages the other Party or its respective affiliates, directors, officers, employees, representatives,
agents, business partners, sub distributors, distributors, suppliers, or the products or services of any of the foregoing; or
(ii) adversely affects, disrupts or interferes with the other Party’s reputation, goodwill, business relationships, business
plans, litigation, claims, business arrangements or agreements; or (iii) causes economic harm to the other Party.

 

		VIII.	MISCELLANEOUS.

 

A.           Severability.
 If one or more of the provisions contained in this Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect the other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. Notwithstanding the foregoing, a court of competent jurisdiction may
reform any provision found invalid, illegal, or unenforceable in a
manner consistent with the intent of the Parties so as render such provision fully enforceable to the extent permitted by law.

 

B.           Counterparts;
Electronic Transmission. This Agreement may be executed in counterparts, with all counterparts constituting one and the
same original. Signatures may be transmitted or delivered by electronic means, including facsimile and digital image (e.g.,.PDF,
..JPG) and such electronic version shall constitute an original for all purposes.

 

C.           No
Assignment. This Agreement may not be assigned by either Party without the other Party’s prior written consent,
which consent shall not be unreasonably withheld, conditioned or
delayed. Subject to the foregoing, this Agreement shall be binding upon the heirs, successors, and permitted assigns of the Parties
hereto.

 

D.           Governing
Law. This Agreement shall be governed by and construed under the laws of the State of Washington without regard to the
principles of conflicts of laws thereof. Any judicial proceeding brought to enforce this Agreement, or any matter related thereto,
shall be brought in the appropriate court for King County, State of Washington or the appropriate United States District Court
for the Western District of Washington. By execution of this Agreement, each Party accepts and agrees to the exclusive jurisdiction
and venue of the aforesaid courts and irrevocably agrees to be bound by any judgment rendered thereby in connection with this
Agreement, subject to a Party’s appeal rights.

 

E.            Injunctive
Relief. A breach of certain promises or agreements contained in this Agreement may result in irreparable and continuing
damage to the non-breaching Party for which there may be no adequate remedy at law, and the non-breaching Party is therefore entitled
to seek injunctive relief as well as such other and further relief as may be appropriate. For purposes of this Section VIII.E.,
if a non-breaching Party seeks injunctive relief, the breaching Party shall waive any requirement of a bond or other security
and shall be liable for reasonable attorney fees and costs incurred
in enforcing the terms of this Agreement.

 

    	Page | 8

    	 

    

 

F.           Survival.
The following provisions shall survive termination of this Agreement: Sections V, Section VI.C, Section VII.F
through I, and Section VIII.

 

G.           Waiver.
No waiver by a Party to this Agreement of any breach of this Agreement shall be a waiver of any preceding or succeeding breach.
No waiver by a Party to this Agreement of any right under this Agreement shall be construed as a
waiver of any other right. Neither Party shall be required to give notice to enforce strict adherence to all terms of this Agreement.

 

H.           Entire
Agreement. This Agreement and the exhibits attached hereto, constitute the final, complete and exclusive agreement of
the Parties with respect to the subject matter hereof and supersede and merge all prior discussions between the Parties. No modification
of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing and
signed by the Party to be charged.

 

I.             Notices.
 All notices, requests and other communications under this Agreement must be in writing, and must be mailed by registered
or certified mail, postage prepaid and return receipt requested, or Delivered by hand to the Party to whom such notice is required
or permitted to be given. If mailed, any such notice will be considered
to have been given five (5) business days after it was mailed postage prepaid to the address provided below or updated by delivery
of written notice in accordance with the provisions of this Section VIII.I. If
delivered by hand, any such notice will be considered to have been given when received by the Party to whom notice is given.

 

	ATOSSA	DISTRIBUTOR
	 	 
	Atossa Genetics inc.	Millennium Medical Devices LLC
	1616 Eastlake
    Ave., East, No. 510	400 Garden City Plaza, Suite 440  
	Seattle,
    Washington 98102	Garden City, New York 11530  
	Attention: President

Tel.: (800) 351-3902	Attention:  Chris Amandola

Tel: (516) 628-5500 
	Fax: (206) 430-1 288	Fax: (516) 628-5400
	 	 
	 	With a copy to: 
	 	 
	 	Finkelstein & Feil, PC
	 	666 Old Country Road. Suite 210
	 	Garden City, NY 11530
	 	Attention: Michael Finkelstein, Esq. Tel:
    (516) 280-3660
	 	Fax: (516) 280-3661
	 	Email: msf@finkelsteinfeil.com

 

    	Page | 9

    	 

    

 

IN WITNESS WHEREOF, the
Parties have caused this Agreement to be executed by their duly authorized representative as of the date first set forth above.

 

	Atossa Genetics Inc.	 	Millennium medical devices llc	 
	 	 	 	 	 	 
	By:	/s/ Kyle Guse	 	By:	/s/ Chris Amandola	President
	 	Kyle Guse	 	 	Chris Amandola	 
	 	Chief Financial Officer and General Counsel	 	 	President	 

 

    	Page | 10

    	 

    

 

EXHIBIT A

 

DISTRIBUTOR
SERVICES

 

Distributor shall assist Atossa to distribute,
promote and market the ForeCYTE Products, by providing distribution, promotional and marketing services, including without limitation,
the services more fully described below (the "Services") through qualified employees and independent representatives
and other personnel engaged and/or employed by Distributor ("Distributor Representatives") in accordance with the Agreement
to which this Exhibit A forms a part:

 

		1.	Distribution, Marketing and Promotion of ForeCYTE
                                                                  Products. Subject to item 2 below, Atossa has engaged
                                                                  Distributor to use its best commercial efforts to distribute
                                                                  market and promote Atossa's ForeCYTE Products the Distributor
                                                                  Customers in the Territory. Distributor shall promptly sell
                                                                  the Atossa ForeCYTE Products to Distributor Customers so that
                                                                  all of Distributor’s inventory of ForeCYTE Products shall
                                                                  be sold prior to each date that Distributor is required to place
                                                                  a minimum purchase order. Distributor shall use best commercial
                                                                  efforts to ensure that Distributor Customers do not maintain
                                                                  more than 60 days inventory of Collection Kits, for example,
                                                                  by re-allocating such inventory to other Distributor Customers.

 

		2.	State Law Restrictions. To the extent prohibited
                                                                  by applicable state law, neither Distributor nor its Distributor
                                                                  Representatives shall solicit, arrange for or recommend any
                                                                  existing or potential Distributor Customers to order any ForeCYTE
                                                                  Test. Any solicitation of or marketing to Distributor Customers
                                                                  for the ForeCYTE Test within such states shall be conducted
                                                                  exclusively by Atossa and its employees.

 

		3.	Customer Liaison Services. Distributor shall
                                                                  provide customer service liaison support to Distributor Customers
                                                                  regarding issues such as specimen collection, operation of the
                                                                  Pump, complaints, missed tests, technical problems with laboratory
                                                                  testing procedures, specimen requirements and labeling, specimen
                                                                  transport and tracking and use of the Collection Kits. Distributor
                                                                  shall ensure the ongoing in-person and phone customer service
                                                                  required to maintain Distributor Customers. Distributor shall
                                                                  report to Atossa any customer service problems upon occurrence
                                                                  and shall provide Atossa on a quarterly basis a Customer
                                                                  Service and Quality improvement Summary Report. Distributor
                                                                  shall maximize sales of the ForeCYTE Products by soliciting
                                                                  and assisting Distributor Customers with the completion of new
                                                                  provider forms to be sent to the Lab.

 

		4.	Monitoring of Atossa Services. ln coordination
                                                                  with Atossa and its Quality Improvement Manager, Distributor
                                                                  shall monitor quality of the ForeCYTE Products and ForeCYTE
                                                                  Tests and use reasonable efforts to ensure that Atossa is providing
                                                                  timely and high quality services, including turnaround, corrected
                                                                  reports and resolution of problem samples. Distributor shall
                                                                  provide Atossa on a quarterly basis a Customer Service and
                                                                  Quality Improvement Summary Report.

 

		5.	Authorized Materials. Distributor shall use
                                                                  only materials supplied by or approved by Atossa, including
                                                                  without limitation new provider forms, test requisitions and
                                                                  order forms and sales and marketing materials. Distributor is
                                                                  not authorized to extend any representation, warranty, guaranty,
                                                                  obligation or responsibility (express or implied) with respect
                                                                  to the ForeCYTE Products and ForeCYTE Tests without express
                                                                  written authorization from Atossa. Atossa will provide one copy
                                                                  of literature, physician new provider forms, sales and marketing
                                                                  materials, etc. so that they can be duplicated without alteration
                                                                  by Distributor at Distributor's sole cost and expense.

 

		6.	No Impermissible Services. In
                                                                  no case shall Distributor or its Distributor Representative
                                                                  s perform any tasks that are normally the responsibility of
                                                                  the Distributor Customer or its office staff, including without
                                                                  Limitation, performing nursing function s, or performing clerical
                                                                  services for the Distributor Customer. Upon request by Atossa,
                                                                  Distributor shall provide to Atossa a signed certification from
                                                                  each Distributor Representative assigned to perform Services
                                                                  hereunder that the Distributor Representative shall comply fully
                                                                  with the Agreement and this Exhibit.

 

    	Page | 11

    	 

    

  

		7.	Compliance
                                                                                      Program. Distributor
                                                                                      shall be
                                                                                      expected to participate in
                                                                                      and assure that Distributor Representatives
                                                                                      comply in all material respects with Atossa’s
                                                                                      Compliance Program. Distributor shall also
                                                                                      review Atossa 's Compliance Program and,
                                                                                      on a regular and continuous basis, provide
                                                                                      consultation to Atossa on possible enhancements
                                                                                      to Atossa's Compliance Program. As an adjunct
                                                                                      to the Atossa's Compliance Program, Distributor
                                                                                      will also provide consultation on the implementation
                                                                                      of mechanisms to ensure the medical necessity
                                                                                      and appropriateness of all testing, including
                                                                                      without limitation Distributor Customer
                                                                                      in-service and education. Distributor’s
                                                                                      obligations hereunder are defined in greater
                                                                                      detail in Exhibit C below.

 

		8.	New Provider Forms. Prior to each date that
                                                                  Distributor must place a minimum order of ForeCYTE Products,
                                                                  Distributor shall ensure that new provider forms have been completed
                                                                  and submitted to the Lab for all Distributor Customers who have
                                                                  purchased ForeCYTE Products.

 

    	Page | 12

    	 

    

 

EXHIBIT B

 

COMPLIANCE OBLIGATIONS OF DISTRIBUTOR

 

		1.	Compliance
                                                                                                                                  Plan.
                                                                                                                                  Distributor
                                                                                                                                  shall
                                                                                                                                  maintain
                                                                                                                                  continuously
                                                                                                                                  in
                                                                                                                                  place
                                                                                                                                  throughout
                                                                                                                                  the
                                                                                                                                  term
                                                                                                                                  of
                                                                                                                                  this
                                                                                                                                  Agreement
                                                                                                                                  an
                                                                                                                                  effective
                                                                                                                                  Compliance
                                                                                                                                  Plan
                                                                                                                                  that
                                                                                                                                  includes
                                                                                                                                  at
                                                                                                                                  a
                                                                                                                                  minimum
                                                                                                                                  the
                                                                                                                                  seven
                                                                                                                                  (7)
                                                                                                                                  elements
                                                                                                                                  referred
                                                                                                                                  to
                                                                                                                                  in
                                                                                                                                  the
                                                                                                                                  OJG
                                                                                                                                  Compliance
                                                                                                                                  Program
                                                                                                                                  Guidance
                                                                                                                                  for
                                                                                                                                  Clinical
                                                                                                                                  Laboratories
                                                                                                                                  (published
                                                                                                                                  08-24-1998).
                                                                                                                                  At
                                                                                                                                  least
                                                                                                                                  once
                                                                                                                                  per
                                                                                                                                  year,
                                                                                                                                  the
                                                                                                                                  Distributor
                                                                                                                                  's
                                                                                                                                  compliance
                                                                                                                                  plan
                                                                                                                                  will
                                                                                                                                  be
                                                                                                                                  reviewed
                                                                                                                                  as
                                                                                                                                  a
                                                                                                                                  whole
                                                                                                                                  by
                                                                                                                                  Distributor's
                                                                                                                                  legal
                                                                                                                                  counsel
                                                                                                                                  and
                                                                                                                                  by
                                                                                                                                  key
                                                                                                                                  executives
                                                                                                                                  to
                                                                                                                                  assure
                                                                                                                                  that
                                                                                                                                  the
                                                                                                                                  plan
                                                                                                                                  is
                                                                                                                                  appropriate
                                                                                                                                  for
                                                                                                                                  the
                                                                                                                                  Services
                                                                                                                                  performed
                                                                                                                                  for
                                                                                                                                  Atossa
                                                                                                                                  hereunder
                                                                                                                                  and
                                                                                                                                  to
                                                                                                                                  update
                                                                                                                                  the
                                                                                                                                  plan
                                                                                                                                  to
                                                                                                                                  take
                                                                                                                                  into
                                                                                                                                  account
                                                                                                                                  changes
                                                                                                                                  in
                                                                                                                                  the
                                                                                                                                  regulatory
                                                                                                                                  environment.

 

		2.	Compliance Meetings. Distributor shall
                                                                  appoint a compliance committee which shall hold and document
                                                                  regulatory meetings and which shall report to the Distributors
                                                                  Board of Directors and which shall be accessible to all employees
                                                                  of Distributor.

 

		3.	Chief
                                                                                                       Compliance Officer.
                                                                                                       Distributor shall designate
                                                                                                       a Chief Compliance Officer
                                                                                                       who shall make it a key
                                                                                                       point of his or her efforts
                                                                                                       to
                                                                                                       assure that such persons
                                                                                                       continue to gain additional
                                                                                                       knowledge on compliance-
                                                                                                       related issues. Distributor'
                                                                                                       s Chief Compliance Officer
                                                                                                       shall timely inform Atossa
                                                                                                       's Compliance Officer of
                                                                                                       any compliance-related
                                                                                                       issues (within not later
                                                                                                       than 5 business days following
                                                                                                       the initial discovery of
                                                                                                       issues that may raise a
                                                                                                       compliance concern, with
                                                                                                       periodic updates as required
                                                                                                       by Atossa until the issue
                                                                                                       is resolved).

 

		4.	HIPAA
                                                                                                       Privacy Standards.
                                                                                                       In accordance with
                                                                                                       HIPAA, Distributor will
                                                                                                       adopt and maintain HIPAA
                                                                                                       compliance plan, as well
                                                                                                       as HIPAA-compliant
                                                                                                       privacy standards. Distributor
                                                                                                       will appoint a privacy
                                                                                                       official.

 

		5.	Background Checks on Employees and Distributors.
                                                                  Distributor will ensure that none of its employees, owners
                                                                  or contractors have been excluded or debarred from Medicare
                                                                  or Medicaid or any other federal program.

 

		6.	No
                                                                                                       Kickbacks. Distributor
                                                                                                       will
                                                                                                       maintain policies
                                                                                                       and procedures reasonably
                                                                                                       calculated to assure that
                                                                                                       all individuals providing
                                                                                                       services to Atossa and/or
                                                                                                       the Distributor ForeCYTE
                                                                                                       Customers under this Agreement
                                                                                                       are informed within the
                                                                                                       30 days following the inception
                                                                                                       of this Agreement (or such
                                                                                                       person's date of hire if
                                                                                                       later, and then at least
                                                                                                       twice yearly thereafter, that:

 

		a.	They
                                                                                                     are prohibited from engaging
                                                                                                     in any act or omission that
                                                                                                     constitutes or results in
                                                                                                     the overutilization of Atossa’s
                                                                                                     ForeCYTE
                                                                                                     Test.

 

		b.	They are required to comply with applicable state and federal
                                                                statutes, policies and regulations.

 

		c.	They may not engage in any illegal activities related to the
                                                                furnishing of the Atossa's ForeCYTE Test (such illegal activities
                                                                include - but are not limited to- paying kickbacks, incentives
                                                                and/or gratuities to Lab Customers or to individuals who might
                                                                influence a customer’s decision to order lab testing from
                                                                Atossa, or to provide such person with gifts, bribes, services,
                                                                or any other form of compensation in exchange for -or to induce-
                                                                referrals).

 

		d.	They
                                                                                                     must act in accord with the
                                                                                                     guidance issued by the Inspector
                                                                                                     General of the Department
                                                                                                     of Health and Human Services
                                                                                                     (as
                                                                                                     updated from time to time).

 

		e.	They
                                                                                                     may not have any direct contact
                                                                                                     with any patient who is receiving
                                                                                                     (or likely to receive) testing
                                                                                                     from Atossa.

 

		f.	They
                                                                                                                              may
                                                                                                                              not
                                                                                                                              be
                                                                                                                              a
                                                                                                                              health
                                                                                                                              care
                                                                                                                              professional
                                                                                                                              or
                                                                                                                              person
                                                                                                                              in
                                                                                                                              a
                                                                                                                              similar
                                                                                                                              position
                                                                                                                              who
                                                                                                                              might
                                                                                                                              be
                                                                                                                              capable
                                                                                                                              of
                                                                                                                              exerting
                                                                                                                              undue
                                                                                                                              influence
                                                                                                                              on
                                                                                                                              a
                                                                                                                              customer
                                                                                                                              or
                                                                                                                              a
                                                                                                                              customer's
                                                                                                                              patients.

 

    	Page | 13

    	 

    

 

EXHIBIT C

 

MINIMUM
PURCHASES

 

	Date	 	ForeCYTE Product	 	Quantity	 	Price* FOB
    Distributor
	 	 	 	 	 	 	 
	May 1, 2013	 	ForeCYTE Collection Kits (AG-FC5)	 	                    	 	                    
	May 1, 2013	 	MASCT pump (AG-MASCT)	 	40	 	FOC
	 	 	 	 	 	 	 
	Date	 	ForeCYTE
    Product	 	Quantity	 	Price*
    FOB Distributor
	 	 	 	 	 	 	 
	May 1, 2014	 	ForeCYTE Collection Kits (AG-FC5)	 	                    	 	                    
	May 1, 2014	 	MASCT pump (AG-MASCT)	 	80	 	FOC
	 	 	 	 	 	 	 
	Date	 	ForeCYTE Product	 	Quantity	 	Price* FOB Distributor
	 	 	 	 	 	 	 
	May 1, 2015	 	ForeCYTE Collection Kits (AG-FC5)	 	                    	 	                    
	May 1, 2015	 	MASCT pump (AG- MASCT)	 	120	 	FOC

  

* The prices equal approximately the cost to Atossa as of the date
of this Agreement, plus $2 per Collection Kit. The prices will be
adjusted from time to time so that the price of the Collection Kit is approximately equal to Atossa's then current cost
plus $2 per Collection Kit.

 

    	Page | 14

    	 

    

 

EXHIBIT D

 

COMPENSATION FOR DISTRIBUTOR SERVICES

 

A.       Compliance
with Law

 

It is the intention
of the Parties that the Monthly Service Fee set forth in this Exhibit D shall at all times be in compliance with all applicable
laws, rules, regulations, policies and interpretations and shall not exceed the fair market value for the Services provided by
Distributor hereunder, and is not determined in a manner that takes into account the volume or value of any referrals or business
that otherwise may be generated by either Party for which payment may be made in whole or in part under public or private healthcare
insurance program, including Medicare or Medicaid. ·

 

B.
       Monthly Service Fee

 

	Service Period	 	Fixed Service
    Fee
	May 2013	 	$                   
	June 2013	 	$                   
	July 2013	 	$                   
	August 2013	 	$                   
	September 2013	 	$                   
	October 2013	 	$                   
	November 2013	 	-$-                
	December 2013	 	$                   
	January 2014	 	$                   
	February 2014	 	$                   
	March 2014	 	$                   
	April 2014	 	$                   

 

	Service Period	 	Fixed Service
    Fee
	May 2014	 	$                   
	June 2014	 	$                  
    
	July 2014	 	$                   
	AuGust 2014	 	$                   
	September 2014	 	$                   
	October 2014	 	$                   
	November 2014	 	$                   
	December 2014	 	$                   
	January 2015	 	$                   
	February 2015	 	$                   
	March 2015	 	$                   
	April 2015	 	$                   

 

	Service Period	 	Fixed Service
    Fee
	May 2015	 	$                   
	June 2015	 	$                   
	July 2015	 	$                   
	August 2015	 	$                   
	September 2015	 	$                   
	October 2015	 	$                   
	November 2015	 	$                   
	December 2015	 	$                   
	January 2016	 	$                   
	February 2016	 	$                   
	March 2016	 	$                   
	April 2016	 	$                   

 

    	Page | 15

    	 

    

 

EXHIBIT E

 

PERFORMANCE CERTIFICATE

 

The undersigned duly appointed
and acting President of the Distributor hereby certifies, based on reasonable inquiry and investigation, that the following is
true and correct as of                     
     , 201   .

 

	Performance
    Criteria	 	Results for Month of 2013
	l. Number of Collection Kits held in
    inventory at month end	 	 
	2. Number of Collection Kits held by health care providers at month end	 	 
	3. Number of Pumps held in inventory
    at month end	 	 
	4. Number of Pumps held by health care providers at month end	 	 
	5. Number of Physicians trained on ForeCYTE during month	 	 
	6.Number of Physicians who have completed ForeCYTE —New Provider Fonns during month	 	 
	6.a. Of the New Provider Forms, how many AG-MASCT5 kits have been placed within these providers	 	 
	7. Number of sales associates actively promoting ForeCYTE	 	 
	 	 	 
	8. Number of new sales representatives trained on the ForeCYTE Products during month	 	 

 

Dated:                    
      201   

 

	By:	 	 
	 	Chris Amandola	 
	 	President	 

 

    	Page | 16

    	 

    

 

EXHIBIT F

 

BUSINESS ASSOCIATE AGREEMENT

 

This Business Associate
Agreement ("BA Agreement") dated             ,
         (the "Effective Date"), is entered into by and between
Atossa ("Atossa"), and                              
("Distributor"), each a "Party" and collectively, the "Parties."

 

WHEREAS, Atossa
and Distributor have entered into, or are entering into, or may subsequently enter into, agreements or other documented arrangements
(collectively, the "Business Arrangements") pursuant to which Distributor may provide products and/or services for
Atossa that require Distributor to access, create and use health information that is protected by state and/or federal law; and

 

WHEREAS, pursuant
to the Administrative Simplification provisions of the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"),
the U.S. Department of Health & Human Services ("HHS")
promulgated the Standards for Privacy of Individually Identifiable Health Information (the "Privacy Standards"), at
45 C.F.R. Parts 160 and 164, requiring certain individuals and entities subject to the Privacy Standards (each a "Covered
Entity'', or collectively, "Covered Entities") to protect the privacy of certain individually identifiable health information
("Protected Health Information", or "PHI"); and

 

WHEREAS,
pursuant to HIPAA, HHS has issued the Security Standards (the "Security Standards"), at 45 C.F.R. Parts 160, 162
and 164, for the protection of electronic protected health information ("EPHI"); and

 

WHEREAS, in
order to protect the privacy and security of PHI, including EPHI, created or maintained by or on behalf of Atossa, the Privacy
Standards and Security Standards require Atossa to enter into a "Business Associate Agreement" with certain individuals
and entities providing services for or on behalf of Atossa if such services require the use or disclosure of PHJ or EPHI; and

 

WHEREAS, on
February 17, 2009, the federal Health Information Technology for Economic and Clinical Health Act (the "HITECH Act"),
was signed into law and the HITECH Act imposes certain privacy and security obligations on Atossa in addition to the obligation
s created by the Privacy Standards and Security Standards; and

 

WHEREAS, the
HITECH Act revises many of the requirements of the Privacy Standards and Security Standards concerning the confidentiality of
PHI and EPHI, including extending certain HlPAA and HITECH Act requirement s directly to business associates; and

 

WHEREAS, the
HITECH Act requires that certain of its provisions be included in business associate agreements, and that certain requirement
s of the Privacy Standards be imposed contractually upon Atossa as well as business associates; and

 

WHEREAS, Distributor
and Atossa desire to enter into this Business Associate Agreement;

 

NOW THEREFORE,
in consideration of the mutual promises set forth in this Agreement and the Business Arrangements, and other good and valuable
consideration, the sufficiency and receipt of which are hereby severally acknowledged, the Parties agree as follows:

 

1.       Distributor
Obligations. Distributor may receive from Atossa, or create or receive on behalf of Atossa, health information that is
protected under applicable state and/or federal law, including without limitation, PHl and EPHI. All capitalized terms not otherwise
defined in this Agreement shall have the meaning s set forth in the Privacy Standards, Security Standards or the HlTECH Act, as
applicable (collectively referred to hereinafter as the "Confidentiality Requirements"). All references to PHI herein
shall be construed to include EPHI. Distributor agrees not to use or disclose (or permit the use or disclosure of) PHI in a manner
that would violate the Confidentiality Requirements if the PHI were used or disclosed by Atossa in the same manner.

 

2.
       Use of PHI. Except as otherwise required by law, Distributor
shall use PHI in compliance with 45 C.F.R. § 164.504(e). Furthermore, Distributor shall
use PHI (i) solely for Atossa's benefit and only for the purpose of performing Services for Atossa as such services are defined
in Business Arrangements, and (ii) as necessary for the proper management and administration of the Distributor or to carry out
its legal responsibilities, provided that such uses are permitted under federal and state Jaw. Atossa shall retain all rights
in the PHI not granted herein. Use, creation and disclosure of de-identified health information by Distributor are not permitted
unless expressly authorized in writing by Atossa.

 

    	Page | 17

    	 

    

 

3.       Disclosure
of PHI. Subject to any limitations in this BA
Agreement, Distributor may disclose PHI. to any third party persons or entities as necessary to perform its obligations under
the Business Arrangement and as permitted or required by applicable federal or state law. Further, Distributor may disclose PHI
for the proper management and administration of the Distributor, provided that (i) such disclosures are required by law, or (ii)
Distributor: (a) obtains reasonable assurances from any third party to whom the information is
disclosed that it will be held confidential and further used and disclosed only as required by law or for the purpose for
which it was disclosed to the third party; (b) requires the third
party to agree to immediately notify Distributor of any instances of which it is aware that PHI is being used or disclosed for
a purpose that is not otherwise provided for in this Agreement or for a purpose not expressly permitted by the Confidentiality
Requirements. Additionally, Distributor shall ensure that all disclosures of PHI by Distributor and the third party comply with
the principle of "minimum necessary use and disclosure," i.e., only the minimum PH1 that is necessary to accomplish
the intended purpose may be disclosed: provided further, Distributor shall comply with Section l 3405(b) of the HITECH Act, and
any regulation s or guidance issued by HHS concerning such provision, regarding the minimum necessary standard and the use and
disclosure (if applicable) of Limited Data Sets. If Distributor
discloses PHI received from Atossa, or created or received by Distributor on behalf of Atossa, to agents, including a sub distributor
(collectively, "Recipients"), Distributor shall require Recipients to agree in writing to the same restrictions and
conditions that apply to the Distributor under this Agreement. Distributor shall report to Atossa any use or disclosure of PH1
not permitted by this Agreement, of which it becomes aware, such report to be made within two (2) business days of the Distributor
becoming aware of such use or disclosure. In addition to Distributor's obligations under Section 9, Distributor agrees to mitigate,
to the extent practical and unless otherwise requested by Atossa in writing, any harmful effect that is known to Distributor and
is the result of a use or disclosure of PHI by Distributor or Recipients in violation of this Agreement.

 

4.
       Accounting of Disclosures. Distributor shall make available
to Atossa in response to a request from an individual, information required for an accounting of disclosures of PHI with respect
to the individual in accordance with 45 CFR § 164.528, as amended by Section 13405(c) of the HITECH Act and any related regulations
or guidance issued by HHS in accordance with such provision. Distributor shall provide to Atossa such information necessary to
provide an accounting within thirty (30) days of Atossa's request or such shorter time as may be required by state or federal
law. Such accounting must be provided without cost to the individual or to Atossa if it is the first accounting requested by an
individual within any twelve (12) month period. For subsequent accountings within a twelve (12) month period, Distributor may
charge a reasonable fee based upon the Business's labor costs in responding to a request for electronic information (or a cost-based
fee for the production of non-electron ic media copies) so long as Distributor informs Atossa and Atossa informs the individual
in advance of the fee, and the individual is afforded an opportunity to withdraw or modify the request. Such accounting obligations
shall survive termination of this Agreement and shall continue as long as Distributor maintains PHJ.

 

5.
       Withdrawal of Authorization. If the use or disclosure of PHI
in this Agreement is based upon an individual 's specific authorization for the use of his or her PHI, and (i) the individual
revokes such authorization in writing, (ii) the effective date
of such authorization has expired, or (iii) the consent or authorization is found to be defective in any manner that renders it
invalid, Distributor agrees, if it has notice of such revocation or invalidity, to cease the use and disclosure of any such individual’s
PHI except to the extent it has relied on such use or disclosure, or where an exception under the Confidentiality Requirements
expressly applies.

 

6.
       Records and Audit. Distributor shall make available to the
United States Department of Health and Human Services or its agents, its internal practices, books, and records relating to the
use and disclosure of PHI received from, created, or received by Distributor on behalf of Atossa for the purpose of determining
Atossa’s compliance with the Confidentiality Requirements or any other health oversight agency, in a time and manner designated
by the Secretary. Except to the extent prohibited by law, Distributor agrees to notify Atossa immediate ly upon receipt by Distributor
of any and all requests by or on behalf of any and all federal, state and local government authorities served upon Distributor
for PHI.

 

7.
       Implementation of Security Standards; Notice of Security Incidents.
Distributor will use appropriate safeguards to prevent the use or disclosure of PHJ other than as expressly permitted under this
Agreement. Distributor will implement administrative, physical and technical safeguards that reasonably and appropriately protect
the confidentiality, integrity and availability of the PHl that it creates, receives, maintains or transmits on behalf of Atossa.
Distributor acknowledges that the HITECH Act requires Distributor to comply with 45 C.F.R. §§ 164.308, 164.310, 164.312
and 164.3l 6 as if Distributor were a Covered Entity, and Distributor
agrees to comply with these provisions of the Security Standards and all additional security provisions of the HlTECH Act. Furthermore,
to the extent feasible, Distributor will use Commercially reasonable efforts to ensure that the technology safeguards used by
Distributor to secure PHI will render such PHl unusable, unreadable and indecipherable to individuals unauthorized to acquire
or otherwise have access to such PHI in accordance with 1-lliS Guidance published at 74 Federal Register 19006 (April 17, 2009),
or such later regulation s or guidance promulgated by HHS including the National Institute for Standards and Technology (''NTST'')
standard s adopted by HHS concerning the protection of identifiable data such as PHI. Lastly,
Distributor will promptly report to Atossa any Successful Security incident of which it becomes aware. At the request of Atossa,
Distributor shall identify: the date of the Security Incident, the scope of the Security Incident, the Distributor’s response
to the Security Incident and the identification of the party responsible for causing the Security Incident, if known.

 

    	Page | 18

    	 

    

 

8.         Data
Breach Notification and Mitigation.

 

8.1         HIPAA
Data Breach Notification and Mitigation. Distributor agrees to implement reasonable systems for the discovery and
prompt reporting of any "breach " of "unsecured PH1" as those term s
are defined by 45 C.F.R. § J 64.402 (hereinafter a "HIPAA Breach "). The Parties acknowledge and agree
that 45 C.F.R. § 164.404, as described below in this Section, governs the
determination of the date of a HIPAA Breach. In the event of any conflict between this Section and the Confidentiality
Requirements, the more stringent requirements shall govern. Distributor will, following the discovery of a HIPAA Breach,
notify Atossa immediately within fifteen (15) Distributor discovers such HIPAA Breach, unless Distributor is prevented from
doing so by 45 C.F.R. § 164.412 concerning
law enforcement investigations. For purposes of reporting a HIPAA Breach to Atossa, the discovery of a HIPAA Breach shall
occur as of the first day on which such HIPAA Breach is known to the Distributor or, by exercising reasonable diligence,
would have been known to the Distributor. Distributor will be considered to have had knowledge of a HIPAA Breach if the HIPAA
Breach is known, or by exercising reasonable diligence would have been known, to any person (other than the person committing
the HIPAA Breach) who is an employee, officer or other agent of the Distributor. No later than three (3) business days
following a HIPAA Breach, Distributor shall provide Atossa with sufficient information to permit Atossa to comply with the
HlPAA Breach notification requirements set forth at 45 C.F.R. § 164.400 et seq. Specifically, if the following
information is known to (or can be reasonably obtained by) the Distributor, Distributor will provide Atossa with: (i) contact
information for individuals who were or who may have been impacted by the 1-0PAA Breach (e.g., first and last name, mailing
address, street address, phone number, email address); (ii) a brief description of the circumstances of the HIPAA Breach,
including the date of the HIPAA Breach and date of discovery: (iii) a description of the types of unsecured PHl involved in
the HIPAA Breach (e.g., names, social security number, date of birth, addresses, account numbers of any type, disability
codes, diagnostic and/or billing codes and similar information); (iv) a brief description of what the Distributor has done
or is doing to investigate the HIPAA Breach, mitigate harm to the individual impacted by the HJPAA Breach, and protect
against future HIPAA Breaches; and (v) appoint a liaison and provide contact information for same so that Atossa may ask
questions or learn additional information concerning the HIPAA Breach. Following a HIPAA Breach, Distributor will have
a continuing duty to inform Atossa of new information learned by Distributor regarding the HIPAA Breach, including but not
limited to the information described in items (i) through (v), above.

 

8.2         Data
Breach Notification and Mitigation under Other Laws.  In addition to the requirements of the foregoing Section,
Distributor agrees that in the event any individually Identifiable Information is lost, stolen, used or disclosed in violation
of one or more State data breach notification laws, Distributor shall promptly: (i) cooperate and assist Atossa with any investigation
into any State Breach or alleged State Breach: (ii) cooperate and assist Atossa with any investigation into any State Breach
or alleged State Breach conducted by any State Attorney General or State Consumer Affairs Department (or their respective agents);
(iii) comply with Atossa 's determinations regarding Atossa's and Distributor 's obligations to mitigate to the extent practicable
any potential harm to the individuals impacted by the State Breach: and (iv) assist with the implementation of any decision by
Atossa or any State agency, including any State Attorney General or State Consumer Affairs Department (or their respective agents),
to notify individuals impacted or potentially impacted by a State Breach.

 

9.
         Term and Termination.

 

9.1        This
BA Agreement shall commence on the Effective Date and shall remain in effect until terminated in accordance with the terms of
this Section, provided, however, that termination shall not affect the respective obligations or rights of the Parties arising
under the Business Arrangements prior to the effective date of termination, all of which shall continue in
accordance with their terms.

 

9.2         Atossa
shall have the right to terminate this BA Agreement if the Distributor fails to observe or perform any material covenant or obligation
contained in this BA Agreement for ten (10) days after written notice thereof has been given to the Distributor.

 

    	Page | 19

    	 

    

 

9.3         Termination
of this BA Agreement pursuant to Section 9.2 above shall be cause for Atossa to immediately terminate for cause any Business Arrangement
pursuant to which Distributor is entitled to receive PHI from Atossa.

 

9.4         Upon
termination of this BA Agreement for any reason, Distributor agrees either to return to Atossa or to destroy all PHI received
from Atossa or otherwise through the performance of services for Atossa, that is in the possession or control of Distributor or
its agents. In the case of PHI which is not feasible to "return or destroy," Distributor shall extend the protections
of this BA Agreement to such PHI and limit further uses and disclosures of such PHl to those purposes that make the return or
destruction infeasible, for so long as Distributor maintains such PHI. Distributor further agrees to comply with other applicable
state or federal law, which may require a specific period of retention, redaction, or other treatment of such PHI.

 

10.         No
Warranty. PHI JS PROVIDED TO Distributor SOLELY ON AN "AS IS" BASIS. COMPANY DISCLAIMS ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY, AND FlTNESS FOR A PARTICULAR PURPOSE.

 

11.         Miscellaneous.

 

11.1         Notice.
All notices, requests, demands and other communications required or permitted to be given or made under this BA Agreement shall
be in writing, shall be effective upon receipt or attempted delivery, and shall be sent by
(i) Personal delivery; (ii) certified or registered United States mail, return receipt requested; or (iii) overnight delivery
service with proof of delivery. Neither Party shall refuse delivery of any notice hereunder.

 

	To Atossa:
	 
	Atossa Genetics,
	Inc., 1616 Eastlake
	Ave E
	Seattle, WA 98102
	Attn: President
	 
	To Distributor:
	 
	Millennium Medical Devices
	LLC 400 Garden City Plaza
	Suite 440
	Garden City, NY 11530

 

11.2         Waiver.
No provision of this BA Agreement or any breach thereof shall be deemed waived unless such waiver is in writing and signed by
the Party claimed to have waived such provision or breach. No waiver of a breach shall constitute a waiver of or excuse any different
or subsequent breach.

 

11.3         Severability.
Any provision of this BA Agreement that is determined to be invalid or unenforceable will be ineffective to the extent of such
determination without invalidating the remaining provisions of this BA Agreement or affecting the validity or enforceability of
such remaining provisions.

 

11.4         Entire
Agreement. This BA Agreement constitutes the complete agreement between Distributor and Atossa relating to the matters
specified in this Agreement, and supersedes all prior representations or agreements, whether oral or written, with respect to
such matters. In the event of any conflict between the terms of this BA Agreement and the terms of the Business Arrangements or
any such later agreement(s), the terms of this BA Agreement shall control unless the terms of such Business Arrangements are more
strict with respect to PHJ and comply with the Confidentiality Requirements, or the Parties specifically otherwise agree in writing.
No oral modification or waiver of any of the provisions of this BA Agreement shall be binding on either Party; provided, however, that upon the enactment of any law, regulation, court decision or relevant government publication and/or interpretive guidance
or policy that Atossa believes in good faith will adversely impact the use or disclosure of PHI under this BA Agreement, Atossa
may amend the BA Agreement to comply with such law, regulation, court decision, government publication,
guidance, policy by delivering a Witten amendment to Distributor
which shall be effective thirty (30) days after receipt. No obligation on either Party to enter into any transaction is to be
implied from the execution or delivery of this BA Agreement. This BA Agreement is for the benefit of, and shall be binding
upon the Parties, their affiliates and respective successors and assigns. No third party shall be considered a third party beneficiary
under this BA Agreement, nor shall any third-party have any rights as a result of this BA Agreement.

 

    	Page | 20

    	 

    

 

11.5         Governing
Law. This BA Agreement shall be governed by and interpreted in accordance with the laws of the state of Washington, excluding
its conflicts of law’s provisions. Jurisdiction and venue for any dispute relating to this BA Agreement shall exclusively
rest with the state and federal courts in the county in which
Atossa is located.

 

11.6         Equitable
Relief. Distributor understands and acknowledges that any disclosure or misappropriation of any PHI in violation of this
BA Agreement will cause Atossa irreparable harm, the amount of which may be difficult to ascertain, and therefore agrees that
Atossa shall have the right to apply to a court of competent jurisdiction for specific performance and/or an order restraining
and enjoining any such further disclosure or breach and for such other relief as Atossa shall deem appropriate. Such right of
Atossa is to be in addition to the remedies otherwise available to Atossa at law or in equity. Distributor expressly waives the
defense that a remedy in damages will be adequate and further waives any requirement in an
action for specific performance or injunction for the posting of a bond by Atossa.

 

11.7         Nature
of Agreement; Independent Distributor. Nothing in this BA Agreement shall be construed to create (i) a partnership, joint
venture or other joint business relationship between the Parties or any of their affiliates, or (ii) a relationship of employer
and employee between the Parties. Distributor is an independent Distributor, and not an agent of Atossa. This BA Agreement does
not express or implies any commitment to purchase or sell goods or services.

 

11.8         Counterparts.
This BA Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same document. In
making proof of this BA Agreement, it shall not be necessary to produce or account for more than one such counterpart
executed by the Party against whom enforcement of this Agreement is sought.

 

IN WITNESS WHEREOF,
the Parties have executed this Agreement as of the Effective Date.

 

	"Atossa"	 	"Distributor"
	 	 	 
	By:	/s/ Kyle Guse	 	By:	/s/ Chris Amandola	 President
	Printed Name:	Kyle Guse	 	Printed Name:	Chris Amandola
	Title: 	CFO	 	Title:	President

 

    	Page | 21

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