PART I

 

ITEM 1.

BUSINESS.

 

COMPANY OVERVIEW

 

Windtree Therapeutics, Inc. (referred to as “we,” “us,” or the “Company”) is a Delaware corporation, with our principal offices located at 2600 Kelly Road, Suite 100, Warrington, Pennsylvania. We were incorporated as a Delaware corporation in 1992. Our telephone number is 215-488-9300 and our corporate website address is www.windtreetx.com. Our common stock is currently traded on The OTCQB® Venture Market (OTCQB) quotation system operated by The OTC Markets Group Inc., and our symbol is WINT.

 

We are a biotechnology and medical device company focused on developing drug product candidates and medical device technologies to address acute pulmonary and cardiovascular diseases. Historically, our focus has been on the development of our proprietary KL4 surfactant technology and aerosol delivery system (ADS) technology for the treatment and or prevention of respiratory distress syndrome (RDS) in premature infants.  Following our merger with CVie Investments in December 2018 (discussed below), we are also focusing on therapies for acute heart failure and hypertension and associated organ dysfunction. 

 

Our four lead development programs are (1) istaroxime for treatment of acute decompensated heart failure (ADHF), (2) AEROSURF® (lucinactant for inhalation) for non-invasive delivery of our lyophilized KL4 surfactant to treat RDS in premature infants, (3) lyophilized KL4 surfactant intratracheal suspension for RDS, and (4) rostafuroxin for genetically associated hypertension. 

 

Heart failure is a chronic, progressive condition in which patients often experience episodic periods of increased symptoms called ADHF, where the heart fails to adequately pump, resulting in worsening symptoms, including pulmonary and peripheral edema and other severe complications.  In the US, nearly 6 million people (nearly two percent of the adult population) have heart failure and approximately half of these patients are expected to die within 5 years of diagnosis; and in the combined US, EU and Japan markets, there are over 14 million patients with heart failure.  ADHF can be precipitated by many factors and puts patients at increased risk for morbidity, hospital readmission and mortality.  Heart failure is the leading cause of hospitalization in patients age 65 years and older.  There are more than 1.1 million hospital admissions for heart failure in the US each year and over 2.5 million hospital estimated admissions for ADHF in the combined US, EU and Japan markets.  We estimate that ADHF may represent a potential addressable market of approximately $1.6 billion dollars annually (in the US, EU and Japan). Based on preclinical and clinical studies performed to date,we believe that istaroxime, if approved, may have the potential to address unmet medical needs of these patients by improving cardiac function and management of fluid accumulation that contributes to heart failure symptoms while potentially avoiding complications associated with current ADHF therapies.  We are also focused on early development of oral and other intravenous therapies to potentially address both acute and chronic heart failure. In addition to the ADHF market, GlobalData has estimated that the sales market for chronic heart failure therapies in the base year (2016) totaled $3.6 billion within the seven major markets, with the US contributing just over 70% of these sales.

 

Surfactants are produced naturally in the lung and are essential for normal respiratory function and survival.  RDS is a condition that occurs in premature infants who may not have fully-developed natural lung surfactant and may require surfactant therapy to sustain life.  RDS is the most prevalent respiratory disease in the neonatal intensive care unit (NICU).  RDS can result in long-term respiratory problems, developmental delays and death. We believe that the current surfactant market for RDS is estimated to be approximately $70 to $90 million annually in the US and approximately $400 to $425 million annually worldwide. We believe that this market has been constrained because surfactants are generally administered using intubation, frequently with mechanical ventilation, two invasive procedures that may result in serious respiratory and non-respiratory complications.  By contrast, AEROSURF is a combination drug/device product that is designed to administer our KL4 surfactant noninvasively and, we believe, may avoid these invasive procedures and achieve a competitively advantageous position in an expanding RDS market.  We also believe that AEROSURF may support an expansion of the RDS surfactant market by reducing the need for intubation and mechanical ventilation, reducing hospital costs, and enabling dosing and repeat dosing as needed using noninvasive delivery of AEROSURF via nasal continuous positive airway pressure (nCPAP).  Moreover, while the current surfactant market represents drug-only revenues, we plan to capture revenues from the drug product and the ADS disposable cartridges, supported by anticipated pharmacoeconomic benefits associated with the successful use of nCPAP. As such, we believe that AEROSURF, if approved, may be administered in less specialized hospitals and birthing centers, potentially further expanding access to treatment and potentially achieving a higher price per patient in an addressable market that could be in excess of $1 billion annually. In addition, we are assessing a potential development plan potentially to gain regulatory approval for our lyophilized KL4 surfactant as an intratracheal suspension for RDS, which would allow us to make our KL4 surfactant available in an expanded market to treat the smallest infants and those who are unable to breathe on their own and may not be good candidates for AEROSURF.

 

 

Our fourth product candidate is rostafuroxin for the treatment of hypertension associated with certain patient genotypes. According to the Centers for Disease Control (CDC), patients with high blood pressure have a greater risk for heart disease and stroke, which are the leading causes of death in the US. Currently, an estimated 75 million adults, or approximately one third of the adult population in the US, have high blood pressure and the incidence is increasing. During 2014, high blood pressure was a primary or contributing cause of death for more than 410,000 adults in the US. The estimated annual cost of high blood pressure in the US, including for health care services, medications, and missed days of work, is approximately $48.6 billion. Unfortunately, hypertension is a heterogeneous disease in which a majority of treated patients (50-85% globally) do not reach their therapeutic target blood pressure and patients often have persistent hypertension despite being on multiple therapies. Ethnicity and genetic makeup are known to impact the response to anti-hypertensive treatments, and uncontrolled hypertension has been associated with certain genetic makeups. We believe, based on preclinical and clinical studies performed to date, that rostafuroxin may potentially reduce or normalize blood pressure and may address unmet medical needs in a genetically identified subset of patients that could represent approximately 20% - 25% of patients with hypertension. Given the size of the market and the prevalence of unmet medical needs, major pharmaceutical companies have maintained hypertension as a key area of focus and continue to seek new drugs to compete in markets they have established with previous anti-hypertensive therapies. We plan to develop rostafuroxin and potentially leverage the industry’s interest in licensing opportunities in this market.

 

ISTAROXIME

 

Overview

 

Our lead cardiovascular product is istaroxime, an investigational drug that we are developing to treat acute decompensated heart failure (ADHF).  Heart failure can result from structural or functional cardiac abnormalities. Heart failure is a chronic, progressive disease that commonly but episodically worsens to a point of decompensation, where cardiac output fails to meet the body’s metabolic needs. The disease is characterized by inadequate pumping function of the heart that results in fluid accumulation manifesting as pulmonary congestion, peripheral edema and congestion in other parts of the body. Insufficient cardiac output can result in inadequate peripheral perfusion that increases the risk of other organ dysfunction such as renal failure. Chronic heart failure is commonly treated with multiple medications including diuretics, inhibitors of neurohumoral imbalances (angiotensin, renin, aldosterone, naturetic peptides) and beta blockers. Effective treatments for ADHF are lacking.

 

Intensification of heart failure therapy in the hospital typically includes intravenous diuretics and, if the blood pressure is low, supportive therapy with inotropes. Inotropes can be associated with adverse effects that include hypotension, arrhythmias and possibly increased mortality. These drugs are used only if needed to support blood pressure and cardiac function.

 

Istaroxime represents a novel approach to the treatment of ADHF. It has a dual mechanism of action referred to as luso-inotropic, to improve cardiovascular physiology. First, it activates the SERCA2a calcium pump on the sarcoplasmic reticulum (SR) leading to enhanced SR calcium uptake and a reduction in cytoplasmic calcium that allows for improved myocardial relaxation (lusitropic). Second, it inhibits the sodium-potassium ATPase activity leading to improved myocardial contractility (inotropic). We believe that this mechanism of action may result in improvement in cardiac function and perfusion to reduce congestion and edema and preserve other organ function while avoiding the side effects associated with other classes of heart failure therapies.  Preclinical and clinical studies performed to date suggest that istaroxime may improve cardiovascular physiology as assessed by parameters of pump function, decreases in pulmonary capillary wedge pressure, decreases in heart rate, increases in blood pressure without adverse events such as arrhythmias, cardiac damage (as indicated by elevated troponin values) or adverse impact on kidney function. We believe that these features of istaroxime, if approved, could potentially result in clinical improvement of patients' heart failure symptoms and reduce both complications and length of hospital stays when compared to current therapeutic regimens for ADHF.

 

In 2007, CVie Therapeutics completed a phase 2a randomized, double-blind, placebo-controlled, dose-escalation clinical trial that was designed to evaluate 3 doses of istaroxime in a study of 120 hospitalized patients (~30 patients per cohort) with ADHF and reduced left ventricular ejection fraction with 3 doses of istaroxime administered over a 6-hour infusion period.  The primary endpoint, lowering of pulmonary capillary wedge pressure (PCWP) was significantly improved in all 3 doses relative to placebo, and the certain secondary hemodynamic endpoints (increased systolic blood pressure and decreased heart rate) also improved.  The main side effects were vomiting (7.9%) and pain at the infusion site (5.6%); one severe adverse event of ventricular tachycardia was observed.  The favorable effects on PCWP, blood pressure and heart rate with potential luso-inotropic effects provided the basis for moving the program forward into a phase clinical 2b trial and for selecting the doses to study.

 

In January 2019, we announced topline results of a phase 2b randomized, double-blind, placebo-controlled, dose-escalation clinical trial, a multicenter, randomized, placebo-controlled study in 120 hospitalized patients in Europe and Asia with ADHF that was designed to evaluate two doses of istaroxime administered over a 24-hour infusion period (~ 40 patients per dose group).  The primary endpoint, E/Ea, (reflecting change in PCWP or left ventricle filling pressure) measured by echocardiography utilizing a single, central core laboratory, was significantly (p<0.05) improved by both doses of istaroxime. Stroke volume was substantially increased as well.  There were no signs of increased risk for arrhythmias or increased troponin levels (a marker of heart muscle damage) during or after istaroxime infusion. Additionally, blood pressure tended to increase, and heart rate decrease, during the infusion.  The most common adverse events were vomiting (2.4% and 25%) and infusion site pain (32% and 30%) in the 0.5 and 1.0 µg/kg/min groups, respectively.  This study confirmed the physiologic improvements seen in the phase 2a study and replicates the effects of istaroxime in ADHF.

 

 

Focus for 2019 – Regulatory meetings and Clinical Development Plan

 

In 2019, we plan to work with top heart failure experts to review the program and engage with the FDA and regulators in the EU to determine next steps in clinical development for this potential novel therapy for ADHF.

 

Other

 

Istaroxime is manufactured for us by Zhaoke Pharmaceutical (Guangzhou) Co., Ltd. and/or Sigma Tau S.pA. Secondary packaging by DEPO PACK s.n.c.

 

The API used in production of the drug product is manufactured by Farmabios S.p.A. and / or ScinoPharm Taiwan, Ltd.

 

AEROSURF 

 

Overview

 

One of our lead development programs is AEROSURF® (lucinactant for inhalation), an investigational combination drug/device product that we are developing to improve the management of RDS in premature infants who may not have fully developed natural lung surfactant and may require surfactant therapy to sustain life.  Surfactant therapy can be a life-saving treatment for RDS and is the primary therapy to address an underlying surfactant deficiency. Unfortunately, surfactants currently available in the US are animal-derived and are generally administered using invasive endotracheal intubation, frequently with mechanical ventilation, procedures that may result in serious respiratory conditions and other complications.  AEROSURF is designed to deliver aerosolized KL4 surfactant noninvasively using our proprietary ADS technology and potentially may meaningfully reduce the use of invasive endotracheal intubation and mechanical ventilation. We believe that AEROSURF, if approved, has the potential to reduce the number of premature infants who are subjected to invasive surfactant administration, and potentially provide transformative clinical and pharmacoeconomic benefits.  The FDA has granted Fast Track designation for our KL4 surfactant (including AEROSURF) to treat RDS.

 

We have filed an investigational new drug application (IND) with the FDA for AEROSURF for the treatment of RDS in premature infants and have completed three AEROSURF phase 2 clinical trials. All three clinical trials assessed the safety and tolerability of AEROSURF and suggested evidence of a beneficial treatment effect when the treatment is delivered as intended.

 

In June 2017, we announced that we had completed enrollment in our AEROSURF phase 2b clinical trial, a multicenter, randomized, controlled study with masked treatment assignment in 221 premature infants that was designed to evaluate aerosolized KL4 surfactant administered to premature infants 26 to 32 week gestational age receiving nCPAP, in two dose groups (25 and 50 minutes) with up to two potential repeat doses, compared to infants receiving nCPAP alone. This trial was conducted in approximately 50 clinical sites in the US, Canada, Europe and Latin America.

 

In this phase 2b clinical trial, based on the planned top-line results, AEROSURF did not meet the primary endpoint of a reduction in nCPAP failure at 72 hours. We believe this result was attributable in large part to an unexpected rate of treatment interruptions, which occurred in about 24% of active enrollments, predominantly in the 50-minute dose group. These interruptions, we believe, were primarily related to specific lots of disposable cartridge filters with a higher tendency to clog. After excluding patients in the 50-minute dose group whose dose was interrupted, in accordance with the predesignated statistical plan, nCPAP failure rates were 44% in the control group (n=71) compared to 32% (n=44) in the AEROSURF 50-minute dose group, which is a 12% absolute reduction or a 27% relative reduction in nCPAP failure compared to control. These data suggest a meaningful treatment effect in line with our desired targeted outcome. The overall data suggest that the safety and tolerability profile of AEROSURF was generally comparable to the control group. Reported adverse events and serious adverse events were those that are common and expected among premature infants with RDS and comparable to the control group. As expected, some peridosing events occurred (e.g., changes in oxygen requirements and blood pressure in the time around dosing) more commonly in the AEROSURF groups, however, these were transient in nature and occurred less frequently than seen in intratracheal administration.

 

Bronchopulmonary Dysplasia (BPD) is a chronic lung disease of premature infants who have required intubation, mechanical ventilation and oxygen therapy. BPD is associated with ongoing pulmonary disease and neurodevelopmental impairment that contributes to substantial patient morbidity. This is associated with increased health care utilization and higher healthcare costs. Notwithstanding, effective prevention and treatment strategies for BPD have been elusive and there is no approved treatment. In the post hoc pooled analysis of the AEROSURF phase 2b clinical trial and phase 2a clinical trial in infants 26-28 weeks gestational age, AEROSURF treatment was associated with significantly lowered incidence and severity of BPD compared to infants on nCPAP alone. This effect was observed without excluding patients whose treatment was interrupted.

 

In 2018, we transitioned from our prototype 2 ADS used in the phase 2 clinical program (phase 2 ADS) to a newly-designed ADS for use in our phase 3 program (phase 3 ADS), which combines the same aerosolization technology used during the phase 2 clinical program, but with improved ergonomics, interface, controls, and dose monitoring in a modular design. We successfully concluded design verification activities through a detailed assessment of the phase 3 ADS design and implemented design changes to potentially mitigate the risks of device-related treatment interruptions experienced in the prototype phase 2 device used in the phase 2b clinical trial. We believe that the phase 3 ADS will be easier and faster to use and may support enhanced clinical outcomes by potentially allowing for reduced time to initial administration of our KL4 surfactant and reduced time intervals between doses, if required.

 

 

With respect to our ADS, we are currently engaged in a technology transfer of our device manufacturing process from Battelle Memorial Institute (Battelle) to Mack Molding Company (Mack), an FDA-registered medical device manufacturer that we have engaged to produce a new phase 3 ADS for use in our planned AEROSURF bridging study and potentially address the unexpected rate of treatment interruptions (we previously referred to this new version as the NextGen ADS). If AEROSURF is approved for marketing, we expect that the phase 3 ADS will also support our commercial market platform. We currently have a Memorandum of Understanding with Mack to cover this transfer.

 

Focus for 2019 – AEROSURF Bridging Study

 

We are planning to conduct an additional AEROSURF clinical bridging study that is designed among other things, to clinically evaluate the design and performance of our new phase 3 ADS. This trial will not be powered to establish statistical significance but will generate additional higher dose treatment data to augment the higher dose data obtained in the phase 2b clinical trial.  Our plans include a multicenter, randomized, controlled study with masked treatment assignment in approximately 70 premature infants that is designed to assess safety and tolerability of administering aerosolized KL4 surfactant administered to premature infants 26 to 32 week gestational age receiving nCPAP in an extended initial dose (consisting of two 50 minute-doses) with up to 3 repeat doses (each 50-minutes, administered with a minimum of 20 minutes between doses) compared to infants receiving nCPAP alone. In addition to assessing safety and tolerability, the key objectives of this trial include assessing nCPAP failure rates at 72 hours and 28 days and the performance of the phase 3 ADS. We plan to conduct this trial in 15 to 25 of our previous phase 2b, higher-performing clinical sites. We anticipate that this trial will start late in the third quarter or early fourth quarter of 2019; however, we will require additional capital to be in a position to complete the trial in accordance with our development plan, (see, Item 1A – Risk Factors – Risks Related to Capital Resource Requirements).

 

Other

 

We have contracted with Clinical Supplies Management, Inc. for the receipt, labeling, packaging and distribution of drug and materials to support our planned AEROSURF bridging study. 

 

Our lyophilized KL4 surfactant is manufactured for us by Pharma Services Group, Patheon, part of Thermo Fisher Scientific (Patheon), under a development agreement providing for development and manufacture of our drug product through completion of process validation which will be completed during the manufacture of drug product to complete the planned phase 3 clinical program.

 

In our Warrington laboratory we conduct certain analytical and quality control activities including release testing of all API’s and release and stability testing of our lyophilized and aerosolized KL4 surfactant drug product. We also work with a number of third-party institutions and laboratories that perform various studies as well as quality control release and stability testing.

 

KL4 surfactant is comprised of four active pharmaceutical ingredients (API’s). Our API suppliers are Bachem Americas, Inc., Corden Pharma and Avanti Polar Lipids, Inc. We have supply agreements for KL4 and POPG and source the other two under purchase orders.  With respect to KL4, we received a notice of nonrenewal from Bachem in connection with an expiration date in June 2019.  We are working to develop a new manufacturing process and will select a successor based on request-for-proposal submissions.  To provide a sufficient supply of KL4 to support our AEROSURF development plan through the planned phase 3 clinical program, we are manufacturing an inventory of KL4 with Bachem.

 

Lyophilized KL4 Surfactant – Other Studies

 

We are assessing potential development pathways to secure marketing approval for lyophilized KL4 surfactant as an intratracheal instillate for the treatment and/or prevention of RDS. Lyophilized KL4 surfactant is the drug product component of AEROSURF and a lyophilized (freeze-dried) dosage form of the liquid KL4 surfactant intratracheal instillate (SURFAXIN®) that was approved by the FDA in 2012. In April 2015, we voluntarily ceased commercializing SURFAXIN to focus our resources on the development of aerosolized KL4 surfactant for respiratory diseases, beginning with AEROSURF.

 

Our KL4 surfactant can be lyophilized (freeze-dried) and reconstituted to a liquid just prior to administration. We currently maintain continuous cold chain storage for this product. We plan to conduct studies to assess potential reduction of cold chain storage and refrigeration requirements in the hospital. We have demonstrated in laboratory experiments that our lyophilized KL4 surfactant retains many of the key attributes and characteristics of our liquid instillate. We previously discussed with the FDA a potential development plan, trial design and regulatory plan for approval and plan potentially to re-engage with the FDA in the second half of 2019. If we can define an acceptable development program that is achievable from a cost, timing and resource perspective, we may seek approval to treat premature infants who, because they are unable to breathe on their own or other reason, are not candidates for AEROSURF.

 

 

In addition, on March 12, 2018, we announced a collaboration with Eleison Pharmaceuticals, Inc., a specialty pharmaceutical company developing life-saving therapeutics for rare cancers, to assess the feasibility of using our ADS potentially to deliver Eleison’s inhaled lipid cisplatin (ILC), potentially in combination with our KL4 surfactant.  Eleison is developing ILC for non-small cell lung cancer (NSCLC) and completed a phase II study of ILC in patients with bone cancer (osteosarcoma) metastatic to the lung. 

 

We believe our lyophilized KL4 surfactant and ADS technologies may potentially support a product pipeline to address a broad range of serious respiratory conditions in children and adults.  We have received support, and plan to seek additional support, from the National Institutes of Health (NIH) and other government funding sources to explore the utility of our KL4 surfactant to address a variety of such respiratory conditions as acute lung injury (ALI), including acute radiation exposure to the lung (acute pneumonitis and delayed lung injury), chemical-induced ALI, and influenza-induced ALI; as well as chronic rhinosinusitis, complications of certain major surgeries, mechanical ventilator-induced lung injury (often referred to as VILI), pneumonia, and diseases involving mucociliary clearance disorders, such as chronic obstructive pulmonary disease (COPD) and cystic fibrosis (CF).

 

Rostafuroxin

 

Overview

 

Rostafuroxin is a novel investigational drug product candidate that is designed to be a selective antagonist of adducin polymorphisms and endogenous ouabain, both known triggers of hypertension, and creates functional effects by enhancing renal tubular sodium reabsorption and increasing vascular tone. Rostafuroxin targets resistant hypertensive patients with a specific genetic profile, which is found in approximately 20% – 25% of the adult hypertensive population. Based on the preclinical and clinical studies performed to date, we believe that rostafuroxin may reduce or normalize blood pressure in this genetically identified subset of patients and may reduce the risk of hypertension-related sequelae beyond the level normally associated with the absolute reduction of blood pressure, per se, because the molecular mechanism blocked by rostafuroxin may also be involved in organ damage.

 

CVie Therapeutics conducted three phase 2 clinical trials assessing reduction in blood pressure when rostafuroxin is administered in a hypertensive population selected in accordance with a specified genetic profile. A phase 2b clinical trial was conducted as a two-part study with the first part conducted in Italy with Caucasian patients and the second part conducted in Taiwan with ethnic Chinese patients. The efficacy results in Italy were positive in both this trial and in an earlier phase 2a clinical trial; however, the blood pressure response in Chinese patients in the second part of the phase 2b study was minimal.

 

We are analyzing the results of these clinical trials potentially to identify the reasons for the limited response in Chinese patients, including with respect to potential differences between the populations in drug metabolism, bioavailability or drug interaction with traditional Chinese medicines that the patients may have been taking to manage their hypertension.

 

Focus for 2019

 

In 2019, we plan to focus on finalizing the drug formulation and defining drug product analytical methods supporting release and stability measures and assessments. Once we have developed a product profile, we plan to seek opportunities to out-license rostafuroxin to a larger company that has interest in and/or operates in the very large and broad antihypertension market.

 

Other

 

The drug product for rostafuroxin is manufactured by Doppel Farmaceutici S.r.l. The API used in the manufacture of rostafuroxin is manufactured by China Gateway Pharmaceutical Development Co., Ltd.

 

acquisition of Cvie therapeutics and

private placement financing

 

CVie Acquisition 

On December 21, 2018, we entered into an Agreement and Plan of Merger (CVie Acquisition) with, and thereby acquired, CVie Investments Limited (CVie Investments), an exempted company with limited liability incorporated under the laws of the Cayman Islands.  Under the terms of the Acquisition Agreement, we issued shares of our common stock, par value $0.001 per share (common stock) to CVie Investments’ former shareholders, at an exchange ratio of 0.3512 share of common stock for each share of CVie Investments outstanding prior to the merger, resulting in the issuance of 16,265,060 shares of common stock being issued in exchange for the shares of CVie Investments. The merger closed on December 21, 2018.

 

In connection with the CVie Acquisition, we entered into an indemnity agreement with Lee’s Pharmaceutical Holdings Limited (Lee’s), pursuant to which Lee’s agreed to indemnify our shareholders and holders of certain warrants of record on December 20, 2018 (the Indemnitees) for one year for any loss, liability, damage or expense incurred by us in connection with or, as a result of, any material inaccuracy in any representation or warranty made by CVie Therapeutics in the Acquisition Agreement. To secure its performance under the indemnity agreement, 984,000 shares of common stock issued to a Lee’s affiliate in the merger were placed in escrow with our transfer agent. A portion of the escrowed shares will be transferred to the Indemnitees as the sole and exclusive remedy for a successful indemnity claim.

 

Since the closing, we have operated CVie Investments, and its wholly-owned subsidiary, CVie Therapeutics Ltd., (CVie Therapeutics) a Taiwan corporation organized under the laws of the Republic of China, as a business division (the entities may be collectively referred to in this Form 10-K as CVie) focused on early development of drug product candidates for cardiovascular diseases. We undertook the merger as part of a strategic initiative to create stockholder value that resulted from a multi-year process focused on identifying strategic opportunities, including potential strategic alliances, collaborations (primarily outside the United States (US)), joint development opportunities, acquisitions, technology licensing arrangements, as well as potential combinations (including by merger or acquisition) or other corporate transactions. In connection with the merger, we declared a dividend to the holders of record of outstanding shares of common stock, and holders of certain warrants to purchase common stock, that were outstanding on December 20, 2018 of 0.6148 Series H AEROSURF Warrant, for each share of common stock held by a shareholder or each warrant held by a warrant holder, as applicable, on the record date (the AEROSURF Warrants). We distributed AEROSURF Warrants that are exercisable for an aggregate of approximately 2.96 million shares of common stock. Each AEROSURF Warrant has a term of five years and provides for automatic exercise into one share of common stock, without any exercise price, upon our public announcement of the dosing of the first human subject enrolled in a phase 3 clinical trial for AEROSURF. 

 

 

Private Placement Financing

On December 21, 2018, we also completed a private placement offering with select institutional investors (Investors) for the purchase of an aggregate of 11,785,540 shares of common stock at a price per share of $3.3132, for an aggregate purchase price of approximately $39.0 million (Private Placement Financing). Included in the purchase price, each of LPH II Investments Limited (LPH II), an affiliate of Lee’s, and Battelle Memorial Institute converted $6.0 million and $1.0 million, respectively, of existing debt obligations on the same terms as the other Investors. In connection with this financing, we issued (i) Series F Warrants to purchase an aggregate of 2,003,541 shares of common stock, at an exercise price equal to $3.68 per share, which are exercisable through the 18-month anniversary of the date of issuance (the Series F Warrants), and (ii) Series G Warrants to purchase an aggregate of 3,889,229 shares of common stock, at an exercise price equal to $4.05 per share, which are exercisable through the 5-year anniversary of the date of issuance (the Series G Warrants and, together with the Series F Warrants, the December 2018 Warrants). The December 2018 Warrants (i) may not be exercised to the extent that, following such exercise, the holder would beneficially own more than 9.99% (or other percent as designated by each holder) of our outstanding shares of common stock, and (ii) otherwise contain customary provisions that adjust the exercise price and the number of shares of common stock into which they may be exercised in the event of a corporate transaction.

 

LEE’S PHARMACEUTICAL HOLDINGS LIMITED AND AFFILIATES

 

During the period of this report, we have received substantial support from Lees, our largest shareholder. Lee’s is a company incorporated in the Cayman Islands with limited liability, whose common stock is listed on the Hong Kong Stock Exchange, and which along with its affiliates currently owns approximately 40% of our issued and outstanding common stock.

 

In February 2017, Lee’s invested $2.0 million in our $10.5 million private placement offering of Series A Convertible Preferred Stock Units at a purchase price per unit of $1,495 per unit.  In June 2017, we entered into an exclusive License Agreement with an affiliate of Lee’s for the development and commercialization of KL4 surfactant products in China, Hong Kong and other select Asian markets (see, – Licensing, Patents, and Other Proprietary Rights and Regulatory Designations – Licensing – Lee’s Pharmaceutical (HK) Ltd.

 

In October 27, 2017, LPH Investments Limited, an affiliate of Lee’s, purchased $10 million of our common stock, resulting in Lee’s controlling a 73% interest in our common stock (this transaction included cancellation of $3.9 million in loans advanced by Lee’s (HK) to sustain our operations while we negotiated the purchase agreement).  In April 2018, LPH II Investments Limited purchased $2.6 million of our common stock and warrants at a purchase price of $4.80.

 

Throughout the period of this report, Lee’s also supported our development activities and operations with loans made through certain subsidiaries as follow: August 2017, $3.9 million loaned by Lee’s (HK); January and March 2018, $1.5 million and $1 million, respectively, loaned by LPH; on August 14, August 29, September 12, September 27, October 19, November 2, and November 19, 2018,  $0.3 million, $0.48 million, $0.5 million, $0.5 million, $0.43 million, $0.5 million, and $0.35 million, respectively, loaned by LPH; and on December 5, 2018, $.6 million, loaned by LPH II, to support our development activities and operations while we pursued our potential strategic transaction with CVie Therapeutics.  The loans accrued interest at a rate per annum of 6% and were collateralized by a security interest in substantially all our assets under a March 2018 Security Agreement.

 

During 2018, we engaged in active diligence and discussions with CVie Therapeutics Limited, a Taiwan corporation organized under the laws of the Republic of China, to potentially conclude a strategic transaction.  At that time, Lee’s owned approximately 49% of the outstanding capital stock of CVie Therapeutics, but because of the potential conflict of interest, did not participate in the negotiations and agreed to be bound by the terms otherwise reached between ourselves and CVie Therapeutics, which was represented by James Huang, an independent director.  To facilitate the transaction, Lee’s committed to maintain in place collateral previously pledged to secure CVie’s O-Bank loan and agreed to provide the indemnity agreement to protect our shareholders and holders of certain warrants, as discussed above.

 

We plan to continue to partner with Lee’s and look forward to the development of our KL4 surfactant products in the Asian market under our license agreement and, in the future, potentially other of our product candidates.  However, we have no written commitments from Lee’s for future transactions and there can be no assurance that Lee’s will continue to work with us in the future.

 

Strategic Alliances and Collaboration Arrangements

 

Battelle Collaboration Agreement

 

In October 2014, we entered into a Collaboration Agreement with Battelle for the development of our phase 3 ADS. We had previously worked with Battelle, which has expertise in developing and integrating aerosol devices using innovative and advanced technologies, in connection with development of our prototype phase 2 ADS used in the AEROSURF phase 2b clinical trial. Under the Collaboration Agreement, we and Battelle shared the costs of development for a three-stage development plan that included (i) defining the requirements and a detailed project plan for a phase 3 ADS, (ii) executing the project plan, and (iii) completing required testing, verification and documentation, putting us in a position to manufacture a phase 3 ADS for use in the remaining AEROSURF development activities and, if approved, the initial commercial activities. We retained final decision-making authority over all matters related to the design, registration, manufacture, packaging, marketing, distribution and sale of the phase 3 ADS. We and Battelle shared equally the costs of the first stage and the planned costs of the remaining two stages. Battelle agreed to bear the cost of any cost overruns associated with the project plan and we agreed to bear the cost of any increase in cost resulting from changes in the scope of the product requirements. We also agreed that, if Battelle successfully completed the project plan in a timely manner, we would pay Battelle royalties equal to a low single-digit percentage of the worldwide net sales and license royalties on sales of AEROSURF for the treatment of RDS in premature infants, up to an initial aggregate limit of $25 million, which under the Battelle Payment Restructuring (discussed below) was increased to $35 million. The Collaboration Agreement will end at the time we fulfill our payment obligations to Battelle, unless sooner terminated by a party as provided therein.

 

In December 2018, we and Battelle entered into a Payment Restructuring Agreement (Battelle Payment Restructuring), which reflected the terms of an October 2017 nonbinding memorandum of understanding, in which we outlined terms to restructure approximately $4.3 million then due to Battelle (at October 18, 2017, the Battelle Payables), under a Research and Development Services Agreement dated as of June 22, 2012 and the Collaboration Agreement.  Under the Battelle Payment Restructuring, Battelle Payables accrue interest at a rate of 6% per annum and Battelle participated in our December 2018 private placement equity financing (Private Placement Financing, discussed below) for $1.0 million in a debt-equity exchange for a like amount of Battelle Payables on the same terms as all other investors in the Private Placement Financing. In addition, within 10 days after the Private Placement Financing, or December 31. 2018, we paid Battelle cash in the amount of $972,281, and thereafter initiated payments totaling an aggregate $1,250,000, payable in five equal, consecutive monthly installments of $250,000.  In addition, we have agreed to make two milestone payments to Battelle as follow: (i) upon enrollment of the first patient in the next AEROSURF clinical study, an amount equal to one half of the then-outstanding Battelle Payables (including unpaid interest), and (ii) when we complete the device technology transfer for the phase 3 ADS to Mack, an amount equal to the then-outstanding Battelle Payables, including unpaid interest.  In addition, on December 11, 2018, we issued to Battelle warrants to purchase 75,000 shares of common stock, exercisable at a price of $6.50 per share, which expire on the fifth anniversary of the Effective Date.

 

 

Laboratorios del Dr. Esteve, S.A.

 

We have a strategic alliance with Laboratorios del Dr. Esteve, S.A. (Esteve) for the development, marketing and sales of a portfolio of potential KL4 surfactant products in Andorra, Greece, Italy, Portugal, and Spain (collectively, the territory). Under the alliance, Esteve will pay us a transfer price on sales of our KL4 surfactant products. We will be responsible for the manufacture and supply of all covered products and Esteve will be responsible for all sales and marketing in the territory. Esteve is obligated to make stipulated cash payments to us upon our achievement of certain milestones, primarily upon receipt of marketing regulatory approvals for the covered products. In addition, Esteve has agreed to contribute to phase 3 clinical trials for the covered products by conducting and funding development performed in the territory. As part of a 2004 restructuring, Esteve returned certain countries to us (Former Esteve Territories) and we agreed to pay Esteve 10% of any cash up front and milestone fees (up to a maximum aggregate of $20 million) that we receive in connection with any strategic collaborations for the development and/or commercialization of certain of our KL4 surfactant products in the Former Esteve Territories. In addition, with respect to our aerosolized KL4 surfactant, Esteve will pay us $0.5 million upon the initial filing for regulatory approval with the European Medicines Agency and $0.5 million upon receipt of regulatory approval; also, Esteve has agreed to contribute up to $3 million to support the phase 3 clinical trial in the territory. The alliance will terminate as to each covered product, on a country-by-country basis, upon the latest to occur of: the expiration of the last patent claim related to a covered product in such country; the first commercial sale in such country of the first-to-appear generic formulation of the covered product, and the tenth anniversary of the first sale of the covered product in such country.  In addition to customary termination provisions for breach of the agreement by a party, the alliance agreement may be terminated by Esteve on 60 days’ prior written notice, up to the date of receipt of the first marketing regulatory approval, or, on up to six months’ written notice, if the first marketing regulatory approval has issued.  We may terminate the alliance agreement in the event that Esteve acquires a competitive product (as defined in the agreement).

 

Università degli Studi di Milano-Bicocca

 

Effective April 13, 2015, CVie Therapeutics entered into an Agreement for Scientific Collaboration (Agreement) with the Università degli Studi di Milano-Bicocca (Bicocca) in Milan, Italy, focused on defining the role of sarco (endo) plasmic reticulum Ca2+ -ATPase 2a (SERCA2a) and phospholamban (PLN) in modulating cardiac contraction, and discovering new small molecules to modulate SERCA2a activity or new drugs for treating chronic and acute human heart failure. The initial term of the Agreement was three years but the term was extended for approximately an additional year, with option for further renewal. We are currently in discussions potentially to extend this Agreement, although there can be no assurance that we will be able to achieve an extension on acceptable terms, if at all.

 

Under the Agreement, intellectual property resulting from the collaboration, including patents and know-how, will be jointly owned by the parties. For the development of any new SERCA2a compounds and diagnostic products suitable for further clinical development, we have the option to purchase Bicocca’s interest for up to 12 months after the filing of a patent application. If the option is not exercised, then the parties shall remain joint owners and each can use the intellectual property with consent of the other on terms to be defined. If we exercise an option, we have agreed to pay Bicocca (corresponding to stage of development): (i) € 0.1 million (approximately $0.1 million) upon completion and the proof of concept of biological efficacy for new compounds modulating the SERCA2a activity caused by PLN mutations; and (ii) € 1.5 million (approximately $1.7 million) upon obtaining marketing authorization in the US, EU, or China of new compounds with the corresponding companion diagnostic assay. We have also agreed to pay royalties for any purchased intellectual property arising out of the collaboration in the range of a low- to mid-single digit percent of net sales for any products sold in any country for a period of ten years from the date of the first commercial sale.

 

Also, under the Agreement, we have provided funds aggregating € 0.2 million(approximately $0.2 million) to date to upgrade equipment and pay laboratory expenses for the renewal term expiring in 2019. We also funded several related research contracts for the period covered by the Agreement. In connection with our research activities, Bicocca agreed to provide us exclusive use of a research laboratory for the collaboration work, and nonexclusive access to a physiology laboratory within the university. Bicocca serves as our primary location in Milan.

 

Licensing, Patents and OTHER Proprietary Rights AND REGULATORY DESIGNATIONS

 

We continue to invest in maintaining and enforcing our potential competitive position through a number of means: (i) by protecting our exclusive rights in our cardiovascular agents including istaroxime, rostafuroxin and potential follow-on compounds, (ii) by protecting our exclusive rights in our lyophilized KL4 surfactant, ADS and aerosol-conducting airway connector technologies through patents that we own or exclusively license, (iii) by seeking regulatory exclusivities, including potential orphan drug and new drug product exclusivities, and (iv) through protecting our trade secrets and proprietary methodologies that support our manufacturing and analytical processes.

 

Licensing

 

Lee’s Pharmaceutical (HK) Ltd.

 

In June 2017, we entered into a License, Development and Commercialization Agreement (License Agreement) with Lee’s (HK), a company organized under the laws of Hong Kong and an affiliate of Lee’s. Under the License Agreement, we granted to Lee’s (HK) an exclusive license with a right to sublicense (i) to develop and commercialize our KL4 surfactant products, including SURFAXIN, which was approved by the FDA in 2012 for respiratory distress syndrome (RDS) in premature infants, SURFAXIN LS™, the lyophilized dosage form of SURFAXIN, and AEROSURF, and (ii) to register and manufacture SURFAXIN and SURFAXIN LS for use in the licensed territory, which includes the People’s Republic of China (PRC), Hong Kong, Thailand, Taiwan and 12 other countries. In addition, we granted Lee’s (HK) options to potentially add Japan to the Licensed Territory, which was made effective in an August 2017 amendment (License Amendment, discussed below) and to manufacture our ADS in the licensed territory, in each case subject to conditions set forth in the License Agreement.

 

We amended the license in August 2017 to expand certain of Lee’s (HK)’s rights, including by immediately adding Japan to the licensed territory, accelerating the right to manufacture the ADS in and for the licensed territory, reducing or eliminating certain of the milestone and royalty payments and adding an affiliate of Lee’s (HK) as a party to the License Agreement.

 

 

Under the License Agreement as amended, Lee’s (HK) made an upfront payment to us of $1 million. We also may receive up to $35.8 million in potential clinical, regulatory and commercial milestone payments and will share in any sublicense income Lee’s (HK) may receive at a rate equal to low double digits. In addition, Lee’s (HK) will be responsible for all costs and expenses in and for the Licensed Territory related to development activities, including a planned AEROSURF phase 3 clinical program, regulatory activities, and commercialization activities.

 

We will be eligible to receive tiered royalties based on a percent of Net Sales (as defined in the License Agreement), depending on the product, in the range of high single to low-to-mid double-digit percentages. Royalties are payable on a country-by-country basis until the latest of (A) the expiration of the last valid patent claim covering the product in the country of sale, (B) the expiration or revocation of any applicable regulatory exclusivity in the country of sale, and (C) ten (10) years after the first commercial sale in the country of sale. Thereafter, in consideration of licensed rights other than patent rights, royalties shall continue for the commercial life of each product and, for the initial three years, shall be in the range of low-to-mid single digits. In addition, in the event that one or more generic products are introduced, the royalty rates will be reduced, subject to certain minimums if we are subject to continuing obligations at the time to pay royalties under our in-license agreements.

 

Under the License Agreement, Lee’s (HK) is responsible for all activities related to development, regulatory approval and commercialization of KL4 surfactant and combination drug / device products in the licensed territory. Lee’s (HK) will hold the product licenses for all non-aerosolized products in the licensed territory and will seek regulatory approval initially for SURFAXIN and SURFAXIN LS for RDS. We will hold the product license in the licensed territory (except where prohibited by law) for all aerosolized products and will designate Lee’s (HK) its exclusive agent and representative to develop and register AEROSURF and other aerosolized products in our name and on our behalf. Lee’s (HK) also has agreed that, except as provided in the License Agreement, for a period of ten (10) years beginning with the later of the first commercial sale of the first aerosolized product and the first commercial sale of the first non-aerosolized product in the PRC, it will not develop, register, manufacture, or commercialize any product for the prevention and/or treatment of RDS in premature infants or other diseases and conditions in humans, in either case, that administers, utilizes or contains pulmonary surfactant without our prior written consent.

 

Lee’s (HK) may sublicense certain activities under the License Agreement to an affiliate of Lee’s (HK), but may not grant sublicenses to unaffiliated third parties without our prior consent. A sublicensee and a subcontractor may not be a competitor that we identify to Lee’s (HK). Sublicensee rights under the License Agreement do not include the right to further sublicense. In addition, we and Lee’s (HK) entered into a technology transfer agreement under which we are transferring to Lee’s (HK) the manufacturing processes for SURFAXIN and SURFAXIN LS; and we and Lee’s (HK) plan to negotiate (i) a manufacturing agreement providing for the manufacture of SURFAXIN and SURFAXIN LS by Lee’s (HK) and giving us access to such products outside the licensed territory; (ii) a manufacturing and supply agreement providing for the manufacture and supply of AEROSURF drug and medical device components by us to Lee’s (HK); and (iii) such other agreements and amendments as may be necessary for the parties to perform their obligations under the License Agreement.

 

The term of the License Agreement commenced on the effective date of the License Agreement and will continue on a country-by-country basis for the commercial life of the products. Either party may terminate the License Agreement in the event of bankruptcy or a material breach of the License Agreement by the other party that remains uncured for a period of sixty (60) days. In addition, either party may terminate the License Agreement in its entirety or with respect to any individual product or country if a regulatory authority terminates, suspends or discontinues development of a product and such termination, suspension or discontinuance persists for a period in excess of eighteen (18) months. Upon termination of the License Agreement in its entirety or with respect to a particular product or country, generally all related rights and licenses granted to Lee’s (HK) will terminate, all rights under our technology will revert to us, and Lee’s (HK) will cease all use of our technology.

 

Patents and Proprietary Rights

 

In addition to the inventions covered by the patents and patent applications described in this Form 10-K, we have been active in identifying and seeking to identify new patents. We have filed and plan to file patent and provisional patent applications to protect our innovations relating to our current and potential future product candidates, including for composition of matter, new dosage forms, formulations, methods of manufacture, methods of use and related processes. We intend to file for patent protection for select inventions, in such markets that we deem material to our patent strategy, as well as for other new inventions that we may identify.

 

 

CVie Therapeutics Patents

 

CVie Therapeutics holds a patent portfolio of four patent families that include over 100 patents and patent filings directed to compounds, pharmaceutical formulations, methods of manufacturing, methods of delivery, and treatment methods using derivatives of rostafuroxin for the treatment of cardiovascular diseases and related conditions. We plan to continue these patent activities and plan focus on new follow-on compounds, dosage forms, formulations, and treatment methods related to acute heart failure and persistent hypertension.  At this time, the patents originally covering istaroxime composition of matter have expired. To benefit from potential non-patent exclusivity within the US, we believe that we may qualify istaroxime as a new chemical entity entitled to market exclusivity for a period of years. See, – Government Regulation – Drug Products – The Hatch-Waxman Act – Market Exclusivity.

 

Rostafuroxin-Related Patents

 

In November 2006, international patent application PCT/EP2006/068845 was filed and directed to methods of preparing crystalline forms of rostafuroxin. The international patent application entered into the national phase in both the European Patent Office (EP06819722.7, now European Patent No. 1951738 B1) and the US (US 12/094,885, now US Patent No. 9,127,037). US Patent No. 9,127,037 will expire on January 30, 2031, and European Patent No. 1951738 B1 will expire on November 23, 2026.

 

In June 2008, international patent application PCT/EP2008/056928 was filed and directed to rostafuroxin derivatives useful for the prevention or treatment of restenosis after angioplasty or endarterectomy as well as diseases resulting from organ fibrosis. The international application entered into the national phase in the US, European Patent Office, and several other foreign jurisdictions. In this patent family, multiple foreign counterparts are pending or granted. US Patent Application No. 12/602,827 was abandoned following an unsuccessful appeal of a decision of the US Patent Office examiner. European Patent No. 2160190B1 will expire on June 4, 2028.

 

In March 2010, international patent application PCT/EP2010/053571 was filed and directed to rostafuroxin derivatives for the treatment of proteinuria, glomerulosclerosis, and renal failure. The international patent application entered into the national phase in the European Patent Office (EP10709529.1, now European Patent No. 2411015B1), US, and multiple other foreign nations. US Patent Application No. 13/258,728 was abandoned on June 2, 2016 in favor of child application US 14/931,083, now US Patent No. 9,868,757. US Patent No. 9,868,757 and European Patent No. 2411015B1 will expire on March 18, 2030.

 

In October 2010, international patent application PCT/EP2010/065589 was filed covering methods of rostafuroxin administration for the treatment or prevention of cardiovascular conditions in individuals with various single nucleotide polymorphisms (SNPs) associated with improved therapeutic response to rostafuroxin administration. The international patent application entered into the national phase in the European Patent Office (EP10807525.0, now European Patent No. 2490694B1), US (US 13/502,518, now US Patent No. 9,408,854), and multiple other foreign nations. US Patent No. 9,408,854 and European Patent No. 2490694B1 will expire on October 18, 2030.

 

Johnson & Johnson, Ortho Pharmaceutical Corporation and The Scripps Research Institute

 

Our precision-engineered KL4 surfactant technology was invented at The Scripps Research Institute (Scripps) and was exclusively licensed to and further developed by J&J. We received an exclusive, worldwide license and sublicense from J&J and its wholly-owned subsidiary, Ortho Pharmaceutical Corporation, to a series of over 30 patents and patent filings (worldwide) (J&J Patents). All J&J Patents have expired. Under the license agreement, we are obligated to pay the licensors fees of up to $3.0 million in the aggregate upon our achievement of certain milestones, primarily upon receipt of marketing regulatory approvals for certain designated products.  We have made milestone payments totaling $1.0 milliom to date. In addition, the agreement provides that we are required to pay royalties at different rates based on the type of revenue and country, in amounts in the range of a high single-digit percent of net sales (as defined in the license agreement) of licensed products sold by us or sublicensees, or, if greater, a percentage of royalty income from sublicensees in the low double digits.  The license agreement provides that the license will expire, on a country-by-country basis, upon the payment of royalties for all licensed products for ten years beginning on the date of the first commercial sale of the first licensed product in such country. Thereafter, the license agreement provides that royalties shall be paid in respect of a licensed product until the expiration of the last licensed patent containing a valid claim covering the licensed product in such country. For countries in the EU in which royalties are paid only by virtue of licensed know-how, royalties shall be payable commencing from the date of first commercial sale of the first licensed product in such country and ending on the earlier of (i) the date on which the licensed know-how becomes public or (ii) the tenth anniversary of the first commercial sale of the first licensed product in any country of the EU. In addition to customary termination provisions for breach of the agreement by a party, we may terminate the agreement, as to countries other than the US and Western Europe territories (as defined in the agreement), on a country-by-country basis, on six months’ prior written notice; and as to the entire agreement, on 60 days’ prior written notice.

 

 

Our KL4 -Related Patents and Patent Rights

 

We have been active in seeking patent protection for our innovations relating to new dosage forms, formulations and methods of manufacturing and delivering synthetic peptide containing pulmonary surfactants. Our patent activities have focused particularly on improved dosage forms and delivery of aerosolized pulmonary surfactant.

 

In January 2006, we filed US and International patent applications (US 11/326,885 which is now US Patent No 7,541,331 issued on June 2, 2009 and PCT/US06/000308, now entered national phase), directed to a surfactant treatment regimen for BPD. US Patent No 7,541,331 will expire on January 6, 2026. European Patent No. 1841458B1 was revoked on December 11, 2018, following an unsuccessful appeal of a decision of the European Patent Office Opposition Division.

 

In September 2007, we filed US and International patent applications (US 11/901,866 which is now US Patent No. 8,221,772 and PCT US/2007/020260, now entered national phase) directed to surfactant compositions and methods of promoting mucus clearance and treating pulmonary disorders such as cystic fibrosis. US Patent No. 8,221,772 will expire on September 19, 2027.

 

In March 2013, we filed International patent applications (PCT/US13/34364 and PCT/US13/34464, now entered national phase and commenced expedited examination in the US and EPO) directed to lyophilized pulmonary surfactant and methods of manufacture. In this patent family, two US Patents Nos. 8,748,396 and 8,748,397 were issued on June 10, 2014, European patent 2723323B1 issued on September 23, 2015, another US Patent No. 9,554,999 B2 issued on January 31, 2017 and multiple foreign counterparts are pending or granted. US Patents Nos. 8,748,396; 8,748,397 and 9,554,999 B2 and European Patent No.2723323B1will expire on March 28, 2033.

 

Philip Morris USA Inc. and Philip Morris Products S.A.

 

In 2008, we restructured a December 2005 strategic alliance and entered into an Amended and Restated License Agreement with Philip Morris USA, Inc. (PMUSA) with respect to the US (US License Agreement), and, as PMUSA had assigned its ex-US rights to Philip Morris Products S.A. (PMPSA), effective on the same date and on substantially the same terms and conditions, we entered into a license agreement with PMPSA with respect to rights outside of the US (together with the US License Agreement, the PM License Agreements).  

 

Pursuant to the PM License Agreements, we have worldwide exclusive rights to the medical device component of our AEROSURF product candidate. We are currently developing a phase 3 ADS potentially for use in our remaining AEROSURF development activities and, if approved, initial commercial activities. Our ADS technology and our phase 3 ADS version are prootected by a portfolio of issued patents, as well as pending and new patent applications, covering the core components of the system. These patents and applications will expire on dates ranging from 2018 to 2037, with the core patents expiring in 2033 or later.

 

Under the PM License Agreements, we are obligated to pay royalties at a rate equal to a low single-digit percent of sales of products sold in the Exclusive Field in the territories.  In connection with exclusive undertakings of PMUSA and PMPSA not to exploit the aerosol technology for all licensed uses, we are obligated to pay royalties on all product sales, including sales of certain aerosol devices that are not based on the licensed aerosol technology; provided, however, that no royalties are payable to the extent that we exercise our right to terminate the license with respect to a specific indication.  We also have been required to pay minimum royalties quarterly beginning in 2014 but are entitled to reduce future quarterly royalties above the quarterly minimums in the amount of the true-up payments we make to satisfy minimum royalties for prior quarters. Our license rights extend to innovations to the aerosol technology that are made under the PM License Agreements.

 

In addition to customary termination provisions for breach of the agreements, we may terminate the PM License Agreements, in whole or in part, upon advance written notice to the licensor. In addition, either party to each PM License Agreement may terminate upon a material breach by the other party (subject to a specified cure period). Our license under each PM License Agreement, unless terminated earlier, will expire as to each licensed product, on a country-by-country basis, upon the latest to occur of: the date on which the sale of such licensed product ceases to be covered by a valid patent claim in such country; the date a generic form of the product is introduced in such country; or the tenth anniversary of the first commercial sale of such licensed product.

 

 

Aerosol-Conducting Airway Connector Technology Patents and Patent Rights

 

In March 2009, we filed an International patent application (PCT US/2009/037409, now entered national phase) directed to aerosol-conducting airway connectors and improvements of an aerosol delivery system using AFECTAIR®. The claims of this application are directed to a novel ventilation circuit adaptor (an aerosol-conducting airway connector) and related aerosol circuitry that are intended to (i) increase the efficiency of aerosol delivery to the patient by allowing more efficient delivery of aerosols to the patient, and (ii) reduce drug compound dilution and wastage and result in more precise aerosol dosing. In this patent family, US Patent No. 8,701,658 was issued on April 22, 2014, European patent No. 2265309 was issued on December 16, 2015, US Patent No. 9,352,114 was issued on May 31, 2016, US Patent No. 9,592,361 was issued on March 14, 2017 and several foreign patents have issued during 2011 through 2017. US Patent No. 8,701,658 and US Patent No. 9,352,114 will expire on March 17, 2029. US Patent No. 9,592,361 will expire on September 9, 2033. European Patent No. 2265309 will expire on March 17, 2029.

  

Trademarks

 

AEROSURF®, AFECTAIR®, DiscoveryLabs®, DISCOVERYLABS INSPIRED INNOVATION (logo)®, SURFAXIN®, SURFAXIN LS™, WINDTREE™ and WINDTREE THERAPEUTICS™ are our registered and common law trademarks.

 

Trade Secrets

 

In addition to our patent exclusivities, we rely on trade secrets to protect and maintain our competitive position. We take measures to protect and maintain our trade secrets and know-how licensed to us or developed by us by entering in confidentiality agreements with third parties. Our trade secrets and know-how include information related to manufacturing processes for our drug products and devices, analytical methods and procedures, research and development activities, provisional patent applications, as well as certain information provided to the FDA that was not made public which relates to our regulatory activities and clinical trials.

 

Other Regulatory Designations

 

Orphan Drug and Orphan Medicinal Product Designations

 

The FDA has granted Orphan Drug designation for (i) our KL4 surfactant (lucinactant) for the treatment of RDS in premature infants, (ii) our KL4 surfactant for the prevention and treatment of BPD in premature infants, (iii) our KL4 surfactant for the treatment of acute respiratory distress syndrome (ARDS) in adults, and (iv) our KL4 surfactant for the treatment of CF. See, – Government Regulation – Drug Products – Orphan Drugs.

 

The European Commission (EC) grants Orphan Medicinal Product designation for pharmaceutical products for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting no more than 5 in 10,000 people which provides for exclusive marketing rights for indications in Europe for 10 years (subject to revision after six years) following marketing approval by the European Medicines Agency (EMA). In addition, the designation would enable us to receive regulatory assistance in the further development process, and to access reduced regulatory fees throughout its marketing life. The EC has granted Orphan Medicinal Product designation for (i) our KL4 surfactant for the prevention of RDS in premature neonates of less than 32 weeks gestational age, (ii) our KL4 surfactant for the treatment of RDS in premature neonates of less than 37 weeks gestational age, (iii) our KL4 surfactant for the treatment of ALI (which in this circumstance encompasses ARDS), and (iv) our KL4 surfactant for the treatment of CF. In submitting the requests to the EMA for Orphan Medicinal Product designations, instead of listing the drug product under the USAN name (lucinactant) as we have in the US, we were required to submit our requests under the names of the four APIs in our KL4 surfactant (lucinactant) as follows: sinapultide (KL4), dipalmitoylphosphatidylcholine, palmitoyl-oleoyl phosphatidylglycerol and palmitic acid.

 

Fast Track Designations and Priority Review

 

The FDA has granted Fast Track designation for (i) our KL4 surfactant for the prevention and treatment of BPD in premature infants, (ii) our KL4 surfactant for ARDS in adults, and (iii)  our KL4 surfactant for the treatment of RDS. We believe that other of our products may qualify for Fast Track or Breakthrough Therapy designation or other expedited programs. These designations and programs are intended to facilitate and expedite development and review of an NDA to address unmet medical needs in the treatment of serious or life-threatening conditions.   See, – Government Regulation – Drug Products – Fast Track Designation.

 

 

COMPETITION

 

The biotechnology industry is a highly competitive industry. As we work to gain marketing authorization for our product candidates, competition from numerous existing pharmaceutical companies and other companies entering our fields is expected to be intense and expected to increase. In fact, our future competitors are competing with us currently to secure access to development resources, including clinical sites and their patients to advance development programs. We expect that those companies that are successful at being the first to introduce new products and technologies to the market may gain significant advantages over their competitors in the establishment of a customer base and track record for the performance of their products and technologies. Moreover, there are also existing therapies that may compete with the products we are developing. Therefore, as a development stage biotechnology company, our competitors are comprised of other biotechnology firms and pharmaceutical companies that have existing products or are developing products for our primary markets -- respiratory and cardiovascular indications.

 

GOVERNMENT REGULATION

 

In the US, drug products, medical devices, and drug/device combination products are subject to extensive regulation by the US Food and Drug Administration, or FDA. The Federal Food, Drug, and Cosmetic Act, or the FDC Act, and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, clearance, labeling, promotion, advertising and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of drug products, medical devices, and drug/device combination products. Failure to comply with applicable US requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve or clear pending new submissions to market drugs or devices warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties, and criminal prosecution. Drug products, medical devices, and drug/device combination products must receive all relevant regulatory approvals or clearances before they may be marketed in the US. Drug products, medical devices, and drug/device combination products are subject to extensive regulation, including premarket review and marketing authorization, by similar agencies in other countries.

 

Drug Products

 

Pharmaceutical product development for a new product or certain changes to an approved product in the US typically involves preclinical laboratory and animal tests, the submission to the FDA of an investigational new drug application, or IND, which must become effective before clinical testing may commence, and adequate and well-controlled clinical trials to establish the safety and effectiveness of the drug for each indication for which the FDA approval is sought. Satisfaction of the FDA pre-market approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity, and novelty of the product or disease.

 

Preclinical tests include laboratory evaluation of product chemistry, formulation, and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy of the product. The conduct of the preclinical tests must comply with federal regulations and requirements, including good laboratory practices. The results of preclinical testing are submitted to the FDA as part of an IND along with other information, including information about product chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long-term preclinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted.

 

A 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA has neither commented on nor questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin.

 

Clinical trials involve the administration of the investigational new drug to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance with federal regulations; (ii) in compliance with good clinical practice, or GCP, an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators, and monitors; as well as (iii) under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each protocol involving testing on US patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.

 

 

The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the clinical trial either is not being conducted in accordance with the FDA requirements or presents an unacceptable risk to the clinical trial patients. The study protocol and informed consent information for patients in clinical trials must also be submitted to an institutional review board, or IRB, for approval. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions.

 

Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In phase 1, the initial introduction of the drug into healthy human subjects or patients, the drug is tested to assess metabolism, pharmacokinetics, pharmacological actions, side effects associated with increasing doses, and, if possible, early evidence on effectiveness. Phase 2 usually involves trials in a limited patient population to determine the effectiveness of the drug for a particular indication, dosage tolerance, and optimum dosage, and to identify common adverse effects and safety risks. If a compound demonstrates evidence of effectiveness and an acceptable safety profile in phase 2 evaluations, phase 3 trials are undertaken to obtain the additional information about clinical efficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug. In most cases the FDA requires two adequate and well-controlled phase 3 clinical trials to demonstrate the efficacy of the drug. A single phase 3 trial with other confirmatory evidence may be sufficient in rare instances where the study is a large multicenter trial demonstrating internal consistency and a statistically very persuasive finding of a clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with a potentially serious outcome and confirmation of the result in a second trial would be practically or ethically impossible.

 

The manufacturer of an investigational drug in a phase 2 or 3 clinical trial for a serious or life-threatening disease is required to make available, such as by posting on its website, its policy on evaluating and responding to requests for expanded access to such investigational drug.

 

After completion of the required clinical testing, an NDA is prepared and submitted to the FDA. The FDA approval of the NDA is required before marketing of the product may begin in the US. The NDA must include the results of all preclinical, clinical, and other testing and a compilation of data relating to the product’s pharmacology, chemistry, manufacture, and controls. The cost of preparing and submitting an NDA is substantial. The submission of most NDAs is additionally subject to a substantial application user fee, currently exceeding $2,588,000 for fiscal year 2019, and the applicant under an approved new drug application is also subject to an annual program fee, currently exceeding $309,000 per product for fiscal year 2019, which replaced the annual product and establishment fees. These fees are typically increased annually.

 

The FDA has 60 days from its receipt of an NDA to determine whether the application will be filed based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. If the NDA submission is filed, the FDA reviews the NDA to determine, among other things, whether the proposed product is safe and effective for its intended use. The FDA has agreed to certain performance goals in the review of new drug applications. Most such applications for standard review drug products are reviewed within ten to twelve months; most applications for priority review drugs are reviewed in six to eight months. Priority review can be applied to drugs that the FDA determines offer major advances in treatment or provide a treatment where no adequate therapy exists. The review process for both standard and priority review may be extended by the FDA for three additional months to consider certain late-submitted information, or information intended to clarify information already provided in the submission.

 

The FDA may also refer applications for novel drug products, or drug products that present difficult questions of safety or efficacy, to an advisory committee - typically a panel that includes clinicians and other experts - for review, evaluation, and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured. The FDA will not approve the product unless compliance with current good manufacturing practices, or cGMPs, is satisfactory and the NDA contains data that provide substantial evidence that the drug is safe and effective in the indication studied.

 

After the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included.

 

 

An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA approval, the FDA may require a risk evaluation and mitigation strategy, or REMS, to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use, or ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the drug. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drug’s safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.

 

Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and the FDA approval of a new NDA or NDA supplement before the change can be implemented. An NDA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA supplements as it does in reviewing NDAs.

 

Orphan Drugs

 

Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition – generally a disease or condition that affects fewer than 200,000 individuals in the US. Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. The first NDA applicant to receive FDA approval for a particular active moiety to treat a particular disease with FDA orphan drug designation is entitled to a seven-year exclusive marketing period in the US for that product, for that indication. During the seven-year exclusivity period, the FDA may not approve any other applications to market the same drug for the same disease, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity by means of greater effectiveness, greater safety, or providing a major contribution to patient care. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA application user fee.

 

Fast Track Designation

 

The FDA is required to facilitate the development, and expedite the review, of drugs that are intended for the treatment of a serious or life-threatening disease and which demonstrate the potential to address unmet medical needs for the condition. Under the fast track program, the sponsor of a new drug candidate may request that the FDA designate the drug candidate for a specific indication as a fast track drug concurrent with, or after, the filing of the IND for the drug candidate. The FDA must determine if the drug candidate qualifies for fast track designation within 60 days of receipt of the sponsor’s request.

 

Under the fast track program, sponsors have the opportunity to engage in more frequent interactions with the FDA. In addition, the FDA may initiate review of sections of a fast track drug’s NDA before the application is complete. This rolling review is available if the applicant provides, and the FDA approves, a schedule for the submission of the remaining information and the applicant pays applicable user fees. However, the FDA’s time period goal for reviewing an application does not begin until the last section of the NDA is submitted. Additionally, the fast track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.

 

The Hatch-Waxman Act

 

Orange Book Listing: In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent with claims covering the applicant’s product or method of using the product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of an abbreviated new drug application, or ANDA. An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown to be bioequivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct, or submit results of, pre-clinical or clinical tests to prove the safety or effectiveness of their drug product. Drugs approved in this way are commonly referred to as generic equivalents to the listed drug, and can often be substituted by pharmacists under prescriptions written for the original listed drug.

 

 

The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book. Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. The ANDA applicant may also elect to submit a Section VIII statement certifying that its proposed ANDA labeling does not contain (or carves out) any language regarding the patented method-of-use rather than certify to a listed method-of-use patent. If the applicant does not challenge the listed patents, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired.

 

A certification that the new product will not infringe the already approved product’s listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been received by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the ANDA applicant.

 

An applicant submitting an NDA under Section 505(b)(2) of the FDC Act, which permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by, or for, the applicant and for which the applicant has not obtained a right of reference, is required to certify to the FDA regarding any patents listed in the Orange Book for the approved product it references to the same extent that an ANDA applicant would.

 

Market Exclusivity: Market exclusivity provisions under the FDC Act also can delay the submission or the approval of certain applications. The FDC Act provides a five-year period of non-patent exclusivity within the US to the first applicant to gain approval of an NDA for a new chemical entity, or NCE. A drug is entitled to NCE exclusivity if it contains a drug substance no active moiety of which has been previously approved by the FDA. During the exclusivity period, the FDA may not receive for review an ANDA or file a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a Paragraph IV certification. The FDC Act also provides three years of market exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, for new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the conditions for use associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs for the original conditions of use, such as the originally approved indication. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all the non-clinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.

 

Patent Term Extension: After NDA approval, the owner of a relevant drug patent may apply for up to five years of patent term extension. Only one patent may be extended for each regulatory review period, which is composed of two parts: a testing phase, and an approval phase. The allowable patent term extension is calculated as half of the drug’s testing phase - the time between the day the IND becomes effective and NDA submission – and all of the review phase – the time between NDA submission and approval – up to a maximum of five years. The time can be shortened if the FDA determines that the applicant did not pursue approval with due diligence. The total remaining patent term after the extension may not exceed 14 years.

 

For patents that might expire during the application phase, the patent owner may request an interim patent extension. An interim patent term extension increases the patent term by one year and may be renewed up to four times. For each interim patent term extension granted, the post-approval patent term extension is reduced by one year. The director of the US Patent and Trademark Office must determine that approval of the drug covered by the patent for which a patent extension is being sought is likely. Interim patent term extensions are not available for a drug for which an NDA has not been submitted.

 

Post-Approval Requirements

 

Once an NDA is approved, a product will be subject to certain post-approval requirements. For instance, the FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet. Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved labeling.

 

 

Adverse event reporting and submission of periodic reports is required following FDA approval of an NDA. The FDA also may require post-marketing testing, known as phase 4 testing, risk evaluation and mitigation strategies, or REMS, and surveillance to monitor the effects of an approved product, or the FDA may place conditions on an approval that could restrict the distribution or use of the product. In addition, quality-control, drug manufacture, packaging, and labeling procedures must continue to conform to current good manufacturing practices, or cGMPs, after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the agency inspects manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money, and effort in the areas of production and quality-control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered. In addition, prescription drug manufacturers in the US must comply with applicable provisions of the Drug Supply Chain Security Act and provide and receive product tracing information, maintain appropriate licenses, ensure they only work with other properly licensed entities, and have procedures in place to identify and properly handle suspect and illegitimate products.

 

Pediatric Information

 

Under the Pediatric Research Equity Act, or PREA, NDAs or supplements to NDAs must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective. the FDA may grant full or partial waivers, or deferrals, for submission of data. Unless otherwise required by regulation, PREA does not apply to any drug for an indication for which orphan designation has been granted except a product with a new active ingredient that is molecularly targeted cancer product intended for the treatment of an adult cancer and directed at a molecular target determined by the FDA to be substantially relevant to the growth or progression of a pediatric cancer that is subject to an NDA or BLA submitted on or after August 18, 2020.

 

The Best Pharmaceuticals for Children Act, or BPCA, provides NDA holders a six-month extension of any exclusivity—patent or non-patent—for a drug if certain conditions are met. Conditions for exclusivity include the FDA’s determination that information relating to the use of a new drug in the pediatric population may produce health benefits in that population, the FDA making a written request for pediatric studies, and the applicant agreeing to perform, and reporting on, the requested studies within the statutory timeframe. Applications under the BPCA are treated as priority applications, with all of the benefits that designation confers.

 

Disclosure of Clinical Trial Information

 

Sponsors of clinical trials of FDA-regulated products are required to register and disclose certain clinical trial information. Information related to the product, patient population, phase of investigation, trial sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed in certain circumstances for up to two years after the date of completion of the trial. Competitors may use this publicly available information to gain knowledge regarding the progress of development programs.

 

Medical Device Products

 

A medical device is an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including any component part, or accessory which is: (i) recognized in the official National Formulary, or the US Pharmacopoeia, or any supplement to them; (ii) intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals; or (iii) intended to affect the structure or any function of the body of man or other animals, and which does not achieve any of its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of any of its primary intended purposes.

 

The FDC Act classifies medical devices into one of three categories based on the risks associated with the device and the level of control necessary to provide reasonable assurance of safety and effectiveness. Class I devices are deemed to be low risk and are subject to the fewest regulatory controls. Class III devices are generally the highest risk devices and are subject to the highest level of regulatory control to provide reasonable assurance of the device’s safety and effectiveness. Class III devices must typically be approved by the FDA before they are marketed.

 

Generally, establishments that manufacture and/or distribute devices, including manufacturers, contract manufacturers, sterilizers, repackagers and relabelers, specification developers, reprocessors of single-use devices, remanufacturers, initial importers, manufacturers of accessories and components sold directly to the end user, and US manufacturers of export-only devices, are required to register their establishments with the FDA and provide the FDA a list of the devices that they handle at their facilities.

 

 

Pre-market Authorization and Notification

 

While most Class I and some Class II devices can be marketed without prior FDA authorization, most medical devices can be legally sold within the US only if the FDA has: (i) approved a premarket approval application, or PMA, prior to marketing, generally applicable to Class III devices; or (ii) cleared the device in response to a premarket notification, or 510(k) submission, generally applicable to Class I and II devices. Some devices that have been classified as Class III are regulated pursuant to the 510(k) requirements because the FDA has not yet called for PMAs for these devices. Other less common regulatory pathways to market for certain devices include the de novo classification process, the humanitarian device exception, or HDE, or a product development protocol, or PDP. 

 

Exempt Devices

 

If a manufacturer's device falls into a generic category of Class I or Class II devices that the FDA has exempted by regulation, a premarket notification is not required before marketing the device in the US. Manufacturers of such devices are required to register their establishments and list the proprietary device name and the generic category or classification regulation into which the device fits. Some 510(k)-exempt devices are also exempt from Quality System Regulation, or QSR, requirements.

 

Post-market Requirements

 

After a device is placed on the market, numerous regulatory requirements apply. These include: the QSR, labeling regulations, the FDA’s general prohibition against promoting products for unapproved or off-label uses, the Medical Device Reporting regulation (which requires that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur), and the Reports of Corrections and Removals regulation (which requires manufacturers to report recalls and field actions to the FDA if initiated to reduce a risk to health posed by the device or to remedy a violation of the FDC Act).

 

The FDA enforces these requirements by inspection and market surveillance. If the FDA finds a violation, it can institute a wide variety of enforcement actions, ranging from a public warning letter to more severe sanctions such as: fines, injunctions, and civil penalties; recall or seizure of products; operating restrictions, partial suspension or total shutdown of production; refusing requests for 510(k) clearance or PMA approval of new products; withdrawing 510(k) clearance or PMA approvals already granted; and criminal prosecution.

 

Combination Products

 

A combination product is a product comprised of (i) two or more regulated components, i.e., drug/device, biologic/device, drug/biologic, or drug/device/biologic, that are physically, chemically, or otherwise combined or mixed and produced as a single entity; (ii) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, or biological and drug products; (iii) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling is intended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, or effect and where, upon approval of the proposed product, the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use, dosage form, strength, route of administration, or significant change in dose; or (iv) any investigational drug, device, or biological product packaged separately that according to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required to achieve the intended use, indication, or effect.

 

The FDA is divided into various branches, or Centers, by product type. Different Centers typically review drug, biologic, or device applications. In order to review an application for a combination product, the FDA must decide which Center should be responsible for the review. FDA regulations require that the FDA determine the combination product’s primary mode of action, or PMOA, which is the single mode of a combination product that provides the most important therapeutic action of the combination product. The Center that regulates that portion of the product that generates the PMOA becomes the lead evaluator. If there are two independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which Center to assign the product based on consistency with other combination products raising similar types of safety and effectiveness questions or to the Center with the most expertise in evaluating the most significant safety and effectiveness questions raised by the combination product. When evaluating an application, a lead Center may consult other Centers but still retain complete reviewing authority, or it may collaborate with another Center, by which the Center assigns review of a specific section of the application to another Center, delegating its review authority for that section. Typically, the FDA requires a single marketing application submitted to the Center selected to be the lead evaluator, although the agency has the discretion to require separate applications to more than one Center. One reason to submit multiple evaluations is if the applicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multiple applications are submitted, each may be evaluated by a different lead Center.

 

 

International Approvals

 

Drug products, medical devices, and drug/device combination products are subject to extensive regulation, including premarket review and marketing authorization, by similar agencies in other countries. Regulatory requirements and approval processes are similar in approach to that of the US but are not harmonized. International regulators are independent and not bound by the findings of the FDA and there is a risk that foreign regulators will not accept clinical trial design/results or may require additional data or other information not requested by the FDA. In addition, international regulators may require different manufacturing practices than the FDA’s cGMPs.

 

Anti-Kickback, False Claims Laws

 

In addition to the FDA restrictions on marketing of pharmaceutical products, medical devices, and combination products, several other types of state and federal laws have been applied to restrict certain marketing practices in the medical product industry in recent years. These laws include anti-kickback statutes, false claims statutes, and other statutes pertaining to health care fraud and abuse. The federal healthcare program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid, or other federally financed healthcare programs. The Patient Protection and Affordable Care Act, or PPACA, amended the intent element of the federal statute so that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, and formulary managers on the other. Violations of the anti-kickback statute are punishable by imprisonment, criminal fines, civil monetary penalties, and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases, or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor.

 

Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to have a false claim paid. This includes claims made to programs where the federal government reimburses, such as Medicaid, as well as programs where the federal government is a direct purchaser, such as when it purchases off the Federal Supply Schedule. Recently, several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. In addition, certain marketing practices, including off-label promotion, may also violate false claims laws. Additionally, PPACA amended the healthcare program anti-kickback statute such that a violation can serve as a basis for liability under the federal false claims law. The majority of states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.

 

Other federal statutes pertaining to healthcare fraud and abuse include the civil monetary penalties statute, which prohibits the offer or payment of remuneration to a Medicaid or Medicare beneficiary that the offeror/payor knows or should know is likely to influence the beneficiary to order a receive a reimbursable item or service from a particular supplier, and the healthcare fraud statute, which prohibits knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program or obtain by means of false or fraudulent pretenses, representations, or promises any money or property owned by or under the control of any healthcare benefit program in connection with the delivery of or payment for healthcare benefits, items, or services.

 

Other Federal and State Regulatory Requirements

 

Pursuant to PPACA, the Centers for Medicare & Medicaid Services (CMS) issued a final rule that requires manufacturers of prescription drugs to collect and report information on certain payments or transfers of value to physicians and teaching hospitals, as well as investment interests held by physicians and their immediate family members. The reports must be submitted on an annual basis and the reported data are posted in searchable form on a public website on an annual basis. Failure to submit required information may result in civil monetary penalties. Effective January 1, 2022, transfers of value to physician assistants, nurse practitioners or clinical nurse specialists, certified registered nurse anesthetists, and certified nurse-midwives will also be required.

 

In addition, several states now require prescription drug companies to report certain expenses relating to the marketing and promotion of drug products and to report gifts and payments to individual healthcare practitioners in these states. Other states prohibit various marketing-related activities, such as the provision of certain kinds of gifts or meals. Still other states require the posting of information relating to clinical studies and their outcomes. Some states require the reporting of certain pricing information, including information pertaining to and justifying price increases, or prohibit prescription drug price gouging. In addition, states such as California, Connecticut, Nevada, Massachusetts require pharmaceutical companies to implement compliance programs and/or marketing codes. Additional jurisdictions, such as the City of Chicago and the District of Columbia, require pharmaceutical sales representatives to be licensed and meet continuing education requirements. Several additional states are considering similar proposals.  Compliance with these laws is difficult and time-consuming, and companies that do not comply with these state laws face civil penalties.

 

 

EMPLOYEES

 

As of April 5, we have 33 employees, including 32 full-time employees.

 

AVAILABLE INFORMATION

 

We file annual, quarterly and current reports, proxy or stockholder information statements and other information with the Securities and Exchange Commission (SEC). The SEC maintains an Internet site that contains reports, proxy and information statements, certain and other information that we may file electronically with the SEC (http://www.sec.gov). We maintain our corporate website at http://www.windtreetx.com. Our website and the information contained therein or connected thereto are not incorporated into this Annual Report on Form 10-K.  

 

 

ITEM 1A.

RISK FACTORS.

 

You should carefully consider the following risks and any of the other information set forth in this Annual Report on Form 10-K and in the documents incorporated herein by reference, before deciding to invest in shares of our common stock. The risks described below are not the only ones that we face. Additional risks that are not presently known to us or that we currently deem immaterial may also impair our business operations. The following risks, among others, could cause our actual results, performance, achievements or industry results to differ materially from those expressed in our forward-looking statements contained herein and presented elsewhere by management from time to time. If any of the following risks actually occurs, our business prospects, financial condition or results of operations could be materially harmed. In such case, the market price of our common stock would likely decline due to the occurrence of any of these risks, and you could lose all or part of your investment.

 

Risks Related to Capital Resource Requirements

 

As of April 5, 2019, we believe that we have sufficient capital to fund our research and development programs, support our business operations and satisfy existing obligations on a timely basis through October 2019. If we do not secure additional capital to support our future activities before our existing cash resources are exhausted, we likely will be unable to continue as a going concern.

 

As of December 31, 2018, we had cash and cash equivalents of $11.2 million and available-for-sale, marketable securities of $13.9 million, current liabilities of $20.6 million, including $8.0 million of Loan payable. Although we believe that the December 2018 merger with CVie and $39 million Private Placement Financing has improved our financial position and may better position us to raise the capital needed to fund our business plans, we expect to continue to incur significant losses and require significant additional capital to advance our istaroxime and AEROSURF® clinical development programs, support our operations and business development efforts, and satisfy existing obligations. As of April 5, 2019, we believe that we will have sufficient resources (including marketable securities) to support our development activities and business operations through October 2019.

 

We have not yet established an ongoing source of revenue sufficient to cover our operating costs and allow us to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to raise additional capital, to fund our research and development programs, support our business operations and pay our existing obligations on a timely basis. We plan to seek the additional capital that we require from potential strategic alliances, collaboration arrangements and other similar transactions, and through potential public and private offerings in the equity markets. If none of these alternatives is available, or if available, we are unable to raise sufficient capital through such transactions, we likely will not have sufficient cash resources and liquidity to fund our business operations, which could significantly limit our ability to continue as a going concern. If we are unable to raise the required capital, we may be forced to curtail all of our activities and, ultimately, cease operations.

 

Our existing and future debt obligations could impair our liquidity and financial condition, and if we are unable to meet our debt obligations, including with respect to any collateral requirements, the lenders could foreclose on our assets or seek a judgment against us and execute against our assets.  

 

We currently have loans in the amount of $3.5 million from an affiliate of Lee’s, which is payable on various dates through November 2019, and $4.5 million from O-Bank Co., Ltd in Taiwan that is secured by a pledge of collateral from an affiliate of Lee’s.  We do not have a written agreement requiring Lee’s to maintain the collateral for the term of the loan.

 

Our debt obligations:

	•	could impair our liquidity;
	•	could make it more difficult for us to satisfy our other obligations;
	•	require us to dedicate cash flow to payments on our debt, which would reduce the availability of our cash flow to fund working capital, capital expenditures and other corporate requirements;
	•	impose restrictions on our ability to incur other indebtedness, grant liens on our assets, and could impede us from obtaining additional financing in the future for working capital, capital expenditures, acquisitions and general corporate purposes;
	•	impose restrictions on us with respect to our ability to license our products in the US and other markets around the world;
	•	could adversely affect our ability to enter into strategic transactions, public or private equity offerings, and similar agreements, or require us to obtain the consent to enter into such transactions;
	•	make us more vulnerable in the event of a downturn in our business prospects and could limit our flexibility to plan for, or react to, changes in our licensing markets; and
	•	could place us at a competitive disadvantage when compared to our competitors.

 

Should we fail to pay our obligations, fail to comply with any covenants contained in any related agreements, including the collateral maintenance agreement under the O-Bank loan, or if Lee’s withdraws its pledge of collateral to secure the O-Bank loan, we could be in default regarding that indebtedness and the lender could accelerate payment of the outstanding indebtedness. Moreover, in the future, to secure our obligations under any loans, we may be required to grant to the lender a security interest in some or substantially all of our assets.

 

We will continue to require significant additional capital to support our research and development activities and operations, and our ability to raise such capital may be impacted by factors impairing or blocking our access to the capital markets at a time when we would like or require, and that would result in an increased cost of capital. Moreover, any equity financings that we undertake could result in substantial dilution to our stockholders, cause our stock price to fall and adversely affect our ability to raise capital.

 

Until we are in a position where revenues from commercialization of our product candidates are sufficient to offset our cash requirements, we will continue to require significant additional infusions of capital to execute our business strategy. For the next several years, we do not expect that any of our products will be approved or that we will receive revenues from the sale of approved products, and our cash outflows for development programs, operations and debt service are likely to far outpace the rate at which we may generate revenues and other cash inflows from all available sources.

 

 

We plan to seek the additional capital that we require from potential strategic alliances, collaboration arrangements and other similar transactions, and through potential public and private offerings in the equity markets, which could have a dilutive impact on our stockholders. In such event, the issuance, or even potential issuance, of shares could have a negative effect on the market price of our common stock. However, a number of factors, including without limitation the planned timing and outcomes of our clinical activities, our debt obligations, our status as a smaller reporting company under the SEC regulations, our delisting from The Nasdaq Capital Market in May 2017 and subsequent transfer to the OTC Markets Group Inc.’s OTCQB® market, as well as conditions in the global financial markets generally, may present significant challenges to accessing the capital markets at a time when we would like or require, and at an increased cost of capital.  We do not have in place arrangements to obtain additional capital.  Any financing could be difficult to obtain or only available on unattractive terms and could result in significant dilution of stockholders’ interests.  In any such event, the market price of our common stock may decline.  In addition, failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our business plan, financial performance and stock price and could delay new product development and clinical trial plans.

 

If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, curtail or discontinue our research and development programs.

  

Future sales and issuances of our common stock or rights to purchase our common stock, stock incentive plans and upon the exercise of outstanding securities exercisable for shares of our common stock, could result in substantial additional dilution of our stockholders, cause our stock price to fall and adversely affect our ability to raise capital.

 

We will require additional capital to continue to execute our business plan and advance our research and development efforts. To the extent that we raise additional capital through the issuance of additional equity securities and through the exercise of outstanding warrants, our stockholders may experience substantial dilution. We may sell shares of preferred stock or common stock in one or more transactions at prices that may be at a discount to the then-current market value of our common stock and on such other terms and conditions as we may determine from time to time. Any such transaction could result in substantial dilution of our existing stockholders. If we sell shares of our common stock in more than one transaction, stockholders who purchase our common stock may be materially diluted by subsequent sales. Such sales could also cause a drop in the market price of our common stock. The issuance of shares of our common stock in connection with a public or private financing, in connection with our compensation programs, and upon exercise of outstanding warrants will have a dilutive impact on our other stockholders and the issuance, or even potential issuance, of such shares could have a negative effect on the market price of our common stock.

 

The exercise of stock options and other securities could also cause our stockholders to experience substantial dilution.  Moreover, holders of our stock options and warrants are likely to exercise them, if ever, at a time when we otherwise could obtain a price for the sale of our securities that is higher than the exercise price per security of the options or warrants.  Such exercises, or the possibility of such exercises, may impede our efforts to obtain additional financing through the sale of additional securities or make such financing more costly.  It may also reduce the price of our common stock.

 

The rights of the holders of our common stock will be subordinate to our creditors in a liquidation. No assurance can be given as to the amount of assets, if any, that would be available for common stockholders in the event of a liquidation.

 

In liquidation, the rights of equity security holders like our common stockholders are subordinate to holders of our debt obligations. Accordingly, in the event of liquidation, no assurance can be given as to the amount of remaining assets, if any, available for payment to common stockholders.

 

The market price of our stock may be adversely affected by market volatility.

 

The market price of our common stock, like that of many other development stage pharmaceutical or biotechnology companies, has been and is likely to be volatile.  In addition to general economic, political and market conditions, the price and trading volume of our stock could fluctuate widely in response to many factors, including:

	•	announcements of the results of clinical trials by us or our competitors;
	•	significant patient adverse reactions to our products;
	•	governmental approvals, delays in expected governmental approvals or withdrawals of any prior governmental approvals or public or regulatory agency concerns regarding the safety or effectiveness of our products;
	•	changes in the US or foreign regulatory policy during the period of product development;
	•	changes in the US or foreign political environment and the passage of laws, including tax, environmental or other laws, affecting the product development business;
	•	developments in patent or other proprietary rights, including any third-party challenges of our intellectual property rights;
	•	announcements of technological innovations or new products by us or our competitors;
	•	actual or anticipated variations in our operating results due to the level of development expenses and other factors;
	•	changes in financial estimates by securities analysts and whether our earnings meet or exceed the estimates;
	•	conditions and trends in the pharmaceutical and other industries; including healthcare reform in the US and pricing and reimbursement policies globally;
	•	new accounting standards;
	•	changes in executive management; and
	•	the occurrence of any of the risks described in these Risk Factors or elsewhere in this Annual Report on Form 10-K or our other public filings.

 

 

Our common stock has been quoted on the OTCQB® market tier operated by The OTC Markets since May 5, 2017. The price of our common stock has been, and we expect it to remain, volatile. The average daily trading volume in our common stock varies significantly and we have experienced extended periods where the trading volume has been low. The instability observed in our daily volume and number of transactions per day may affect the ability of our stockholders to sell their shares in the public market at prevailing prices.

 

In the past, following periods of volatility in the market price of the securities of companies in our industry, securities class action litigation has often been instituted against companies in our industry.  Even if securities class actions that may be filed against us in the future were ultimately determined to be meritless or unsuccessful, they would involve substantial costs and a diversion of management attention and resources, which could negatively affect our business.

 

We will require significant additional capital to support our research and development activities and operations and may not have sufficient cash resources in the future to pay our vendors, service providers and pay other business expenses.  While we seek to raise the additional capital that we require, our relationships with important vendors and service providers may be affected.  If any of our key vendors and service providers were to cease working with us or subject the delivery of products or services to timing or payment preconditions, our development activities may be adversely affected, which could have a material adverse effect on our business and operations.

 

We have from time to time experienced periods in which our cash resources have been constrained. As such, it is our practice to routinely closely monitor and control our cash resources to assure that investment and spending decisions advance our corporate objectives at any time. To manage our cash, we tightly control purchasing and retention of consultants, closely monitor the release of funds and may defer payment on invoices to conserve cash.  This practice of conserving cash may adversely impact our relationships with key vendors and service providers and the pace at which we are able to advance our programs. While we are working closely with our vendors and service providers to preserve our key relationships, there can be no assurance that we will be successful and that our vendor and service providers will continue to work with us, particularly during a period of constrained cash resources.  Failure to retain such key relationships could have a material adverse effect on our development activities and our business and operations.

 

 

We have a significant amount of intangible assets, including goodwill, recorded on our balance sheet, related to our acquisition of CVie Therapeutics, which may lead to potentially significant impairment charges.

 

We review long-lived assets, including intangible assets and goodwill, for impairment whenever events or changes in estimates and circumstances indicate that the related carrying amounts may not be recoverable based on the existence of certain triggering events. Intangible assets and goodwill are also subject to an impairment assessment at least annually. The amount of identifiable intangible assets and goodwill in our consolidated balance sheet has increased significantly because of the acquisition of CVie Therapeutics. The identifiable intangible assets resulting from the CVie Therapeutics acquisition relate to in-process research and development of istaroxime and rostafuroxin. At December 31, 2018, intangible assets and goodwill recorded on our consolidated balance sheet was $77.1 million and $15.7 million, respectively. 

 

If long-lived assets are determined to be impaired in the future, we would be required to record a potentially significant write-off, which would have an adverse effect on our results of operations and financial condition.

 

Risks Related to our Development Activities

 

Our clinical development programs involve risks and uncertainties that are inherent in clinical development. Our clinical trials may be delayed, or fail, which will harm our business prospects.

 

To gain marketing authorization for our product candidates, we will need to successfully complete our clinical trials, including pivotal phase 3 clinical development programs. Such development programs generally take years to complete and may be delayed by a number of factors. We may not reach agreement with the US Food and Drug Administration (FDA) or a foreign regulator on the extent of our phase 3 program, the design of any one or more of the clinical trials necessary for approval, or we may be unable to reach agreement on a single design that would permit us to conduct a common pivotal phase 3 clinical development program in all markets of interest. Conditions imposed by the FDA and foreign regulators on our clinical development program could significantly increase the time required to complete, and the costs of conducting, and the risks associated with clinical trials. For example, we may not be able to design a study that is acceptable to both the FDA and EMA regulators, which would cause us to limit the scope of our geographical activities or greatly increase our investment. Additionally, we may seek to conduct development activities in competitive clinical locations and therapeutic areas, or design clinical trials with complex requirements, which could adversely affect the rate of enrollment, and our ability to complete our development activities may be impaired and, in turn, require more time and money. Even if we obtain promising preliminary findings or results in earlier preclinical studies and clinical trials, we may suffer significant delays or setbacks in any stage of our clinical trials. Any delay in the results from our clinical trials could force us to make unplanned changes to our clinical trial plan, which could adversely affect the results and potentially impair our ability to secure additional capital to fund our continued development program. Even if we complete the clinical trial within our anticipated time, if our results are inconclusive or non-compelling or otherwise insufficient to support a strategic or financing transaction, we potentially could be forced to limit or cease our development activities, which would have a material adverse effect on our business.

 

The timing and completion of clinical trials to study our product candidates depend on many factors, including the rate at which patients are enrolled. Delays in patient enrollment in clinical trials would likely result in increased costs, program delays, or both. Patient enrollment is a function of many factors, including potentially:

	•	the number of clinical sites;
	•	the size of the patient population;
	•	the perceived risks and benefits of the product candidate;
	•	the existence of competing clinical trials;
	•	the severity of the disease under investigation;
	•	the existence of alternative available products;
	•	the eligibility and enrollment criteria for the study;
	•	the willingness of patients (or premature infants’ parents or guardians) to participate in the clinical trial;
	•	the trial complexity and resources required by a clinical study site to participate;
	•	availability of clinical supplies and materials;
	•	the existence of alternative available products; and
	•	geographical and geopolitical considerations.

 

Additional risks and uncertainties inherent in the clinical development process include:

	•	the ability to design a clinical trial that will assure demonstration of improved efficacy over that of a comparator in the primary endpoint of a trial and demonstration of an adequate safety profile;
	•	the ability of third-party clinical trial consultants and third-party contract research organizations (CROs) to successfully carry out their activities or meet expected deadlines;
	•	our ability to adequately manage the design, execution and regulatory aspects of our complex and diverse clinical trials;

 

 

	•	the ability of third-party clinical supply organizations (CSO) to timely perform their obligations to assist us in storing, shipping and tracking the drug product, medical devices and other materials that are required for us to conduct our clinical trial in the US and international sites;
	•	our ability to successfully develop and manufacture our APIs, drug products, medical devices and product candidates in a manner that ensures that they will perform as intended;
	•	the risk that our clinical trials may be interrupted, delayed or halted because of health and safety concerns (such as patient side effects) or because of matters related to the design of the study or drug availability; and
	•	the risk that clinical trial design and size is inadequate to assure demonstration of efficacy and meet statistical significance in outcomes, due to variation between clinicians, medical sites and countries in medical practices and procedures associated with treating our targeted diseases.

 

Moreover, because AEROSURF is a combination drug/device product, the success of our clinical trial is highly dependent upon our ability to successfully develop and manufacture our ADS and our synthetic lyophilized KL4 surfactant.  If our phase 3 ADS should fail to perform as designed in our phase 3 clinical program, such failures could adversely affect the results of our clinical development program. 

 

In addition, if for any reason, we abandon or materially limit, geographically or otherwise, our development plans related to drug product candidates, including istaroxime or rostafuroxin, such actions may result in impairment of any related intangible asset and goodwill recorded on our balance sheet, which could have a material adverse effect on our results of operations and financial condition.

 

The regulatory approval process for our products is expensive and time-consuming and the outcome is uncertain. We may not obtain required regulatory approvals to commercialize our products.

 

Before we can market our products, we must receive regulatory approvals for each product. The FDA and foreign regulators, such as the European Medicines Agency (EMA), extensively and rigorously regulate the testing, manufacture, distribution, advertising and marketing of drug products. This approval process includes (i) preclinical studies and clinical trials of each drug product candidate to establish its safety and effectiveness, and (ii) confirmation by the FDA and foreign regulators that we maintain good laboratory and manufacturing practices during testing and manufacturing.

 

No assurance can be given that our clinical trials will be concluded successfully. Moreover, success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful. As a result, data we obtain from our phase 2 clinical trials may not accurately predict phase 3 trial results, whether due to differences in sample size, study arms, duration, endpoints, other factors or, in the case of AEROSURF, features of the ADS used. We are currently planning to conduct an AEROSURF bridging study to transition in the clinic from the ADS used in the phase 2 clinical program to the phase 3 ADS. In addition, clinical data are susceptible to varying interpretations that may delay, limit or prevent regulatory approval. There can be no assurance that we will be successful in gaining regulatory approval for our products.

 

Clinical trials may indicate that our product candidates lack efficacy, have harmful side effects or raise safety or other concerns that may significantly reduce the likelihood of regulatory approval, result in significant restrictions on use and safety warnings in the approved label, adversely affect placement within the treatment paradigm, or otherwise significantly diminish the commercial potential of the product candidate. Also, positive clinical results may not be replicated in subsequent confirmatory trials. Even if later stage clinical trials are successful, regulatory authorities may question the trial design or sufficiency for approval of the endpoints we select for our clinical trials or add new requirements, such as the completion of additional studies, as conditions for obtaining approval or obtaining an indication. Regulatory authorities may disagree with our view of the data or may fail to approve the processes used to manufacture a product candidate, may find the cGMP compliance status of a facility that manufactures a product candidate unsatisfactory, may fail to approve or delay approval of our product candidates, dosing or delivery methods, companion devices or may otherwise grant marketing approval that is more restricted than anticipated, including indications covering narrow patient populations and the imposition of safety monitoring or educational requirements or risk evaluation and mitigation strategies. The occurrence of any such events may delay our clinical development and regulatory efforts, delay or prevent our obtaining regulatory approval for new product candidates and new indications for existing products, and result in significant additional costs and expenses, require additional time and have an adverse effect on our business, including our financial condition and results of operations, or cause our stock price to decline or experience periods of volatility. Moreover, after taking such events into account, we may make a strategic decision to discontinue development of a product or indication if, for example, we believe commercialization will be difficult relative to other opportunities in our pipeline.

 

We may conduct clinical development in the US, Canada, the EU, Latin America, and Asia Pacific regions and sell our products in the US and potentially in other major markets. To accomplish this objective, we must obtain and maintain regulatory approvals and comply with regulatory requirements in each jurisdiction. To avoid the significant expense and lengthy time required to complete multiple regional clinical development programs, we expect to meet with relevant regulatory authorities. While we would prefer to design a single, global clinical development program that would satisfy the regulators in all of our target markets, there can be no assurance that our efforts will be successful. If we are unable to reach agreement with the various regulatory authorities, we may not be able to pursue regulatory approval of our products in all of our selected markets.

 

Even if favorable data are generated from nonclinical and clinical studies, the FDA and foreign regulatory bodies have substantial discretion in the drug approval process, including the ability to delay, limit or deny approval of product candidates for many reasons, which may include:

	•	a regulatory body may disagree with the design or implementation of one or more clinical trials;
	•	a regulatory body may not deem a product candidate safe and effective for its proposed indication, or may deem a product candidate’s safety or other perceived risks to outweigh its clinical or other benefits;
	•	a regulatory body may not find the data from preclinical studies and clinical trials sufficient to support approval, or the results of clinical trials may not meet the level of statistical or clinical significance required by the FDA or the applicable foreign regulatory body for approval;
	•	a regulatory body may disagree with our interpretation of data from preclinical studies or clinical trials performed by us or third parties;
	•	a regulatory body may not deem the data collected from clinical trials to be sufficient to support the submission of an NDA or other applicable regulatory filing;
	•	a regulatory body may require additional preclinical studies or clinical trials;
	•	a regulatory body may identify deficiencies in the formulation, quality control, labeling or specifications of our current or future product candidates;
	•	a regulatory body may grant approval contingent on the performance of costly additional post-approval clinical trials;
	•	a regulatory body also may approve our current or any future product candidates for a more limited indication or a narrower patient population than we originally requested;
	•	a regulatory body may not approve the labeling that we believe is necessary or desirable for the successful commercialization of our product candidates;
	•	a regulatory body may not approve of the manufacturing processes, controls or facilities of third-party manufacturers or testing labs with which we contract; or
	•	a regulatory body may change its approval policies or adopt new regulations in a manner rendering our clinical data or regulatory filings insufficient for approval.

 

The approval procedures vary among countries in complexity and timing. We may obtain marketing approval in the US based on our product dossier, but not obtain approvals from regulatory authorities outside the US on a timely basis, if at all, which would preclude us from commercializing products in those markets. Even if we demonstrate the efficacy and safety of a product candidate, a regulator may require us to demonstrate superiority over comparative products before agreeing to grant marketing approval. Also, legislative bodies or regulatory agencies could enact new laws or regulations or change existing laws or regulations at any time, which could affect our ability to obtain or maintain approval of our products or product candidates. We are unable to predict when and whether any further changes to laws or regulatory policies affecting our business could occur, such as efforts to reform medical device regulation or to implement new requirements for combination products, and whether such changes could have a material adverse effect on our business and results of operations.

 

 

In addition, some countries, particularly those outside the US, regulate the pricing of prescription pharmaceuticals. In these countries, pricing discussions with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial or analysis that compares the cost-effectiveness of their product candidate to other available therapies. Such trials or other evidence gathering may be time-consuming and expensive and may not show an advantage in health economics for our products. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, in either the US or the EU, we could be adversely affected. Moreover, failure to secure marketing authorization for any product candidate, including istaroxime and rostafuroxin, in accordance with our development plans, may result in an impairment of any related intangible asset and goodwill recorded on our balance sheet, which could have a material adverse effect on our results of operations and financial condition.

 

Failure of our phase 3 ADS to perform as intended for our AEROSURF phase 3 development activities and, if approved, initial commercial activities, would have a material adverse effect on our efforts to develop AEROSURF as well as our other aerosolized KL4 surfactant products, and our business strategy.

 

Our development activities are subject to certain risks and uncertainties, including, without limitation:

	•	the phase 3 ADS that is intended for use in our remaining AEROSURF development activities, may not achieve acceptable levels of efficiency, consistent performance, reliability and cost appropriate for commercial activities;
	•	we will require access to sophisticated engineering capabilities. We have our own medical device engineering staff and we have been working with Battelle on certain development initiatives. We currently are working with Mack Molding Company (Mack) to complete a technology transfer of our device manufacturing process and expect to manufacture with Mack a sufficient number of ADS to support our remaining development activities. If we are unable to identify design engineers and medical device experts to support our continued development efforts in the future, including, potentially, for commercial use and later versions of the phase 3 ADS, it would have a material adverse effect on our business strategy and impair our ability to commercialize or develop AEROSURF or other aerosolized KL4 surfactant products; if we are unable to secure the necessary medical device development expertise to support our development program, this could impair our ability to commercialize or develop AEROSURF or other aerosolized KL4 surfactant products;
	•	the ADS may perform to specifications in the bench setting and internal tests, however, at clinical sites with multiple operators of the device, we may experience an unanticipated issue with performance that could have a negative effect on trial outcomes.

 

The realization of any of the foregoing risks would have a material adverse effect on our AEROSURF development program and our business.

 

Even though some of our product candidates have Fast Track designation, the FDA may not approve them at all or any sooner than other product candidates that do not have Fast Track designation.

 

The FDA has notified us that three indications of our KL4 surfactant (lucinactant) technology pipeline, treatment of RDS, BPD in premature infants and ARDS in adults, have been granted designation as Fast Track products. Fast Track designation does not accelerate clinical trials, nor does it mean that the regulatory requirements are less stringent. Instead, Fast Track designation provides opportunities for frequent interactions with FDA review staff, as well as eligibility for priority review, if relevant criteria are met, and rolling review. We believe that other potential products in our KL4 surfactant technology pipeline may also qualify for Fast Track or other designations, including potentially breakthrough therapy, accelerated approval and priority review. These designations and programs are intended to facilitate and expedite development and review of an NDA to address unmet medical needs in the treatment of serious or life-threatening conditions. Our product candidates may cease to qualify for Fast Track designation and our other product candidates may fail to qualify for any such designation or program.

 

We may not be able to obtain or maintain orphan drug exclusivity for our product candidates. 

 

Under the Orphan Drug Act, the FDA may designate a product as an Orphan Drug if it is a drug intended to treat a rare disease or condition, which affects a patient population of fewer than 200,000 individuals in the United States. If a drug that has Orphan Drug designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the drug is entitled to orphan drug marketing exclusivity for a period of seven years, which generally prevents the FDA from approving an NDA to market a drug containing the same active moiety for the same indication for that period, except in limited circumstances, including if the FDA concludes that the later drug is clinically superior to the approved drug.  A drug is clinically superior if it is safer, more effective, or makes a major contribution to patient care   The FDA has granted Orphan Drug designation for (i) our KL4 surfactant (lucinactant) for the treatment of RDS in premature infants, (ii) our KL4 surfactant for the prevention and treatment of BPD in premature infants, (iii) our KL4 surfactant for the treatment of acute respiratory distress syndrome (ARDS) in adults, and (iv) our KL4 surfactant for the treatment of CF. However, we may lose Orphan Drug exclusivity if the FDA determines that the request for designation was materially defective or if we are unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.

 

 

Risks related to Manufacturing Development and Manufacturing

 

We currently do not have back-up facilities for our CMOs, our suppliers of APIs or excipients, our third-party analytical testing and other materials. If the parties we depend on for supplying our APIs, materials and excipients as well as analytical testing and manufacturing-related services do not timely supply these products and services, it may delay or impair our ability to execute our development plans for our current and potential pipeline products. Such delays could adversely impact our operations and financial condition.

 

In most cases, we are dependent upon a single supplier to provide all of our requirements for our APIs, materials and excipients or one or more of our drug product device subcomponents, components and subassemblies, analytical testing and manufacturing-related services.  We rely on single CMOs to manufacture drug product that meets appropriate content, quality and stability standards for use in preclinical programs and clinical trials.  Our ability to manufacture depends upon receiving adequate supplies and related services, which may be difficult or uneconomical to procure.  Supply chain or manufacturing interruptions could negatively impact our operations and financial performance. The supply of any of our manufacturing materials may be interrupted because of supply shortages, poor vendor performance or other events outside our control, which may require us, among other things, to identify alternate vendors, which could involve a lengthy process, and result in increased expenses. If we do not maintain these manufacturing and service relationships that are important to us and are not able to identify replacement suppliers, vendors and laboratories, or develop our own manufacturing capabilities, our ability to obtain regulatory approval for our products could be impaired or delayed and our costs could substantially increase.  Even if we are able to find replacement manufacturers, suppliers, vendors and service providers when needed, we may not be able to enter into agreements with them on terms and conditions favorable to us or there could be a substantial delay before such manufacturer, vendor or supplier, or a related new facility is properly qualified and registered with the FDA or other foreign regulatory authorities.  The process of changing a supplier could have an adverse impact on our current clinical development programs if supplies of drug substances, materials or excipients on hand are insufficient to satisfy demand. Such delays could have a material adverse effect on our development activities and our business.

 

We plan to rely on third parties to manufacture our drug products and manufacture and assemble our medical devices, which exposes us to risks that may affect our ability to maintain supplies of our clinical materials and could potentially delay our research and development activities, as well as eventual regulatory approval and commercialization of our drug product candidates.

 

Our manufacturing strategy includes manufacturing our drug products and our ADS using third-party CMOs. Technology transfers of our manufacturing process and our planned future reliance on CMOs exposes us, among other things, to the following risks:

	•	we may be unable to identify manufacturers with whom we might establish appropriate arrangements on acceptable terms, if at all, because the number of potential CMOs is limited and, after a product candidate is approved, the FDA must approve any transfer to a different CMO.  This approval could require one or more pre-approval inspections as well as a potentially lengthy qualification process.  In addition, a new manufacturer would have to be educated in, or develop substantially equivalent processes for, production of our approved products after receipt of FDA approval. To qualify and receive regulatory approval for a new manufacturer could take as long as 2 years;
	•	we may implement a plan to execute a technology transfer of our manufacturing process to a CMO and, after investing significant time and resources, learn that the CMO we chose is unable to successfully complete the technology transfer and thereafter manufacture our products in accordance with our plan;
	•	CMOs might be unable to manufacture our products in the volume and to our specifications to meet our clinical and commercial needs, or we may have difficulty scheduling the production of drug product and devices in a timely manner to meet our timing requirements;
	•	CMOs may not perform as agreed, or may not remain in the CMO business for a lengthy time, or may refuse to renew an expiring agreement as expected, or may fail timely to produce a sufficient supply to meet our commercial and/or clinical needs;
	•	CMOs are subject to ongoing periodic unannounced inspection by the FDA, international health authorities, registered Notified Body(ies), the Drug Enforcement Administration, and/or corresponding state agencies to ensure strict compliance with cGMP and/or QSR and other government regulations and corresponding international standards.  Although we do not have control over the day-to-day operations of any CMO we may use, we are responsible for ensuring compliance with these regulations and standards, and the failure of a CMO to have a compliance status acceptable to the FDA or other regulatory authorities would delay approval of our product candidates;
	•	if we desire to make our drug products and/or devices available outside the US for clinical or commercial purposes, our CMOs would become subject to, and may not be able to comply with, corresponding manufacturing and quality system regulations or standards of the various foreign regulators having jurisdiction over our activities abroad. Such failures (such as in-country quality testing) could result in not only a loss of approved supply to that country, but a total loss of a lot (or lots) of materials globally and could restrict our ability to execute our business strategies;
	•	if any third-party manufacturer makes improvements in the manufacturing process for our products, we may not have rights to, or may have to share, the intellectual property rights to any such innovation.  Such an event could limit our ability to conduct technology transfers to alternate and successor manufacturers. We may be required to pay fees or other costs for access to such improvements; and
	•	we may have difficulty implementing changes or modifications to our manufacturing processes that may be required by the FDA or foreign regulator, if, for example, such changes would burden our CMO or otherwise disrupt operations, or our CMO could impose significant financial terms to implement any such change that could adversely affect our business. Failure to achieve such required changes or modifications could delay or prevent our gaining regulatory approval for our product candidates or prevent us from continuing to market our approved products, which would have a material adverse effect on our business, financial condition and operations.

 

 

Each of the foregoing risks and others could delay our development programs and, if approved, commercial manufacturing plans, limit our ability to maintain continuity of supply for our approved products, delay or impair the approval, if any, of our product candidates by the FDA, or result in higher costs or deprive us of potential product revenues.

 

Manufacturing problems potentially could cause us to experience shortages of APIs, drug products, medical devices, and materials, or delay our preclinical or clinical development programs, which could have a material adverse effect on our business.

 

The manufacture of pharmaceutical and medical device products requires significant expertise and compliance with strictly enforced federal, state and foreign regulations. We, our CMOs or our materials and drug substances suppliers may experience manufacturing or quality control and assurance problems that could result in a failure to maintain compliance with cGMP and QSR requirements, or those of foreign regulators or notified bodies, which is necessary to continue manufacturing of our drug products, materials, drug substances, or medical devices. Any such failure could result in product production and shipment delays or an inability to obtain materials or drug substance supplies. 

 

In connection with our drug product manufacturing activities, we own certain specialized manufacturing equipment installed at our CMO.  However, we do not have fully-redundant systems and equipment to respond promptly in the event of a significant loss at a CMO's manufacturing operations.  Under certain conditions, we may be unable to produce our drug product and medical devices at the required volumes or to appropriate standards, if at all.  If we are unable to successfully maintain our manufacturing capabilities and at all times comply with cGMP and QSRs, it will adversely affect our development activities and clinical development programs.

  

For the development and, if approved, commercialization of our drug product candidates, we will depend upon third parties to manufacture our drug products and to manufacture and assemble our ADS for AEROSURF. If we are unable to identify and subsequently retain qualified manufacturers and assemblers, our ability to implement our plans for the further development of our product candidates and, if approved, commercialization of our therapies, will be adversely affected and could be severely impacted.

 

We plan to rely on CMOs to manufacture and assemble the ADS and all subcomponents to support any preclinical experiments, our ongoing and planned clinical trials and, if approved, commercial activities. We are working with Mack to produce our phase 3 ADS to support the remainder of our AEROSURF development activities and, if approved, early commercial supply. Although we expect that we will be able to produce and assemble the ADS for our future development activities with Mack as our CMO, there is a risk that our CMO will be unable to consistently manufacture and assemble the subcomponents of our ADS to our specified standards. In addition, the CMO may not be able to timely comply with regulatory manufacturing requirements.  If we do not successfully identify and enter into agreements with manufacturers and assemblers that have the required expertise to produce our phase 3 ADS for use in our Phase 3 program, it will adversely affect our timeline for the development and, if approved, commercialization of AEROSURF.

 

Risks Related to our Business Strategy 

 

We are continually evaluating our business strategy and may modify this strategy in light of developments in our business and other factors.

 

We continually evaluate our business strategy and plan to modify our strategy as necessary to achieve our objectives.  The execution of a clinical development program is complex and involves the cooperation of many individuals and entities, including third parties that we may not be able to control, and requires the coordination of a number of elements, any one of which could involve delays or unforeseen events or circumstances that require adjustment or the development of alternative strategies.  If we encounter such events or circumstances, we will change our strategy and plans if we believe that such a change will be in our best interest.  There can be no assurance even if we alter our strategy or plans, that we will be successful, or that we will secure regulatory approval for our products and execute any product launches effectively and on time, if at all, in all markets that we may identify. To respond to changing circumstances, we may also expand or alter our research and development activities from time to time and allocate resources to work on development of different products or may pace, delay or halt the development of potential product programs.  As a result of changes in our strategy, we may also change or refocus our existing drug development and manufacturing activities or our plans for commercialization of our products, if approved. These decisions could require changes in our facilities and personnel and restructuring various financial arrangements.  There can be no assurances that any product development or other changes that we implement will be successful or that, after implementation of any such changes, that we will not refocus our efforts on new or different objectives.

 

 

We have limited resources, which could impair our ability to manage our diverse activities and accomplish our business objectives.

 

The demands on our management team have grown over time.  Our capital resource and budget constraints have put our management under pressure to execute our business strategy with limited resources. Furthermore, as a result of our limited capital resources, our management team has had to dedicate an increasing amount of time towards raising capital, which diverts their attention away from our development programs.

 

In particular, our planned clinical trials and search for potential strategic partnerships, collaboration arrangements and similar transactions have placed and will continue to place additional significant demands on our management and our financial and operational resources and will require that we continue to develop and improve our financial, operational and other internal controls.  From time to time, we will be required to make difficult decisions on how to best allocate our resources.

 

If we are successful in identifying potential strategic or collaboration partners, we will be required to dedicate management resources and implement controls to establish alliance structures, and potentially add a layer of complexity to our operations. We plan to identify potential strategic alliances and collaboration arrangements that would have the resources and capabilities to not only help develop our products but would also distribute our products either globally or in specific regions or countries. This expansion could further increase the challenges involved in implementing appropriate operational and financial systems, expanding manufacturing and production capacity, expanding infrastructure and capabilities, and providing adequate training and supervision to maintain high quality standards.  Our inability to grow our business effectively and appropriately or otherwise adapt to these challenges would cause our business, financial condition and results of operations to suffer.

 

Risks Related to Strategic and Other Transactions

 

Failure to successfully combine the business of CVie with ours in the expected time frame or realize the expected benefits of such combination may adversely affect our future results.

 

The success of our acquisition of CVie Therapeutics will depend, in part, on our ability to successfully combine its business with ours. Our management may face significant challenges in consolidating the functions of CVie Therapeutics development programs with ours; integrating the technologies, organizations, procedures, policies and operations; and prioritizing the scientific and clinical programs and retaining key personnel. If we are unable to successfully integrate CVie Therapeutics’ operations, the anticipated benefits of the acquisition may not be realized fully or at all, may require significant investment to achieve the benefits or may take longer to realize than expected. The integration process and other disruptions resulting from the acquisition may also disrupt each company’s ongoing businesses and/or adversely affect our relationships with employees, regulators and others with whom we have business or other dealings.

 

The integration of our business with that of CVie Therapeutics may divert our internal resources and management’s attention away from our operations.

 

Successful integration of CVie Therapeutics’ operations, products and personnel may be complex, time consuming and place a significant burden on our management and internal resources. The diversion of management attention and any difficulties encountered in the transition and integration process could harm our business, financial condition, operating results and ability to evaluate strategic alliances and collaboration arrangements.

 

 

Our plan to use strategic alliances and collaboration arrangements to leverage partner capabilities may not be successful if we are unable to integrate their capabilities with our own or if our partners' capabilities do not meet our expectations. Moreover, if our strategic alliances or collaboration arrangements should require greater focus and attention on our part than we expect, we may be forced to divert our limited resources away from our own development programs, which could have a material adverse effect on our development activities and plans.

 

As part of our strategy, we intend to continue to evaluate opportunities for strategic alliances and collaboration arrangements, although there can be no assurance that we would be able to consummate any strategic alliances and collaboration arrangements.  For these efforts to be successful, we must first identify partners whose capabilities complement and integrate well with ours.  Among other things, technologies or know how to which we gain access may prove ineffective or unsafe.  Ownership of these technologies or know-how may be disputed.  The agreements that grant us access to such technologies may expire and may not be renewable or could be terminated if our partners or we do not meet our respective obligations. In addition, our partners may provide certain services for us, such as product development support or distribution or commercialization services.  These agreements may be subject to differing interpretations and we and our partners may not agree on the appropriate interpretation or specific requirements.  Among other things, our partners may prove difficult to work with, less effective than we originally expected or unable to satisfy their financial and other commitments to us.  Failure of our partners to perform as needed could place us at a competitive disadvantage. Moreover, if we are forced to allocate unplanned resources to bolster our strategic alliances or collaboration arrangement, our limited resources may be diverted from our core activities, which could have a material adverse effect on our development activities and plans.

 

We may enter into strategic alliances or other collaboration arrangements, which could expose us to risks associated with the transfer of control to third parties and may require that we transfer rights to our products to our partners and collaborators.  In addition, if such arrangements potentially provide for the marketing and sale of our products, if approved, we will be exposed to additional risks.

 

To support our development programs and potentially the commercial introduction of our product candidates, we seek to identify potential strategic partners who could provide local development and commercial expertise as well as financial resources (potentially in the form of upfront payments, milestone payments, commercialization royalties and a sharing of research and development expenses), although there can be no assurance that we will ultimately secure such an alliance on acceptable terms, if at all.  

 

If we succeed in entering into one or more strategic alliances or other collaboration arrangements, our ability to execute our operating plan will depend upon numerous factors, including the performance of the strategic partners and collaborators with whom we may engage.  Under these arrangements, our partners may control key decisions relating to the development and, if approved, commercialization of our products and may require that we transfer to them important rights to our products and/or product candidates.  We may not be able to control the timing or resources that our partners devote to our arrangement. In addition, if we or our strategic alliance partners, distributors or collaborators breach or terminate our agreements or otherwise fail to perform their obligations under our distribution or commercialization arrangements to our satisfaction, we may not achieve our goals within the desired time, if at all, and projected sales and our revenues would suffer.  

 

If a strategic partner, distributor or collaborator were to enter into a business combination or other significant transaction, such transaction may adversely affect a partner or collaborator's willingness or ability to perform its obligations, which would adversely affect our business. We also may incur additional expense to terminate such arrangements and to identify and enter into arrangements with replacement partners or collaborators. Moreover, we may have difficulty enforcing our rights in a foreign jurisdiction.  Upon termination of any such agreements, we would need to identify other partners or collaborators or develop our own internal capabilities to develop and commercialize our products, which could involve a significant investment and a potentially unacceptable delay.  If we, our partners or our collaborators fail to conduct our respective activities in a timely manner, or otherwise breach or terminate the agreements that make up our arrangements, or if a dispute should arise under our agreements or collaboration arrangements, such events could impair our ability to commercialize or develop our products in a competitive and timely manner and would have a material adverse effect on the commercialization of our products.

 

In entering into any collaboration arrangement, including for AEROSURF, our lyophilized KL4 surfactant technology and rostafuroxin, we also will need to consider whether such collaboration could impair our ability to enter into other strategic transactions, including a potential merger or acquisition. We may find it difficult, for example, to identify and enter into commercialization agreements acceptable terms, if at all, in limited territories in the EU, where we have a collaboration with Laboratorios del Dr. Esteve, S.A. (Esteve) in a territory consisting of Andorra, Greece, Italy, Portugal and Spain (the Esteve Territory).  If we identify potential collaborators for all or parts of the remainder of the EU, strategic differences could arise, which could result in disputes or otherwise impede the progress of our collaborations.  Moreover, if a collaborator or its sublicensees does not meet their obligations, our arrangements may not be successful, and, as a result, we may not receive any revenues.

 

 

Risks Related to Healthcare Regulation, Quality and Safety

 

Issues with product quality could have an adverse effect on our business, subject us to regulatory actions and costly litigation and cause a loss of confidence in our products or us.

 

Our success depends upon our ability to develop quality products.  Our future revenues will depend upon our ability to develop, maintain, and continuously improve our quality management system, including an objective and systematic process for monitoring and the evaluation of key process indicators.  Quality and safety issues may occur with respect to any of our products.  We are dependent upon third-party suppliers, manufacturers and service providers to support our development and commercialization activities.  Third-party suppliers are required to comply with our quality standards.  Failure of a third-party supplier to provide compliant raw materials or supplies could result in delays or other quality-related issues.  A quality or safety issue could have an adverse effect on patients receiving our drug products and on our business, financial condition and results of operations and may result in warning letters, product recalls or seizures, monetary sanctions, injunctions to halt manufacture and distribution of products, civil or criminal sanctions, refusal of a government to grant approvals and licenses, restrictions on operations or withdrawal of existing approvals and licenses.  An inability to address a quality or safety issue in an effective and timely manner may also cause negative publicity, a loss of customer confidence in our current or future products or us, which may result in the loss of sales and difficulty in commercializing our products.

 

Adverse safety events or restrictions on use and safety warnings for our products can negatively affect our business, potential future product sales and stock price.

 

Adverse safety events involving our products under development and our marketed products may have a negative impact on our business.  Safety issues with our products could create product liability and could cause additional regulatory scrutiny and requirements for additional labeling, withdrawal of products from the market, and the imposition of fines or criminal penalties.  Adverse safety events may also damage physician and patient confidence in our products and our reputation.  Any of these could result in liabilities, loss of revenue, material write-offs of inventory, material impairments of intangible assets, goodwill and fixed assets, material restructuring charges and other adverse impacts on our results of operations.

 

Our activities are subject to various and complex laws and regulations, and we are susceptible to a changing regulatory environment. Any failure to comply could adversely affect our business, financial condition and results of operations.

 

Our products and our operations are regulated by numerous government agencies, both inside and outside the US. Our drug product candidates and medical devices must undergo lengthy and rigorous testing and other extensive, costly and time-consuming procedures mandated by the FDA and foreign regulatory authorities. Our facilities and those of our third-party providers must pass inspection and/or be approved or licensed prior to production and remain subject to inspection at any time thereafter.  Failure to comply with the requirements of the FDA or other regulatory authorities, including a failed inspection or a failure in our post-marketing reporting, could result in warning or untitled letters, product recalls or seizures, monetary sanctions, injunctions to halt the manufacture and distribution of our products, civil or criminal sanctions, refusal of a government to grant approvals or licenses, restrictions on operations or withdrawal of existing approvals and licenses.  Any of these actions could damage our reputation and have a material adverse effect on our sales.  In addition, requirements of the FDA and other regulatory authorities may change and implementing any additional compliance requirements may increase our costs, or force us or our third-party providers to suspend production, which could result in a shortage of our approved product or delays in the commercial introduction of our new product candidates, if approved.

 

The Health Care Reform Law includes provisions, referred to as the federal Open Payments law (previously referred to as the Sunshine Law), that establish new reporting and disclosure requirements for pharmaceutical and medical device manufacturers. Under the law, pharmaceutical and device manufacturers are required to annually report various types of payments and other transfers of value to physicians and teaching hospitals.  Applicable manufacturers are to report data to the US Centers for Medicare and Medicaid Services (CMS) on an annual basis, and the data are made publicly available via a CMS website. Inaccurate or incomplete reports may be subject to enforcement, and it is expected that data will be subject to significant public scrutiny.  Like the federal Open Payments law, several states have existing laws that require manufacturers to report transfers of value to select healthcare providers licensed within the state, or even go so far as to prohibit certain marketing related activities.  Other states, such as California, Nevada, Massachusetts and Connecticut, require pharmaceutical and/or device companies to implement compliance programs or marketing codes.  In others, it is possible that we will be subject to the state's reporting requirements and prohibitions.  Compliance activities with respect to these measures could increase our costs and adversely affect business operations.

 

If our products are approved for commercial sale, we will be required to comply with not only the requirements of the FDA and potentially international regulators, but will also become subject to various federal, state and international laws regulating the sales, marketing, and distribution of healthcare-related products.  These laws govern such activities as our relationships with healthcare providers, the promotion of our products, and pricing of prescription drug products and medical devices. The sales and marketing of products and relationships that pharmaceutical and medical device companies have with healthcare providers are under increasing scrutiny by federal, state and foreign government agencies. The FDA and other federal regulators have increased their enforcement activities with respect to the Anti-Kickback Statute, False Claims Act, off-label promotion of products, and other healthcare related laws, antitrust and other competition laws. The Department of Justice (DOJ) also has increased its focus on the enforcement of the US Foreign Corrupt Practices Act (FCPA), particularly as it relates to the conduct of pharmaceutical companies. Foreign governments have also increased their scrutiny of pharmaceutical companies' sales and marketing activities and relationships with healthcare providers.

 

 

Of particular importance, federal and state anti-kickback laws make it illegal for a prescription drug manufacturer to solicit, offer, receive, or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular drug. These laws can be complicated, are subject to frequent change and may be violated unknowingly.  In addition, the absence of guidance for some of these laws and the very few court decisions addressing industry practices increase the likelihood that our practices could be challenged under anti-kickback or similar laws.  False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented, for payment to the government (including Medicare and Medicaid) claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. In addition, a number of states require that companies implement compliance programs or comply with industry ethics codes, adopt spending limits, and report to state governments any gifts, compensation, and other remuneration provided to physicians. Many pharmaceutical, device, and other health care companies have been investigated and prosecuted for alleged violations of these laws. Sanctions under these laws may include civil monetary penalties, exclusion of a manufacturer's products from reimbursement under government programs (including Medicare and Medicaid), criminal fines, and imprisonment.  Companies that have chosen to settle these alleged violations have typically paid multi-million-dollar fines to the government and agreed to abide by corporate integrity agreements, which often include significant and costly burdens. Under the federal False Claims Act and related state laws, private individuals may bring similar actions.  In addition, an increasing number of state laws require manufacturers to report to the state certain pricing and marketing information. Many of these laws contain ambiguities as to what is required to comply with the laws. Given the lack of clarity in laws and their implementation, our reporting actions could be subject to the penalty provisions of the state authorities.

 

In addition, failure to comply with domestic and international privacy and security laws can result in the imposition of significant civil and criminal penalties. The costs of compliance with these laws, including protecting electronically stored information from cyber-attacks, and potential liability associated with failure to do so could adversely affect our business, financial condition and results of operations.  We are subject to various domestic and international privacy and security regulations, including but not limited to the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or collectively, HIPAA. HIPAA mandates, among other things, the adoption of uniform standards for the electronic exchange of information in common healthcare transactions, as well as standards relating to the privacy and security of individually identifiable health information, which require the adoption of administrative, physical and technical safeguards to protect such information.  In addition, many states have enacted comparable laws addressing the privacy and security of health information, some of which are more stringent than HIPAA.

 

We are continually evaluating our compliance programs, including policies, training and various forms of monitoring, designed to address the outlined above. However, no compliance program can mitigate risk in its entirety.  Violations or allegations of violations of these laws may result in large civil and criminal penalties, debarment from participating in government programs, diversion of management time, attention and resources and may otherwise have a material adverse effect on our business, financial condition and results of operations.

  

The political and healthcare policy environment is becoming more challenging for pharmaceutical companies and medical device manufacturers and may adversely affect our business.

 

Political, economic and regulatory influences globally are subjecting the healthcare industry to potential fundamental challenges that could substantially affect our business and results of operations.  Government and private sector initiatives to limit the growth of healthcare costs, including price regulation, competitive pricing, coverage and payment policies, comparative effectiveness of therapies, technology assessments and managed-care arrangements, are continuing to arise in many countries where we potentially may seek to do business, including the US. There is increasing pressure on pricing, reimbursement and demands for value-based data to gain access to patients and healthcare funds globally. This may increase the costs of development, risks of commercialization and overall value of the opportunity.

 

Given the increasing uncertainty in the healthcare and pharmaceutical industries, capital investment in our industry and our ability to attract capital investment is becoming more challenging. This trend, if continued, may restrict or impair our ability to gain necessary funding for continued development and, if approved, commercialization of our products.

 

 

Our international operations subject us to additional regulatory oversight in foreign jurisdictions., as well as economic, social, and political uncertainties, which could cause a material adverse effect on our business, financial position, and operating results.

 

We are subject to certain risks associated with having assets and operations located in foreign jurisdictions, including our operations in Italy and Taiwan. Our operations in Italy and Taiwan are subject to regulatory agencies, such as the Italian Ministry of Health and the Taiwan Food and Drug Administration. Our operations in foreign jurisdictions may be adversely affected by general economic conditions and economic and fiscal policy, including changes in exchange rates and controls, interest rates and taxation policies, and increased government regulation, which could have a material adverse effect on our business, financial position, and operating results.

 

Other Risks Affecting our Business

 

Healthcare reform measures in the US as well as the general tightening of drug reimbursement pathways and levels of reimbursement globally are expected to add additional pressure to achieve financial expectations for approved products.

If approved, our products are expected to face increasing pricing and reimbursement pressures from payors globally. Such pressures can impair our ability to access patients in geographies or access certain types of patient – regardless of the breadth of our data or approved indications. Pressure from payors, particularly single source government payors and global price referencing, can result in companies being forced to give greater discounts and/or lower pricing than planned resulting in barriers to achieving financial forecasts or even justifying ongoing or additional investment in clinical development programs.

 

A small group of investors, including Lee’s Pharmaceutical Holdings Limited, may be able to exercise significant influence over our business strategy and operations.

 

As of April 5, 2019, Lee's beneficially owns through its affiliates, approximately 40% of our issued and outstanding shares of common stock and fund affiliates of our Chairman, James Huang, own approximately 28% of our issued and outstanding common stock. These investors could exercise their voting power in a coordinated fashion to approve any matter requiring shareholder approval by written consent without a stockholder meeting. As a result, there is a risk that these investors could cause corporate actions to be approved even if their interests conflict with the interests of our other shareholders. This concentration of voting power could have the effect of deterring or preventing institutional investors interested in us or a change in control that might be beneficial to our other shareholders.

 

If our business development activities are unsuccessful, our business could suffer and our financial performance could be adversely affected.

 

As part of our long-term growth strategy, we engage in business development activities intended to identify strategic opportunities, including potential strategic alliances, joint development opportunities, acquisitions, technology licensing arrangements and other similar opportunities. Such opportunities may result in substantial investments in our business. Our success in developing products or expanding into new markets from such activities will depend on a number of factors, including our ability to find suitable opportunities for investment, alliance or acquisition; whether we are able to complete an investment, alliance or acquisition on terms that are satisfactory to us; the strength of our underlying technology, products and our ability to execute our business strategies; any intellectual property and litigation related to these products or technology; and our ability to successfully execute the investment, alliance or acquisition into our existing operations, including to fund our share of any in-process research and development projects.  If we are unsuccessful in our business development activities, we may be unable to secure needed capital and expertise to support our development programs and our financial condition could be adversely affected.

  

The financial and operational projections that we may make from time to time are subject to inherent risks.

 

The projections that our management may provide from time to time (including, but not limited to, those relating to the cost or timing of clinical development programs, product approval, production and supply dates, commercial launch dates, and other financial or operational matters) reflect numerous assumptions developed by management, including assumptions with respect to our specific as well as general business, economic, market and financial conditions and other matters, all of which are difficult to predict and many of which are beyond our control. Accordingly, there is a risk that the assumptions made in preparing the projections, or the projections themselves, will prove inaccurate. There will be differences between actual and projected results, and actual results may be materially different from those contained in the projections. The inclusion of the projections and management’s expectations in (or incorporated by reference in) this Annual Report on Form 10-K should not be regarded as an indication that we or our management or representatives considered or consider the projections to be a reliable prediction of future events, and the projections should not be relied upon as such.

 

 

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results, which will likely result in significant legal and accounting expense and diversion of management resources, and current and potential stockholders may lose confidence in our financial reporting and the market price of our stock will likely decline.

 

Any failure to maintain internal controls could adversely affect our ability to report our financial results on a timely and accurate basis.  If our financial statements are not accurate, investors may not have a complete understanding of our operations.  If we do not file our financial statements on a timely basis as required by the SEC, we could face severe consequences.   Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.  We can give no assurance that material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls.  In addition, in the future our controls and procedures may no longer be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our consolidated financial statements.  Responding to inquiries from the SEC, regardless of the outcome, are likely to consume a significant amount of our management resources and cause us to incur significant legal and accounting expense.  Further, many companies that have restated their historical financial statements have experienced a decline in stock price and related stockholder lawsuits.

 

Our corporate compliance program cannot ensure that we are in compliance with all applicable laws and regulations affecting our activities, including in the jurisdictions in which we may sell our products, if approved, and a failure to comply with such regulations or prevail in litigation related to noncompliance could harm our business.

 

Many of our activities, including the research, development, manufacture, sale and marketing of our products, are subject to extensive laws and regulation, including without limitation, health care fraud and abuse laws, such as the federal False Claims Act, the federal Anti-Kickback Statute, and other state and federal laws and regulations.  We have developed and implemented a corporate compliance policy and oversight program based upon what we understand to be current industry best practices, but we cannot assure you that this program will protect us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.  If any such investigations, actions or lawsuits are instituted against us, and if we are not successful in defending or disposing of them without liability, such investigations, actions or lawsuits could result in the imposition of significant fines or other sanctions and could otherwise have a significant impact on our business.

  

The increasing use of social media platforms presents new risks and challenges.

 

There is uncertainty and risk of noncompliance regarding the use of social media platforms by the biopharmaceutical industry. For example, patients may use social media channels to comment on the effectiveness of a product or to report an alleged adverse event. When such disclosures occur, there is a risk that we fail to monitor and comply with applicable adverse event reporting obligations or we may not be able to defend ourselves or the public's legitimate interests in the face of political or market pressures generated by social media due to restrictions on what we may say about our products. There is also a risk of inappropriate disclosure of sensitive information or negative or inaccurate posts or comments about us on any social networking website. If any of these events were to occur or we otherwise fail to comply with applicable regulations, we could incur liability, face overly restrictive regulatory actions or incur other harm to our business.

 

Failure in our information technology systems could disrupt our operations and cause the loss of confidential information, customers and business opportunities.

 

In the ordinary course of our business, we and our third-party contractors maintain sensitive data on our and their respective networks, including our intellectual property and proprietary or confidential business information relating to our business and that of our clinical trial participants and business partners. The secure maintenance of this sensitive information is critical to our business and reputation. Despite the implementation of security measures, our internal computer systems and those of our third-party contractors are vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, human error, natural disasters, terrorism, war and telecommunication and electrical failures. For information stored with our third-party contractors, we rely upon, and the integrity and confidentiality of such information is dependent upon, the risk mitigation efforts such third-party contractors have in place. Our and our third-party contractors’ respective network and storage applications may be subject to unauthorized access by hackers or breached due to operator error, malfeasance or other system disruptions. It is often difficult to anticipate or immediately detect such incidents and the damage caused by such incidents. Such incidents could compromise our intellectual property, expose sensitive business information, cause interruptions in our operations, result in a material disruption of our operations, or require substantial expenditures of resources to remedy.

 

 

A catastrophic event at our Warrington, Pennsylvania facility or any of the facilities used by our third-party-manufacturers would prevent us from producing our drug product candidates and/or medical devices.

 

Our headquarters facilities are located in Warrington, Pennsylvania. We also have a research laboratory in Milan, Italy (Bicocca) and preclinical activities in Taipei, Taiwan. We depend upon third-party manufacturers and laboratories, to manufacture our drug products, our AFECTAIR device and our ADS and perform important API and drug product release testing and stability work. If a catastrophic event occurred at our headquarters facility or our other facilities or the facilities of any of our third-party manufacturers and laboratories, the manufacture of those products would be delayed. With respect to the analytical laboratory at our headquarters facility, any interruption in release and ongoing stability testing could have an adverse impact on our inventories needed to support our ongoing clinical activities and, if approved, commercial activities. We have obtained insurance to protect against certain business interruption losses. However, there can be no assurance that any such coverage will be adequate or that such coverage will continue to remain available on acceptable terms, if at all.

  

If we cannot protect our intellectual property, other companies could use our technology in competitive products.  Even if we obtain patents to protect our products, those patents may not be sufficiently broad or they may expire and others could then compete with us.

 

The patent position of biotechnology companies is highly uncertain and involves complex legal and factual questions for which important legal principles are unresolved.  To date, the United States Patent and Trademark Office (USPTO) has not adopted a consistent policy regarding the breadth of claims that is accorded in biotechnology patents or the degree of protection that these types of patents afford.  As a result, there are risks that we may not secure proprietary rights to products or processes that appear to be patentable.

 

The parties who licensed technologies to us and we have filed various US and foreign patent applications with respect to the products and technologies under our development, and the USPTO and foreign patent offices have issued patents with respect to our products and technologies.  These patent applications include international applications filed under the Patent Cooperation Treaty.  Our pending patent applications, as well as those we may file in the future or those we may license from third parties may not result in the USPTO or foreign patent office issuing patents.  In addition, if patent rights covering our products are not sufficiently broad, they may not provide us with sufficient proprietary protection or competitive advantages against competitors with similar products and technologies.  Furthermore, even if the USPTO or foreign patent offices were to issue patents to us or our licensors, others may challenge the patents or circumvent the patents, or the patent office or the courts may invalidate the patents.  Thus, any patents we own or license from third parties may not provide us any protection against competitors.

 

The patents that we hold have a limited life.  Certain of such patents related to lyophilized KL4 surfactant have issued in the US, Europe and elsewhere and will expire in March 2033. For our aerosolized KL4 surfactant, we hold worldwide exclusive licenses to our proprietary aerosol delivery systems (ADS) technology for use with pulmonary surfactants alone or in combination with other products for all respiratory diseases and in the US to other (non-surfactant) drugs to treat certain pediatric and adult respiratory indications in hospitals and other health care institutions. The ADS patents have expired or will expire on various dates beginning in May 2016 and ending as late as 2037. For patents related to our cardiovascular drug products owned by CVie Therapeutics are issued in the US, Europe and elsewhere have expired or will expire on various dates between 2026 and 2030.

 

Intellectual property rights of third parties could limit our ability to develop and market our products.

 

Our success also depends upon our ability to operate our business without infringing the patents or violating the proprietary rights of others.  Patent applications in most jurisdictions are not published until 18 months after filing. In certain cases, the USPTO keeps US patent applications confidential for the entire time the applications are pending.  As a result, we cannot determine in advance what inventions third parties may claim in their pending patent applications.  We may need to defend or enforce our patent and license rights or to determine the scope and validity of the proprietary rights of others through legal proceedings, which would be costly, unpredictable and time consuming.  Even in proceedings where the outcome is favorable to us, they would likely divert substantial resources, including management time, from our other activities.  Moreover, any adverse determination could subject us to significant liability or require us to seek licenses that third parties might not grant to us or might only grant at rates that diminish or deplete the profitability of our products.  An adverse determination could also require us to alter our products or processes or cease altogether any product sales or related research and development activities.

 

If we cannot meet requirements under our license agreements, we could lose the rights to our products.

 

We depend on licensing agreements with third parties to maintain the intellectual property rights to our products under development.   These agreements require us to make payments and satisfy performance obligations to maintain our rights.  By their terms, all of these agreements last either throughout the life of the related patents or for a number of years after the first commercial sale of the relevant product. In addition, we are responsible for the cost of filing and prosecuting certain patent applications and maintaining certain issued patents licensed to us.  If we do not meet our obligations under our license agreements in a timely manner, we could lose the rights to our proprietary technology. Finally, we may be required to obtain licenses to patents or other proprietary rights of third parties in connection with the development and use of our products and technologies.  Licenses required under any such patents or proprietary rights might not be made available on terms acceptable to us, if at all.

 

 

We rely on agreements containing obligations regarding intellectual property, confidentiality and noncompetition provisions that could be breached and may be difficult to enforce.

 

Although we take what we believe to be reasonable steps to protect our intellectual property, including the use of agreements relating to the non-disclosure of our confidential and proprietary information and trade secrets to third parties, as well as agreements that provide for disclosure and assignment to us of all rights to the ideas, developments, improvements, discoveries and inventions of our employees, consultants, advisors and research collaborators while we employ them, such agreements can be difficult and costly to enforce.  We generally seek to enter into these types of agreements with consultants, advisors and research collaborators; however, to the extent that such parties apply or independently develop intellectual property in connection with any of our projects, disputes may arise concerning allocation of the related proprietary rights.  Such disputes often involve significant expense and yield unpredictable results.  

 

Moreover, although all employees enter into agreements with us that include non-compete covenants, and our five senior executive officers have agreements that include broader non-competition covenants and provide for severance payments that are contingent upon the applicable employee’s refraining from competition with us, such non-compete provisions can be difficult and costly to monitor and enforce, such that, if any should resign, we may not be successful in enforcing our noncompetition agreements with them.

  

Despite the protective measures we employ, we still face the risk that:

	•	agreements may be breached;
	•	agreements may not provide adequate remedies for the applicable type of breach;
	•	our trade secrets or proprietary know-how may otherwise become known;
	•	our competitors may independently develop similar technology; or
	•	our competitors may independently discover our proprietary information and trade secrets.

 

 We depend upon key employees and consultants in a competitive market for skilled personnel.  If we or our strategic partners or collaborators are unable to attract and retain key personnel, it could adversely affect our ability to develop and market our products.

 

We have assembled a team of qualified personnel to advance the development programs for our product candidates. We have competed and will continue to compete for qualified individuals with numerous biopharmaceutical companies, universities and other research institutions. Competition for such individuals is significant and attracting and retaining qualified personnel will be critical to our success, and any failure to do so successfully may have a material adverse effect on us.

 

We are highly dependent upon the members of our executive management team and our directors, as well as our consultants and collaborating scientists.  Many of these individuals have been involved with us for many years, have played integral roles in our progress and we believe that they continue to provide value to us.  A loss of any of our key personnel may have a material adverse effect on aspects of our business and clinical development and regulatory programs. The loss of services from any of our executives could significantly adversely affect our ability to develop and market our products and obtain necessary regulatory approvals.  Further, we do not maintain key man life insurance.

 

Our future success also will depend on the continued service of our key professional, scientific and management personnel and our ability to recruit and retain additional personnel.  While we attempt to provide competitive compensation packages to attract and retain key personnel at all levels in our organization, many of our competitors have greater resources and more experience than we do, making it difficult for us to compete successfully for key personnel.  We may experience intense competition for qualified personnel and the existence of non-competition agreements between prospective employees and their former employers may prevent us from hiring those individuals or subject us to lawsuits brought by their former employers.

 

 

Our industry is highly competitive, and we have less capital and resources than many of our competitors, which may give them an advantage in developing and marketing products similar to ours or make our products obsolete.

 

Our industry is highly competitive and subject to rapid technological innovation and evolving industry standards. We compete with numerous existing companies in many ways.  We need to successfully introduce new products to achieve our strategic business objectives. If we cannot successfully introduce new products, adapt to changing technologies or anticipate changes in our current and potential customers’ requirements, our products may become obsolete and our business could suffer.

  

Many of our competitors companies have substantially greater research and development, manufacturing, marketing, financial, and technology personnel and managerial resources than we have. In addition, many of these competitors, either alone or with their collaborative partners, have significantly greater experience than we do in developing products, preclinical testing and human clinical trials management, obtaining FDA approval and other regulatory approvals, and manufacturing and marketing products. Accordingly, our competitors may succeed in receiving FDA or foreign regulatory approval or commercializing products and obtaining patent protection before us. Our competitors may successfully secure regulatory exclusivities in various markets, which could have the effect of barring us or limiting our ability to market our products in such markets. In addition, developments by our competitors may render our drug product candidates obsolete or noncompetitive.

 

We also face, and will continue to face, competition from colleges, universities, governmental agencies and other public and private research organizations. These competitive forces frequently and aggressively seek patent protection and licensing arrangements to collect royalties for technologies that they develop. Some of these technologies may compete directly with the technologies that we are developing. These institutions will also compete with us in recruiting highly qualified scientific personnel.

 

The failure to prevail in litigation or the costs of litigation, including securities class actions, product liability claims and patent infringement claims, could harm our financial performance and business operations.

 

Our business activities, including development, manufacture and, if our products are approved, marketing of our drug products and medical devices also exposes us to liability risks.  Using our drug product candidates or medical devices, including in clinical trials, may expose us to product liability claims.  Even if approved, our products may be subject to claims resulting from unintended effects that result in injury or death.   Product liability claims alleging inadequate disclosure and warnings in our package inserts and medical device disclosures also may arise.

 

There can be no assurance that the insurance coverage we maintain is sufficient or will be available in adequate amounts or at a reasonable cost.  A successful claim brought against us in excess of available insurance or not covered by indemnification agreements, or any claim that results in significant adverse publicity against us, could have an adverse effect on our business and our reputation.

  

We may be required to obtain additional product liability insurance coverage. However, such insurance is expensive and may not be available when we need it.  In the future, we may not be able to obtain adequate insurance, with acceptable limits and retentions, at an acceptable cost.  Any product, general liability or product liability claim, even if such claim is within the limits of our insurance coverage or meritless and/or unsuccessful, could adversely affect the availability or cost of insurance generally and our cash available for other purposes, such as research and development.  In addition, such claims could result in:

	•	uninsured expenses related to defense or payment of substantial monetary awards to claimants;
	•	a decrease in demand for our drug product candidates;
	•	damage to our reputation; and
	•	an inability to complete clinical trial programs or to commercialize our drug product candidates, if approved.

  

Provisions of our Amended and Restated Certificate of Incorporation (Certificate of Incorporation), our Amended and Restated By-Laws (By-Laws) and Delaware law could deter a change of our management and thereby discourage or delay offers to acquire us.

 

Provisions of our Certificate of Incorporation, our By-Laws and Delaware law may make it more difficult for someone to acquire control of us or for our stockholders to remove existing management and might discourage a third-party from offering to acquire us, even if a change in control or in management would be beneficial to our stockholders. Such provisions may make it costlier for a potential acquirer to engage in a business combination transaction with us. Provisions that have the effect of discouraging, delaying or preventing a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock. Moreover, our obligations to the holders of preferred stock could limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial condition. These preferential rights could also result in divergent interests between the holders of shares of preferred stock and holders of our common stock.

 

 

ITEM 1B.

UNRESOLVED STAFF COMMENTS.

 

None.

 

ITEM 2.

PROPERTIES.

     

We maintain our principal executive offices at 2600 Kelly Road, Suite 100, Warrington, Pennsylvania 18976-3622. Our premises include corporate administration, research and drug and device development, clinical operations, regulatory affairs, and quality, as well as our analytical and technical support laboratory, which conducts release testing of active pharmaceutical ingredients (APIs) and supportive research for our lyophilized and aerosolized KL4 surfactant. We also maintain a medical device development laboratory that is used by our engineering team to conduct development activities for AEROSURF and our aerosol delivery technologies. In February 2018, we reduced the size of our premises from 30,506 square feet to 21,189 square feet of leased space, which lowered our base rent and security deposit under the related lease agreement. We also maintain a location in Taipei, Taiwan, the former headquarters of CVie Therapeutics, consisting of approximately 2200 square feet of office space, where we perform certain manufacturing development and preclinical activities related to our cardiovascular drug product candidates. We also have access to research laboratories in Milan, Italy under our collaboration agreement with Università degli Studi di Milano-Bicocca, which is expiring. We are in the process of discussing an extension of that arrangement. We believe our current facilities are adequate for our needs in 2019.

 

ITEM 3.

LEGAL PROCEEDINGS.

 

We are not aware of any pending or threatened legal actions to which we are a party or of which our property is the subject that would, if determined adversely to us, have a material adverse effect on our business and operations.

 

We have from time to time been involved in disputes and proceedings arising in the ordinary course of business. In addition, as a public company, we are also potentially susceptible to litigation, such as claims asserting violations of securities laws. Any such claims, with or without merit, if not resolved, could be time-consuming and result in costly litigation. There can be no assurance that an adverse result in any future proceeding would not have a potentially material adverse effect on our business, results of operations or financial condition.

 

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

None.

 

PART II     

 

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

Market Information 

 

Our common stock is quoted on the OTCQB market operated by the OTC Market Group under the symbol WINT.  As of April 5, 2019, we had 65 holders of record of shares of our common stock, and there were 32,133,189 shares of our common stock issued and outstanding.

 

 

The following table sets forth the quarterly sales price ranges of our common stock for the periods indicated, as reported by Nasdaq through May 4, 2017 and as reported on the OTCQB from May 5, 2017 through December 31, 2018. The prices set forth below are over-the-counter market quotations that may reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

		2018								2017
		High				Low				High				Low
Period:
First Quarter		$	5.81			$	2.60			$	36.98			$	22.40
Second Quarter		$	4.10			$	2.56			$	33.20			$	4.80
Third Quarter		$	4.35			$	3.15			$	7.00			$	3.60
Fourth Quarter		$	5.11			$	2.53			$	8.80			$	3.00

 

 

ITEM 6.

SELECTED FINANCIAL DATA.

  

Not applicable.

 

 

ITEM 7.

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

    

INTRODUCTION

 

Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related financing activities, includes forward-looking statements that involve risks and uncertainties. You should review the Forward Looking Statements and Risk Factors sections of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis or elsewhere in the Annual Report on Form 10-K.

 

Management’s discussion and analysis of financial condition and results of operations (MD&A) is provided as a supplement to the accompanying consolidated financial statements and footnotes to help provide an understanding of our financial condition, the changes in our financial condition and our results of operations. This item should be read in connection with our Consolidated Financial Statements for the year ending December 31, 2018 and notes thereto (Notes) included in this Annual Report on Form 10-K. See, Item 8 – Financial Statements and Supplementary Data.

 

Our discussion is organized as follows:

 

	●	Company Overview
	●	Critical Accounting Policies: this section contains a discussion of the accounting policies that we believe are important to our financial condition and results of operations and that require the exercise of judgment and use of estimates on the part of management in their application. In addition, all of our significant accounting policies, including the critical accounting policies and estimates, are discussed in Note 5 to the accompanying consolidated financial statements.
	●	Results of Operations: this section provides an analysis of our results of operations presented in the accompanying consolidated statements of operations, including comparisons of the results for the years ended December 31, 2018 and 2017.
	●	Liquidity and Capital Resources: this section provides a discussion of our capital resources, future capital requirements, cash flows, potential sources of financing our activities, historical financing transactions, outstanding debt arrangements and commitments.

 

 

OVERVIEW

 

Windtree Therapeutics, Inc. (referred to as “we,” “us,” or the “Company”) is a biotechnology and medical device company focused on developing drug product candidates and medical device technologies to address acute pulmonary and cardiovascular diseases. Historically, our focus has been on the development of our proprietary KL4 surfactant technology and aerosol delivery system (ADS) technology for the treatment and / or prevention of premature infants with respiratory distress syndrome (RDS).  Following our merger with CVie Investments Limited in December 2018 (CVie Acquisition), our four lead development programs are (1) istaroxime for treatment of acute decompensated heart failure (ADHF), (2) AEROSURF® (lucinactant for inhalation) for non-invasive delivery of our lyophilized KL4 surfactant to improve the management of RDS in premature infants, (3) lyophilized KL4 surfactant intratracheal suspension for RDS, and (4) rostafuroxin for genetically associated hypertension. 

 

The reader is referred to, and encouraged to read in its entirety, “Item 1 – Business – Company Overview” in this Annual Report on Form 10-K, which contains a discussion of our business and business plans, as well as information concerning our proprietary technologies and our current and planned development programs.

 

 

CRITICAL ACCOUNTING POLICIES

 

The following discussion and analysis of financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in conformity with US generally accepted accounting principles (GAAP).  Preparing financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Estimates are based on our historical operations, our future business plans and projected financial results, the terms of existing contracts, our observance of trends in the industry, and information available from other outside sources, as appropriate.  These estimates and assumptions are affected by the application of our accounting policies. Critical accounting policies and practices are both important to the portrayal of a company’s financial condition and results of operations, and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. Actual results could differ from such estimates due to changes in economic factors or other conditions that are outside the control of management. A summary of our significant accounting policies is described in Note 5 of the Consolidated Financial Statements contained in this Annual Report on Form 10-K. Of those policies, we believe that the following accounting policy is critical to aid our stockholders in fully understanding and evaluating our reported financial results.

 

 

Business Combinations

 

We follow the acquisition method for an acquisition of a business where the purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition. The excess costs of acquired businesses over the fair values of the assets acquired and liabilities assumed were recognized as goodwill. The valuations of the acquired assets and liabilities will impact the determination of future operating results. In addition to using management estimates and negotiated amounts, we used a variety of information sources to determine the estimated fair values of the assets and liabilities, including a third-party appraisal for the estimated value of identifiable intangible assets. The business and technical judgment of management and third-party experts was also used in determining the value of identifiable intangible assets.

 

Goodwill and Intangible Assets

 

We test goodwill for impairment annually and whenever events or circumstances make it more likely than not that impairment may have occurred, such as a significant adverse change in the business climate or a decision to sell or dispose of a significant business.

 

We test goodwill for impairment by either performing a qualitative evaluation or a two-step quantitative test. The qualitative evaluation is an assessment of factors, including reporting unit specific operating results as well as industry, market, and general economic conditions, to determine whether it is more likely than not that the fair values of reporting unit is less than its carrying amount, including goodwill. Depending on the factors specific to some or all of our reporting units, we may be required to perform a two-step quantitative test.

 

We test intangible assets with indefinite lives for impairment annually by either performing a qualitative evaluation or a two-step quantitative test. We perform this test whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable, and at a minimum, annually. 

 

For the year-ended December 31, 2018 we performed a qualitative evaluation of both goodwill and intangible assets and did not record any impairment charge for 2018.

 

Revenue recognition

 

We account for revenue, including license revenue with affiliate, in accordance with ASC Topic 606, Revenue from Contracts with Customers, which was adopted on January 1, 2018. This standard applies to all contracts with customers with the exception of contracts that are within the scope of other standards, such as leases, insurance and financial instruments. Under ASC Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to be entitled in exchange for those goods or services.

 

We perform the following five steps to recognize revenue under ASC Topic 606: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only recognize revenue when it is probable that we will collect the consideration to which we are entitled in exchange for the goods or services that will be transferred to the customer.

 

We have concluded that our government grants are not within the scope of ASC Topic 606 as they do not meet the definition of a contract with a customer. We have concluded that the grants meet the definition of a contribution and are non-reciprocal transactions, and have also concluded that Subtopic 958-605, Not-for-Profit-Entities-Revenue Recognition does not apply, as we are a business entity and the grants are with governmental agencies.

 

In the absence of applicable guidance under US GAAP, effective January 1, 2018, we developed a policy for the recognition of grant revenue when the related costs are incurred and the right to payment is realized.

 

We believe this policy is consistent with the overarching premise in ASC Topic 606, to ensure that revenue recognition reflects the transfer of promised goods or services to customers in an amount that reflects the consideration that we expect to be entitled to in exchange for those goods or services, even though there is no exchange as defined in ASC Topic 606. We believe the recognition of revenue as costs are incurred and amounts become realizable is analogous to the concept of transfer of control of a service over time under ASC Topic 606.

 

Prior to January 1, 2018, we recognized revenue as related costs were incurred under the grants given that persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed and determinable, and collectability is reasonably assured. Recognized amounts reflected our performance under the grants and equal direct and indirect costs incurred. Revenue and expenses under these arrangements were presented gross. Revenue recognition under this new policy is not materially different than would have been calculated under the old guidance. As a result of the adoption of this policy, there was no change to the amounts we have historically recorded in our financial statements.

 

 

 

Accrued Research and Development Expenses

 

As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing quotations and contracts, identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses are related to expenses incurred with respect to contract research organizations (CROs), contract manufacturing organizations (CMOs,) clinical trial sites, and other vendors supporting our research and development and manufacturing activities.

 

We base our expenses related to CROs, CMOs and clinical trial sites on our estimates of services received and efforts expended under quotations and contracts with those vendors that conduct research and development and manufacturing activities on our behalf. The financial terms of these agreements are negotiated, vary from contract to contract and may result in uneven payment flows. At times, payments made to our vendors may exceed the level of services provided and result in a prepayment of the applicable research and development or manufacturing expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period. There have been no material changes in estimates for the periods presented.

 

 

RESULTS OF OPERATIONS

 

Net Loss and Operating Loss

 

The operating loss for the years ended December 31, 2018 and 2017 was $16.2 million and $22.5 million, respectively. The decrease in operating loss from 2017 to 2018 was due to a $6.1 million decrease in operating expenses and a $0.3 million increase in revenue.

 

The net loss for the years ended December 31, 2018 and 2017 was $20.5 million and $18.4 million, respectively. Included in the net loss is (i) a net loss on debt extinguishment of $3.3 million in 2018; (ii) a gain on debt restructuring of $5.8 million in 2017; (ii) interest expense of $1.4 million and $1.9 million for 2018 and 2017, respectively; and (iv) for 2018, $0.4 million in proceeds from the sale of research and development tax credits.

 

The net loss attributable to common stockholders for the years ended December 31, 2018 and 2017 was $34.8 million (or $7.74 basic net loss per common share) and $24.8 million (or $24.14 basic net loss per common share), respectively. Included in the net loss attributable to common shareholders for 2018 is a $12.5 million non-cash AEROSURF warrant dividend (see, Note 3 – Business Combination).  Included in the net loss attributable to common stockholders for 2018 and 2017 is a $1.7 million and $6.4 million, respectively, non-cash deemed dividend on preferred stock (see, Note 5 – Accounting Policies and Recent Accounting Pronouncements). 

 

Grant Revenue

 

We recognized grant revenue of $0.8 million and $1.4 million for the years ended December 31, 2018 and 2017, respectively.

 

Grant revenue for 2018 includes $0.8 million of funds received and expended under a Phase II Small Business Innovation Research Grant (SBIR) from the NHLBI of the NIH to support the AEROSURF phase 2b clinical trial (AEROSURF Grant).

 

Grant revenue for 2017 includes $1.1 million of funds received and expended under the AEROSURF Grant, and $0.3 million of funds under a Phase II SBIR grant from the National Institute of Allergy and Infectious Diseases (NIAID) to support continued development of our aerosolized KL4 surfactant as a potential medical countermeasure to mitigate acute and chronic/late-phase radiation-induced lung injury (Radiation Grant).

 

As of December 31, 2018, all funding under the AEROSURF Grant and the Radiation Grant has been received and recognized in revenue.

 

 

License Revenue with Affiliate

 

We recognized license revenue with affiliates of $1.0 million and $0.1 million for the years ended December 31, 2018 and 2017, respectively, which had previously been included in deferred revenue – current portion (see, – Critical Accounting Policies – License Agreement.)

 

Research and Development Expenses

 

Our research and development expenses are charged to operations as incurred and we account for such costs by category rather than by project. As many of our research and development activities form the foundation for the development of our KL4 surfactant and drug delivery technologies, they are expected to benefit more than a single project. For that reason, we cannot reasonably estimate the costs of our research and development activities on a project-by-project basis. We believe that tracking our expenses by category is a more accurate method of accounting for these activities. Our research and development costs consist primarily of expenses associated with (a) product development and manufacturing, (b) medical and regulatory operations, and (c) direct preclinical and clinical development programs. We also account for research and development and report by major expense category as follows: (i) salaries and benefits, (ii) contracted services, (iii) raw materials, aerosol devices and supplies, (iv) rents and utilities, (v) depreciation, (vi) contract manufacturing, (vii) travel, (viii) stock-based compensation and (ix) other.

 

 

Research and development expenses by category for the years ended December 31, 2018 and 2017 are as follows:

  

		Year Ended December 31,
(in thousands)		2018				2017
Product development and manufacturing			5,334			$	6,537
Clinical, medical and regulatory operations			4,255				5,758
Direct preclinical and clinical programs			973				5,081
Total Research and Development Expenses		$	10,562			$	17,376

 

Research and development expenses include non-cash charges associated with stock-based compensation and depreciation of $0.4 million and $1.0 million for 2018 and 2017, respectively.

 

For a description of our lead development programs included in research and development expenses, see, Item 1 – Business.

 

Product Development and Manufacturing

 

Product development and manufacturing includes (i) manufacturing operations, both in-house and with CMOs, validation activities, quality assurance and analytical chemistry capabilities that support the manufacture of our drug products used in research and development activities, and our medical devices, including our ADS, (ii) design and development activities related to our ADS for use in our AEROSURF clinical development program; and (iii) pharmaceutical and manufacturing development activities of our drug product candidates including development of istaroxime, lyophilized KL4 surfactant, and rostafuroxin. These costs include employee expenses, facility-related costs, depreciation, costs of drug substances (including raw materials), supplies, quality control and assurance activities, analytical services, and expert consultants and outside services to support pharmaceutical and device development activities.

 

 

Product development and manufacturing expenses decreased $1.2 million from 2017 to 2018, due to (i) our efforts in 2018 to conserve cash and reduce costs and (ii) a July 2017 workforce reduction. 

 

Clinical, Medical and Regulatory Operations

 

Clinical, medical and regulatory operations include (i) medical, scientific, preclinical and clinical, regulatory, data management and biostatistics activities in support of our research and development programs; and (ii) medical affairs activities to provide scientific and medical education support for our KL4 surfactant and aerosol delivery systems under development. These costs include personnel, expert consultants, outside services to support regulatory and data management, symposiums at key medical meetings, facilities-related costs, and other costs for the management of clinical trials.

 

Clinical, medical and regulatory operations expenses decreased $1.5 million from 2018 to 2017 due to (i) our efforts in 2018 to conserve cash and reduce costs and (ii) a July 2017 workforce reduction.

 

Direct Preclinical and Clinical Development Programs

 

Direct preclinical and clinical development programs include: (i) development activities, toxicology studies and other preclinical studies; and (ii) activities associated with conducting clinical trials, including patient enrollment costs, clinical site costs, clinical device and drug supply, and related external costs, such as consultant fees and expenses.

 

Direct preclinical and clinical development programs expenses decreased $4.1 million from 2018 to 2017 due to a decrease in AEROSURF phase 2 clinical development program costs following the completion of enrollment in the phase 2a and phase 2b clinical trials during the second quarter of 2017.

 

Research and Development Expense by Major Expense Category

 

We also account for our research and development expense by major expense category as shown in the following table:

 

		Year Ended December 31,
(in thousands)		2018				2017
Contracted services			4,194			$	8,214
Salaries & benefits			4,029				5,504
Royalties			800				600
Rents and utilities			683				919
Stock-based compensation			232				837
Raw materials, aerosol devices and supplies			195				138
Depreciation			155				178
Travel			109				390
Contract manufacturing			-				355
Other			165				241
		$	10,562			$	17,376

 

Contracted services include third-party costs of preclinical studies, clinical trial activities, certain components of our manufacturing operations, quality control and analytical stability and release testing of our drug product, consulting services, aerosol device design and engineering services, etc. The decrease from 2017 to 2018 is due to the completion of enrollment in the AEROSURF clinical trials in the second quarter of 2017. 

 

The decrease in salaries and benefits of $1.5 million from 2017 to 2018 is due to our continuing efforts, beginning in the second quarter of 2017, to conserve cash resources and implement other cost reduction initiatives.

 

 

Royalties represent minimum royalties due under our licensing agreements with Philip Morris USA Inc. and Philip Morris Products S.A. for our ADS technology.

 

The category “Other” consists primarily of ongoing research and development costs such as insurance, taxes, education and training and software licenses.

 

General and Administrative Expenses 

 

		Year Ended December 31,
(in thousands)		2018				2017
General and Administrative Expenses		$	7,421			$	6,657

 

 

General and administrative expenses consist of the costs of executive management, business development, intellectual property, finance and accounting, legal, human resources, information technology, facility and other administrative costs.

 

General and administrative expenses include non-cash charges associated with stock-based compensation and depreciation of $0.7 million for each of the years ended December 31, 2018 and 2017.

 

General and administrative expenses increased $0.7 million from 2017 to 2018 due to legal and accounting fees related to the CVie Acquisition (see, Note 3 – Business Combination).

 

We plan to continue investments in protecting our existing intellectual property, and in pursuing potential additional intellectual property rights, including patents, trademarks, and trade secrets, and regulatory exclusivity designations, such as potential orphan drug, new drug product exclusivities, Fast Track, breakthrough therapy, accelerated approval and priority review. See, Item 1 – Business – Licensing, Patents and Other Proprietary Rights and Regulatory Designations.

 

Other Income / (Expense) 

 

		Year Ended December 31,
(in thousands)		2018				2017
Net loss on debt extinguishment		$	(3,345	)		$	-
Gain on debt restructuring			-				5,824
Interest income			15				12
Interest expense			(1,409	)			(1,863	)
Other income			401				129
Other income / (expense), net		$	(4,338	)		$	4,102

 

Net loss on debt extinguishment

 

In December 2018, as part of the Private Placement Financing, we converted $6.0 million of existing loan payable obligations to LPH and $1.0 million of existing collaboration and device development payables to Battelle (Battelle Payables) on the same terms as the Investors of the Private Placement Financing. The conversions of the loan payable to LPH and the Battelle Payables are treated as extinguishments of debt and we recorded a loss on debt extinguishment of approximately $3.2 million and $0.5 million, respectively, resulting from the difference between the fair value of the common stock and warrants issued and the carrying value of the obligations. In December 2018, we also repaid our convertible note payable with Panacea in its entirety in cash of $1.5 million. As part of the extinguishment of debt, we recorded a gain on extinguishment of debt of approximately $0.4 million, relating to the reacquisition of the beneficial conversion option.

 

Gain on debt restructuring

 

In November 2017, we restructured and retired a secured loan (Deerfield Loan) with affiliates of Deerfield Management, L.P.(Deerfield) This transaction was accounted for as an extinguishment of debt in accordance with ASC 470, Debt-Modifications and Extinguishments, and as a result, we recognized a $5.8 million non-cash gain on debt restructuring (see, – Liquidity and Capital Resources –Restructured Debt Liability). 

 

Interest expense

 

		Year Ended December 31,
(in thousands)		2018				2017
Cash interest expense		$	546			$	952
Non-cash amortization of debt discounts			863				-
Non-cash amortization of prepaid interest expense			-				911
Total interest expense			1,409				1,863

 

Interest expense in 2018 consists of (i) interest expense of $0.3 million related to the Battelle Payables; (ii) interest expense of $0.2 million related to the loan payable obligations to LPH; and (iii) interest expense of     $0.1 million related to our convertible note payable with Panacea. Non-cash amortization of debt discounts relates to our convertible note payable with Panacea, which was extinguished in December 2018, and to a discount on Battelle Payables.

 

Interest expense in 2017 primarily consists of interest expense associated with the Deerfield Loan (see, – Liquidity and Capital Resources – Restructured Debt Liability).

 

 

 

Non-cash amortization of prepaid interest expense represents non-cash amortization of $5 million of Series A Units and Series B units that Deerfield purchased in our July 2015 public offering and accepted in satisfaction of $5 million of future interest payments calculated at an interest rate of 8.75% under the Deerfield Loan. 

 

Other income

 

Other income in 2018 consists of proceeds from the sale of Commonwealth of Pennsylvania research and development tax credits, partially offset by $0.1 million of foreign currency losses.

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of December 31, 2018, we had cash and cash equivalents of $11.2 million and available-for-sale, marketable securities of $14.0 million, current liabilities of $20.6 million, including $8.0 million of Loan payable (see, Note 11 - Loan Payable).  As of April 5, 2019, we believe that we have sufficient resources (including marketable securities) available to support our development activities, business operations and debt service through October 2019.

 

Although we believe that the CVie Acquisition and $39 million Private Placement Financing have improved our financial position and may better position us to raise the capital needed to fund our business plans, we expect to continue to incur significant losses and require significant additional capital to advance our clinical development programs, support our operations and business development efforts, and satisfy our obligations beyond October 2019, and we do not have sufficient cash and cash equivalents for at least the next year following the date that the financial statements are issued. These conditions raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued.

 

To alleviate the conditions that raise substantial doubt about our ability to continue as a going concern, management plans to raise additional capital through a combination of public or private equity offerings and strategic transactions, including but not limited to potential alliances and collaborations focused on various individual markets; however, none of these alternatives are committed at this time.  There can be no assurance that we will be able to complete any public or private equity offerings on acceptable terms, or in amounts required to support our operations, if at all, or identify and enter into any strategic transactions that will bring the capital that we will require. If none of these alternatives is available, or if available, we are unable to raise sufficient capital through such transactions, we will not have sufficient cash resources and liquidity to fund our business operations for at least the next year following the date that the financial statements are issued. Accordingly, management has concluded that substantial doubt exists with respect to our ability to continue as a going concern through one year after the issuance of the accompanying financial statements.

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business, and do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

 

As of December 31, 2018, there were 120 million shares of common stock and 5 million shares of preferred stock authorized under our Certificate of Incorporation, and approximately 72.0 million shares of common stock and 5.0 million shares of preferred stock available for issuance and not otherwise reserved.

 

 

Cash Flows

 

As of December 31, 2018 and 2017, we had cash and cash equivalents of $11.2 million and $1.8 million, respectively. Net cash outflows for 2018 consisted of $15.8 million net cash used for ongoing operating activities, $13.7 million of net cash used in investing activities, offset by $38.7 million of net cash provided financing activities.

 

Operating Activities

 

Net cash used in operating activities was $15.8 million and $21.0 million for the years ended December 31, 2018 and 2017, respectively. The decrease in net cash used in operating activities from 2017 is attributable to a $6.0 million decrease in operating expenses offset by other changes in working capital.

 

Investing Activities

 

Net cash used in investing activities was $13.7 million and $24,000 for the years ended December 31, 2018 and 2017, respectively. The increase in net cash used in investing activities is due to the purchase of $13.9 million of marketable securities with the proceeds from the December 2018 Private Placement (see, Private Placement Offerings).

 

Financing Activities

 

Net cash provided by financing activities was $38.7 million and $17.3 million for the years ended December 31, 2018 and 2017, respectively, summarized as follows:

 

		Year Ended
		December 31,
(in thousands)		2018				2017
Proceeds from private placements, net of expenses			32,893			$	14,860
Proceeds from loan payable, net of expenses			6,160				3,900
Repayment of loan payable			(160	)			-
Proceeds from convertible note payable			1,500				-
Repayment of convertible note payable			(1,500	)			-
Payments for taxes related to net share settlements of equity awards			(155	)			-
Proceeds from ATM Program, net of expenses			-				1,036
Principal payments on debt restructuring			-				(2,500	)
Cash flows from financing activities, net		$	38,738			$	17,296

 

 

The following sections provide a more detailed discussion of our cash flows from available financing facilities and activities.

 

Financings Pursuant to Common Stock Offerings

 

Historically, we have funded, and expect that we will continue to fund, our business operations through various sources, including financings in the form of equity offerings. Since May 2017, we are no longer eligible to use a universal shelf registration statement on Form S-3. Accordingly, until we are again eligible to use the registration statement on Form S-3, we plan to conduct future equity offerings through private placement transactions

 

Private Placement Offerings

 

On December 21, 2018, we completed a private placement offering with select institutional investors (Investors), for the purchase of an aggregate of 11,785,540 shares of common stock at a price per share of $3.3132, for an aggregate cash purchase price of approximately $39.0 million (Private Placement Financing). Included in the purchase price, each of LPH II Investments Limited (LPH II), an affiliate of Lee’s Pharmaceutical Holdings Ltd. (Lee’s), and Battelle Memorial Institute converted $6.0 million and $1.0 million, respectively, of existing debt obligations on the same terms as the other Investors. In connection with this offering, we issued (i) Series F Warrants  to purchase an aggregate of 2,003,541 shares of common stock at an exercise price equal to $3.68 per share, which are exercisable through the 18-month anniversary of the date of issuance (the Series F Warrants), and (ii) Series G Warrants  to purchase an aggregate of 3,889,229 shares of common stock at an exercise price equal to $4.05 per share, which are exercisable through the 5-year anniversary of the date of issuance (the Series G Warrants and, together with the Series F Warrants, the December 2018 Warrants). The December 2018 Warrants (i) may not be exercised to the extent that following such exercise, the holder would beneficially own more than 9.99% (or other percent as designated by each holder) of our outstanding shares of common stock, and (ii) contain customary provisions that adjust the exercise price and the number of shares of common stock into which the December 2018 Warrants are exercisable in the event of a corporate transaction.

 

 

In April 2018, we completed a private placement with LPH II for the purchase of $2.6 million of our common stock and warrants to purchase our common stock at a purchase price per share of $4.80. In connection with this offering, we issued 541,667 shares of common stock and warrants to purchase 135,417 shares of common stock at an exercise price of $5.52 per share. The warrants are exercisable after 6 months and through the seventh anniversary of the issue date.

 

In October 2017, we completed a private placement offering with LPH Investments Limited, a company incorporated in the Cayman Islands with limited liability and an affiliate of Lee’s (LPH), for the purchase of $10.0 million of our common stock at a price of $4.326 per share, which represented a 15% premium over the average of the daily volume-weighted average price per share (VWAP) over the 10-day trading period ending on and including the date of the related agreement, and issued in 2,311,604 shares of our common stock.  Following the transaction, Lee's beneficially owned 73% of our issued and outstanding shares of common stock. The investment included cancellation of $3.9 million in outstanding loans that we had borrowed from Lee’s Pharmaceutical (HK) Ltd., a Hong Kong company organized and existing under the laws of Hong Kong (Lee's (HK)) under a Loan Agreement dated August 14, 2017, between ourselves and Lee's (HK).

 

On February 15, 2017, we completed a private placement offering of 7,049 Series A Convertible Preferred Stock units for net proceeds of approximately $10.5 million, including $1.6 million of non-cash consideration in the form of a reduction in amounts due and accrued as of December 31, 2016 for current development services that otherwise would have become payable in cash in the first and second quarters of 2017. Each unit consists of (i) one share of Series A Convertible Preferred Stock (Preferred Shares); and (ii) 50 Series A-1 Warrants to purchase one share of common stock at an exercise price equal to $27.40. All outstanding Preferred Shares were converted in accordance with their terms in advance of the merger.

 

At-the-Market Program (ATM Program)

 

Stifel ATM Program

 

In 2013, we entered into an At-the-Market Equity Sales Agreement (ATM Agreement) with Stifel, under which Stifel, as our exclusive agent, agreed to sell on our behalf up to a maximum of $25 million of shares of our common stock (ATM Program). We agreed to pay Stifel a commission equal to 3.0% of the gross sales price of any shares sold pursuant to the ATM Agreement.  Effective with our transition to the OTCQB® Market (OTCQB) tier in early May 2017, the ATM Program was no longer available to us.

 

During 2017, we completed registered offerings of our common stock under the ATM Program of 42,357 shares, resulting in aggregate gross and net proceeds to us of approximately $1.1 million and $1.0 million, respectively.  

 

Loan Payable

 

In January 2018 and March 2018, LPH Investments Limited (LPH), an affiliate of Lee’s, agreed to lend us $1.5 million and $1.0 million, respectively, to support our AEROSURF development activities and sustain our operations while we sought to identify and advance one or more potential strategic initiatives as defined in the related loan agreements (Funding Event).   The loans accrue interest at a rate of 6% per annum and mature upon the earlier of the closing date of the Funding Event or December 31, 2018. To secure our obligations under these loans, we granted LPH a security interest in substantially all our assets pursuant to the terms of a Security Agreement with LPH dated March 1, 2018 (LPH Security Agreement).

 

During the third and fourth quarters of 2018, LPH agreed to lend us funds to sustain our operations while we continued to work on a strategic transaction. The initial loan was funded on August 14, 2018 in the amount of $0.3 million, and subsequent loans on the following dates and in the following amounts: August 29, 2018, in the amount of $0.48 million, September 12, 2018 in the amount of $0.5 million; September 27, 2018 in the amount of $0.5 million; October 19, 2018 in the amount of $0.43 million; November 2, 2018 in the amount of $0.5 million; November 19, 2018 in the amount of $0.35 million; and December 5, 2018 in the amount of $0.6 million. The loans accrued interest at a rate of 6% per annum and matured upon the earlier of (i) the closing date for the strategic transaction (as defined in the related loan agreements), provided that the Company was able to raise a minimum of $30 million in connection with such transaction, or (ii) March 31, 2019. In each case, we granted to LPH a security interest in substantially all of our assets pursuant to the terms of the LPH Security Agreement.

 

 

Extinguishment of Loan Payable

 

On December 21, 2018, as part of the Private Placement Financing, we converted $6.0 million of existing loan payable obligations to LPH on the same terms as those of the Investors of the Private Placement Financing. In connection of the conversion of Lee’s debt, we issued: (i) 1,810,938 shares of common stock based at $3.3132 per share, (ii) Series F Warrants to purchase 307,859 shares of common stock, at an exercise price equal to $3.68 per share, and (iii) Series G Warrants to purchase 597,610 shares common stock, at an exercise price equal to $4.05 per share. The Series F Warrants are exercisable at any time after the date of issuance and through the 18-month anniversary of the date of issuance and the Series G Warrants may be exercised through the 5-year anniversary of the date of issuance.

 

The conversion of the loan payable to LPH is treated as an extinguishment of debt and does not represent a capital transaction as the Private Placement Financing included third-party investors and all investors received identical terms. We recorded a loss on extinguishment of debt approximately $3.2 million. The loss was calculated as the difference between: (i) the aggregate fair value of approximately $9.2 million, based on the fair value of the common stock and Warrants on December 21, 2018, and (ii) the carrying value of the debt liabilities of $6.0 million.

 

The balance of the loan payable to LPH of $160,000 was paid along with accrued interest of $182,000 on December 27, 2018.

 

Assumption of bank debt as part of the CVie Acquisition

 

As part of the CVie Acquisition, we assumed approximately $4.6 million (or NTD $138.0 million) in a bank credit facility due in March 2020.

 

In September 2016, CVie entered into a 12-month revolving credit facility of approximately $2.9 million (or NTD $90.0 million) with O-Bank Co., Ltd. to finance operating activities. The facility was later renewed and increased to approximately $5.8 million (or NTD $180.0 million) in September 2017. The credit facility was guaranteed by Lee’s, which is required to pledge bank deposits in the amount of 110% of the actual borrowing amount. Interest, payable in cash on a monthly basis, is determined based on 90-day TAIBOR (the Taipei Interbank Offer Rate) plus 0.91%. The credit facility will expire on September 11, 2019 and matures six months after the expiration date, on March 11, 2020. Although we reached an understanding with Lee’s that it would maintain the bank deposits securing its guaranty obligation under the credit facility, we do not have a written agreement with Lee’s requiring it to do so; therefore, the $4.5 million outstanding under the facility has been classified as a current liability on the balance sheet.

 

As of December 31, 2018, the outstanding principal was approximately $4.5 million (or NTD $138.0 million), due to exchange rate fluctuations.

 

Assumption of Lee’s debt as part of the CVie Acquisition

 

As part of the CVie Acquisition, we assumed approximately $3.5 million (or NTD $106.2 million) of debt payable to Lee’s.

 

From April 24, 2018 to November 16, 2018, CVie entered into four separate agreements to borrow an aggregate of approximately $3.50 million from Lee’s. The terms of the loan agreements are identical where the interest, payable in cash upon maturity, is 4% per annum and each of the four separate loans will mature one year from the effective date as follows: $0.50 million in April 2019; $0.3 million in September 2019; $0.2 million in October 2019; and $2.5 million in November 2019.

 

As of December 31, 2018, the outstanding principal was approximately $3.5 million (or NTD $106.2 million), due to exchange rate fluctuations.

 

Convertible Note Payable

 

On July 2, 2018, we issued to Panacea Venture Management Company Ltd. (Panacea) a Secured Convertible Promissory Note (the Note) with respect to a loan facility in the aggregate amount of up to $1.5 million, which was funded in two loans of, $1.0 million on the date of the Note and $0.5 million on July 23, 2018. The Note had a maturity date of December 31, 2018 and accrued interest at a rate of 15% per annum until the Note was paid in full or converted into shares of our common stock at a price per share of $4.00. In addition, in lieu of converting the Note, Panacea could deliver the Note into a private placement in which Panacea Venture Healthcare Fund I L.P., an affiliate of Panacea, participated. In connection with these Loans, we granted to Panacea a security interest in substantially all our assets.

 

 

In connection with the Note, we issued to Panacea warrants (the Series D Warrants) to purchase 187,500 shares (the Warrant Shares) at an exercise price of $4.00 per Warrant Share (the Exercise Price). The Warrants may be exercised at any time beginning six months after the date of issuance and through the fifth anniversary of the date of issuance. The Warrants may not be exercised to the extent that the holder thereof would, following such exercise, beneficially own more than 9.99% of the Company’s outstanding shares of common stock, which percentage may be increased, decreased or waived by such holder upon sixty-one days’ notice to us. The Warrants also contain customary provisions that adjust the Exercise Price and the number of Warrant Shares in the event of a corporate transaction.

 

We recorded the Note as current debt at its face value of $1.5 million less debt discounts consisting of (i) $0.4 million fair value of the warrants issued in connection with the Note and (ii) a $0.4 million beneficial conversion feature related to an embedded conversion option that had an effective conversion price that was less than the fair value of the underlying stock at the commitment date. The discount is being accreted to the $1.5 million loan over its term using the effective interest method. The Panacea Warrants are derivatives that qualify for an exemption from liability accounting as provided for in ASC Topic 815, Derivatives and Hedging – Contracts in Entity’s Own Equity, and have been classified as equity.

 

The fair value at issuance of the Panacea Warrants was determined using the Black-Scholes option-pricing model. The input assumptions used in the valuation are the historical volatility of our common stock price, the expected term of the warrants, and the risk-free interest rate based on the five-year treasury bill rate in effect at the measurement date.

 

Significant Input Assumptions of Warrant Valuation
Historical volatility			103	%
Expected term (in years)			5
Risk-free interest rate			2.75	%

 

The following amounts comprise the convertible note interest expense for the periods presented:

 

		Year Ended December 31,
(in thousands)		2018
Non-cash amortization of debt discounts		$	833
Cash interest expense			106
Total convertible note interest expense			939

 

 

Extinguishment of Panacea Convertible Promissory Note

 

On December 27, 2018, we repaid the Note in its entirety in cash of $1.5 million. As part of the extinguishment of debt, we recorded a gain on extinguishment of debt of approximately $0.4 million, relating to the reacquisition of the beneficial conversion option. The gain was calculated using the intrinsic value of the beneficial conversion option, which is the product of: (i) the difference between the common stock price on the date of extinguishment of $5.11 and the conversion price of $4.00, and (ii) 375,000 shares convertible into common stock.

 

Restructured Debt Liability 

 

		December 31,				December 31,
(in thousands)		2018				2017
Restructured debt liability - contingent milestone payments		$	15,000			$	15,000

 

 

On November 1, 2017, we and Deerfield entered into an Exchange and Termination Agreement pursuant to which (i) promissory notes evidencing a loan with affiliates of Deerfield Management Company L.P. (Deerfield Loan) in the aggregate principal amount of $25 million and (ii) warrants to purchase up to 25,000 shares of our common stock at an exercise price of $786.80 per share held by Deerfield were cancelled in consideration for (i) a cash payment in the aggregate amount of $2.5 million, (ii) 71,111 shares of common stock, representing 2% of fully-diluted shares outstanding (as defined in the Exchange and Termination Agreement) on the closing date, and (iii) the right to receive certain milestone payments based on achievement of specified AEROSURF development and commercial milestones, which, if achieved, could potentially total up to $15 million. In addition, a related security agreement, pursuant to which Deerfield held a security interest in substantially all of our assets, was terminated. We established a $15 million long-term liability for the contingent milestone payments potentially due to Deerfield under the Exchange and Termination Agreement (see, Note 5 – Accounting Policies and Recent Accounting Pronouncements). The liability has been recorded at full value of the contingent milestones and will continue to be carried at full value until the milestones are achieved and paid or milestones are not achieved and the liability is written off as a gain on debt restructuring.

 

 

Off-Balance Sheet Arrangements

 

We did not have any material off-balance sheet arrangements at December 31, 2018 or 2017, or during the periods then ended.

 

 

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not applicable.

 

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

See, Index to Consolidated Financial Statements on Page F-1 attached hereto.

 

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

Not applicable.

  

ITEM 9A.

CONTROLS AND PROCEDURES.

 

(a) Evaluation of disclosure controls and procedures

 

Our management, including our President and Chief Executive Officer (principal executive officer) and our Senior Vice President and Chief Financial Officer (principal financial officer), do not expect that our disclosure controls or our internal control over financial reporting will prevent all error and all fraud. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

 

Our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer, to allow for timely decisions regarding required disclosures, and recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

 

(b) Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) promulgated under the Exchange Act. Our internal control system is designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

 

Under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2018. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated 2013 Framework. Based on our assessment, our management believes that our internal control over financial reporting is effective based on those criteria, as of December 31, 2018.

 

On December 21, 2018, we acquired CVie Investments Limited (CVie). The acquisition of CVie represents a material change in the internal control over financial reporting since management’s last assessment of effectiveness. Management has excluded CVie from its assessment of internal control over financial reporting as of December 31, 2018. Total assets of CVie, excluding goodwill and other intangible assets which were included in management’s assessment of internal control over financial reporting as of December 31, 2018, are $0.5 million at December 31, 2018. Total operating expenses of CVie were $0.4 million for the year ended December 31, 2018. The total assets and total operating expenses excluded from management’s assessment of internal control over financial reporting as of December 31, 2018, represent approximately 0.43% and  2.2%, respectively, of our related consolidated financial statement amounts as of and for the year end December 31, 2018.

 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

 

(c)	Changes in internal controls

 

There were no changes in our internal control over financial reporting identified in connection with the evaluation described above that occurred during the quarter ended December 31, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B.

OTHER INFORMATION.

     

Not applicable.

 

PART III

 

Except as set forth below, the information required by Items 10 through 14 of Part III is incorporated herein by reference to our definitive proxy or information statement or an amendment to this annual report on Form 10-K, in any case, to be filed with the Securities and Exchange Commission on or before April 30, 2019 (within 120 days after the end of our 2018 fiscal year).

 

 

PART IV

 

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

     

The consolidated financial statements required to be filed in this Annual Report on Form 10-K are listed on the Index to Consolidated Financial Statements on page F-1 hereof.

 

Exhibits are listed on the Index to Exhibits at the end of this Annual Report on Form 10-K. The exhibits required to be filed pursuant to Item 601 of Regulation S-K, which are listed on the Index in response to this Item, are incorporated herein by reference.

 

ITEM 16.

FORM 10-K SUMMARY.

     

Registrants may voluntarily include a summary of information required by Form 10-K under this Item 16. We have elected not to include such summary information.

 

 

INDEX TO EXHIBITS

 

The following exhibits are included with this Annual Report on Form 10-K.

 

Exhibit No.		Description		Method of Filing
3.1		Amended and Restated Certificate of Incorporation		Incorporated by reference to Exhibit 3.1 to Windtree’s Annual Report on Form 10-K, as filed with the SEC on April 17, 2018
3.2		Amended and Restated By-Laws		Incorporated by reference to Exhibit 3.2 to Windtree’s Current Report on Form 8-K, as filed with the SEC on April 18, 2016
4.1		Form of Warrant dated October 10, 2014		Incorporated by reference to Exhibit 4.11 to Windtree’s Quarterly Report on Form 10-Q, as filed with the SEC on November 7, 2014
4.2		Form of Series A Warrant dated July 22, 2015		Incorporated by reference to Exhibit 4.1 to Windtree’s Current Report on Form 8-K, as filed with the SEC on July 17, 2015
4.3		Form of Series B Warrant dated July 22, 2015		Incorporated by reference to Exhibit 4.3 to Windtree’s Current Report on Form 8-K, as filed with the SEC on July 17, 2015
4.4		Form of Series A-1 Warrant dated February 13, 2017		Incorporated by reference to Exhibit 4.1 to Windtree’s Current Report on Form 8-K, as filed with the SEC on February 15, 2017
4.5		Form of Series C Warrant dated April 4, 2018		Incorporated by reference to Exhibit 4.1 to Windtree’s Current Report on Form 8-K, as filed with the SEC on April 4, 2018
4.6		Form of Series D Warrant dated July 2, 2018		Incorporated by reference to Exhibit 4.1 to Windtree’s Current Report on Form 8-K, as filed with the SEC on July 6, 2018
4.7		Form of Series E Warrant dated December 11, 2018		Filed herewith
4.8		Form of Series F Warrant dated December 24, 2018		Incorporated by reference to Exhibit 4.2 to Windtree’s Current Report on Form 8-K, as filed with the SEC on December 21, 2018
4.9		Form of Series G Warrant dated December 24, 2018		Incorporated by reference to Exhibit 4.3 to Windtree’s Current Report on Form 8-K, as filed with the SEC on December 21, 2018
4.10		Form of Series H Warrant dated February 14, 2019		Incorporated by reference to Exhibit 4.1 to Windtree’s Current Report on Form 8-K, as filed with the SEC on December 21, 2018
10.1+		Sublicense Agreement dated October 28, 1996, between Johnson & Johnson, Ortho Pharmaceutical Corporation and Acute Therapeutics, Inc.		Incorporated by reference to Exhibit 10.6 to Windtree’s Registration Statement on Form SB-2/A, as filed with the SEC on April 18, 1997 (Commission File Number 333-19375)

 

 

 

 

10.2+		Amended and Restated License Agreement dated March 28, 2008, between Windtree and Philip Morris USA Inc.,		Incorporated by reference to Exhibit 10.4 to Windtree’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, as filed with the SEC on May 9, 2008
10.3+		License Agreement dated March 28, 2008, between Windtree and Philip Morris Products S.A.		Incorporated by reference to Exhibit 10.5 to Windtree’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, as filed with the SEC on May 9, 2008
10.4+		Amended and Restated Sublicense and Collaboration Agreement dated December 3, 2004, between Windtree and Laboratorios del Dr. Esteve, S.A.		Incorporated by reference to Exhibit 10.28 to Windtree’s Annual Report on Form 10-K for the year ended December 31, 2004, as filed with the SEC on March 16, 2005
10.5+		Amended and Restated Supply Agreement dated December 3, 2004, between Windtree and Laboratorios del Dr. Esteve, S.A.		Incorporated by reference to Exhibit 10.29 to Windtree’s Annual Report on Form 10-K for the year ended December 31, 2004, as filed with the SEC on March 16, 2005
10.6+		License, Development and Commercialization Agreement dated June 12, 2017, between Windtree and Lee’s Pharmaceutical (HK) Ltd.		Incorporated by reference to Exhibit 10.1 to Windtree’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, as filed with the SEC on August 21, 2017
10.7+		Amendment No. 1 dated August 14, 2017 to the License Development and Commercialization Agreement between Windtree and Lee’s Pharmaceutical (HK) Ltd. dated June 12, 2017		Incorporated by reference to Exhibit 10.1 to Windtree’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, as filed with the SEC on November 14, 2017
10.8*		Windtree’s 2011 Long-Term Incentive Plan, as amended		Incorporated by reference to Exhibit 10.1 to Windtree’s Current Report on Form 8-K, as filed with the SEC on December 31, 2018
10.9*		Form of Employee Option Agreement under Windtree’s 2011 Long-Term Incentive Plan		Incorporated by reference to Exhibit 10.2 to Windtree’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, as filed with the SEC on May 15, 2012
10.10*		Form of Non-Employee Director Option Agreement under Windtree’s 2011 Long-Term Incentive Plan		Incorporated by reference to Exhibit 10.3 to Windtree’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, as filed with the SEC on May 15, 2012
10.11*		Form of Restricted Stock Unit Award Agreement for Non-Employee Directors under Windtree’s 2011 Long-Term Incentive Plan		Incorporated by reference to Exhibit 10.11 to Windtree’s Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC on March 16, 2015
10.12*		Form of Restricted Stock Unit Award Agreement for Employees under Windtree’s 2011 Long-Term Incentive Plan		Incorporated by reference to Exhibit 10.14 to Windtree’s Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC on April 17, 2018
10.13*		Employment Agreement dated February 1, 2016, between Windtree and Craig Fraser		Incorporated by reference to Exhibit 10.1 to Windtree’s Current Report on Form 8-K, as filed with the SEC on February 3, 2016
10.14*		Inducement Stock Option Award Agreement dated February 1, 2016, between Windtree and Craig Fraser		Incorporated by reference to Exhibit 10.3 to Windtree’s Current Report on Form 8-K, as filed with the SEC on February 3, 2016

 

 

10.15*		Amendment dated March 13, 2018, to Employment Agreement dated February 1, 2016, between Windtree and Craig Fraser		Incorporated by reference to Exhibit 10.1 to Windtree’s Current Report on Form 8-K, as filed with the SEC on March 16, 2018
10.16*		Employment Agreement dated December 19, 2014, between Windtree and Steven G. Simonson, M.D.		Incorporated by reference to Exhibit 10.4 to Windtree’s Quarterly Report on Form 10-Q, as filed with the SEC on May 11, 2015
10.17*		Amendment dated December 29, 2014 to Employment Agreement dated December 19, 2014, effective as of April 1, 2015, between Windtree and Steven G. Simonson, M.D.		Incorporated by reference to Exhibit 10.5 to Windtree’s Quarterly Report on Form 10-Q, as filed with the SEC on May 11, 2015
10.18*		Amendment dated March 13, 2018, to Employment Agreement dated December 19, 2014 between Windtree and Steven G. Simonson, M.D.		Incorporated by reference to Exhibit 10.3 to Windtree’s Current Report on Form 8-K, as filed with the SEC on March 16, 2018
10.19*		Employment Agreement dated March 21, 2014, between Windtree and John A. Tattory		Incorporated by reference to Exhibit 10.1 to Windtree’s Quarterly Report on Form 10-Q, as filed with the SEC on May 12, 2014
10.20*		Amendment dated December 29, 2014 to Employment Agreement dated March 21, 2014, effective as of April 1, 2015, between Windtree and John A. Tattory		Incorporated by reference to Exhibit 10.19 to Windtree’s Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC on March 16, 2015
10.21*		Amendment dated March 13, 2018 to Employment Agreement dated March 21, 2014 between John A. Tattory		Incorporated by reference to Exhibit 10.2 to Windtree’s Current Report on Form 8-K, as filed with the SEC on March 16, 2018
10.22*		Form of Indemnification Agreement between Windtree and certain named executive officers and directors		Incorporated by reference to Exhibit 10.4 to Windtree’s Current Report on Form 8-K, as filed with the SEC on February 3, 2016
10.23*		Form of Indemnification Agreement between Windtree and certain named directors		Filed herewith
10.24		Lease Agreement dated May 26, 2004, and First Amendment to Lease Agreement, dated April 2, 2007, between TR Stone Manor Corp. and Windtree		Incorporated by reference to Exhibits 10.1 and 10.2 to Windtree’s Current Report on Form 8-K, as filed with the SEC on April 6, 2007
10.25		Second Amendment to Lease Agreement dated January 3, 2013 between TR Stone Manor Corp. and Windtree		Incorporated by reference to Exhibits 10.1 to Windtree’s Current Report on Form 8-K, as filed with the SEC on January 8, 2013
10.26		Fourth Amendment to Lease Agreement dated April 29, 2016, between PH Stone Manor LP and Windtree		Incorporated by reference to Exhibits 10.1 to Windtree’s Current Report on Form 8-K, as filed with the SEC on May 31, 2016
10.27		Fifth Amendment to Lease Agreement dated February 23, 2018, between PH Stone Manor LP and Windtree		Incorporated by reference to Exhibit 10.1 to Windtree’s Current Report on Form 8-K, as filed with the SEC on March 1, 2018
10.28+		Master Services Agreement dated October 24, 2013 between Windtree and DSM Pharmaceuticals, Inc. (now known as Patheon Manufacturing Services LLC)		Incorporated by reference to Exhibit 10.3 to Windtree’s Quarterly Report on Form 10-Q, as filed with the SEC on November 12, 2013

 

 

10.29+		Supply Agreement dated December 22, 2010 between Corden Pharma (formerly Genzyme Pharmaceuticals LLC, now known as Corden Pharma) and Windtree		Incorporated by reference to Exhibit 10.1 to Windtree’s Current Report on Form 8-K, as filed with the SEC on December 29, 2010
10.30		Exchange and Termination Agreement dated October 27, 2017, between Windtree and Deerfield		Incorporated by reference to Exhibit 10.2 to Windtree’s Current Report on Form 8-K, as filed with the SEC on November 1, 2017
10.31		Registration Rights Agreement dated October 27, 2017, between Windtree and LPH Investments Limited		Incorporated by reference to Exhibit 99.1 to Windtree’s Current Report on Form 8-K, as filed with the SEC on November 1, 2017
10.32		Registration Rights Agreement dated March 30, 2018, between Windtree and LPH II Investments Limited		Incorporated by reference to Exhibit 10.2 to Windtree’s Current Report on Form 8-K, as filed with the SEC on April 4, 2018
10.33		Payment Restructuring Agreement effective December 7, 2018, between Windtree and Battelle Memorial Institute		Incorporated by reference to Exhibit 10.1 to Windtree’s Current Report on Form 8-K, as filed with the SEC on December 7, 2018
10.34		Loan Agreement dated October 25, 2018, between CVie Therapeutics, Lee’s Pharmaceutical Holdings Limited, and O-Bank Co., Ltd.		Filed herewith
10.35		Shareholder Loan Agreement dated April 24, 2018, between Lee’s Pharmaceutical International Limited and CVie Therapeutics		Filed herewith
10.36		Shareholder Loan Agreement dated September 20, 2018, between Lee’s Pharmaceutical International Limited and CVie Therapeutics		Filed herewith
10.37		Shareholder Loan Agreement dated October 26, 2018, between Lee’s Pharmaceutical International Limited and CVie Therapeutics		Filed herewith
10.38		Shareholder Loan Agreement dated November 16, 2018, between Lee’s Pharmaceutical International Limited and CVie Therapeutics		Filed herewith
10.39		Merger Agreement dated December 21, 2018, between Windtree, WT Acquisition Corp., and CVie Investments Limited		Incorporated by reference to Exhibit 10.1 to Windtree’s Current Report on Form 8-K, as filed with the SEC on December 21, 2018
10.40		Indemnification Letter Agreement dated December 21, 2018, between Windtree and Lee’s Pharmaceutical Holdings Limited		Incorporated by reference to Exhibit 10.2 to Windtree’s Current Report on Form 8-K, as filed with the SEC on December 21, 2018
10.41		Securities Purchase Agreement dated December 21, 2018 between Windtree and certain purchasers party thereto		Incorporated by reference to Exhibit 10.3 to Windtree’s Current Report on Form 8-K, as filed with the SEC on December 21, 2018
10.42		Registration Rights Agreement dated December 21, 2018 between Windtree and certain purchasers party thereto		Incorporated by reference to Exhibit 10.4 to Windtree’s Current Report on Form 8-K, as filed with the SEC on December 21, 2018
21.1		Subsidiaries of Windtree		Filed herewith

 

 

23.1		Consent of Ernst & Young LLP, independent registered public accounting firm		Filed herewith
31.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act		Filed herewith
32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		Filed herewith
99.1		Rule 201c Temporary Hardship Exemption for XBRL files		Filed herewith
101.1		The following consolidated financial statements from the Windtree Therapeutics, Inc. Annual Report on Form 10-K for the year ended December 31, 2018, formatted in Extensive Business Reporting Language (“XBRL”): (i) Balance Sheets as of December 31, 2018 and December 31, 2017, (ii) Statements of Operations for the years ended December 31, 2018 and December 31, 2017, (iii) Statements of Changes in Equity for the years ended December 31, 2018 and December 31, 2017, (iv) Statements of Cash Flows for the years ended December 31, 2018 and December 31, 2017, and (v) Notes to consolidated financial statements
101.INS		Instance Document		Filed herewith
101.SCH		XBRL Taxonomy Extension Schema Document		Filed herewith
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document		Filed herewith
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document		Filed herewith
101.LAB		XBRL Taxonomy Extension Label Linkbase Document		Filed herewith
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document		Filed herewith
+Confidential treatment requested as to certain portions of these exhibits. Such portions have been redacted and filed separately with the Commission.   *A management contract or compensatory plan or arrangement required to be filed as an exhibit to this annual report pursuant to Item 15(b) of Form 10-K.

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	WINDTREE THERAPEUTICS, INC.
Date: April 16, 2019	By:	/s/ Craig Fraser
		Craig Fraser, Director, President, and Chief Executive Officer

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature	Name & Title	Date
/s/ Craig Fraser	Craig Fraser Director, President, and Chief Executive Officer	April 16, 2019
	(Principal Executive Officer)
/s/ John Tattory	John Tattory Senior Vice President and Chief Financial Officer	April 16, 2019
	(Principal Financial and Accounting Officer)
/s/ James Huang	James Huang Director (Chairman of the Board)	April 16, 2019
/s/ John R. Leone	John R. Leone Director	April 16, 2019
/s/ Joseph M. Mahady	Joseph M. Mahady Director	April 16, 2019
/s/ Bruce A. Peacock	Bruce A. Peacock  Director	April 16, 2019
/s/ Brian D. Schreiber	Brian D. Schreiber, M.D. Director	April 16, 2019

 

 

WINDTREE THERAPEUTICS, INC.  AND SUBSIDIARIES

 

Contents	Page
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2018 and December 31, 2017	F-3
Consolidated Statements of Operations for the years ended December 31, 2018 and 2017	F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2018 and 2017	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2018 and 2017	F-6
Notes to consolidated financial statements	F-7

 

 

 

 WINDTREE THERAPEUTICS, INC.  AND SUBSIDIARIES

 

Report of Independent Registered Public Accounting Firm

 

To the Shareholders and the Board of Directors of Windtree Therapeutics, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Windtree Therapeutics, Inc. and subsidiaries (the Company) as of December 31, 2018 and 2017, the related statements of operations, changes in stockholders' equity and cash flows for each of the two years in the period ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

 

The Company's Ability to Continue as a Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 4 to the financial statements, the Company has suffered recurring losses and negative cash flows from operations, expects to incur losses and use cash in operations for the foreseeable future, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management's evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 4. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

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

 

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

 

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

 

 

/s/ Ernst and Young LLP

 

We have served as the Company’s auditor since 2000.

 

Philadelphia, Pennsylvania

April 16, 2019 

 

 

WINDTREE THERAPEUTICS, INC.  AND SUBSIDIARIES

 

Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

See notes to consolidated financial statements

 

 

WINDTREE THERAPEUTICS, INC.  AND SUBSIDIARIES

 

Consolidated Statements of Operations

(in thousands, except per share data)

 

 

 

See notes to consolidated financial statements

 

 

WINDTREE THERAPEUTICS, INC.  AND SUBSIDIARIES

 

Consolidated Statements of Changes in Stockholders' Equity

(in thousands)

 

  

 

See notes to consolidated financial statements

 

 

WINDTREE THERAPEUTICS, INC.  AND SUBSIDIARIES

 

Consolidated Statements of Cash Flows

(in thousands)

 

 

See notes to consolidated financial statements

 

 

WINDTREE THERAPEUTICS, INC.  AND SUBSIDIARY

 

 

 

Exhibit 4.7  

 

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED HEREBY NOR THE SECURITIES INTO WHICH THE SECURITIES REPRESENTED HEREBY ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES REPRESENTED HEREBY AND THE SECURITIES INTO WHICH THE SECURITIES REPRESENTED HEREBY ARE EXERCISABLE MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO (A) AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) PURSUANT TO AN AVAILABLE EXEMPTION IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES REPRESENTED HEREBY AND THE SECURITIES INTO WHICH THE SECURITIES REPRESENTED HEREBY ARE EXERCISABLE MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.

 

WINDTREE THERAPEUTICS, INC.

 

Series E WARRANT TO PURCHASE COMMON STOCK

 

Series E Warrant:      E-1

Number of Shares of Common Stock: 75,000

Date of Issuance: December 11, 2018 (“Issuance Date”)

 

Windtree Therapeutics, Inc., a Delaware corporation (the “Company”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Battelle Memorial Institute, the registered holder hereof or its permitted assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in effect, upon surrender of this Series E Warrant to Purchase Common Stock (including any Series E Warrants to Purchase Common Stock issued in exchange, transfer or replacement hereof, the “Warrant”), at any time or times after the Issuance Date (the “Exercisability Date”), but not after 11:59 p.m., New York time, on the Expiration Date (as defined below), SEVENTY-FIVE THOUSAND (75,000) fully paid and nonassessable shares of Common Stock (as defined below) (the “Warrant Shares”).

 

1.     EXERCISE OF WARRANT.

 

	(a)	Mechanics of Exercise. Subject to the terms and conditions hereof, this Warrant may be exercised by the Holder on any day on or after the Exercisability Date, in whole or in part, by (i) delivery of a written notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this Warrant to the Company and Continental Stock Transfer & Trust Company (the “Warrant Agent” and “Transfer Agent”) and (ii) if applicable, delivery of this Warrant to the Warrant Agent for cancellation. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Warrant Agent 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 Warrant Agent for cancellation within three (3) Trading Days of the date the final Exercise Notice is delivered to the Warrant Agent. Execution and delivery of an Exercise Notice 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. The Exercise Notice shall indicate if the Holder has elected a Cashless Exercise (as defined below) pursuant to Section 1(d) of this Warrant. Within two (2) Business Days following the Exercise, Holder shall deliver payment to the Company of an amount equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the “Aggregate Exercise Price”) in cash or by wire transfer of immediately available funds, unless such Holder has elected a Cashless Exercise pursuant to Section 1(c). On or before the second (2nd) Business Day following the date on which the Warrant has been duly Exercised (the “Share Delivery Date”), the Company or the Warrant Agent shall (X) provided that the Company’s transfer agent (the “Transfer Agent”) is participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program, upon the request of the Holder and provided the Holder causes its prime broker to initiate a Deposit Withdrawal At Custodian (“DWAC”) deposit, credit such aggregate number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its DWAC system, or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program or upon a cash Exercise at a time when a registration statement covering the issuance of Warrant Shares is not effective, issue and dispatch by overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder is entitled pursuant to such Exercise, provided that, unless such Holder has elected a Cashless Exercise pursuant to Section 1(c), the Company shall not be obligated to deliver shares of Common Stock hereunder unless the Company has received the Aggregate Exercise Price by the Share Delivery Date. Upon Exercise, 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 DTC account or the date of delivery of the certificates evidencing such Warrant Shares, as the case may be. If this Warrant is submitted in connection with any exercise pursuant to this Section 1(a) and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later than five Business Days after any exercise and at its own expense, issue a new Warrant (in accordance with Section 6(d)) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock to be issued shall be rounded down to the nearest whole number. The Company shall pay any and all taxes which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder or an affiliate thereof. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof.

 

 

(b)

Exercise Price. For purposes of this Warrant, “Exercise Price” means a per Warrant Share price of $6.50, subject to adjustment as provided herein.

 

 

(c)

Cashless Exercise. At any time six (6) months after the Issuance Date, in the event that a registration statement covering the issuance of Warrant Shares is not effective, the Holder may, at its option, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the “Net Number” of shares of Common Stock determined according to the following formula (a “Cashless Exercise”):

 

		Net Number = (A x B) – (A x C)     B

A =		the total number of shares with respect to which this Warrant is then being exercised.
B =		the arithmetic average of the Closing Sale Prices of the shares of Common Stock for the five (5) consecutive Trading Days ending on the Trading Day immediately preceding the date of the Exercise Notice; and
C =		the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.

 

		The Company shall notify the Holder at any time prior to the Expiration Date that a registration statement covering the issuance of Warrant Shares is not effective. For sake of clarity, in the event that neither a registration statement nor an exemption from registration is available, there is no circumstance that requires the Company to effect a net cash settlement of the Warrant.
	(e)	Disputes. In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall issue to the Holder the number of Warrant Shares that are not disputed in accordance with the delivery obligations set forth in this Warrant.

 

	(f)	Beneficial Ownership. The Company shall not effect any exercise of the Warrant, and a Holder shall not have the right to exercise any portion of the Warrant, to the extent that, such Holder (together with such Holder’s Affiliates, and any Persons acting as a group together with such Holder or any of such Holder’s Affiliates (such Persons, “Attribution Parties”)) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below) after giving effect to such exercise, or immediately prior to giving effect to such exercise. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by such Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of the Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) exercise of the remaining, unexercised portion of this Warrant beneficially owned by such Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of unexercised or unconverted portion of any other Common Stock Equivalents of the Company that are subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by such Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 1(f), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder (the “Exchange Act”), it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 1(f) applies, the determination of whether the Warrant is exercisable (in relation to other securities owned by such Holder together with any Affiliates and Attribution Parties) and number of shares of Common Stock issuable upon such exercise (or partial exercise) shall be in the sole discretion of such Holder, and the submission of a Notice of Exercise shall be deemed to be such Holder’s determination of whether the Warrant may be exercised (in relation to other securities owned by such Holder together with any Affiliates and Attribution Parties) and number of shares of Common Stock issuable upon exercise (or partial exercise), in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, each Holder will be deemed to represent to the Company each time it delivers a Notice of Exercise that such Notice of Exercise has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 1(f), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company or (iii) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Business Days confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined by the Holder after giving effect to the conversion or exercise of securities of the Company, including the Warrant, by such Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” initially shall be 9.99% of the Company's issued and outstanding shares of Common Stock. A Holder, upon notice to the Company, may decrease or thereafter increase the Beneficial Ownership Limitation to any other percentage not in excess of 19.99% specified in such notice; provided that (i) any such change in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company, and (ii) any such increase or decrease will apply only to such Holder and no other Holder. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 1(f) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of the Warrant.

 

 

2.     ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price and the number of Warrant Shares shall be adjusted from time to time as follows:

 

(a)

Adjustment upon Subdivision or Combination of Common Stock. If the Company at any time on or after the Issuance Date subdivides (by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of Warrant Shares will be proportionately increased. If the Company at any time on or after the Issuance Date combines (by any stock split, stock dividend, recapitalization, reorganization, scheme, arrangement or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of Warrant Shares will be proportionately decreased. Any adjustment under this Section 2(a) shall become effective at the close of business on the date the subdivision or combination becomes effective.

 

(b)

Other Events. If any event occurs of the type contemplated by the provisions of Section 2(a) but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features to the holders of the Company’s equity securities), then the Company’s Board of Directors will make an appropriate adjustment in the Exercise Price and the number of Warrant Shares and provide that the record date for stockholders entitled to participate in such event shall be the effective date for such adjustment so as to protect the rights of the Holder; provided that no such adjustment pursuant to this Section 2(b) will increase the Exercise Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section 2.

 

3.     FUNDAMENTAL TRANSACTIONS. Upon the occurrence of any Fundamental Transaction, any Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the “Company” shall refer instead to any Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein. Upon consummation of the Fundamental Transaction, any Successor Entity shall deliver to the Holder confirmation that there shall be issued upon exercise of this Warrant at any time after the consummation of the Fundamental Transaction, in lieu of the shares of the Common Stock (or other securities, cash, assets or other property purchasable upon the exercise of the Warrant prior to such Fundamental Transaction), such shares of stock, securities, cash, assets or any other property whatsoever (including warrants or other purchase or subscription rights), if any, that the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had this Warrant been exercised immediately prior to such Fundamental Transaction, as adjusted in accordance with the provisions of this Warrant. In addition to and not in substitution for any other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a “Corporate Event”), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon an exercise of this Warrant within 90 days after the consummation of the Fundamental Transaction but, in any event, prior to the Expiration Date, in lieu of the shares of the Common Stock (or other securities, cash, assets or other property) purchasable upon the exercise of the Warrant prior to such Fundamental Transaction, such shares of stock, securities, cash, assets or any other property whatsoever (including warrants or other purchase or subscription rights) which the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had the Warrant been exercised immediately prior to such Fundamental Transaction. The Company shall not enter into or be a party to a Fundamental Transaction unless provision is made with respect to the holder’s right under this Section 3 in a form and substance reasonably satisfactory to the Holder. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The provisions of this Section 3 shall apply similarly and equally to successive Fundamental Transactions and Corporate Events and shall be applied without regard to any limitations on the exercise of this Warrant. The Holder may waive its rights under this Section 3 with respect to any particular Fundamental Transaction.

 

 

4.     NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its Amended and Restated Certificate of Incorporation, Amended and Restated 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. 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, so long as this Warrant is outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the exercise of this Warrant, 100% of the number of shares of Common Stock issuable upon exercise of this Warrant then outstanding (without regard to any limitations on exercise).

 

5.     WARRANT HOLDER NOT DEEMED A STOCKHOLDER. The Holder, solely in such Person’s capacity as a holder of this Warrant, shall not be entitled to vote or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in such Person’s capacity as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.

 

6.     REISSUANCE OF WARRANTS.

(a)

Registration of Warrant. The Company or its Transfer Agent shall register this Warrant, upon the records to be maintained by the Company or its Transfer Agent for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary. The Company or its Transfer Agent shall also register any transfer, exchange, reissuance or cancellation of any portion of this Warrant in the Warrant Register.

 

(b)

Transfer of Warrant. If this Warrant is to be transferred in accordance with Section 13, the Holder shall surrender this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 6(d)), registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section 6(d)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred.

 

(c)

Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form or the provision of reasonable security by the Holder to the Company and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 6(d)) representing the right to purchase the Warrant Shares then underlying this Warrant.

 

(d)

Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, together with all applicable transfer taxes, for a new Warrant or Warrants (in accordance with Section 6(d)) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such surrender; provided, however, that no Warrants for fractional shares of Common Stock shall be given.

 

(e)

Issuance of New Warrants. Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 6(a) or Section 6(c), the Warrant Shares designated by the Holder which, when added to the number of shares of Common Stock underlying the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date and (iv) shall have the same rights and conditions as this Warrant.

 

 

7.     NOTICES. Whenever notice is required to be given to either party under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with information provided by the Holder to the Company, or by the Company to the Holder, as applicable, in writing. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Warrant, including in reasonable detail a description of such action and the reason therefor.

 

8.     AMENDMENT AND WAIVER. The provisions of this Warrant may be amended or modified or the provisions hereof waived with the written consent of the Company and the Holder.

 

9.     JURISDICTION. Except as set forth in Section 11 below, this Warrant shall be governed by and construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Warrant shall be governed by, the internal laws of the State of Delaware, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Delaware or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Delaware.

 

10.     CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any person as the drafter hereof. The headings of this Warrant are for convenience of reference and shall not form part of, or affect the interpretation of, this Warrant.

 

11.     DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within two (2) Business Days of receipt of the Exercise Notice 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 of the Exercise Price or the Warrant Shares within three (3) Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within two (2) Business Days submit via facsimile (a) the disputed determination of the Exercise Price to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to the Company’s independent, outside accountant. The Company shall cause at its expense the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than ten (10) 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. The expenses of the investment bank and accountant will be borne by the Company.

 

12.     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, 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.

 

13.     TRANSFER. Subject to compliance with any applicable securities laws and the transfer restrictions set forth herein, this Warrant may be offered for sale, sold, transferred or assigned without the consent of the Company.

 

14.     CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the following meanings:

 

(a)

“Bloomberg” means Bloomberg Financial Markets.

 

(b)

“Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.

 

 

(c)

“Closing Sale Price” means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or the last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the OTCQB® trading market operated by The OTC Markets Group, or the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the “pink sheets” by OTC Markets Group Inc. If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

 

(d)

“Common Stock” means (i) the Company’s shares of Common Stock, par value $0.001 per share, and (ii) any share capital into which such Common Stock shall have been changed or any share capital resulting from a reclassification of such Common Stock.

 

(e)

“Common Stock Equivalents” means any securities of the Company which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

(f)

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

 

(g)

“Eligible Market” means The New York Stock Exchange, Inc., The NYSE MKT LLC, The NASDAQ Global Select Market, The NASDAQ Global Market, The NASDAQ Capital Market or the OTCQB.

 

(h)

“Expiration Date” means December 7, 2023 or, if such date falls on a day other than a Business Day or on which trading does not take place on the Principal Market (a “Holiday”), the next date that is not a Holiday.

 

(i)

“Fundamental Transaction” means that (A) the Company shall, directly or indirectly, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company to another Person, or (iii) allow another Person to make a purchase, tender or exchange offer that is accepted by the holders of more than the 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (iv) consummate a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock purchase agreement or other business combination), or (v) reorganize, recapitalize or reclassify the Common Stock, or (B) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall become the “beneficial owner” (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock.

 

(j)

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

 

 

(k)

“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 the Fundamental Transaction.

 

(l)

“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.

 

(m)

“Principal Market” means the securities exchange or securities quotation service where the Common Stock is principally listed or quoted for trading.

 

(n)

“Successor Entity” means the Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so elected by the Holder, the Parent Entity) with which such Fundamental Transaction shall have been entered into.

 

(o)

“Trading Day” means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded; provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time).

 

[Signature Page Follows]

 

 

 

 

IN WITNESS WHEREOF, the Company has caused this Series E Warrant to Purchase Common Stock to be duly executed as of the Issuance Date set out above.

 

WINDTREE THERAPEUTICS, INC.
By:		/s/ John Tattory
		Name: John Tattory
		Title: Senior Vice President and CFO

 

 

 

 

 

 

 

 

 

 

 

EXHIBIT A

 

EXERCISE NOTICE TO BE EXECUTED BY THE REGISTERED HOLDER
TO EXERCISE THIS SERIES E WARRANT TO PURCHASE COMMON STOCK

To:		CONTINENTAL STOCK TRANSFER & TRUST COMPANY 1 State Street, 30th Floor New York NY 10004 Attention: Compliance Department By Email: Compliance@continentalstock.com

 

The undersigned holder hereby exercises the right to purchase                      of the shares of Common Stock (“Warrant Shares”) of WINDTREE THERAPEUTICS, INC., a Delaware corporation (the “Company”), evidenced by the attached Series E Warrant to Purchase Common Stock (the “Warrant”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

 

1.     Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as:

 

                     a “Cash Exercise” with respect to                      Warrant Shares; and/or

 

                     a “Cashless Exercise” with respect to                Warrant Shares

 

2.     Payment of Exercise Price. In the event that this is a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of $         to the Company in accordance with the terms of the Warrant.

 

3.     Delivery of Warrant Shares. The Company shall deliver the Warrant Shares to the holder in accordance with the terms of the Warrant.

 

4.     Representations and Warranties. By its delivery of this Exercise Notice, the undersigned represents and warrants to the Company that in giving effect to the exercise evidenced hereby the Holder will not beneficially own in excess of the number of shares of Common Stock (determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended) permitted to be owned under Section 1(f) of this Warrant to which this notice relates.

 

Date:              ,         

Name of Registered Holder:

 

By:
		Name:
		Title:
Facsimile Number for notices:

Address for delivery (if applicable):

Holder, or Holder's designee’s account information with DTC through its DWAC system (if applicable):

 

ACKNOWLEDGMENT

 

The Company hereby acknowledges this Exercise Notice.

 

WINDTREE THERAPEUTICS, INC.
By:
		Name:
		Title:

 

 

 

 

 

 

 

 

 

 

9

 

 

Exhibit 10.23

 

 

INDEMNIFICATION AGREEMENT

 

INDEMNIFICATION AGREEMENT (“Agreement”) effective as of December __, 2018, by and between Windtree Therapeutics, Inc., a Delaware corporation (the “Company”), and ______________ (“Indemnitee”).

 

WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company and to do so free from undue concerns for claims or damages arising out of or related to such service to the Company;

 

WHEREAS, the Company and Indemnitee recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited;

 

WHEREAS, in recognition of the need to provide Indemnitee with substantial protection against personal liability, in order to procure Indemnitee’s continued service as a director of the Company and to enhance Indemnitee’s ability to serve the Company in an effective manner, and in order to provide such protection pursuant to express contract rights, the Company wishes to provide for indemnification of, and the advancement of related expenses to, Indemnitee to the maximum extent permitted by law and to track recent developments under Delaware corporate law;

 

WHEREAS, Section 145 of the General Corporation Law of the State of Delaware (the “DGCL”) empowers the Company to indemnify its directors, officers, employees and agents by agreement and to indemnify persons who serve, at the request of the Company, as the directors, officers, employees or agents of other corporations or enterprises, and expressly provides that the indemnification provided by Section 145 is not exclusive; and

 

WHEREAS, the Board of Directors of the Company has determined that not only is it reasonable and prudent but necessary to promote the best interests of the Company and its stockholders that Indemnitee be indemnified and advanced expenses as set forth herein.

 

NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:

 

Section 1.     Certain Definitions.

 

(a)     “Beneficial Owner” has the meaning given to the term “beneficial owner” in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

(b)     “Board” shall mean the Board of Directors of the Company.

 

(c)     “Change in Control” shall mean, and shall be deemed to have occurred if, on or after the date of this Agreement, (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company acting in such capacity or a corporation owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing more than 50% of the total voting power represented by the Company’s then outstanding Voting Securities, (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director whose election by the Board or nomination for election by the Company’s Shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, (iii) a merger or consolidation of the Company is consummated with any other corporation other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 60% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (iv) the Shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of related transactions) all or substantially all of the Company’s assets.

 

 

(d)     “Claim” shall mean with respect to a Covered Event: any loss, damage or liability, or any threatened, pending or completed action, suit, proceeding, arbitration or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, regulatory, investigative or other.

 

(e)     “Covered Event” shall mean any event or occurrence directly or indirectly related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company, or any subsidiary of the Company, or is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, or by reason of any action or inaction on the part of Indemnitee while serving in such capacity.

 

(f)     “Expenses” shall mean any and all reasonable expenses (including attorneys’ and experts’ fees and all other costs, expenses and obligations actually incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, to be a witness in or to participate in, any action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation), judgments, fines, penalties and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) of, or in connection with, any Claim in which Indemnitee is or is threatened to be a party, and any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement. The parties agree that for the purposes of any advancement of Expenses for which Indemnitee has made written demand to the Company in accordance with this Agreement, all Expenses included in such demand that are certified by affidavit of Indemnitee’s counsel as being reasonable shall be presumed conclusively to be reasonable.

 

(g)     “Expense Advance” shall mean a payment to Indemnitee, pursuant to Section 2(e), of Expenses in advance of the settlement of or final judgment of any Claim.

 

 

(h)     “Independent Legal Counsel” shall mean an attorney or firm of attorneys, selected in accordance with Section 3(a), who shall not have otherwise performed services for the Company or Indemnitee within the last three years of the applicable Covered Event (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other Indemnitees under similar indemnity agreements).

 

(i)     References to “other enterprises” shall include employee benefit plans; references to “fines” shall include, without limitation, any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to “serving at the request of the Company” shall include, without limitation, any service as a director, officer, employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or its beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.

 

(j)     “Reviewing Party” shall mean any person or body appointed by the Board pursuant to Section 3(a) and in accordance with applicable law, which shall include (i) a majority of the members of the Board that are not parties to the Claim, (ii) a committee of such members of the Board, (iii) Independent Legal Counsel by way of a written opinion or (iv) the stockholders of the Company.

 

(k)     “Section” refers to a Section of this Agreement unless otherwise indicated.

 

(l)     “Voting Securities” shall mean any securities of the Company of which, the holders of such securities vote generally in the election of directors.

 

Section 2.     Indemnification.

 

(a)     Indemnity in Third Party Proceeding. Subject to Sections 3, 4(a) and 9, to the fullest extent permitted by the laws of the State of Delaware in effect on the date hereof, or as such laws may from time to time hereafter be amended to increase the scope of such permitted indemnification, the Company shall indemnify Indemnitee, if Indemnitee is a party to, or threatened to be made a party to or otherwise involved in any Claim against any and all Expenses actually and reasonably incurred by Indemnitee in connection with such Claim, but only if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal proceeding, had no reasonable cause to believe his conduct was unlawful.

 

(b)     Indemnity in Derivative Actions. The Company shall indemnify Indemnitee if Indemnitee is a party to, or threatened to be made a party to or otherwise involved in any Claim by or in the right of the Company to procure a judgment in its favor against any and all Expenses actually and reasonably incurred by Indemnitee in connection with such Claim, but only if Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, except that no indemnification under this Section 2(b) shall be made in respect of any Claim as to which Indemnitee shall have been finally adjudged to be liable to the Company by a court of competent jurisdiction for gross negligence or willful misconduct in the performance of its duty to the Company, unless and only to the extent that any court in which such claim was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnification for such Expenses as such court shall deem proper.

 

 

(c)     Indemnification as Witness. Notwithstanding any other provisions of this Agreement, to the extent that Indemnitee is involved in any investigative proceeding in connection with Indemnitee’s service to the Company, including but not limited to testifying as a witness or furnishing documents in response to a subpoena or otherwise, Indemnitee shall be indemnified for any and all Expenses actually and reasonably incurred by or for him in connection therewith.

 

(d)     Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any Expenses actually and reasonably incurred by him in connection with a Claim but is not entitled, however, to indemnification for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.

 

(e)     Advancement of Expenses. Subject to Sections 3, 4(a) and 9, Indemnitee shall have the right to Expense Advances by the Company, prior to the final disposition of any Claim by final adjudication to which there are no further rights of appeal, of any and all Expenses. Without limiting the generality or effect of the foregoing, within the applicable time frame as set forth in Section 4(a), the Company shall, in accordance with Indemnitee’s request, (a) pay such Expenses on behalf of Indemnitee, (b) advance to Indemnitee funds in an amount sufficient to pay such Expenses, or (c) reimburse Indemnitee for such Expenses. With respect to each Covered Event, Indemnitee shall execute and deliver to the Company an undertaking (which shall be accepted without reference to Indemnitee’s ability to repay the Expense Advances), in the form attached hereto as Exhibit A, to repay any amounts paid, advanced, or reimbursed by the Company for such Expenses to the extent that it is ultimately determined, following the final disposition of such Claim, that Indemnitee is not entitled to indemnification hereunder. Any request for Expense Advances shall be in writing and shall include documentation in reasonable detail, provided, however, that Indemnitee shall not be required to provide any documentation or information to the extent that the provision thereof would undermine or otherwise jeopardize attorney-client privilege. Indemnitee’s obligation to reimburse the Company for Expense Advances shall be unsecured and no interest shall be charged thereon.

 

(f)     Mandatory Payment of Expenses. Notwithstanding any other provision of this Agreement other than Sections 4(e) and 9, to the extent that Indemnitee has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in defense of any Claim (as to which all rights of appeal therefrom have been exhausted or lapsed), Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in connection therewith.

 

Section 3.     Review.

 

(a)     Selection of Reviewing Party. Within 30 days of receipt of written notice by the Company of Indemnitee’s notice of the existence of a Claim pursuant to Section 4(b), the Board shall appoint a Reviewing Party, the function of which shall be to review the Company’s obligations hereunder or under any other agreement or under the Company’s Certificate of Incorporation or By-Laws as now or hereafter in effect, or under any other applicable law (the “Operative Materials”); provided, however, that if there has been a Change in Control (other than a Change in Control which has been approved by a majority of the directors of the Board who were directors immediately prior to such Change in Control), a majority of the directors of the Board that are not parties to the Claim may direct that the Reviewing Party shall be an Independent Legal Counsel selected by Indemnitee (subject to the last sentence of this Section 3(a)) and approved by the Company (which approval shall not be unreasonably withheld).

 

 

Such Independent Legal Counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee is entitled to be indemnified under the Operative Materials, and the Company hereby agrees to abide by such opinion. The Company agrees to pay the reasonable fees and expenses of the Independent Legal Counsel referred to above and to indemnify fully such Independent Legal Counsel against any and all reasonable expenses (including reasonable attorneys’ fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. Notwithstanding any other provision of this Agreement, the Company shall not be required to pay the fees and expenses of more than one Independent Legal Counsel in connection with all matters concerning a single Indemnitee, and such Independent Legal Counsel shall be the Independent Legal Counsel for any or all other Indemnitees unless (i) the selection of separate counsel by one or more Indemnitees has been previously authorized by the Company in writing, or (ii) an Indemnitee shall have provided to the Company a written statement that such Indemnitee has reasonably concluded in good faith that there may be a conflict of interest between such Indemnitee and the other Indemnitees with respect to the matters arising under this Agreement.

 

(b)     Non-indemnifiable Determination; Repayment Obligation. Notwithstanding anything to the contrary in this Agreement, in the event that (i) any Reviewing Party shall determine that Indemnitee is not entitled to indemnification for Expenses under the Operative Materials or (ii) it shall ultimately be determined in a final, non-appealable judgment that Indemnitee is not entitled to be indemnified by the Company or that Indemnitee did not act in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal proceeding, had no reasonable cause to believe his conduct was lawful or (iii) that the Company is prohibited from indemnifying Indemnitee pursuant to Sections 7 or 9, (x) the Company shall have no further obligation to make any payments to or on behalf of Indemnitee pursuant to this Agreement, and (y) the Company shall as promptly as practicable be reimbursed by Indemnitee for all Expenses and/or Expense Advances theretofore paid to or on behalf of Indemnitee. In furtherance of Indemnitee’s obligation to reimburse the Company pursuant to the immediately preceding sentence, as a condition to the payment of any Expenses and/or Expense Advances, Indemnitee shall provide the Company with reasonable assurance of the repayment of such Expenses and/or Expense Advances including, but not limited to, an indemnity bond, letter-of-credit, secured promissory note, or deposit into an escrow account as shall be required by the Company in its good faith discretion. The cost of any such indemnity bond may be submitted to the Company for an Expense Advance.

 

(c)     Indemnitee’s Right to Challenge Review; Binding Effect. If any Reviewing Party determines that Indemnitee is not entitled to be indemnified hereunder in whole or in part under the Operative Materials, Indemnitee shall have the right to challenge such determination within 90 days of the determination by the Reviewing Party in the Delaware Court (as defined below). In such case, any determination made by any Reviewing Party that Indemnitee is not entitled to indemnification and/or Expense Advances under the Operative Materials shall not be binding, and Indemnitee shall not be required to reimburse the Company for any Expenses and/or Expense Advances theretofore paid to or on behalf of Indemnitee until a final determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Absent such challenge, any determination by any Reviewing Party shall be conclusive and binding on the Company and Indemnitee.

 

 

Section 4.     Procedures for Indemnification and Expense Advances.

 

(a)     Demand for Payment; Timing of Payments. All payments of Expenses (including, without limitation, Expense Advances) by the Company to or on the behalf of Indemnitee pursuant to this Agreement shall be made to the fullest extent permitted by law as soon as practicable after written demand by Indemnitee therefor is presented to the Company, but in no event later than 30 calendar days after such written demand by Indemnitee is presented to the Company, except in the case of Expense Advances, which shall be made no later than 10 business days after such written demand by Indemnitee is presented to the Company.

 

(b)     Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to Indemnitee’s right to be indemnified or to receive Expense Advances under this Agreement, give the Company notice in writing as soon as practicable of any Claim made, or to Indemnitee’s knowledge, threatened against Indemnitee for which indemnification will or could be sought under this Agreement; provided, however, that Indemnitee’s failure to provide notice in connection with such a threatened Claim shall not affect Indemnitee’s right to any such indemnification or Expense Advances unless the Company’s ability to participate in the defense of such claim was materially and adversely affected by such failure. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee), with a copy directed to the General Counsel of the Company. In addition, Indemnitee shall promptly give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee’s power.

 

(c)     Presumptions, Reliance as Safe Harbor. For purposes of this Agreement, and without creating any presumption as to a lack of good faith if the following circumstances do not exist, Indemnitee shall be deemed to have acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company if Indemnitee’s actions or omissions to act are taken in good faith reliance upon the records of the Company, including its financial statements, or upon information, opinions, reports or statements furnished to Indemnitee by the officers or employees of the Company or any of its subsidiaries in the course of their duties, or by committees of the Board or by any other person (including legal counsel, accountants and financial advisors) as to matters Indemnitee reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Company. In addition, the knowledge and/or actions, or failures to act, of any director, officer, agent or employee of the Company shall not be imputed to Indemnitee for purposes of determining the right to indemnity hereunder.

 

(d)     No Other Presumptions; Burden of Proof. For purposes of this Agreement, the termination of any Claim in a manner adverse to Indemnitee, either by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not, by itself, create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that indemnification is not permitted by this Agreement or the Operative Materials, unless there has been a specific finding of fact, conclusion of law or an admission by Indemnitee as part of the termination of such Claim with respect to such standard of conduct, belief or permissibility of indemnification. In addition, neither the failure of any Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by any Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of proceedings by Indemnitee pursuant to Section 3(a) to secure a determination that Indemnitee should be indemnified under this Agreement under the Operative Materials, shall be a defense to Indemnitee’s claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief. In connection with any determination by any Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder under the Operative Materials, the burden of proof shall be on the Company to establish that Indemnitee is not so entitled.

 

 

(e)     Notice to Insurers. If, at the time the Company receives notice of a Claim pursuant to Section 4(b), the Company has liability insurance which may cover such Claim, the Company shall give prompt notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in the applicable policy or policies. The Company shall promptly inform the Indemnitee of material developments affecting the insurance claim, in each case substantially concurrently with the delivery or receipt thereof by the Company. The Company shall thereafter take all necessary or desirable actions to cause such insurers to pay on behalf of Indemnitee, all amounts payable as a result of such Claim in accordance with the terms of such policy or policies.

 

(f)     Selection of Counsel. In the event the Company shall be obligated hereunder to provide indemnification for, or make any Expense Advances with respect to, any Claim, the Company, if appropriate, shall be entitled to assume the defense of such Claim with counsel approved by Indemnitee (which approval shall not be unreasonably withheld) upon the delivery to Indemnitee of written notice of the Company’s election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees or expenses of separate counsel subsequently retained by or on behalf of Indemnitee with respect to the same Claim; provided, that (i) Indemnitee shall have the right to employ separate counsel for any such Claim at Indemnitee’s expense and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded, and has provided the Company with the written opinion of counsel reasonably acceptable to the Company to the effect, that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (C) the Company shall not continue to retain counsel to defend such Claim, then the reasonable fees and expenses of Indemnitee’s separate counsel shall be Expenses for which Indemnitee may receive indemnification and/or Expense Advances hereunder.

 

(g)     Expenses Incurred in Action Relating to Enforcement or Interpretation. In the event that any action is instituted by Indemnitee under this Agreement including, but not limited to, a proceeding described in Sections 3 or 8 or under any liability insurance policies maintained by the Company, to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be indemnified for all Expenses actually and reasonably incurred by Indemnitee with respect to such action only if Indemnitee is ultimately successful in any such action; provided, however, that until such final determination is made, Indemnitee shall be entitled to receive payment of Expense Advances hereunder (and may be obligated to repay such Expense Advances) with respect to such action as provided in, and subject to, Section 2(e). In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be indemnified for all Expenses incurred by Indemnitee in defense of such action (including, without limitation, reasonable costs and expenses incurred with respect to Indemnitee’s counterclaims and cross-claims made in such action) only if Indemnitee is ultimately successful in any such action; provided, however, that until a final determination is made in such action, Indemnitee shall be entitled to receive payment of Expense Advances hereunder (and may be obligated to repay such Expense Advances) with respect to such action as provided in Section 2(e).

 

Section 5.     Additional Indemnification Rights; Nonexclusivity.

 

(a)     Scope. The Company hereby agrees to indemnify Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification may not be specifically authorized by the Operative Materials. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a director, officer, employee, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a director, officer, employee, agent or fiduciary, Indemnitee’s rights hereunder shall be narrowed accordingly, but only to the extent required by such law, statute or rule, and otherwise shall have no effect on this Agreement or the parties’ rights and obligations hereunder.

 

(b)     Nonexclusivity. The indemnification and the payment of Expense Advances provided by this Agreement shall be in addition to any rights to which Indemnitee may be entitled under the Company’s Certificate of Incorporation, its Bylaws, any other agreement, any vote of shareholders or disinterested directors, the DGCL or otherwise (collectively, the “Other Indemnity Provisions”); provided, however, that (a) to the extent that Indemnitee otherwise would have any greater right to indemnification under any Other Indemnity Provision, Indemnitee will be deemed to have such greater right hereunder and (b) to the extent that any change is made to any Other Indemnity Provision which permits any greater right to indemnification than that provided under this Agreement as of the date hereof, Indemnitee will be deemed to have such greater right hereunder.

 

 

Section 6.    No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, provision of the Company’s Restated Certificate of Incorporation, Bylaws or otherwise) of the amounts otherwise payable hereunder.

 

Section 7.     Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that in certain instances, federal law or applicable public policy may prohibit the Company from indemnifying its directors, officers, employees, agents or fiduciaries under this Agreement or otherwise. Indemnitee acknowledges that the Company has undertaken, or, in the future, the Securities and Exchange Commission (the “Commission”) may require the Company to undertake, to submit the question of indemnification to a court in certain circumstances for a determination of the Company’s right under public policy to indemnify Indemnitee. Indemnitee acknowledges and agrees that if, and to the extent that, indemnification is so prohibited in the written opinion of counsel to the Company, then the Company shall be relieved from any obligation that would cause the Company to violate any such laws or policies.

 

Section 8.     Liability Insurance. To the extent the Company maintains liability insurance applicable to directors, officers, employees, agents or fiduciaries, Indemnitee shall be covered by such policies in such a manner as to provide Indemnitee the same rights and benefits as are provided to the most favorably insured of the Company’s directors, if Indemnitee is a director; or of the Company’s officers, if Indemnitee is not a director of the Company but is an officer; or of the Company’s key employees, agents or fiduciaries, if Indemnitee is not an officer or director but is a key employee, agent or fiduciary.

 

Section 9.     Exceptions. Notwithstanding any other provision of this Agreement, the Company shall not be obligated pursuant to the terms of this Agreement:

 

(a)     Excluded Action or Omissions. To indemnify or make Expense Advances to Indemnitee with respect to Claims arising out of acts, omissions or transactions for which Indemnitee is prohibited from receiving indemnification under applicable law.

 

(b)     Claims Initiated by Indemnitee. To indemnify or make Expense Advances to Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee including any proceedings against the Company or its directors, officers, employees or other indemnitees and not by way of defense, counterclaim or cross-claim, except (i) with respect to actions or proceedings brought pursuant to Section 3(c) to establish or enforce a right to indemnification or Expense Advances under this Agreement or any other agreement or insurance policy or under the Company’s Restated Certificate of Incorporation or Bylaws now or hereafter in effect relating to Claims for Covered Events, (ii) in specific cases if the Board has approved the initiation or bringing of such Claim or (iii) as otherwise required under Section 145 of the DGCL.

 

(c)     Claims under Section 16(b). To indemnify Indemnitee for Expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Exchange Act, or any similar successor statute.

 

(d)     Clawbacks. To indemnify or advance funds to Indemnitee for Indemnitee’s reimbursement to the Company of any bonus or other incentive-based or equity-based compensation previously received by Indemnitee or payment of any profits realized by Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act or under the rules of the stock exchange where the Company’s common stock is listed (including any such reimbursements under Section 304 of the Sarbanes-Oxley Act of 2002 in connection with an accounting restatement of the Company or the payment to the Company of profits arising from the purchase or sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act).

 

 

Section 10.     Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original.

 

Section 11.     Binding Effect; Successors and Assigns. This Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), spouses, heirs and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect, and whether by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as a director, officer, employee, agent or fiduciary (as applicable) of the Company or of any other enterprise at the Company’s request, as provided in §23 hereof.

 

Section 12.     Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee’s estate, spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.

 

Section 13.     Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and signed for by the party addressed, on the date of such delivery, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice.

 

Section 14.     Consent to Jurisdiction. The Company and Indemnitee hereby irrevocably and unconditionally: (a) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Court of Chancery of the State of Delaware (the “Delaware Court”) and not in any other state or federal court in the United States, (b) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, and (c) waive, and agree not to plead or make, any claim that the Delaware Court lacks venue or that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum..

 

 

Section 15.     Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

 

Section 16.     Choice of Law. This Agreement, and all rights, remedies, liabilities, powers and duties of the parties to this Agreement, shall be governed by and construed in accordance with the laws of the State of Delaware as applied to contracts between Delaware residents entered into and to be performed entirely in the State of Delaware without regard to principles of conflicts of laws of such State.

 

Section 17.     Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.

 

Section 18.     Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed to be or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver.

 

Section 19.     Integration and Entire Agreement. This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto.

 

Section 20.     No Construction as Employment Agreement. This Agreement shall not be deemed an employment agreement between the Company (or any of its subsidiaries or other enterprises) and Indemnitee. Indemnitee specifically acknowledges that his service to the Company or any of its subsidiaries is at will and Indemnitee may be discharged at any time for any reason, with or without cause, except as may be otherwise provided in any written employment agreement between Indemnitee and the Company (or any of its subsidiaries), other applicable formal severance policies duly adopted by the Board or, with respect to service as a director or officer of the Company, by the the Company’s Certificate of Incorporation, its Bylaws or Delaware law.

 

Section 21.     Right to Set-Off. In the event that the Company is obligated to make any payment to Indemnitee (other than Expense Advances) pursuant to this Agreement and Indemnitee is indebted to the Company for any reason whatsoever, the Company may set-off from such payments any amount owed to the Company.

 

 

Section 22.     Duration. All agreements and obligations of the Company contained herein shall continue during the period that Indemnitee is a director or officer of the Company and shall continue thereafter (i) so long as Indemnitee may be subject to any possible Claim relating to a Covered Event (including any rights of appeal thereto) and (ii) throughout the pendency of any proceeding (including any rights of appeal thereto) commenced by Indemnitee to enforce or interpret his or her rights under this Agreement, even if, in either case, he or she may have ceased to serve in such capacity at the time of any such Claim or proceeding.

 

(SIGNATURE PAGE FOLLOWS)

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement as of the date first above written.

 

WINDTREE THERAPEUTICS, INC.

 

By:_____________________________

Name:

Title:

 

INDEMNITEE:

 

________________________________

 

 

 

 

EXHIBIT A

 

FORM OF UNDERTAKING TO REPAY ADVANCEMENT OF EXPENSES

 

[DATE]

[OFFICER(S) TO WHOM NOTICE IS DELIVERED]

[COMPANY]

[ADDRESS]

[CITY], [STATE] [ZIP CODE]

 

Re: Undertaking to Repay Advancement of Expenses.

 

[Ladies and Gentlemen/Dear [ADDRESSEE]]:

 

This undertaking is being provided pursuant to that certain Indemnification Agreement, dated [DATE], by and between Windtree Therapeutics, Inc., a Delaware corporation (the “Company”), and the undersigned as Indemnitee (the “Indemnification Agreement”). Terms used herein and not otherwise defined shall have the meanings ascribed to them in the Indemnification Agreement. Pursuant to the Indemnification Agreement, among other things, I am entitled to the advancement of Expenses paid or incurred in connection with Claims relating to Indemnifiable Events.

 

I have become subject to [DESCRIPTION OF PROCEEDING] (the Proceeding) based on [my status as [an officer/[TITLE OF OFFICER]/a director] of the Company/alleged actions or failures to act in my capacity as [an officer/[TITLE OF OFFICER]/a director] of the Company. [This undertaking also constitutes notice to the Company of the Proceeding pursuant to Section 4(b) of the Indemnification Agreement].] The following is a brief description of the [current status of the] Proceeding:

 

[DESCRIPTION OF PROCEEDING]

 

[Pursuant to Section Section 4(b) of the Indemnification Agreement, the Company can (a) pay such Expenses on my behalf, (b) advance funds in an amount sufficient to pay such Expenses, or (c) reimburse me for such Expenses. Pursuant to Section 4(b) of the Indemnification Agreement, I hereby request an Expense Advance in connection with the Proceeding. The Expenses for which advances are requested are as follows:]

 

[DESCRIPTION OF EXPENSES]

 

[In connection with the request for Expense Advances [set out above/delivered to the Company separately on [DATE]],] I hereby undertake to repay any amounts paid, advanced or reimbursed by the Company for such Expense Advances to the extent that it is ultimately determined that I am not entitled to indemnification [under the Indemnification Agreement].

 

 

This undertaking shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the principles of conflicts of laws thereof.

 

[SIGNATURE PAGE FOLLOWS]

	Very truly yours,
	______________________________ Name: [Title:]

 

[cc: [ADD PARTY NAME AND ADDRESS AS REQUIRED]]

 

 

14

 

 

General Loan Agreement

 

 

 

Borrower:      CVie Therapeutics Limited

 

Guarantor:      Lee’s Pharmaceutical Holdings Limited

 

 

 

 

 

 

 

 

 

 

 

CP 114 107.01

 

 

 

 

O-BANK CO., LTD. Notice complying with Section 1of the Article 8 of the Personal Information Protection Act

 

Dear client,

 

As the collection of personal information involves your privacy rights, O-BANK CO., LTD. (the “Bank”), hereby specifically notifies you the following, upon the collection of personal information, pursuant to Section 1 of Article 8 of the Personal Information Protection act (the “PIPA”):

 

1.	Please find the information on the purpose of collecting of personal information, classification of personal information collected and the time period, area, target and way of use involved in using the personal information collected below for your review:

 

(1) Purpose of collection: For purposes consistent with the business items registered by the Bank or other special purposes for conducting the type of business as permitted by law

 

(2) Categories of personal information collected: Name, ID number, gender, date of birth, contact information, and other information detailed in the application form or contract and shall be based on information collected via business dealings with the client with the Bank, accounts or services and those obtained from the client or third parties (for example: Financial Joint Credit Information Center).

 

(3) Time period: The duration of the existence of the special purpose, and the period in according with the relevant laws (for example: financial accounting laws, anti-money laundry act etc.) or the necessary period of time to conduct the business appropriately or the time period stipulated in contractual agreements (whichever is longer)

 

(4) Location: The location of the personnel listed below, in Taiwan and abroad.

 

(5) Personnel: The Bank (including other branches of the Bank domestically or overseas) and affiliated entities and those providing services upon the requests of the Bank, third parties with a cooperation relationship with the Bank, interacting financial institutions, institutes accessing the information under law, other institutes with business relevant to the Bank’s businesses (for example: correspondent bank, Financial Joint Credit Information Center, National Credit Card Center of R.O.C., Taiwan clearing house, Financial Information Service Co., Ltd., credit guarantee institutes, credit cards international association, acquiring institutions and cooperative stores etc.), agencies with investigation rights as authorized by law, financial supervisory institutes, Financial Ombudsman Institution, other persons contemplating to sell or purchase the assets or liabilities to or from the Bank or undertaking risks or commence a merger or acquisition (if any), and other parties with the consent of the client (such as parties to which the Bank collaborates in marketing or cross referencing the client’s information, and parties with which the Bank jointly collaborates in promoting businesses etc.).

 

 

(6) Methods: Automatic or non-automatic usage methods in accordance to personal information protection laws.

 

2.	Pursuant to Article 3 of the PIPA, you may reserve the following rights in respect of your personal information collected by the Bank:

 

(1)

Except the situations stated in Article 10 of the PIPA, making inquiries, requesting to review, or asking for a duplication of personal information from the Bank, and the Bank may charge a reasonable and necessary fee pursuant to Article 14 of the PIPA.

 

(2)

Requesting the Bank to supplement or correct provided that you should make an appropriate explanation pursuant to Article 19 of the Title Enforcement Rules of the PIPA.

 

(3)

In the event that the Bank contravenes the PIPA in collecting, processing or using your personal information, pursuant to Section 4 of Article 11 of the PIPA, you may request the Bank to delete or cease collecting, processing or using your personal information pursuant to Section 2 of Article 11 of the PIPA.

 

(4)

Pursuant to Section 2 of Article of the PIPA, in the event of controversy arising in relation to the accuracy of the personal information, you may request the Bank to cease processing or using your personal information, except that it is necessary for the Bank to conduct its business and the Bank has recorded the controversy or there is written consent from you pursuant to the proviso of Section 2 of Article of the PIPA.

 

(5)

Pursuant to Section 3 of Article 11 of the PIPA, you may request the Bank to delete, cease processing or using your information after the specific purpose of collecting personal information vanishes or the deadline expires, except that it is necessary for the Bank to conduct its business or there is written consent from the you pursuant to the proviso of Section 3 of Article 11 of the PIPA.

 

3.	If you would like to exercise the foregoing rights indicated in Article 3 of the PIPA, you may inquire the Bank (02-87527000) or go to the official website (http://www.o-bank.com) for information on how to exercise your rights.

 

4.

You may freely choose whether or not to provide relevant personal information and the classification of such information; however, if the information or classification of such information you refuse to provide is necessary for information reviews or required for the business of the Bank, the Bank may therefore not be able to provide the relevant services or provide better quality of the service. Thank you for your understanding.

 

 

 

 

 

Attachment

Category of Service	Service designated purpose and code	Common designated purpose and code
1.Saving and deposits	022 foreign exchange transfer service; 036 saving and deposits service; 067 credit card, savings card, transfer card and electronic ticket service; 082 borrowing/savings accounts general management service; 112 negotiable instruments exchange service; 181 other services compliant to registered services or in accordance to the Charter	040 marketing; 059 collection and usage required by laws and authority regulation of the financial service industry; 060 financial dispute handling; 061 financial supervision, management and inspection ; 063 collection, processing and usage of personal information by non-public institute according to the law; 069 management of contracts, quasi-contracts or other legal relations; 090 consumer-client management and services; 091 consumer protection; 098 commercial and technology information ; 104 accounts management and debt claim exchange service; 136 information (communication) and data management ; 137infromation and communication safety and management; 157 investigation , statistics and report analysis; 182 other consulting and counsel services
2.Credit service	022 foreign currency transfer service; 067 credit card, savings card, transfer card and electronic ticket service; 082 borrowing/savings accounts general management service; 088 confirmation of loans and credit service; 106 credit service; 111 ticket service; 126 debt claim discount and purchase service; 154 credit check service; 181 other services compliant to registered services or in accordance to the Charter
3.Foreign exchange	022 foreign exchange transfer service; 036 saving and deposits service; 082 borrowing/savings accounts general management service; 088 confirmation of loans and credit service; 106 credit service; 154 credit check service; 181 other services compliant to registered services or in accordance to the Charter
4.Marketable securities business	037 registration of marketable securities and holders; 044 investment management; 082 general management of debtor and saving accounts; 088 loan approval and credit service; 106 credit service; 111 ticket service; 154 credit checks; 166 securities, futures, securities trust and advice related service; 181 other services compliant to registered services or in accordance to the Charter
5.Credit card service	022 foreign exchange; 067 credit card, savings card, transfer card and electronic ticket service; 082 borrowing/savings accounts general management service; 088 confirmation of loans and credit service; 106 credit service; 154 credit checks; 181 other services compliant to registered services or in accordance to the Charter
6.Asset management	022 foreign exchange transfer service; 036 saving and deposits service; 044 investment management; 068 trust service; 082 general management of debtor and saving accounts; 094 assets management; 166 securities, futures, securities trust and advice related service; 181 other services compliant to registered services or in accordance to the Charter
7.Insurance agent service	001 life insurance; 065 insurance broker, agent, notary service; 066 insurance supervision; 093 property insurance; 181 other services compliant to registered services or in accordance to the Charter
8.Other services compliant to the registered service or the Charter of the organization, or other relevant services authorized by the governing authority.	181 other services compliant to registered services or in accordance to the Charter: Safe deposit box business, gold passbook business, electronic finance business, agency collection and payment business, agency sales commemorative coin business, cooperative promotion business

 

 

 

 

 

 

General Loan Agreement

 

Borrower: CVie Therapeutics Limited (“the Borrower”), together with the joint guarantor Lee’s Pharmaceutical Holdings Limited (“the Guarantor”), and O-BANK CO., LTD. (including the head office and its branch offices in the Republic of China) (the “Bank”) agree to execute this general loan agreement (this “Agreement” or this “Contract”) for the credit facility up to NT$180,000,000, with the Borrower and the Guarantor being held jointly liable to repay all debts in full, for the Borrower to, in a revolving manner, via a single or multiple drawdowns when conducting credit or derivative product transactions with the Bank. Within the facility limit, the Borrower and the Guarantor agree to the following:

 

(1)

The form, requirements and other contents of the facility limit may be confirmed between the Bank and the Borrower. The credit guarantee shall constitute a part of this Agreement and be binding on the Borrower and the Guarantor. Any matters specially set forth in the confirmation documents (including other additional amendments signed according to the terms in the confirmation documents) shall be deemed the special terms and conditions of this Agreement and shall take priority in their application. For other matters not designated in the confirmation documents, the provisions in this Agreement shall apply.

 

(2)

For every individual credit issuance and exchange transaction, the Borrower and the Guarantor should, in accordance with the Bank’s requirements, execute related contracts, applications or other documents. If the matter requires a guarantee, the Borrower and the Guarantor should, in accordance with the Agreement, provide the Bank with the collateral, execute documents and complete registration according to the relevant law.

 

Chapter 1 General Provisions

 

1.	Total Facility Amount

 

The total facility amount is the highest limit of the total amount of all credits and derivative products that the Bank will issue to the Borrower for the stated credit purpose. The individual amount is determined by the Bank based on the Borrower’s needs and credit situation. The Borrower may, according to this Agreement, use it once, multiple times or in a revolving manner. The sum of each individual amount may exceed the total amount, however, if the Borrower draws an amount that exceeds the total amount when combined with the previously withdrawn amounts, the drawdown will be limited even if such individual withdrawal may not have exceeded the drawdown limit of a single withdrawal. The Borrower shall only draw within the limit of both the individual withdrawal limit and the total facility limit.

 

 

When the drawdown amount involves foreign currencies, the conversion rate will be that of the Bank at the time of such drawdown. If the drawdown amount by the Borrower under this Agreement exceeds the total facility limit due to changes in the conversion rate, the excess amount will remain the joint liability for the Borrower and the Guarantor to repay.

 

2.	Scope of debts

 

Debts or all debts under this Agreement shall mean any negotiable instruments, loan, guarantee, advance, overdraft, discount, acceptance, appointment guarantee, letter of credit, export bill, accounts receivable (financing), derivative commodity trading and all other debts arising from transactions based on basic legal relation when conducting business with the Bank including interest, penalty interest, contract penalty, damages and other related fees.

 

3.	Maximum Guarantee

 

The Guarantor’s guarantee is a continuous guarantee of the debts and is jointly responsible for the maximum facility amount. The scope of the guarantee includes the debt of the Borrower owed to the Bank at the current time (including those debts incurred in the past that have not been repaid) and in the future in the form of a debt, bill, advance, guarantee, acceptance, overdraft, discount, appointment guarantee, letter of credit, export bills, accounts receivable (financing), derivative product transactions and all other debts arising from the transactions based on the basic legal relation when conducting business with the Bank including interest, delayed interest, penalties, damages and other related fees, and other indebtedness subordinate to the main debt liability. The Guarantor agrees to be held jointly liable to repay all debts.

 

The Guarantor shall notify the Bank of the termination of the guarantee liability under this Agreement in writing or other methods of communication with which the Bank can retain such notice. The termination will become effective on the next business day after the day on which the Bank receives such notice; provided, however, the Guarantor shall continue to be liable for all the guarantee debts incurred before such termination notice takes effect.

 

 

4.	Joint debt

 

(If the Borrower is more than one person) In the event that the Borrower and the other Borrowers jointly issue to the Bank to jointly borrow a loan, the Bank shall only pay to one Borrower and by doing so, the Bank shall be deemed to have provided the loan to all Borrowers. All Borrowers hereby acknowledge and accept such loan as its own and shall be held jointly liable for repayment of the debt.

 

5.	Notice of change and delivery of documents

 

The Borrower and the Guarantor agree to immediately inform the Bank in writing and perfect any procedural requirements if a change occurs to the name, organization, contents of the Articles of Incorporation, personal stamp, representative, scope of rights of the representative and notification address, and all other matters that may relate to the exercise of its right by the Bank. Failure to so notify will subject the Borrower and the Guarantor to be jointly responsible for any transaction prior to the aforementioned undertaking is completed and shall further be held responsible for any and all damages caused to the Bank resulting therefrom. If notices cannot be delivered due to a failure on part of the Borrower and the Guarantor to comply with the foregoing or for any reason attributable to the fault of the Borrower and the Guarantor, the notice shall be deemed to have been successfully delivered within the ordinary delivery period.

 

6.

Interest

 

The interest rate will be calculated based on the agreement of individual issuance of credit; if not agreed therein, the interest rate will be calculated based on the Bank’s benchmark lending interest rate + 4% per annum.

 

The previous interest rate can be changed by the Bank at any time by changing its benchmark lending interest rate or agreed interest rate, no further notice is required. Unless otherwise provided, interest is to be paid monthly.

 

In the event the interest is delayed for one year and no repayment is made after the Bank’s notice of the same, the Bank can add the penalty interest into the principal amount of loan.

 

7.	Delay interest and penalty

 

When the Borrower delays in repaying the principal sum or interest or any advances made by the Bank for guarantee, bill of exchange acceptance or other reasons, in addition to calculating the delay interest based on the original loan interest rate (or if no loan interest rate was agreed, then the benchmark interest rate of the Bank on the day of the advance + 4%), penalties shall be calculated as follows: for the delayed amount within six months, penalty is calculated by such delayed amount times 10% of the original loan interest rate (or if no loan interest rate was agreed, then the benchmark interest rate of the Bank on the day of the advance + 4%); for the delayed amount exceeding six months, penalty is calculated by the delayed amount times 20% of the original loan interest rate (or if no loan interest rate was agreed, then the benchmark interest rate of the Bank on the day of the advance + 4%).

 

 

When the delay or advance in the previous section is in foreign currency, unless otherwise stated, delay interest should be calculated with the original loan interest rate (or the foreign currency loan capital cost on the day of the advance + 4%). Additionally, penalties are calculated as follows: for the delayed amount within six months, penalty is calculated by the delayed amount times 10% of the original loan interest rate (or the foreign currency loan capital cost of the Bank on the day of the advance + 4%); for the delayed amount exceeding six months, penalty is calculated by the delayed amount times 20% of the original loan interest rate (or the foreign currency loan capital cost of the Bank on the day of the advance + 4%).

 

When the Borrower’s interest of multiple debts or delay interest contain different interest rates, the Borrower and the Guarantor agree for the Bank to use the highest interest rate as the rate for the promissory notes when exercising the rights to the promissory notes of the Borrower and the Guarantor.

 

8.	Authorization relating to withholding

 

The Borrower, in order to conveniently repay the transactions with the Bank, including but not limited to credit issuance, foreign exchange credit, foreign exchange transactions, derivative products, and their related settlement principal amount, interest, handling fees or delay interest, penalties and other fees, and foreign exchange import/export withholding, foreign currency deposit, foreign currency export/import fee, clean bill, letter of credit notice, letter of credit transfer services together with their handling fees, postage fees and all other fees, hereby authorizes the Bank to access the funds from the NT dollar and the foreign currency account _____________________ set up by the Borrower at the Bank and transfer the funds for payment purposes, in accordance with the following rules:

 

(1)

The Bank has the right to access and transfer funds from the account without the Borrower’s passbook, withdrawal slip or promissory notes/check signed by the Borrower. In the case of insufficient fund in which disputes with third parties arise, the Borrower shall be fully liable and the Bank is free of any liability. In that case, the Borrower should provide relevant certificates to the Bank as soon as possible for the Bank to re-issue documents to access the account.

 

 

(2)

The necessary procedures relating to credit issuance and other services should be carried out by the Borrower in accordance with the ordinary rules; the Borrower shall not use such authorization as an excuse for non-compliance to the procedural rules; otherwise, the Borrower shall be held solely liable.

 

(3)

If the designated account is agreed to be the NT dollar account and the original currency for transfer is a foreign currency, the Borrower agrees to authorize the Bank to convert to NT dollars based on the conversion rate of the date of transfer, before transferring and deducting the funds from the designated account.

 

(4)

Although authorized to access and transfer funds, the Bank is not liable to make payments on behalf of the Borrower by transferring funds from the designated account. If the Bank determines that there is a need or a dispute, or the necessary procedures for business transactions are incomplete, or the funds are insufficient etc., the Borrower shall immediately go to the Bank and take all necessary actions upon being notified by the Bank.

 

9.	Reserve Account Authorization

 

The Borrower agrees that the Bank will open a demand deposit account (reserve) account number _____ in the name of the Borrower and authorizes the Bank to withdraw with a withdrawal slip from the account by any of the officers of the Bank with the authorization to sign such withdrawal slip in order to offset all debts owed by the Borrower to the Bank, or to transfer funds to other deposit accounts held by the Borrower at the Bank (except check deposit accounts).

 

When funds are transferred by the Bank in accordance with the preceding paragraph, the Borrower fully acknowledges the transfer and that the balance of the deposit in the account is the actual balance recorded by the Bank. The Borrower has no objection in relation to the account balance.

 

 

10.	Debt offset

 

When the Borrower owes multiples debts to the Bank, if the payments offered by the liquidator or the proceeds from liquidating the assets or collateral of the Borrower are insufficient to fully repay the debts owed by the Borrower and the Guarantor, the debts shall be offset pursuant to the rules under Articles 321 and 322 of the Civil Code.

 

The payments offered by the liquidator or the proceeds from liquidating the assets or collateral of the Borrower should offset debts in the following order: fees, penalties, interest and principal. Only when the Bank deems necessary, the offset order may be changed to fees, interest, principal and penalties.

 

The Borrower and the Guarantor agree that the Bank can offset the collateral insurance fee when necessary.

 

11.	Acceleration clause

 

The Bank has the right to immediately cease or reduce the credit line issued to the Borrower, or shorten the loan period, or deem all principal and interest due, if one of the following occurs in relation to the debts owed by the Borrower to the Bank:

 

(1)

When the Borrower fails to repay the debt or to amortize principal in accordance with its agreements, or refuse to honor or make payments when due for any of its debts to the Bank or to any financial institution;

 

(2)

When applying for settlement under the bankruptcy law, voluntary or involuntary bankruptcy, voluntary or involuntary restructuring of the company or being refused by the Taiwan clearing house, closing of business or liquidating debts;

 

(3)

When failing to provide guarantee as originally agreed;

 

(4)

Upon the death of the Borrower and the heir disclaims inheritance;

 

(5)

When a criminal sentence is issued and the majority of assets have been confiscated;

 

(6)

When the Borrower, the Guarantor, the representative of the Borrower or the Guarantor, actual beneficiary, or those exercising control over the Borrower or the Guarantor is found to be subject to economic sanctions, or be deemed or investigated terrorist or organization by foreign governmental or international anti-money laundering organization, or is found to be on the list of sanctions announced by the Ministry of Justice of the Republic of China;

 

 

(7)

When the Borrower fails to pay for the interest of any debt owed to the Bank or any financial institution;

 

(8)

When any collateral are sealed or lost or reduced in value, or due to the deteriorated financial status of the issuing company of the collateral, situations involving insufficient security, poor credit of the Guarantor or termination of guarantee, and failure to replace the collateral or failure of the Guarantor to repay part of principal after being requested by the Bank to do so;

 

(9)

In relation to the debt owed by the Borrower, when the actual use of funds differs from the purpose approved by the Bank or the business, credit, assets have adverse changes that may detrimentally affect the credit claim of the Bank;

 

(10)

When subject to compulsory execution, provisional attachment, provisional injunction or other preservation, exposing the Bank to the risk of not being able to be repaid;

 

(11)

When the Borrower is found to be dishonest or withholding information or conducting other acts not in good faith in its statements of facts or in its provision of documents during its correspondence with the Bank;

 

(12)

When the Borrower or the Guarantor do not cooperate with the inspection, refuse to provide information related to the actual beneficiary of the Borrower or the Guarantor or the person exercising control, or refuse to cooperate in explaining the actual nature and purpose of the transaction or the source of funds;

 

(13)

When the Borrower fails to comply with the commitment to maintain certain standards of financial status during the loan period, or other covenants or undertakings stated in the transaction documents with the Bank.

 

For situations stipulated in the clauses (1)-(6) above, the Bank does not need to give prior notice or provide a grace period for remedying the situation; for situations stipulated in clauses (7)-(13) above, the Bank shall give notice or provide a grace period for remedying the situation.

 

Confirmation by the Borrower and the Guarantor: (signature and stamp)

 

 

12.	Breach of contract

 

In the event of a breach of contract stipulated in this Agreement, the Borrower shall continue to comply with the terms of this Agreement and agreed to the following:

 

(1)

The Borrower should in accordance to the requirements of the Bank immediately repay all debts, their interest and related fees.

 

(2)

For the Borrower’s guarantee or provision of security, or letter of credit, acceptance of bill, guarantee or other means of financing to a third party issued by the Bank for the Borrower, the Bank has the right (but shall have no obligation) to demand part or all such debts to be repaid before the maturity of such debts. The Borrower shall immediately repay all amounts advanced by the Bank and the delay interest and penalty incurred between the date of the advance made and the date of repayment calculated in accordance to this Agreement.

 

(3)

The Bank is also entitled to notify the Borrower to immediately deposit an amount equal to the unpaid debts in the manner requested by the Bank to an account with the Bank as guarantee. The Bank is entitled to use such guarantee amount to repay or make early repayments of any and all unpaid debts of the Borrower. If the amount of such guarantee is insufficient to pay or make early repayments of the debts, the Borrower shall pay the Bank the difference to enable the Bank to repay all debts when due or to make early repayment of all debts and interest; if there is excess after repaying all debts owed by the Borrower to the Bank or if all the debt obligations are discharged, the excess amount should be returned to the Borrower.

 

(4)

The Bank may execute and dispose any and all collateral, request payments under promissory notes and use other lawful means to enforce its debt collection against the Borrower and the Guarantor pursuant to the laws and this Agreement.

 

13.	Exercise of the Set-off Right of Undue Debts

 

The Borrower and the Guarantor agree for the Bank to exercise the right of set-off before the maturity of the debts over all deposits of the Borrower and the Guarantor at the Bank and all credit rights against the Bank when the Borrower fails to perform the debts obligations owed to the Bank regardless of the nature and duration of the debts; provided that no law or agreed term prohibits such set-off right or no payment is required to be made by the Bank to the Borrower and the Guarantor as per the transactional relation of a third party or of management. If the Borrower and the Guarantor have other properties stored at the Bank, the Bank shall also have the right to claim retention or set-off of the same.

 

 

The Borrower and the Guarantor understand and agree that the check deposit agreement signed between the Borrower and the Guarantor and the Bank may be terminated upon the occurrence of any breach of any deeds entered into between the Borrower, the Guarantor and the Bank and upon an acceleration by the Bank according to the terms and conditions agreed. Upon a satisfaction of the conditions to terminate, the aforementioned check deposit agreement will be rendered null and void and the Bank shall have the right to offset the amount payable, and will notify the Borrower and the Guarantor of the result of such offset.

 

The aforementioned set-off right shall be effective when an amount is deducted from the account. All deposit slips, books, checks or other certificates issued by the Bank to the Borrower and the Guarantor shall be invalid within the scope of such offset.

 

14.	Replacement of Guarantor

 

If based on the specific facts (or Article 11 Acceleration Clause in the General Provisions section of this Agreement), the Bank considers that the Guarantor's credit is poor and finds a need to replace the Guarantor, the Borrower will immediately act in accordance with the notice of the Bank. The original Guarantor, irrespective of one or several persons, shall be replaced after the new Guarantor has signed the guarantee agreement with the consent of the Bank. However, if it is agreed that the new Guarantor shall not be held responsible for the guarantee of the debts that has occurred before the replacement, the original Guarantor’s guarantee responsibility shall not be discharged until the liability for those debts occurred before the replacement date is fully discharged and the required procedures are completed.

 

15.	Supervision, Audit, Inspection and Information Provision

 

The Borrower and the Guarantor agree to accept the Bank’s supervision of the loan use, the audit of the business finance, and the inspection of the relevant book and accounts (including consolidated financial statements), receipts and documents. However, the Bank has no obligation to supervise, audit or review. The Bank is also entitled to require the Borrower and the Guarantor to provide credit information or provide the financial statements of the independent and impartial accountant's certification for review. If the Bank has doubts in relation to the contents of the financial statements and the Borrower or the Guarantor fails to provide a reasonable explanation, the Borrower or the Guarantor is requested to contact the accountant to provide the working paper at the request of the Bank. The Borrower or the Guarantor is also willing to urge the accountant to send a copy of the financial statement previously reviewed to the Joint Credit Information Center. In the event the Bank determines that the financial structure of the Borrower or Guarantor should be improved, the Borrower or Guarantor agrees to adopt such opinion to improve its financial structure. The Bank may inspect or preserve the collateral provided by the Borrower or the person providing collateral for business needs or to ensure its rights over the collateral.

 

 

16.	Collection, Processing and Utilization of Information

 

The Borrower and the Guarantor agree that the Bank may, for the purpose of understanding the Borrower’s and the Guarantor's credit, for the determination of the loan and for other specific purpose within the scope of the business registration items or the business needs as set forth in the charter, access relevant general information, financial information, deposit information, exchange information, credit transaction data, credit investigation report data, credit related materials, bill credit information, customs declaration materials and other information of the Borrower and the Guarantor and other credit information related to this Agreement, and provide to the Bank itself, other banks, Joint Credit Information Centre, Financial Information Co., Ltd., Taiwan Clearing House, Credit Guarantee Agency, Entrusted External Appraisal Agency, and other institutions designated by the Financial Supervisory Commission and other agencies and persons appointed by the Bank to collect, process and use (including international transmission). The Bank may also inquire / collect information related to the Borrower and the Guarantor (including customs declaration information). The above information is based on the actual collection of information through the relevant business, account or service with the Bank or from the Borrower, the Guarantor or third parties.

 

The Borrower and the Guarantor agree that for the specific purpose of the creditor's right, information may be provided to the creditor, credit auditor, credit checker and government agencies. The Borrower and the Guarantor agree that, in accordance with the terms of this Agreement and other relevant deeds, the Bank may entrust a third party to handle the collection business.

 

The first three items shall be provided and utilized on the basis that the Bank will require the user of the data to comply with the confidentiality provisions of the Banking Law, the Personal Information Protection Act and other relevant laws and regulations, and shall not disclose such relevant information to a third party.

 

 

17.	Recognition of defects, damages or loss of bills and borrowings and alike

 

When the signed, endorsed, accepted or guaranteed bill, receipt issued by the Borrower and the Guarantor or the debt certificate to the Bank is damaged or lost, or such debt certificate is altered and there is no negligence on part of the Bank, the Borrower and the Guarantor are willing to acknowledge the books, receipts, documents produced by computers, the photocopies of correspondence documents and the resized documents held by the Bank, and will pay the expenses, penalties and principal and interest of the debts when due, or assist in supplementing the bill, receipts or other debt certificates as per the Bank’s request prior to the maturity date of the debts. An exception is when the Borrower or the Guarantor confirms an error is made, in which case the Bank shall correct the error.

 

18.	Joint Guarantee

 

For the debts guaranteed by the Guarantor, if the principal debtor fails to perform the contract, the Guarantor shall be responsible for repaying all such debt amounts and shall agree to the following:

 

1.

The Bank does not need to seek repayments from the collateral first before it is entitled to claim directly against the Guarantor.

 

2.

After the Guarantor has paid off all the debts on behalf of the principal debtor and requests the collateral to be returned to the Guarantor in accordance to the law, the Guarantor shall not object over any defect on the collateral.

 

3.

The Guarantor shall not terminate the guarantee unless under the terms of this Agreement; however, the guarantee debts before the termination shall not be waived, and the guarantee responsibility shall not be waived upon the occurrence of any change in the position, status, and qualifications. An exception applies when the Bank believes that it is necessary based on an application or other specific facts, upon written notice, one or multiple Guarantors should be waived or removed from its guarantor responsibility, however, the other Guarantors shall still be fully liable for the debts borne by the principal debtor.

 

 

4.

If a third party jointly bears the debts of the principal debtor, the Guarantor shall still be liable to bear joint and several liability.

 

19.	Deferred or amortized

 

If the Bank's loan or loan agreement with the principal debtor is allowed to be deferred or repaid in installments, the Guarantor shall be notified in writing by the Bank. The Guarantor agrees that in the event the Guarantor does not respond upon delivery of a written notice by the Bank or within three days from the delivery, the Guarantor shall be deemed to have agreed to continue to be jointly liable for all debts.

 

20.	Return or replacement of collateral and certificates

 

Any person holding the receipt of the collateral or the certificates issued by the Bank or the Guarantor or the guaranty provider, or passbook or receipts bearing the Borrower’s or the guaranty provider’s signature or stamp, shall be deemed to be the agent of the Borrower or the Guarantor or the collateral provider when such person request for a return or change of collateral or certificates or other relevant documents at the Bank, and the Bank shall have the right to return or proceed with the change accordingly.

 

21.	Authorization of the payment of the promissory note and the authorization of the due date of the note

 

The Borrower and the Guarantor shall, at the request of the Bank, jointly issue one or more copies of the promissory note, as security for any past, current or future debts. The Borrower and the Guarantor agree that if the Borrower or the Guarantor fails to repay the debts or perform the terms of this Agreement or other deeds, the Bank may fill in the maturity date on the promissory note at any time and exercise the rights of the promissory note. The Borrower and the Guarantor also agree to renew the promissory note at any time upon request.

 

The Borrower and the Guarantor hereby authorize the Bank (and use this Agreement as a certificate of authorization) that if the Bank holds the promissory notes and loan receipts, whether jointly and/or separately, issued by the Borrower and/or the Guarantor, the Borrower and the Guarantor shall not object to the Bank filling in the maturity date in the event the Borrower fails to repay debts when due or in the event of an acceleration of debts based on actual credit situation.

 

22.	Payment Currency

 

For the amount payable or repayable to the Bank, the Borrower agrees to pay the amount in the same currency of the financing or advance, and shall be responsible for obtaining the foreign exchange approval or other necessary license required for the payment of such currency. The Borrower shall not waive its obligation to pay the debts in the currency because it has not obtained such approval; if the failure to obtain the approval causes the Bank any loss, the Borrower is willing to take full responsibility; if the Borrower deposits any foreign currency with the Bank in exchange for the use of other foreign currencies, the debt obligation is only discharged when the foreign currency is converted to the debt currency. The risk of foreign exchange rate should be borne by the Borrower. The exchange rate is determined by the Bank at the prevailing exchange rate at the time.

 

 

23.	Foreign Currency Exchange and Reclassification

 

If the Bank is required to convert one currency into another currency for any transaction conducted by the Bank for the Borrower, the Borrower shall bear all related expenses and losses, including but not limited to losses due to exchange rate fluctuations.

 

If debt payable pursuant to the agreements are calculated based on a foreign currency, the Borrower and the Guarantor agree that the Bank may, unless otherwise stated in the statute, record the amount of such debts by converting the principal and interest and related expenses at the spot exchange selling rate on the conversion date in New Taiwan Dollar currency. The Borrower and the Guarantor have no objection to the conversion date and conversion rate and other matters but the Bank shall have no obligation to convert.

 

24.	Adjustment of drawdown date and amount of the loan

 

If the Bank determines that the Borrower has improperly utilized the loan, or the Borrower has bad credit, or the Borrower fails to provide the collateral when required to do so, or if required by other businesses of the Bank, the Bank may notify the Borrower at any time to stop the drawdown of the loan by the Borrower, to reduce the credit limit; if there is difficulty in obtaining market funding, the Bank can also adjust the drawdown date and the loan amount. In the event of any disputes or expenses with a third party, the Borrower shall be solely responsible in handling the same; if the Bank suffers any damage as a result therefrom, the Borrower shall hold the Bank harmless. Except where the Bank has already received the commitment fee for the loan that has yet to be drawn, the pro rata commitment fee in proportion of the loan that has not been drawn shall be returned to the Borrower.

 

25.	Notice and Prohibition

 

The Borrower shall notify the Bank immediately and explain the countermeasures taken by the Borrower upon the occurrence of any of the following circumstances:

 

1.

Significant changes or any change in nature relating to the business, business structure, personnel or financial situation of the Borrower.

 

2.

The Borrower is a party to a lawsuit or is involved in other procedures in the court, the arbitration commission or a government agency.

 

 

The Borrower shall not engage in the following acts without the prior written consent by the Bank:

 

1.

Directly or indirectly owe a debt to another person (natural or legal persons) through debt commitment, guarantee, endorsement or other means of debt, except for deposits, withdrawals or similar transactions in the ordinary course of business operations.

 

2.

Merge or spin off the company with another person.

 

3.

Sale, lease or otherwise transfer or dispose of all or substantially all of the business or assets.

 

4.

Place or permit others to place a lien, pledge or other security interest in the collateral granted to the Bank.

 

5.

Engage in any transaction with another person outside the ordinary course of business.

 

6.

Borrow money from financial institutions that are not legally established.

 

7.

Provide loans to others, except for ordinary commercial financing with its customers.

 

26.	Other expenses and tax

 

If the Borrower and the Guarantor fail to perform their obligations in accordance with the Agreement that results in an acceleration of debts or litigation, the Borrower and the Guarantor agree to be jointly liable for the credit investigation cost, storage cost, transportation cost, and attorney fees (limited to the professional fee paid to the retained lawyer) and other necessary expenses incurred by the Bank in exercising or preserving its rights against the Borrower and the Guarantor except where the court renders a final and confirmed ruling against the Bank.

 

Any tax payable, withholding tax, fee, deduction, expense, withholding and other expense incurred in repaying the debts or other payment to the Bank shall be borne by the Borrower except for the income tax of the Bank which shall be borne by the Bank. In addition, any payment made for financing or guarantees, or all current or future business tax, stamp duty, registration fee or other similar tax incurred for signing, delivery, registration of any instrument signed under this Agreement and other contracts should also be borne by the Borrower. In the event of a change in the laws and regulations or a change in the interpretation of the same by the government authority that causes the Bank to have to pay other taxes or that causes a change in the tax base, the relevant taxes shall also be borne by the Borrower.

 

27.	Fill in the documents

 

The Borrower and/or the Guarantor authorizes the Bank to fill in any blanks in the Borrower's and/or Guarantor's loan application documents, individual credit deeds, supplemental contracts and other relevant documents with information and text other than the amount of money necessary to express the true intentions of the parties.

 

28.	Chop authorization for the loan

 

The Borrower and the Bank agree to use the chop shown in the authorized stamp card attached as Annex A (the “Stamp Card”) or otherwise agreed with the Bank in writing for all dealings related to the application to draw the credit amount and the foreign exchange business (excluding foreign currency deposit business) in addition to the chop kept in this Agreement.

 

The Borrower hereby represents and warrants that the authorized chop on the Stamp Card is correct upon the confirmation of the Borrower. The Borrower agrees to be fully liable under the laws for all relevant actions conducted through the use of such authorized chop. The Borrower shall not deny its action claiming a forgery or theft of the authorized chop. In the event of a change of the authorized chop, the Borrower agrees to immediately notify the Bank in writing and hereby represents and warrants that the authorized chop kept at the Bank shall remain effective before the change or nullification of the authorized chop has been made.

 

 

29.	Governing Law and Jurisdiction

 

The Borrower and the Guarantor, being the individual or legal person of this country or of a foreign country, involving any debt or property rights relations with the Bank, the method and effect of the establishment of any legal acts shall be governed by the laws of the Republic of China. The place of performance of the Borrower and the Guarantor to the debt obligation and the guarantee obligation shall be at the place where the head office or branch of the Bank is located. In the event of a dispute for the Borrower and the Guarantor’s failure to perform this Agreement, the Borrower and the Guarantor agree to use the Taipei District Court of Taiwan or the _______ District Court as the court of first instance, unless the law prescribes other special provisions for exclusive jurisdiction.

 

Chapter 2 Individual Credit Issuance

 

Section 1 General Loan

 

1.	This credit is available for the Borrower to apply for short, medium and long-term financing (revolving); however, the actual content is limited to those approved by the Bank.

 

2.	When the Borrower drawdown the loan, it agrees to provide the loan certificate and/or application documents required by the Bank. The interest rate, term and repayment method shall each be agreed on the loan certificate or application documents.

 

Section 2 (Guarantee) Overdraft

 

1.	The Borrower agrees to drawdown the loan in accordance with the conditions and term approved by the Bank. Upon the expiry of the approved overdraft term, the Borrower shall immediately repay the principal and the interest if the Borrower has not obtained the Bank’s consent to extend such term.

 

2.	The Borrower shall make the withdrawal from the check deposit account no. ____________ opened with the Bank by issuing checks signed by the Borrower or/and other means approved by the Bank.

 

3.

The interest rate shall be calculated according to the interest rate approved by the Bank and as stated in the letter of credit confirmation, and shall be adjusted according to the agreed interest rate adjustment. Interest will be calculated once a month, and the original loan overdraft will be rolled into the account. If the total principal and interest exceed the overdraft limit, the Borrower shall immediately repay the excess amount.

 

 

Section 3 Appointment, Guarantee and Acceptance

 

1.

This loan is for the Bank to provide debt guarantee and acceptance business, and entrusts the Bank (resolving) to provide guarantee and acceptance in accordance with the law. The provision of guarantee, acceptance amount, the period, the scope and other conditions by the Bank as engaged by the Borrower shall be based on the relevant laws and regulations or the guarantees, acceptance documents or notes issued by the Bank. The Bank reserves the right to determine whether to provide guarantee and acceptance after audit.

 

When the Borrower makes a drawdown, it is agreeing to provide the necessary loan certificates and/or application documents as approved by the Bank and pursuant to the terms and conditions approved by the Bank. The interest rates and other conditions shall be agreed upon on the loan certificate or application documents.

 

2.

The Borrower shall pay the guarantee fee of the Bank according to the agreed terms and conditions before the issuance of the guarantee document. If there is an extension to the guarantee period in the future, the Borrower shall be willing to pay the handling fee at the expiry date of the original guarantee period according to the agreement of the parties. The Borrower shall be responsible for all taxes or withholding tax payable in this Contract. If there is a settlement fee, loan handling fee, cable fee and other expenses, the Borrower shall also pay for the additional fees. The guarantee fee will not be refunded once it is paid; even if the guarantee period may be shortened or terminated in the future, the Borrower does not have the right to claim for a refund of the expenses already paid.

 

3.

If the Borrower fails to perform the agreed matters with the guaranteed beneficiary within the term guaranteed by the Bank, or fails to apply for an extension after the expiration of the guarantee period, or the application for extension has not been approved by the Bank, the Borrower shall immediately perform the obligations agreed and before the full discharge of the guarantee liability of the Bank, the Borrower should continue to pay guarantee fees at the agreed rate for the outstanding amount (as recorded in the books of the Bank or the balance shown after the guaranteed beneficiary has discharged the Bank with a written notice) at the beginning of every half a year.

 

4.

When the guarantee amount is calculated in a foreign currency, the risk of foreign exchange rate fluctuation shall be borne by the Borrower. If the foreign exchange rate of the foreign currency changes and causes losses to the Bank, the Borrower shall be liable for any and all compensation to the Bank. When the guarantee amount is calculated in a foreign currency and is to be converted to New Taiwan Dollars, unless otherwise agreed, it shall be calculated according to the spot exchange selling rate of the Bank during the guarantee period.

 

 

5.

The Borrower shall earnestly perform or ensure its designated person (including legal persons) to earnestly perform the principal debts that it engaged the Bank to guarantee, and shall diligently inform the Bank of its performance. If there is any breach of Contract that results in the Bank having to make an advance to perform a guarantee obligation, the Borrower shall repay such advance immediately.

 

6.

When the Bank handles for the Borrower the book keeping and accounting of raw materials, semi-finished products and finished products for export, if the set-off period has expired and the bonded raw materials remain all or partly unprocessed for export, except where the Borrower applies and obtains the approval of an extension with the Ministry of Finance according to the law, the Borrower shall pay to the customs the tax payable and the late payment due; otherwise the Bank may unilaterally make a payment and dispose the collateral and recover such payments from the Borrower and the Guarantor.

 

7.

When the Borrower fails to perform the agreed matters with the guaranteed beneficiary, upon a notice by the beneficiary to the Bank in writing to fulfill the guaranteed responsibility, the Bank may perform the guaranteed obligation unconditionally based on the guarantee issued in this Contract. The Borrower or the Guarantor shall not request the Bank to refuse to pay or give any directions to the Bank based on the engagement relationship or any other reasons, and shall not refuse payment or claim to be free from liability by asserting any disputes with the guaranteed beneficiary or with a third party or any other reasons (including force majeure).

 

8.

The bill of exchange that the Borrower applies from the Bank for the acceptance under this Contract shall not exceed 180 days from the date of acceptance until the maturity date of the bill unless otherwise approved by the Bank; the promissory note the Borrower applies from the Bank shall not exceed 365 days from the date of guarantee to the expiration date of the bill unless otherwise provided by the Bank.

 

9.

When the Borrower issues the notes in batches or in a revolving period during the effective term of this Contract, the amount, term and content of which shall be subject to the notes issued by the Borrower; the Borrower and the Guarantor agree to be jointly liable in accordance with the terms of this Contract even if the due date of the notes exceeds the effective term of this Contract,.

 

 

For the acceptance or guarantee of the bill applied by the Borrower from the Bank, the Borrower shall pay the amount before the expiration date of the bill to the account designated by the Bank or the centralized custodian of the bill. If a delay in making such payment results in an advance payment made by the Bank, the Borrower hereby agree to repay such advance immediately including its interest, delay interest and penalties from the date such advance was made by the Bank to the date of repayment.

 

 

 

Section 4 Issuance of Letter of Credit

 

The Borrower and the Guarantor engage the Bank to issue the Letter of Credit at Sight, the usance Letter of Credit (hereinafter referred to as the Letter of Credit), and the bill of exchange payable by the Bank pursuant to the terms of each Letter of Credit, and to make an advance (hereinafter referred to as an advance) or acceptance accordingly by agreeing to follow the terms set forth below:

 

1.

The Borrower agrees to comply with the conditions and withdrawal period approved by the Bank, and to pay the handling fees immediately upon notification by the Bank. When the Borrower applies to the Bank for a letter of credit, it will provide the application form, the relevant transaction certificates and the relevant documents required by the Bank, and deposit guarantee fee or provide guarantee according to its agreement with the Bank.

 

2.	The usance Letter of Credit under this Agreement shall not exceed a maximum of one hundred and eight days unless otherwise approved by the Bank.

 

3.

The Borrower acknowledges and confirms that all the amounts listed in each letter of credit and the interest and all expenses incurred therefrom are guarantee or advance payments made by the Bank for the Borrower; the Borrower further agrees to authorize the Bank to pay the bill of exchange under each letter of credit based on the application for the letter of credit and the bills of exchange thereunder.

 

4.

According to the bill of exchange and the supporting documents prompted by the letter of credit, when being deemed by the Bank to be in conformity with the conditions contained in the letter of credit and the advances or acceptances have been made, with verbal or written notice from the Bank, the Borrower shall repay all advances within five days of the making of such advances together with interest. The interest on the advance shall be paid in a single installment at the rate of the benchmark lending rate on the date of the advance payment +2%. In the case of acceptance, the Borrower shall pay before the due date of the acceptance of bill. If the Borrower fails to pay before the due date, the Borrower shall pay interest at the benchmark lending rate on the day of the advance payment or the due date of the bill of exchange plus 4%.

 

 

In order to simplify the procedures, in respect of the payment of the aforementioned bill of exchange, the Borrower authorizes the Bank to issue a short-term loan within the scope of the amount approved by the Bank to make a repayment and use the paid bill of exchange as notice and proof. The Borrower shall follow the instructions of the Bank to complete the procedures for the use of the loan, and shall settle the loan within the term agreed and pay interest at the agreed interest rate.

 

Even if the abovementioned bill of exchange and documents are later proven to be forged, altered or involved in a dispute for other reasons (including the quality or quantity of the merchandise being inconsistent with the documents), the Borrower agrees that the Bank shall not be involved in such matter and the Borrower shall not use any reason as defense to refuse payment.

 

5.

The Bank shall not be held liable for any loss or damage of the letter of credit for reasons not attributed to the Bank, such as an error or a delay in the transmission of the letter of credit, or an error in the interpretation of the terminology, or the document, the merchandise set forth in the document, all or part of the quality or quantity or value of the merchandise being lost or delayed or has not arrived at the place of delivery, or a lack of or insufficiency of the insurance over the merchandise, whether in transit or delivered, or an obstruction or detainment by a third party of the merchandise, or any other factors etc. In any of the above cases, the letter of credit shall still be paid in full by the Borrower.

 

6.	If a damage occurs to the merchandise purchased according to the records of each letter of credit for reasons that the beneficiary of the letter of credit fails to perform the contract, the delivery delays or force majeure, the Borrower shall be fully liable.

 

7.

Each Letter of Credit shall not be irrevocable once executed and issued, and the Bank shall have an unconditional obligation to make payment in accordance with the relevant terms. In addition, the appointment relationship under the Civil Code of the Republic of China shall not apply, and therefore, the Borrower shall not request revocation of such Letter of Credit or give any other instruction to the Bank or raise any objection or defense in respect of any aforementioned payment made by the Bank on the grounds of any appointment relationship thereunder.

 

 

For any operation, liability or obligation under such Letter of Credit, not otherwise subject to this Agreement, the Borrower agrees that every provision of Uniform Customs and Practice for Documentary Credits (UCP) and International Rules for the Interpretation of Trade Terms (Incoterms), promulgated by the International Chamber of Commerce (ICC) shall be legally binding and incorporated by reference to this Agreement.

 

8.

In respect of merchandise under any Letter of Credit or each collateral separately provided by the Borrower, the Borrower is willing to obtain approval from the Bank in advance on the insurance types and conditions, and then obtain full insurance policies for the benefit of the Bank (or add mortgage special clauses thereto) and bear all such insurance costs. In the event the Borrower delays in purchasing insurance or fails to renew the insurance policies when they expire, the Bank may have the right to purchase insurance or renew the insurance policies on behalf of the Borrower; provided, however, that the Bank is not obliged to do so on behalf of the Borrower. Any such insurance cost, if advanced by the Bank, shall be immediately repaid by the Borrower to the Bank, and in case of any delay in such repayment, the Borrower shall pay the Bank interest calculated in accordance with Article 4, Chapter 4 hereof.

 

Section 5 Issuance of Foreign Letter of Credit and Import Financing

 

To facilitate foreign exchange for international procurement currently and in the future at the Bank, the Borrower and the Guarantor jointly enter into this Agreement to settle foreign exchange transactions for deposit of security in accordance with the Bank’s regulations, to request issuance of (revolving) Letter of Credit and advancement of foreign currency amounts (“Advance Payment”) or acceptance of bills or application for delivery against bank guarantee/endorsement of duplicate bill of lading under inward collection or application for import financing in accordance with the Borrower’s application for issuance of letter of credit, application for financing or other application documents requested by the Bank, and the foregoing clauses herein within the approved line of credit (amount), and to abide by each of the following clauses:

 

 

1.

The Borrower is willing to have the Bank advance payables and/or accept the Letter of Credit applied by the Borrower pursuant to the relevant laws and regulations and ordinary practice. In addition to depositing its import license to the Bank and entering into agreement with the Bank on provision of collateral, the Borrower is willing to provide the bills of lading and merchandise procured under each Letter of Credit as guarantee over all debts under each Letter of Credit, with this Agreement serving as evidence of its provision of guarantee. As of the date of the Bank’s issuance of Letter of Credit until the time of delivery of the procured merchandise, the Bank retains pledge over the rights to all certificate of bills of lading (such import license and relevant bills of lading) in connection with such procured merchandise, and as of the time of delivery of the procured merchandise, the Bank retains pledge of personal property to the procured merchandise.

 

2.

Both the Borrower and the Guarantor acknowledge that the differences (i.e. un-exchanged foreign currency amounts) between the amounts specified in the certificate of foreign exchange transaction or the certificate of transaction under each Letter of Credit and the settled foreign exchange amounts) as well as their accrued interest, penalties and relevant fees are foreign guarantee amounts which are paid or advanced by the Bank on behalf of the Borrower, and agree to use each application for issuance of letter of credit, certificate of foreign exchange transaction, certificate of transaction, or bill of exchange as evidence. The Borrower is willing to pay off all its due debts in accordance with the terms hereof.

 

3.

When the Borrower procures merchandise in a region where USD is not used, it may apply for issuance of letter of credit and import financing with such other foreign currencies as approved by the Bank, provided that each Letter of Credit amount and/or financing amount, after denominated in a currency designated by the Bank, shall be within the approved line of credit (amount). In the event the foregoing amount(s) exceed(s) the approved line of credit (amount) due to varying exchange rate or other factors, the Borrower and the Guarantor shall pay off the excessive portion immediately after being notified by the Bank to make such repayment.

 

4.

Pursuant to each Letter of Credit at sight, the Borrower shall repay each Advance Payment within fifteen (15) days of receipt of (written or verbal) notification from the Bank with respect to the delivery of bills of lading under each Letter of Credit. The interest accrued on Advance Payment shall be calculated from the actual Advance Payment date (the debit date of the Bank’s correspondent bank for a Letter of Credit containing authorized debit clauses, or the post date of the Bank and the transmission date of payment message for a Letter of Credit without authorized debit clauses) based on the Bank’s foreign currency loan costs on the Advance Payment date at the interest rate of 4% or other rate approved by the Bank; except in the event any of the following occurs, then the repayment method shall be as follows:

 

 

(1)

If the shipping documents have been delivered but the merchandise have yet to arrive, the Borrower shall provide airline documentation or certificates recognized for the Bank’s review and make full repayment within three (3) days of arrival of the merchandise; provided, however, that if on the thirtieth (30th) day after the delivery of the shipping documents the merchandise still has not arrived, the Borrower shall make immediate repayment upon receipt of a notification by the Bank.

 

(2)

If the merchandise has been delivered but the shipping documents have yet to arrive and an application for delivery against bank guarantee or endorsement of duplicate bill of lading is required, the Borrower shall make immediate payment of the principal, interest and associated fees.

 

(3)

If the merchandise is shipped in batches, the Borrower shall make repayment of Advance Payment, its interest and associated fees in accordance with the Letter of Credit amount and/or percentage of Advance Payment in relation to each shipping document.

 

Where a Letter of Credit has expired, the Borrower shall make immediate repayment in respect of any shipping document that is subsequently delivered and satisfies the conditions to payment as a documentary bill.

 

5.

The repayment date for each debt shall be determined based on the bills of change or payment period as specified in the application for issuance of letter of credit with respect to each usance Letter of Credit issued in accordance with this Agreement. In the event of any Advance Payment, the accrued interest shall be calculated from the actual Advance Payment date (the debit date of the Bank’s correspondent bank for a Letter of Credit containing authorized debit clauses, or the post date of the Bank and the transmission date of payment message for a Letter of Credit without authorized debit clauses) based on the Bank’s foreign currency loan costs on the Advance Payment date at the interest rate of 4% or other rate approved by the Bank.

 

 

6.

After each documentary bill has arrived in respect of the Borrower’s application for issuance of usance Letter of Credit, the Bank may within the approved line of credit extend subloans in the original designated currency. After each documentary bill has arrived in respect of the Borrower’s application for issuance of Letter of Credit at Sight, upon approval from the Bank, the Bank may extend subloans within the approved line of credit. Each loan term shall not exceed the period approved by the Bank and the repayment date shall be the due date as notified by the Bank. The interest of each loan shall be calculated in accordance with the Agreement and be paid on a monthly basis, unless otherwise agreed.

 

7.

The Borrower shall, with the approval from the Bank, apply for currency conversion for its debts under foreign currency loans and make repayment in the designated currency at a mutually agreed exchange rate. The collateral as originally provided for financing shall remain the collateral used for financing after the foregoing currency conversion, and the original agreements shall still govern the terms relating to maturity date and repayment method.

 

8.

In the event the Borrower fails to perform and repay debts hereunder or fails to go through customs clearance and take delivery timely or delays in any process upon arrival of shipping documents under each Letter of Credit, or the Bank determines based on specific facts that there is obvious deterioration in the Borrower’s financial conditions which may cause the Bank to suffer damage or loss, the Bank’s Advance Payment and loans shall be deemed to have matured and the Bank may take the delivery and exercise its rights to the collateral and to sell or otherwise freely dispose of such collateral (including the disposal method, time and price), and in such case, the Borrower will be willing to reimburse the Bank for any insufficiency of the debt. The Borrower and the Guarantor will be jointly and severally liable for making immediate payment on all fees such as duty, warehouse rent and freight advanced by the Bank in connection with the Bank’s taking of the delivery.

 

9.

The Borrower shall, on the repayment date for debts or import financing under each Letter of Credit, pay the principal and interest in an equivalent amount denominated in New Taiwan Dollars at the spot exchange selling rate posted by the Bank at the time of payment or in the original designated currency.

 

10.

In the event any cargo name, specification, unit price, aggregate price and delivery term set forth in the application delivery against bank guarantee or endorsement of duplicate bill of lading as made by the Borrower and accordingly signed by the Bank is inconsistent with those specified in the subsequent shipping documents, the Borrower and the Guarantor will undertake to reimburse and complete all other procedures in accordance with the terms and conditions set forth in such bill of lading as delivered to the Bank; and in such case, if the Bank suffers any loss as a result, the Borrower and the Guarantor are willing to be held jointly liable for all compensation. Such application for delivery against bank guarantee or endorsement of duplicate bill of lading shall constitute a part of the Agreement binding on both Borrower and Guarantor.

 

 

11.

The Borrower is willing to obtain approval from the Bank on the insurance types and conditions for the merchandise under any Letter of Credit and subsequently obtain appropriate insurance policies for the benefit of the Bank as the preferred beneficiary on and for such price conditions in accordance with international practice, and provide the originals of the insurance policies and copies of premium receipts to the Bank for record-keeping. All insurance costs shall be borne by the Borrower. In the event the Borrower delays in purchasing insurance or fails to renew the insurance policies when they expire, the Bank may have the right to purchase insurance or renew the insurance policies on behalf of the Borrower; provided, however, that the Bank is not obliged to do so on behalf of the Borrower. Any costs associated with the insurance, if advanced by the Bank, shall be immediately repaid by the Borrower to the Bank, and in case of any delay in such repayment, the Bank may include such cost to the total debt amount and calculate delay interest and penalty in accordance with Article 7, Chapter 1 hereof.

 

12.

In case any sea disaster, piracy, flood, fire or other force majeure events occurs during transportation to any merchandise procured as specified in each Letter of Credit, or if the beneficiary of the Letter of Credit fails to perform the agreement or delays in delivery of merchandise and incurs losses, or any insurance company refuses to indemnify or provides insufficient claim coverage or delays in claim payment, the Borrower shall be responsible for the losses and handle the situation on its own. The Borrower is willing to make repayment of the principal, interest, delay interest, penalty and all other associated fees.

 

13.

Where the Borrower imports merchandise through inward collection or open account (O/A), the Borrower may, with the approval from the Bank, apply to the Bank for delivery against bank guarantee or endorsement of duplicate bill of lading within the approved line of credit (amount). At each application, the Borrower shall provide the application for delivery against bank guarantee or for endorsement of duplicate bill of lading and other instruments requested by the Bank. The Borrower acknowledges each of the application concerning the amounts and agreements set forth in the foregoing instruments and will be liable to the Bank for damages until foreign instruments have been delivered to the Bank and the Borrower completes acceptance of bills or makes due payment.

 

 

14.

The Borrower hereby expressly states and grants an irrevocable authorization to the Bank that upon delivery of the merchandise, in whole or in part, as named in the Letter of Credit issued by the Bank as requested by the Borrower with its import license and/or other related documents granted by the Bureau of Foreign Trade of the Ministry of Economic Affairs or other designated organizations, if the Borrower fails to repay debts within the repayment period in accordance with relevant credit agreements in respect of each Letter of Credit issued by the Bank, or the debts are deemed as due under the Letter of Credit issued by the Bank at the request of the Borrower pursuant to the relevant credit agreements, the Bank may apply directly to the Bureau of Foreign Trade of the Ministry of Economic Affairs for approval to clear customs and take delivery on behalf of the Borrower and to sell or freely dispose of the imported merchandise.

 

15.	Save for the foregoing Article 14, the Borrower agrees that this Section 5 shall be subject to Article 1, Article 3 to 5, and Article 7 of Section 4.

 

Section 6 Export Documentary Bills and Export Financing

 

This credit facility provides for the Borrower to apply for payment of export documentary bills or discounts or export loans within the line of credit (amount) and conditions as approved by the Bank with the application for export negotiation, application for outward collection, application for financing or such other documents as may be deemed necessary by the Bank as well as the foregoing (revolving) credit terms. The Borrower agrees to the following:

 

1.

Documentary bill payment refers to the situation when the Bank, after reviewing the bill of exchange and/or instrument presented by the Borrower based on the terms of a Letter of Credit as provided by the Borrower, makes an advance payment for the foregoing bill of exchange and/or instrument, provided that it is not forfaiting and that the Bank enjoys the right to claim for repayment. The Bank may deduct any interest and related fees in advance based on the (foreign currency) interest rate it approves for advance payment or usance letter of credit, as appropriate to the payment location, payment period, status of the instrument, and the letter of credit terms.

 

 

2.

After the Bank advances the foregoing bill of exchange and/or instrument but fails to recover the advanced amounts within the interest deduction period, the Borrower is willing to pay the Bank a delay interest and penalty. If the Bank is unable to recover the advanced amounts from the issuing bank of the letter of credit or the payor bank within one (1) month of expiration of the interest period or of the maturity of the advanced amounts (whichever is earlier), the Borrower agrees to repay the Bank unconditionally the advanced amounts, accrued interest and all associated fees immediately upon receipt of notice (verbal or in writing) from the Bank and to undertake that the Bank will not suffer any loss as a result of its advance payment of the foregoing bill of exchange and/or instrument.

 

3.

The Borrower agrees to transfer relevant merchandise and instruments to the Bank as collateral for all liabilities such as debts, bills of debts and interest, delay interest, penalties, indemnities, handling charges and other associated fees owed to the Bank as a result of payment of documentary bills and export financing conducted by the Borrower.

 

4.

The Bank or any holder of the foregoing bill or exchange and/or instrument may (but is not obliged to) purchase insurance for the merchandise (i.e. collateral to the Bank) under the foregoing bill or exchange and/or instrument against robbery, theft, fire, etc., and the Borrower shall bear the premiums and related fees in connection therewith. The Bank enjoys the priority for claim in respect to the foregoing merchandise and may freely dispose of the merchandise in accordance with the law so as to repay the debts and other fees owed to the Bank or relevant insurance costs paid by other third persons without affecting the Bank’s claim for other bills of debts. In addition, the Bank may handle all required matters on behalf of the Borrower in its capacity as an agent pursuant to ordinary business practice and charge service fees. In the event no objection is raised by the Bank, the Borrower shall move the merchandise to public or private pier or warehouse in accordance with the instructions of the payor or acceptor.

 

5.

In the event the payor refuses to accept or pay the bill of exchange, or the merchandise has arrived at the destination pier prior to the maturity of the bill of exchange, the Bank or the Bank’s correspondent bank may perform the unloading, customs clearance, warehousing and insuring of the foregoing merchandise, and take any necessary measure for the purpose of protecting the merchandise. The Borrower shall bear all fees arising therefrom and be liable for damages incurred from any willful misconduct or negligence of practitioners during the process of such unloading, customs clearance, warehousing and obtaining insurance, or from any war, act of God or other force majeure factors.

 

 

6.

If the foregoing bill of exchange and/or instrument is rejected by the acceptor or refused by the payor, or the payor, acceptor, issuing bank or accepting bank suspends payment, seeks to avoid payment, declares bankruptcy, or is subject to settlement, seizure, provisional attachment, provisional injunction, auction, or takes liquidation steps, or is affected by any external intervention, local law or regulations or any other events, thereby causes the bill of exchange or instrument to be denied or unable to be accepted or paid, whether or not having been accepted with conditions, absolutely or returned, the Bank may request the Borrower to repay immediately the principal advanced by the Bank, its accrued interest and all related fees. In addition, the Bank or any holder of the bill of exchange and/or instrument may (but is not obliged to) sell the merchandise thereunder, in part or in whole, in any such manner as it deems appropriate, and use the proceeds to offset service fees and commission and to pay for the bill of exchange and/or instrument amount and associated fees (including the interest, delay interest and penalty). Thereafter, the Bank or any holder of the bill of exchange and/or instrument may use any balance to pay for other debts (whether or not secured) owed by the Borrower to the Bank. In case of any loss of insured merchandise, the Bank may still request compensation in accordance with the insurance policies, and may use the amounts received to offset service fees and then sell the merchandise for repayment in the abovementioned manner of disposal.

 

7.

In the event the net proceeds from any sale of the merchandise is insufficient to pay for the bill of exchange or instrument amount, interest and fees, the Borrower agrees that the Bank or any holder of the bill of exchange or instrument may present and use relevant certificates as evidence of loss incurred by the sale of the merchandise, and upon notified by the Bank or such holder of the bill of exchange or instrument (either in writing or verbally), the Borrower shall be obliged to make immediate payment without affecting the Bank’s claim against other debtors.

 

8.

Regardless of any sale or resale of the merchandise, the Bank or any holder of the bill of exchange may accept payment requests from the payor or acceptor to which it may provide bill of lading and other shipping documents after payment. In the event the Bank or any holder of the bill of exchange accepts earlier payment, it may pay pursuant to the usual interest rate of the place of payment and deduct the interest accrued before the maturity date.

 

 

9.

In the event of a bill of exchange provided with instruments after acceptance, after the acceptor accepts such bill of exchange, the Bank may provide the instruments to the acceptor. In case of a delayed payment, the Bank may provide all relevant instruments to the issuing bank or payor prior to receipt of any such payment. Upon maturity of such bill of exchange, if the Bank still has not received any payment or if the Bank had only received partial payment, the Borrower shall be liable for the consequences. The Borrower shall repay all debts together with any and all exchange and service fees incurred therefrom, and shall undertake to indemnify the Bank from suffering any damage.

 

10.	The Bank or any holder of the bill of exchange may accept the payor’s conditional acceptance, and may provide the auxiliary instruments that are used as collateral to the payor or acceptor.

 

11.

At any time before the maturity of any bill of exchange, so long as the Bank or acceptor or its representative deems appropriate, the Bank may deliver the merchandise to any third person in batches; provided, however, that the delivered merchandise, whether in whole or in part, shall be exchanged for a fair amount of loan in reasonable proportion to the merchandise price shown on the receipt or the amount specified in the secured bill of exchange.

 

12.

After payment of any bill of exchange and/or instrument by the Bank, if the conditions provided in such bill of exchange and/or instrument are not consistent with those set forth in the Letter of Credit, or such bill of exchange and/or instrument is denied by the Bank’s discount house or correspondent bank for any reason, or the issuing bank, paying bank or accepting bank refuses to make payment, or the merchandise is found to be defective in its quality or quantity at delivery or on other occasions, or such bill of exchange and/or instrument is rejected by any party for any reason, or the Bank suffers any damage as a result of any defect in such bill of exchange and/or instrument, the Borrower agrees to be held entirely responsible and immediately pay the amounts advanced by the Bank, accrued interest and all other associated fees. The interest shall be calculated in accordance with Article 7, Chapter 1 hereof from the period between the Bank’s advance date and the Borrower’s payment date.

 

The Borrower hereby authorize the Bank to issue guarantee or undertaking of indemnification or provide indemnification to the issuing bank, accepting bank or paying bank unilaterally without notification to the Borrower whenever deemed necessary by the Bank, and the Borrower will be entirely responsible and shall compensate for a loss incurred by the Bank.

 

13.

The Bank or its correspondent bank may send a bill of exchange and/or auxiliary instruments in such manner as it deems appropriate. In the event such bill of exchange and/or auxiliary instruments are damaged, lost, wrongly delivered or subject to other accidents etc. in the delivery process that delays the delivery, upon notified by the Bank, the Borrower may prepare new bill of exchange and/or auxiliary instruments pursuant to the details set forth in the Bank’s books and accounts without going through any legal procedure and provide the same to the Bank, or immediately pay the amounts advanced by the Bank, interest and all associated fees to the Bank in accordance with the Bank’s instructions.

 

The Borrower understands that pursuant to the ordinary practice of the financial industry, the Bank is not obliged to review relevant documents for the Borrower when making drawings for any Letter of Credit, and that it is also not obliged to make any declaration or guarantee as to whether there is any defect in such document.

 

14.	The Borrower agrees to cooperate with the Bank to change, split or consolidate any bill of exchange and/or instruments executed and issued by the Borrower at the request of the Bank.

 

15.

Unless otherwise agreed in writing, any holder of a bill of exchange that is executed, endorsed, accepted or guaranteed by the Borrower may be exempted from a rejection of payment or a rejection of acceptance of such bill of exchange being made before a claim may be exercised. Should the Bank or its correspondent bank deem it necessary to prepare a certificate of rejection, the Borrower will deem such certificate as legal and valid and will bear the incurred fees.

 

16.

The Borrower warrants that any and all bills of exchange and/or instruments and Letter of Credit presented to the Bank are absolutely true, correct and valid. If the Bank has duly performed its care as a good administrator over the Borrower’s writings, signatures or seals on such bill of exchange and/or instruments and believed that such writings, signatures or seals are the same as the specimens kept at the Bank or as those appearing on the bills of exchange and/or instruments previously used by the Borrower, such bill of exchange and/or instrument shall become effective immediately. In case of any damage incurred to the Bank, the Borrower will be held liable and will compensate the Bank of all damages suffered by the Bank.

 

17.

In the event a bill of exchange lacks any required component and invalidates the debts attached thereto, or such debts become null and void due to the passing of statute of limitations or incomplete procedure, the Borrower agrees to pay the face value of such bill of exchange to the Bank together with all interest accrued upon maturity thereof and associated fees.

 

18.	The Bank has obtained legal authorization from the Borrower for the purposes of any necessary action hereunder and this Agreement shall be proof of such authorization.

 

Section 7 Purchase of Foreign Exchange Bills (Purchase of Clean Bills)

 

In addition to this Agreement, the Borrower agrees to apply to the Bank for purchase or foreign exchange bill (or so-called purchase of clean bills) on the conditions approved by the Bank in accordance with the application/agreement for purchase/receipt of foreign exchange bills and other documents required by the Bank.

 

Section 8 Factoring/Accounts Receivable Financing

 

In addition to this Agreement, the Borrower agrees to apply to the Bank for drawing on factoring (financing) of domestic and/or foreign accounts receivable on the conditions approved by the Bank in accordance with the factoring of accounts receivable agreement, consent to factoring of accounts receivable, and other documents as deemed necessary by the Bank, loan certificate and the foregoing clauses.

 

In the event the aforementioned agreement contains the same matter in this Agreement, the aforementioned agreement shall take priority.

 

Section 9 Payment of Domestic Bills/Bill Receivable Financing

 

1.

The Borrower agrees to provide the Bank with each such loan certificate and/or application, bill receivable and its transaction certificate as recognized by the Bank, and to apply to the Bank for one-time or multiple drawdowns or on a revolving basis in accordance with the approved line of credit, rate, period and other credit terms. The matured bills receivable shall be cashed and deposited into a demand deposit reserve account. It is agreed as follows:

(1)

The Borrower agrees to open a demand deposit reserve account in the name of the Borrower at the Bank and authorize the Bank to allow withdrawal by any authorized signatory with his or her executed withdrawal slip for the purposes of paying all debts owed at and to the Bank or for transferring the same amount of withdrawal to the Borrower’s another saving account established with the Bank (other than check deposit accounts). In addition, the Borrower may not use any portion of the deposit in such reserve account unless with approval from the Bank.

(2)

The Borrower fully acknowledges any withdrawal or transfer made by the Bank in accordance with the foregoing paragraph, and the account balance shall be determined by the actual balanced amount posted by the Bank; the Borrower shall raise no objection.

(3)

Such reserve account will provide statements at the request of the Borrower and will have no passbook.

(4)

Any bill provided by the Borrower shall be received solely for the purposes of legal transactions such as sale or lease of goods or provision of services and shall have endorsed and transfer to the Bank by the Borrower. In the event the Borrower receives no payment upon maturity of such bill or such bill is unable to be accepted or paid, the Borrower shall redeem it with equivalent amount of cash or a sight bill receivable within three (3) days of receipt of notice from the Bank and if the Borrower fails to do so, the Bank may suspend the Contactor’s drawdown under this credit facility or treat all debt balances as due and may not be required to notify the Contactor of any reasons for such suspension.

(5)

Unless otherwise agreed, the maturity date of any bill provided by the Borrower shall not fall over one hundred and eighty (180) days from the drawdown period hereunder.

2.	The Borrower agrees to the following when providing any endorsed bill to the Bank as collateral for debt performance or repayment:

(1)

Unless otherwise agreed, to facilitate bookkeeping, when the balance of all cashed bills receivable reached at least ___% of the credit amount hereunder, the Bank may directly use such amount to offset any and all debts owed by the debtor or the Borrower, and the Borrower shall still be liable for full repayment in case of any insufficiency.

 

 

Confirmed by the Borrower:

 

(2)

After the foregoing bill receivable is cashed by the Bank, if the Bank agrees that the Borrower may provide the Bank with any bill receivable in the equivalent or greater amount, the Bank may deposit the foregoing cashed amount into the Borrower’s account maintained by the Bank, or transfer it into the Borrower’s other account at other financial institutions in accordance with the instruction of the Borrower. The Borrower shall be liable to the Bank for full repayment of debts whose amount shall still be determined based on the bills of exchange, loan certificates and/or applications etc.

(3)

In the event the foregoing bill of exchange is not cashed, and the Borrower or Guarantor fails to take actions after being notified by the Bank or is unable to be notified, the Bank may settle with the debtor with any amount lower than the face value of such bill of exchange, subject to the debtor’s financial conditions.

(4)

The Bank may from time to time request the Borrower to endorse any bill of exchange or the causation between the Borrower and the issuer (purchase agreement, service agreement or other debt agreements). The Borrower shall guarantee the debtor (issuer)’s solvency in respect of debt transfer and debt performance. The Bank may directly request full payment from the debtor (issuer) and use all amounts received to offset all the Borrower’s debts owed to the Bank; provided, however, that if such received amounts are insufficient to repay all Borrower’s debts owed to the Bank, the Borrower and the Guarantor shall be still held responsible.

3.

The Borrower hereby declares that in the event any bill of exchange provided by it to the Bank for financing, regardless of any defect in such bill of exchange, causes any damage to the Bank, the Borrower agrees to surrender its term benefits and make prompt repayment of all its debts and compensate the Bank for the damages it suffers. The Borrower shall by no means refuse to repay or compensate with the excuse of any defect in such bill of exchange, or incomplete notification in accordance with the law, or statute of limitations.

 

Chapter 3 Miscellaneous

 

1.	The Borrower and the Guarantor hereby represent and warrant the following:

(1)

The Borrower and the Guarantor have full legal capacity to execute and perform the Agreement, and this Agreement shall constitute legally binding and valid obligations to the Borrower and the Guarantor.

(2)

Executing or performing the terms of the Agreement will not violate any law, regulations, company articles, bylaw, shareholder/director resolution, or any other agreements or documents entered into by the Borrower or the Guarantor; will not constitute any violation of any agreement or document that is binding to the Borrower or the Guarantor or any of its assets or income; will not require consent from any other party to such agreement or document (the Borrower or the Guarantor shall immediately provide proof which demonstrate its creditors’ consent to execution of the Agreement or other documentation at the request of the Bank).

(3)

The Borrower and the Guarantor have obtained all approvals, consents and registrations required by law for execution or performance of the Agreement.

 

 

(4)

All documents and data in respect of matters contemplated by the Agreement provided by the Borrower and the Guarantor to the Bank proactively or at the Bank’s request are true, correct and complete without any falsehood, concealment or misleading details. The Bank may rely on them in good faith and the Borrower and the Guarantor shall by no means defend or refuse to perform the Agreement for any reason.

 

(5)

The Contactor, the Guarantor, or any of its responsible persons, actual beneficial owners or controlling persons is not subject to any sanction or deemed as any terrorist or group by any foreign government or any international anti-money laundering organization or on the blacklist for sanction of the R.O.C. Ministry of Justice.

 

(6)

The Borrower and the Guarantor will cooperate with the Bank to review and provide information or their respective actual beneficial owners and controlling persons and will provide explanation as to the nature of transaction, purpose of transaction or source of funds upon request by the Bank.

 

2.

The Borrower and the Guarantor agree to be bound by the Agreement and its credit confirmation letter and each drawdown application, credit extension instrument, amendment and other related documents. Each of the foregoing documents shall constitute a part of this Agreement and shall have the same force and effect as the Agreement; provided, however, that in case of any inconsistency between any provision of the Agreement and that of any of the foregoing documents, the terms of the latter shall prevail as special provision to the Agreement. Any matter not set forth therein shall still be governed by the terms of the Agreement.

 

3.	The Agreement, applications and documents used for credit facility, and related guarantee documents may be made in Chinese and English; provided, however, that in the event of any discrepancy between the Chinese and English versions, the Chinese version shall prevail.

 

 

4.	Unless otherwise provided herein or agreed by both parties, the Agreement shall become effective as of the date of execution and shall continue to be valid and effective after the Borrower and the Guarantor have paid off all debts owed to the Bank with the consent to so terminate by the Bank.

 

In the event the Borrower or the Guarantor have unpaid debts to the Bank at the time of execution of this Agreement, unless otherwise agreed by the Bank, the terms and conditions of this Agreement shall also apply to such outstanding debts from the execution date of this Agreement.

 

Chapter 4 Side Agreement

 

Special Provision:

 

The Guarantor is a director, supervisor or officer of the Borrower at the time of entering into this Agreement. During the term of this Agreement, if the Guarantor resigns, is removed from office or otherwise no longer serves the foregoing position, the Borrower and the Guarantor shall notify the Bank immediately in writing. Before any such notification, the Guarantor shall by no means bring any claim against the Bank’s drawdown per the Borrower’s application on the grounds of Article 753 of the Civil Code of the Republic of China. The Borrower and the Guarantor agree that the Bank, upon receipt of the foregoing notice and after being aware of the foregoing change, may suspend drawdown or re-admit another guarantor recognized by the Bank, or make drawdown only after receipt of a consent from the Guarantor to continue act as the guarantor for the Borrower.

 

The Borrower agrees that the Bank does not accept receipt of commitment fee, and in the event of any change in market interest (exchange) rate or other change which cause the Bank to acquire necessary funds on the credit market, the Borrower shall enter into a new agreement with the Bank on matters including applicable interest rate, credit period and other relevant credit terms. If both parties are unable to reach a consensus after twenty (20) days from the date of their first negotiation, the Bank may notify the Borrower in writing of any drawdown of relevant credit amounts.

 

 

 

 

To

 

O-BANK CO, LTD.

 

 

 

 

 

Borrower: CVie Therapeutics Limited

 

Representative or Legal Agent:

 

Uniform Business Code: 54360142

 

Business or Correspondence Address: 11F, No.32, Songren Road, Xinyi District, Taipei

 

I hereby declare that I have been notified by the Bank of Paragraph 1, Article 8 of Personal Information Act, and that I have reviewed all the causes set forth herein, signed this Agreement only after having understood and agreed to, in particular, Article 2-3, Article 10-11 and Article 6 of Chapter 1, which have been negotiated respective by both parties, and retained a true and correct photocopy of the original copy of this Agreement.

In the presence of	Date: October 25, 2018	Time: 10:30	[illegible chop], Hue Ting Lin
	Address: 11F, No.32, Songren Road, Xinyi District, Taipei

 

 

 

 

Guarantor: Lee’s Pharmaceutical Holdings Limited

 

Representative or Legal Agent:

 

Uniform Business Code: KYCL0172

 

Business or Correspondence Address: Unit 110-111, Bio-Informatics Centre, No. 2 Science Park West Avenue, Hong Kong Science Park, Shatin, New Territories, Hong Kong

 

I hereby declare that I have been notified by the Bank of Paragraph 1, Article 8 of Personal Information Act, and that I have reviewed all the causes set forth herein, signed this Agreement only after having understood and agreed to, in particular, Article 2-3, Article 10-11 and Article 6 of Chapter 1, which have been negotiated respective by both parties, and retained a true and correct photocopy of the original copy of this Agreement.

In the presence of	Date: October 25, 2018	Time: 10:30	[illegible chop], Hue Ting Lin
	Address: 11F, No.32, Songren Road, Xinyi District, Taipei

 

 

 

 

Annex A

 

Authorized Stamp Card

 

 

Authorization Stamp

For “credit amount drawdown application” (authorized stamps are shown as follows) (chops)

For “foreign exchange business” (authorized stamps are shown as follows) (chops)

 

 

 

 

 

38

 

 

 

 

Exhibit 10.35

 

 

Shareholder Loan Agreement

 

 

between

 

CVIE THERAPEUTICS LIMITED

 

 

and

 

 

LEE’S PHARMACEUTICAL INTERNATIONAL LIMITED

 

24 April 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

THIS SHAREHOLDER LOAN AGREEMENT is made on this 24^th day of April 2018

 

BETWEEN:-

 

A	CVIE THERAPEUTICS LIMITED, a company with limited liability and incorporated under the laws of Republic of China, with its registered office at 11F., No.36, Songren Road, Xinyi district, Taipei City, Taiwan, Republic of China as borrower (the “Borrower”); and

 

B

LEE’S PHARMACEUTICAL INTERNATIONAL LIMITED, a company with limited liability and incorporated under the laws of the British Virgin Islands (registered number: 456625), whose registered office is situated at Trident Trust Company (B.V.I.) Limited, Trident Chambers, P.O. Box 146, Road Town, Tortola, British Virgin Islands as lender (the “Lender”).

 

WHEREAS the Lender, being a shareholder of the Borrower, is willing to make available to the Borrower a shareholder loan subject to and on terms and conditions set out in this Agreement.

 

NOW IT IS HEREBY AGREED as follows:-

 

1	DEFINITIONS AND INTERPRETATION

1.1	Definitions. In this Agreement unless the context requires otherwise:-

 

"Advance Date”          means the date when the Loan is drawn down by the Borrower within the Availability Period;

 

"Availability Period”          means a period of one year commencing from the date of this Agreement;

 

"Business Day"          means a day (excluding Saturdays, Sundays and statutory holidays) on which commercial banks in Hong Kong are open for business;

 

"Hong Kong"          means The Hong Kong Special Administrative Region of the People’s Republic of China;

 

"Loan"          means the loan in the principal amount of US$500,000 (five hundred thousand United States Dollars);

 

“Repayment Date”          means the date on which the Loan is repaid under Clause 4;

 

“Term”                    having the meaning ascribed to it under Clause 2.2;

 

“US$”                    means United States dollar.

 

 

1.2	Other Definitions

 

In this Shareholder Loan Agreement, unless the context requires otherwise,

 

(a)

“law” includes common or customary law and any constitutional provision, treaties, convention, statue, act, law, decree, ordinance, interim or temporary provision and regulation, judgment, subsidiary and subordinate legislation, orders, rules, provisions and regulations having the force of law, rules of civil and common law and equity;

 

(b)

“tax” includes any present or future tax, levy, impost, duty, charge, fee, deduction or withholding or any nature and whatever called, by any governmental or other fiscal authority, on whomsoever and wherever imposed, levied, collected, withheld or assessed; and

 

 

(c)     “time” is to Hong Kong time unless otherwise stated.

 

 

2     THE LOAN

2.1     The Loan

Subject to the terms and conditions of this Agreement, the Lender agrees to advance the Loan to the Borrower on the Advance Date for the Term upon receiving not less than two (2) Business Days’ prior written notice from the Borrower.

 

2.2     The Term

 

Subject to the early repayment as provided under Clause 4.2, the term of the Loan shall be for a fixed term of one (1) year commencing from the Advance Date (the “Term”).

 

2.3     Availability Period

 

The Loan is only available for drawdown as from the day of the compliance of all the conditions to the satisfaction of the Lender to the date falling one (1) year after the Borrower's acceptance of this Agreement ("Availability Period").

 

2.4     Drawdown

 

Subject to the terms and conditions set out in this agreement, the Borrower may, on any Business Day during the Availability Period, make a drawing under the Facility on condition that the Borrower shall only draw a minimum of US$500,000.00 or if more, in integral multiples of US$500,000.00 and not more than the available facility limit.

 

 

3     INTEREST

 

3.1     Interest Rate

 

The rate of interest applicable to the Loan shall be 4% per annum.

 

3.2     Calculation of Interest

 

Interest under this Agreement shall be calculated on the basis of a year of 365 days (or 366 days in the case of a leap year) for the actual number of days elapsed during the period for which interest is calculated. Interest shall be so calculated with respect to each day during such period by multiplying the outstanding principal balance of the Loan on such day at the close of business on such day by a daily interest factor, which interest factor shall be calculated by dividing the interest rate per annum in effect on such day with respect to such Loan by 365 (or 366 days in the case of a leap year).

 

3.3     Payment of Interest

 

Interest accrued and calculated as aforesaid for the period commencing on the date on which the Loan is advanced up to (but excluding) the Repayment Date shall, subject as otherwise provided herein, be payable on the Repayment Date.

 

 

4     REPAYMENT

 

4.1     Repayment

 

Subject to Clause 4.2, the Borrower shall repay the Loan, together with the interest accrued in accordance with Clause 3 on the expiry date of the Term.

 

 

4.2	The Borrower shall have the right to make early repayment on the Loan, together with the interest accrued at any time during the Term by giving 7 days’ written notice to the Lender (the “Written Notice”). Repayment shall then be made on the date as specified in the Written Notice.

 

 

5     PAYMENT PROVISIONS

 

5.1     Payment of Loan by Lender

 

On the date on which the Loan is to be made, the Lender shall make the Loan to the Borrower not later than close of business (Hong Kong time) on the Advance Date by payment in US$ in immediately available funds to the account of the Borrower as the Borrower shall have informed the Lender in writing.

 

5.2     Payment by Borrower

 

All payments to be made by the Borrower under or pursuant to this Agreement shall be made to the Lender on the date upon which the relevant payment is due in US$ in full and in immediately available funds to the Lender before 4:00p.m. (Hong Kong time) on that date by payment into such account as the Lender may from time to time specify.

 

5.3     Non-Business Day

 

Any payment to be made by the Borrower on a day which would otherwise be due on a day which is not a Business Day shall instead be due on the preceding Business Day.

 

5.4     Restrictions, Taxes and Withholdings

 

All amounts payable by the Borrower under this Agreement shall be paid (except to the extent required by law):-

 

(a)

free of any restriction or condition;

 

(b)

free and clear of and without any deduction or withholding on account of any taxes; and

 

(c)

without deduction or withholding on account of any other amount, whether by way of set-off, counterclaim or otherwise.

 

 

6     FEES AND EXPENSES

 

Expenses and Duties

 

Whether or not any monies are advanced under this Agreement, the Borrower shall pay to the Lender:-

 

(a)

on demand, all costs and expenses (including, but not limited to, legal and other professional advisers' fees) incurred by the Lender in connection with the preparation, printing, negotiation or entry into of this Agreement and the arrangement of the Loan; and

 

(b)

on demand, all costs and expenses (including legal fees on a full indemnity basis) incurred by the Lender in perfecting, preserving, protecting, exercising or enforcing any rights under this Agreement or attempting to perfect, preserve, protect, exercise or enforce any rights under this Agreement.

 

 

7     AMENDMENT, WAIVER AND REMEDIES

 

7.1     Amendments and Waiver

 

 

Any amendment or waiver of any provision of this Agreement and any waiver of any default under this Agreement shall only be effective if made in writing and signed by or on behalf of the party against whom the amendment or waiver is claimed to be binding.

 

7.2     No Implied Waivers, Remedies Cumulative

 

Time is of the essence of this Agreement, but no failure or delay by the Lender in exercising any right, power or discretion shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or discretion preclude any further exercise thereof or the exercise of any other right, power or discretion. The rights, powers and remedies herein provided are cumulative and do not exclude any other rights, powers and remedies provided by law. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Lender to any other or further action in any circumstances without notice or demand.

 

 

8     ENTIRE AGREEMENT

 

8.1     Entire Agreement

 

This Agreement constitutes the entire obligation of the Lender and the Borrower with respect to the subject matter thereof and shall supersede any prior expressions of intent or understandings with respect to this transaction.

 

9     COUNTERPART

 

9.1     Counterpart

 

This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which is an original but, together, they constitute one and the same agreement.

 

 

10     GOVERNING LAW AND JURISDICTION

 

10.1     Governing Law

 

This Agreement and the rights and obligations of the parties hereunder shall be governed by and construed in accordance with the laws of Hong Kong.

 

10.2     Jurisdiction

 

The Borrower agree that any legal action or proceeding arising out of or relating to this Agreement may be brought in the courts of Hong Kong and hereby irrevocably submit with regard to any such action or proceeding, for itself and in respect of its assets, to the non-exclusive jurisdiction of such courts.

 

 

11     AGENT FOR SERVICE

 

11.1     Process Agent

 

Each of the parties irrevocably appoint the person named in Schedule as its process agent (“Agent”) to receive service on its behalf in Hong Kong of any proceedings arising out of or in connection with this Agreement.

 

11.2     Service

 

Service shall be deemed completed on delivery to the Agent (whether or not it is forwarded to and received by the party which appointed the Agent).

 

 

 

11.3     Substitute Agent

 

If for any reason any Agent ceases to act as agent or no longer has an address in Hong Kong, the party who appointed the Agent irrevocably agrees, within 20 (twenty) Business Days, to appoint a substitute agent with an address in Hong Kong and to notify the other parties in writing immediately thereafter.

 

11.4     Other manner

 

Nothing in this Agreement shall affect the right to serve process in any other manner permitted by law.

 

 

 

 

 

SCHEDULE

 

Process Agent

 

1.	The Lender’s Agent is Lee’s Pharmaceutical (HK) Limited, Unit 110-111, Bio-Informatics Centre, No.2 Science Park West Avenue, Hong Kong Science Park, Shatin, Hong Kong.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IN WITNESS whereof this Agreement has been signed on the day and year first above written.

 

THE BORROWER

 

SIGNED by                                               )

for and on behalf of                                   )

CVIE THERAPEUTICS LIMITED               )

in the presence of :-                                   )

 

 

 

 

 

 

THE LENDER

 

SIGNED by                                    )

for and on behalf of                                   )

LEE’S PHARMACEUTICAL INTERNATIONAL LIMITED      )

in the presence of :                                   )

 

Exhibit 10.36 

 

 

Shareholder Loan Agreement

 

 

between

 

CVIE THERAPEUTICS LIMITED

 

 

and

 

 

LEE’S PHARMACEUTICAL INTERNATIONAL LIMITED

 

20 September 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

THIS SHAREHOLDER LOAN AGREEMENT is made on this 20^h day of September 2018

 

BETWEEN:-

 

A	CVIE THERAPEUTICS LIMITED, a company with limited liability and incorporated under the laws of Republic of China, with its registered office at 11F., No.36, Songren Road, Xinyi district, Taipei City, Taiwan, Republic of China as borrower (the “Borrower”); and

 

B

LEE’S PHARMACEUTICAL INTERNATIONAL LIMITED, a company with limited liability and incorporated under the laws of the British Virgin Islands (registered number: 456625), whose registered office is situated at Trident Trust Company (B.V.I.) Limited, Trident Chambers, P.O. Box 146, Road Town, Tortola, British Virgin Islands as lender (the “Lender”).

 

WHEREAS the Lender, being a shareholder of the Borrower, is willing to make available to the Borrower a shareholder loan subject to and on terms and conditions set out in this Agreement.

 

NOW IT IS HEREBY AGREED as follows:-

 

1	DEFINITIONS AND INTERPRETATION

1.1	Definitions. In this Agreement unless the context requires otherwise:-

 

"Advance Date”          means the date when the Loan is drawn down by the Borrower within the Availability Period;

 

"Availability Period”          means a period of one year commencing from the date of this Agreement;

 

"Business Day"          means a day (excluding Saturdays, Sundays and statutory holidays) on which commercial banks in Hong Kong are open for business;

 

"Hong Kong"          means The Hong Kong Special Administrative Region of the People’s Republic of China;

 

"Loan"          means the loan in the principal amount of US$300,000 (three hundred thousand United States Dollars);

 

“Repayment Date”          means the date on which the Loan is repaid under Clause 4;

 

“Term”                    having the meaning ascribed to it under Clause 2.2;

 

“US$”                    means United States dollar.

 

 

1.2	Other Definitions

 

In this Shareholder Loan Agreement, unless the context requires otherwise,

 

(a)

“law” includes common or customary law and any constitutional provision, treaties, convention, statue, act, law, decree, ordinance, interim or temporary provision and regulation, judgment, subsidiary and subordinate legislation, orders, rules, provisions and regulations having the force of law, rules of civil and common law and equity;

 

(b)

“tax” includes any present or future tax, levy, impost, duty, charge, fee, deduction or withholding or any nature and whatever called, by any governmental or other fiscal authority, on whomsoever and wherever imposed, levied, collected, withheld or assessed; and

 

 

(c)     “time” is to Hong Kong time unless otherwise stated.

 

 

2     THE LOAN

2.1     The Loan

Subject to the terms and conditions of this Agreement, the Lender agrees to advance the Loan to the Borrower on the Advance Date for the Term upon receiving not less than two (2) Business Days’ prior written notice from the Borrower.

 

2.2     The Term

 

Subject to the early repayment as provided under Clause 4.2, the term of the Loan shall be for a fixed term of one (1) year commencing from the Advance Date (the “Term”).

 

2.3     Availability Period

 

The Loan is only available for drawdown as from the day of the compliance of all the conditions to the satisfaction of the Lender to the date falling one (1) year after the Borrower's acceptance of this Agreement ("Availability Period").

 

2.4     Drawdown

 

Subject to the terms and conditions set out in this agreement, the Borrower may, on any Business Day during the Availability Period, make a drawing under the Facility on condition that the Borrower shall only draw a minimum of US$300,000.00 or if more, in integral multiples of US$300,000.00 and not more than the available facility limit.

 

 

3     INTEREST

 

3.1     Interest Rate

 

The rate of interest applicable to the Loan shall be 4% per annum.

 

3.2     Calculation of Interest

 

Interest under this Agreement shall be calculated on the basis of a year of 365 days (or 366 days in the case of a leap year) for the actual number of days elapsed during the period for which interest is calculated. Interest shall be so calculated with respect to each day during such period by multiplying the outstanding principal balance of the Loan on such day at the close of business on such day by a daily interest factor, which interest factor shall be calculated by dividing the interest rate per annum in effect on such day with respect to such Loan by 365 (or 366 days in the case of a leap year).

 

3.3     Payment of Interest

 

Interest accrued and calculated as aforesaid for the period commencing on the date on which the Loan is advanced up to (but excluding) the Repayment Date shall, subject as otherwise provided herein, be payable on the Repayment Date.

 

 

 

 

 

 

 

 

 

4     REPAYMENT

 

4.1     Repayment

 

Subject to Clause 4.2, the Borrower shall repay the Loan, together with the interest accrued in accordance with Clause 3 on the expiry date of the Term.

 

4.2	The Borrower shall have the right to make early repayment on the Loan, together with the interest accrued at any time during the Term by giving 7 days’ written notice to the Lender (the “Written Notice”). Repayment shall then be made on the date as specified in the Written Notice.

 

 

5     PAYMENT PROVISIONS

 

5.1     Payment of Loan by Lender

 

On the date on which the Loan is to be made, the Lender shall make the Loan to the Borrower not later than close of business (Hong Kong time) on the Advance Date by payment in US$ in immediately available funds to the account of the Borrower as the Borrower shall have informed the Lender in writing.

 

5.2     Payment by Borrower

 

All payments to be made by the Borrower under or pursuant to this Agreement shall be made to the Lender on the date upon which the relevant payment is due in US$ in full and in immediately available funds to the Lender before 4:00p.m. (Hong Kong time) on that date by payment into such account as the Lender may from time to time specify.

 

5.3     Non-Business Day

 

Any payment to be made by the Borrower on a day which would otherwise be due on a day which is not a Business Day shall instead be due on the preceding Business Day.

 

5.4     Restrictions, Taxes and Withholdings

 

All amounts payable by the Borrower under this Agreement shall be paid (except to the extent required by law):-

 

(a)

free of any restriction or condition;

 

(b)

free and clear of and without any deduction or withholding on account of any taxes; and

 

(c)

without deduction or withholding on account of any other amount, whether by way of set-off, counterclaim or otherwise.

 

 

6     FEES AND EXPENSES

 

Expenses and Duties

 

Whether or not any monies are advanced under this Agreement, the Borrower shall pay to the Lender:-

 

(a)

on demand, all costs and expenses (including, but not limited to, legal and other professional advisers' fees) incurred by the Lender in connection with the preparation, printing, negotiation or entry into of this Agreement and the arrangement of the Loan; and

 

(b)

on demand, all costs and expenses (including legal fees on a full indemnity basis) incurred by the Lender in perfecting, preserving, protecting, exercising or enforcing any rights under this Agreement or attempting to perfect, preserve, protect, exercise or enforce any rights under this Agreement.

 

 

 

7     AMENDMENT, WAIVER AND REMEDIES

 

7.1     Amendments and Waiver

 

Any amendment or waiver of any provision of this Agreement and any waiver of any default under this Agreement shall only be effective if made in writing and signed by or on behalf of the party against whom the amendment or waiver is claimed to be binding.

 

7.2     No Implied Waivers, Remedies Cumulative

 

Time is of the essence of this Agreement, but no failure or delay by the Lender in exercising any right, power or discretion shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or discretion preclude any further exercise thereof or the exercise of any other right, power or discretion. The rights, powers and remedies herein provided are cumulative and do not exclude any other rights, powers and remedies provided by law. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Lender to any other or further action in any circumstances without notice or demand.

 

 

8     ENTIRE AGREEMENT

 

8.1     Entire Agreement

 

This Agreement constitutes the entire obligation of the Lender and the Borrower with respect to the subject matter thereof and shall supersede any prior expressions of intent or understandings with respect to this transaction.

 

9     COUNTERPART

 

9.1     Counterpart

 

This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which is an original but, together, they constitute one and the same agreement.

 

 

10     GOVERNING LAW AND JURISDICTION

 

10.1     Governing Law

 

This Agreement and the rights and obligations of the parties hereunder shall be governed by and construed in accordance with the laws of Hong Kong.

 

10.2     Jurisdiction

 

The Borrower agree that any legal action or proceeding arising out of or relating to this Agreement may be brought in the courts of Hong Kong and hereby irrevocably submit with regard to any such action or proceeding, for itself and in respect of its assets, to the non-exclusive jurisdiction of such courts.

 

 

11     AGENT FOR SERVICE

 

11.1     Process Agent

 

Each of the parties irrevocably appoint the person named in Schedule as its process agent (“Agent”) to receive service on its behalf in Hong Kong of any proceedings arising out of or in connection with this Agreement.

 

 

 

 

11.2     Service

 

Service shall be deemed completed on delivery to the Agent (whether or not it is forwarded to and received by the party which appointed the Agent).

 

 

11.3     Substitute Agent

 

If for any reason any Agent ceases to act as agent or no longer has an address in Hong Kong, the party who appointed the Agent irrevocably agrees, within 20 (twenty) Business Days, to appoint a substitute agent with an address in Hong Kong and to notify the other parties in writing immediately thereafter.

 

11.4     Other manner

 

Nothing in this Agreement shall affect the right to serve process in any other manner permitted by law.

 

 

 

 

 

SCHEDULE

 

Process Agent

 

1.	The Lender’s Agent is Lee’s Pharmaceutical Holdings Limited, 1/F, Building 20E, Phase 3, Hong Kong Science Park, Shatin, Hong Kong.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IN WITNESS whereof this Agreement has been signed on the day and year first above written.

 

THE BORROWER

 

SIGNED by                                               )

for and on behalf of                                   )

CVIE THERAPEUTICS LIMITED               )

in the presence of :-                                   )

 

 

 

 

 

 

THE LENDER

 

SIGNED by                                    )

for and on behalf of                                   )

LEE’S PHARMACEUTICAL INTERNATIONAL LIMITED      )

in the presence of :                                   )

 

Exhibit 10.37

 

 

Shareholder Loan Agreement

 

 

between

 

CVIE THERAPEUTICS LIMITED

 

 

and

 

 

LEE’S PHARMACEUTICAL INTERNATIONAL LIMITED

 

October 26 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

THIS SHAREHOLDER LOAN AGREEMENT is made on this 24^th day of October 2018

 

BETWEEN:-

 

A	CVIE THERAPEUTICS LIMITED, a company with limited liability and incorporated under the laws of Republic of China, with its registered office at 11F., No.36, Songren Road, Xinyi district, Taipei City, Taiwan, Republic of China as borrower (the “Borrower”); and

 

B

LEE’S PHARMACEUTICAL INTERNATIONAL LIMITED, a company with limited liability and incorporated under the laws of the British Virgin Islands (registered number: 456625), whose registered office is situated at Trident Trust Company (B.V.I.) Limited, Trident Chambers, P.O. Box 146, Road Town, Tortola, British Virgin Islands as lender (the “Lender”).

 

WHEREAS the Lender, being a shareholder of the Borrower, is willing to make available to the Borrower a shareholder loan subject to and on terms and conditions set out in this Agreement.

 

NOW IT IS HEREBY AGREED as follows:-

 

1	DEFINITIONS AND INTERPRETATION

1.1	Definitions. In this Agreement unless the context requires otherwise:-

 

"Advance Date”          means the date when the Loan is drawn down by the Borrower within the Availability Period;

 

"Availability Period”          means a period of one year commencing from the date of this Agreement;

 

"Business Day"          means a day (excluding Saturdays, Sundays and statutory holidays) on which commercial banks in Hong Kong are open for business;

 

"Hong Kong"          means The Hong Kong Special Administrative Region of the People’s Republic of China;

 

"Loan"          means the loan in the principal amount of US$150,000 (one hundred fifty thousand United States Dollars);

 

“Repayment Date”          means the date on which the Loan is repaid under Clause 4;

 

“Term”                    having the meaning ascribed to it under Clause 2.2;

 

“US$”                    means United States dollar.

 

 

1.2	Other Definitions

 

In this Shareholder Loan Agreement, unless the context requires otherwise,

 

(a)

“law” includes common or customary law and any constitutional provision, treaties, convention, statue, act, law, decree, ordinance, interim or temporary provision and regulation, judgment, subsidiary and subordinate legislation, orders, rules, provisions and regulations having the force of law, rules of civil and common law and equity;

 

(b)

“tax” includes any present or future tax, levy, impost, duty, charge, fee, deduction or withholding or any nature and whatever called, by any governmental or other fiscal authority, on whomsoever and wherever imposed, levied, collected, withheld or assessed; and

 

 

(c)     “time” is to Hong Kong time unless otherwise stated.

 

 

2     THE LOAN

2.1     The Loan

Subject to the terms and conditions of this Agreement, the Lender agrees to advance the Loan to the Borrower on the Advance Date for the Term upon receiving not less than two (2) Business Days’ prior written notice from the Borrower.

 

2.2     The Term

 

Subject to the early repayment as provided under Clause 4.2, the term of the Loan shall be for a fixed term of one (1) year commencing from the Advance Date (the “Term”).

 

2.3     Availability Period

 

The Loan is only available for drawdown as from the day of the compliance of all the conditions to the satisfaction of the Lender to the date falling one (1) year after the Borrower's acceptance of this Agreement ("Availability Period").

 

2.4     Drawdown

 

Subject to the terms and conditions set out in this agreement, the Borrower may, on any Business Day during the Availability Period, make a drawing under the Facility on condition that the Borrower shall only draw a minimum of US$482,000.00.

 

3     INTEREST

 

3.1     Interest Rate

 

The rate of interest applicable to the Loan shall be 4% per annum.

 

3.2     Calculation of Interest

 

Interest under this Agreement shall be calculated on the basis of a year of 365 days (or 366 days in the case of a leap year) for the actual number of days elapsed during the period for which interest is calculated. Interest shall be so calculated with respect to each day during such period by multiplying the outstanding principal balance of the Loan on such day at the close of business on such day by a daily interest factor, which interest factor shall be calculated by dividing the interest rate per annum in effect on such day with respect to such Loan by 365 (or 366 days in the case of a leap year).

 

3.3     Payment of Interest

 

Interest accrued and calculated as aforesaid for the period commencing on the date on which the Loan is advanced up to (but excluding) the Repayment Date shall, subject as otherwise provided herein, be payable on the Repayment Date.

 

4     REPAYMENT

 

4.1     Repayment

 

Subject to Clause 4.2, the Borrower shall repay the Loan, together with the interest accrued in accordance with Clause 3 on the expiry date of the Term.

 

 

4.2	The Borrower shall have the right to make early repayment on the Loan, together with the interest accrued at any time during the Term by giving 7 days’ written notice to the Lender (the “Written Notice”). Repayment shall then be made on the date as specified in the Written Notice.

 

 

5     PAYMENT PROVISIONS

 

5.1     Payment of Loan by Lender

 

On the date on which the Loan is to be made, the Lender shall make the Loan to the Borrower not later than close of business (Hong Kong time) on the Advance Date by payment in US$ in immediately available funds to the account of the Borrower as the Borrower shall have informed the Lender in writing.

 

5.2     Payment by Borrower

 

All payments to be made by the Borrower under or pursuant to this Agreement shall be made to the Lender on the date upon which the relevant payment is due in US$ in full and in immediately available funds to the Lender before 4:00p.m. (Hong Kong time) on that date by payment into such account as the Lender may from time to time specify.

 

5.3     Non-Business Day

 

Any payment to be made by the Borrower on a day which would otherwise be due on a day which is not a Business Day shall instead be due on the preceding Business Day.

 

5.4     Restrictions, Taxes and Withholdings

 

All amounts payable by the Borrower under this Agreement shall be paid (except to the extent required by law):-

 

(a)

free of any restriction or condition;

 

(b)

free and clear of and without any deduction or withholding on account of any taxes; and

 

(c)

without deduction or withholding on account of any other amount, whether by way of set-off, counterclaim or otherwise.

 

 

6     FEES AND EXPENSES

 

Expenses and Duties

 

Whether or not any monies are advanced under this Agreement, the Borrower shall pay to the Lender:-

 

(a)

on demand, all costs and expenses (including, but not limited to, legal and other professional advisers' fees) incurred by the Lender in connection with the preparation, printing, negotiation or entry into of this Agreement and the arrangement of the Loan; and

 

(b)

on demand, all costs and expenses (including legal fees on a full indemnity basis) incurred by the Lender in perfecting, preserving, protecting, exercising or enforcing any rights under this Agreement or attempting to perfect, preserve, protect, exercise or enforce any rights under this Agreement.

 

7     AMENDMENT, WAIVER AND REMEDIES

 

7.1     Amendments and Waiver

 

Any amendment or waiver of any provision of this Agreement and any waiver of any default under this Agreement shall only be effective if made in writing and signed by or on behalf of the party against whom the amendment or waiver is claimed to be binding.

 

 

7.2     No Implied Waivers, Remedies Cumulative

 

Time is of the essence of this Agreement, but no failure or delay by the Lender in exercising any right, power or discretion shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or discretion preclude any further exercise thereof or the exercise of any other right, power or discretion. The rights, powers and remedies herein provided are cumulative and do not exclude any other rights, powers and remedies provided by law. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Lender to any other or further action in any circumstances without notice or demand.

 

 

8     ENTIRE AGREEMENT

 

8.1     Entire Agreement

 

This Agreement constitutes the entire obligation of the Lender and the Borrower with respect to the subject matter thereof and shall supersede any prior expressions of intent or understandings with respect to this transaction.

 

 

9     COUNTERPART

 

9.1     Counterpart

 

This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which is an original but, together, they constitute one and the same agreement.

 

 

10     GOVERNING LAW AND JURISDICTION

 

10.1     Governing Law

 

This Agreement and the rights and obligations of the parties hereunder shall be governed by and construed in accordance with the laws of Hong Kong.

 

10.2     Jurisdiction

 

The Borrower agree that any legal action or proceeding arising out of or relating to this Agreement may be brought in the courts of Hong Kong and hereby irrevocably submit with regard to any such action or proceeding, for itself and in respect of its assets, to the non-exclusive jurisdiction of such courts.

 

 

11     AGENT FOR SERVICE

 

11.1     Process Agent

 

Each of the parties irrevocably appoint the person named in Schedule as its process agent (“Agent”) to receive service on its behalf in Hong Kong of any proceedings arising out of or in connection with this Agreement.

 

11.2     Service

 

Service shall be deemed completed on delivery to the Agent (whether or not it is forwarded to and received by the party which appointed the Agent).

 

 

 

 

 

 

11.3     Substitute Agent

 

If for any reason any Agent ceases to act as agent or no longer has an address in Hong Kong, the party who appointed the Agent irrevocably agrees, within 20 (twenty) Business Days, to appoint a substitute agent with an address in Hong Kong and to notify the other parties in writing immediately thereafter.

 

11.4     Other manner

 

Nothing in this Agreement shall affect the right to serve process in any other manner permitted by law.

 

 

 

 

 

SCHEDULE

 

Process Agent

 

1.	The Lender’s Agent is Lee’s Pharmaceutical Holdings Limited, 1/F, Building 20E, Phase 3, Hong Kong Science Park, Shatin, Hong Kong.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IN WITNESS whereof this Agreement has been signed on the day and year first above written.

 

THE BORROWER

 

SIGNED by                                               )

for and on behalf of                                   )

CVIE THERAPEUTICS LIMITED               )

in the presence of :-                                   )

 

 

 

 

 

 

THE LENDER

 

SIGNED by                                    )

for and on behalf of                                   )

LEE’S PHARMACEUTICAL INTERNATIONAL LIMITED      )

in the presence of :                                   )

 

Exhibit 10.38

 

 

 

Shareholder Loan Agreement

 

 

between

 

CVIE THERAPEUTICS LIMITED

 

 

and

 

 

LEE’S PHARMACEUTICAL INTERNATIONAL LIMITED

 

16 November 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

THIS SHAREHOLDER LOAN AGREEMENT is made on this 16^h day of November 2018

 

BETWEEN:-

 

A	CVIE THERAPEUTICS LIMITED, a company with limited liability and incorporated under the laws of Republic of China, with its registered office at 11F., No.36, Songren Road, Xinyi district, Taipei City, Taiwan, Republic of China as borrower (the “Borrower”); and

 

B

LEE’S PHARMACEUTICAL INTERNATIONAL LIMITED, a company with limited liability and incorporated under the laws of the British Virgin Islands (registered number: 456625), whose registered office is situated at Trident Trust Company (B.V.I.) Limited, Trident Chambers, P.O. Box 146, Road Town, Tortola, British Virgin Islands as lender (the “Lender”).

 

WHEREAS the Lender, being a shareholder of the Borrower, is willing to make available to the Borrower a shareholder loan subject to and on terms and conditions set out in this Agreement.

 

NOW IT IS HEREBY AGREED as follows:-

 

1	DEFINITIONS AND INTERPRETATION

1.1	Definitions. In this Agreement unless the context requires otherwise:-

 

"Advance Date”          means the date when the Loan is drawn down by the Borrower within the Availability Period;

 

"Availability Period”          means a period of one year commencing from the date of this Agreement;

 

"Business Day"          means a day (excluding Saturdays, Sundays and statutory holidays) on which commercial banks in Hong Kong are open for business;

 

"Hong Kong"          means The Hong Kong Special Administrative Region of the People’s Republic of China;

 

"Loan"          means the loan in the principal amount of US$2,500,000 (two million five hundred thousand United States Dollars);

 

“Repayment Date”          means the date on which the Loan is repaid under Clause 4;

 

“Term”                    having the meaning ascribed to it under Clause 2.2;

 

“US$”                    means United States dollar.

 

 

1.2	Other Definitions

 

In this Shareholder Loan Agreement, unless the context requires otherwise,

 

(a)

“law” includes common or customary law and any constitutional provision, treaties, convention, statue, act, law, decree, ordinance, interim or temporary provision and regulation, judgment, subsidiary and subordinate legislation, orders, rules, provisions and regulations having the force of law, rules of civil and common law and equity;

 

(b)

“tax” includes any present or future tax, levy, impost, duty, charge, fee, deduction or withholding or any nature and whatever called, by any governmental or other fiscal authority, on whomsoever and wherever imposed, levied, collected, withheld or assessed; and

 

 

(c)     “time” is to Hong Kong time unless otherwise stated.

 

 

2     THE LOAN

2.1     The Loan

Subject to the terms and conditions of this Agreement, the Lender agrees to advance the Loan to the Borrower on the Advance Date for the Term upon receiving not less than two (2) Business Days’ prior written notice from the Borrower.

 

2.2     The Term

 

Subject to the early repayment as provided under Clause 4.2, the term of the Loan shall be for a fixed term of one (1) year commencing from the Advance Date (the “Term”).

 

2.3     Availability Period

 

The Loan is only available for drawdown as from the day of the compliance of all the conditions to the satisfaction of the Lender to the date falling one (1) year after the Borrower's acceptance of this Agreement ("Availability Period").

 

2.4     Drawdown

 

Subject to the terms and conditions set out in this agreement, the Borrower may, on any Business Day during the Availability Period, make a drawing under the Facility on condition that the Borrower shall only draw a minimum of US$482,000.00.

 

3     INTEREST

 

3.1     Interest Rate

 

The rate of interest applicable to the Loan shall be 4% per annum.

 

3.2     Calculation of Interest

 

Interest under this Agreement shall be calculated on the basis of a year of 365 days (or 366 days in the case of a leap year) for the actual number of days elapsed during the period for which interest is calculated. Interest shall be so calculated with respect to each day during such period by multiplying the outstanding principal balance of the Loan on such day at the close of business on such day by a daily interest factor, which interest factor shall be calculated by dividing the interest rate per annum in effect on such day with respect to such Loan by 365 (or 366 days in the case of a leap year).

 

3.3     Payment of Interest

 

Interest accrued and calculated as aforesaid for the period commencing on the date on which the Loan is advanced up to (but excluding) the Repayment Date shall, subject as otherwise provided herein, be payable on the Repayment Date.

 

4     REPAYMENT

 

4.1     Repayment

 

Subject to Clause 4.2, the Borrower shall repay the Loan, together with the interest accrued in accordance with Clause 3 on the expiry date of the Term.

 

 

4.2	The Borrower shall have the right to make early repayment on the Loan, together with the interest accrued at any time during the Term by giving 7 days’ written notice to the Lender (the “Written Notice”). Repayment shall then be made on the date as specified in the Written Notice.

 

 

5     PAYMENT PROVISIONS

 

5.1     Payment of Loan by Lender

 

On the date on which the Loan is to be made, the Lender shall make the Loan to the Borrower not later than close of business (Hong Kong time) on the Advance Date by payment in US$ in immediately available funds to the account of the Borrower as the Borrower shall have informed the Lender in writing.

 

5.2     Payment by Borrower

 

All payments to be made by the Borrower under or pursuant to this Agreement shall be made to the Lender on the date upon which the relevant payment is due in US$ in full and in immediately available funds to the Lender before 4:00p.m. (Hong Kong time) on that date by payment into such account as the Lender may from time to time specify.

 

5.3     Non-Business Day

 

Any payment to be made by the Borrower on a day which would otherwise be due on a day which is not a Business Day shall instead be due on the preceding Business Day.

 

5.4     Restrictions, Taxes and Withholdings

 

All amounts payable by the Borrower under this Agreement shall be paid (except to the extent required by law):-

 

(a)

free of any restriction or condition;

 

(b)

free and clear of and without any deduction or withholding on account of any taxes; and

 

(c)

without deduction or withholding on account of any other amount, whether by way of set-off, counterclaim or otherwise.

 

 

6     FEES AND EXPENSES

 

Expenses and Duties

 

Whether or not any monies are advanced under this Agreement, the Borrower shall pay to the Lender:-

 

(a)

on demand, all costs and expenses (including, but not limited to, legal and other professional advisers' fees) incurred by the Lender in connection with the preparation, printing, negotiation or entry into of this Agreement and the arrangement of the Loan; and

 

(b)

on demand, all costs and expenses (including legal fees on a full indemnity basis) incurred by the Lender in perfecting, preserving, protecting, exercising or enforcing any rights under this Agreement or attempting to perfect, preserve, protect, exercise or enforce any rights under this Agreement.

 

7     AMENDMENT, WAIVER AND REMEDIES

 

7.1     Amendments and Waiver

 

Any amendment or waiver of any provision of this Agreement and any waiver of any default under this Agreement shall only be effective if made in writing and signed by or on behalf of the party against whom the amendment or waiver is claimed to be binding.

 

 

7.2     No Implied Waivers, Remedies Cumulative

 

Time is of the essence of this Agreement, but no failure or delay by the Lender in exercising any right, power or discretion shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or discretion preclude any further exercise thereof or the exercise of any other right, power or discretion. The rights, powers and remedies herein provided are cumulative and do not exclude any other rights, powers and remedies provided by law. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Lender to any other or further action in any circumstances without notice or demand.

 

 

8     ENTIRE AGREEMENT

 

8.1     Entire Agreement

 

This Agreement constitutes the entire obligation of the Lender and the Borrower with respect to the subject matter thereof and shall supersede any prior expressions of intent or understandings with respect to this transaction.

 

 

9     COUNTERPART

 

9.1     Counterpart

 

This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which is an original but, together, they constitute one and the same agreement.

 

 

10     GOVERNING LAW AND JURISDICTION

 

10.1     Governing Law

 

This Agreement and the rights and obligations of the parties hereunder shall be governed by and construed in accordance with the laws of Hong Kong.

 

10.2     Jurisdiction

 

The Borrower agree that any legal action or proceeding arising out of or relating to this Agreement may be brought in the courts of Hong Kong and hereby irrevocably submit with regard to any such action or proceeding, for itself and in respect of its assets, to the non-exclusive jurisdiction of such courts.

 

 

11     AGENT FOR SERVICE

 

11.1     Process Agent

 

Each of the parties irrevocably appoint the person named in Schedule as its process agent (“Agent”) to receive service on its behalf in Hong Kong of any proceedings arising out of or in connection with this Agreement.

 

11.2     Service

 

Service shall be deemed completed on delivery to the Agent (whether or not it is forwarded to and received by the party which appointed the Agent).

 

 

 

 

 

 

11.3     Substitute Agent

 

If for any reason any Agent ceases to act as agent or no longer has an address in Hong Kong, the party who appointed the Agent irrevocably agrees, within 20 (twenty) Business Days, to appoint a substitute agent with an address in Hong Kong and to notify the other parties in writing immediately thereafter.

 

11.4     Other manner

 

Nothing in this Agreement shall affect the right to serve process in any other manner permitted by law.

 

 

 

 

 

SCHEDULE

 

Process Agent

 

1.	The Lender’s Agent is Lee’s Pharmaceutical Holdings Limited, 1/F, Building 20E, Phase 3, Hong Kong Science Park, Shatin, Hong Kong.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IN WITNESS whereof this Agreement has been signed on the day and year first above written.

 

THE BORROWER

 

SIGNED by                                               )

for and on behalf of                                   )

CVIE THERAPEUTICS LIMITED               )

in the presence of :-                                   )

 

 

 

 

 

 

THE LENDER

 

SIGNED by                                    )

for and on behalf of                                   )

LEE’S PHARMACEUTICAL INTERNATIONAL LIMITED      )

in the presence of :                                   )

 

Exhibit 21.1

 

 

 

Subsidiaries of Registrant:

1. Discovery Laboratories, Inc., formerly known as Acute Therapeutics, Inc.

2. CVie Investments Limited 

3. CVie Therapeutics Limited, a wholly-owned subsidiary of CVie Investments Limited

 

Exhibit 23.1

 

Consent of Independent Registered Public Accounting Firm

 

We consent to the incorporation by reference in the following Registration Statements:

 

1)

Registration Statement (Form S-1 No. 333-217161) of Windtree Therapeutics, Inc. and in related Prospectuses,

 

2)

Registration Statement (Form S-3 No. 333-86105, Form S-3 No. 333-35206, Form S-3 No. 333-72614, Form S-3 No. 333-82596, Form S-3 No. 333-101666, Form S-3 No. 333-107836, Form S-3 No. 333-111360, Form S-3 No. 333-118595, Form S-3 No. 333-121297, Form S-3 No. 333-122887, Form S-3 No. 333-128929, Form S-3 No. 333-133786, Form S-3 No. 333-139173, Form S-3 No. 333-156237, Form S-3 No. 333-187934, Form S-3 No. 333-193490, and Form S-3 No. 333-196420) of Windtree Therapeutics, Inc. and in related Prospectuses,

 

3)

Registration Statement (Form S-8 No. 333-180497, Form S-8 No. 333-184277, Form S-8 No. 333-189966, Form S-8 No. 333-197139, Form S-8 No. 333-209141, and Form S-8 No. 333-224338) pertaining to the Windtree Therapeutics, Inc. 2011 Long-Term Incentive Plan,

 

4)

Registration Statement (Form S-8 No. 333-148028) pertaining to the Windtree Therapeutics, Inc. 2007 Long-Term Incentive Plan,

 

5)

Registration Statement (Form S-8 No. 333-33900, Form S-8 No. 333-55900, Form S-8 No. 333-67422, Form S-8 No. 333-100824, Form S-8 No. 333-109274, Form S-8 No. 333-116268, Form S-8 No. 333-127790, Form S-8 No. 333-138476, Form S-8 No. 333-208879, Form S-3 No. 333-209141 and Form S-8 No. 210464) pertaining to the Amended and Restated 1998 Stock Incentive Plan of Windtree Therapeutics, Inc.,

 

6)

Registration Statement (Form S-8 No. 333-59945) pertaining to the Amended and Restated 1998 Stock Incentive Plan of Windtree Therapeutics, Inc., the 1996 Stock Option/Stock Issuance Plan of Windtree Therapeutics, Inc., and the 1996 Stock Option/ Stock Issuance Plan of Acute Therapeutics, Inc., and

 

7)

Registration Statement (Form S-8 No. 333-110412, Form S-8 No. 333-137643, Form S-8 No. 333-156443, Form S-8 No. 333-164470, Form S-8 No. 333-165809, Form S-8 No. 333-169662, Form S-8 No. 333-173259, Form S-8 No.333-180497, Form S-8 No. 333-187486, Form S-8 No. 333-191502, Form S-8 No. 333-197139, Form S-8 No. 333-201478, Form S-8 No. 333-208879, and S-8 No. 333-209141) pertaining to the 401(k) Plan of Windtree Therapeutics, Inc.,

 

of our report dated April 16, 2019, with respect to the consolidated financial statements of Windtree Therapeutics, Inc. and subsidiaries included in this Annual Report (Form 10-K) of Windtree Therapeutics, Inc. and subsidiaries for the year ended December 31, 2018.

 

/s/ Ernst & Young LLP

Philadelphia, Pennsylvania

April 16, 2019

 

 

 

Exhibit 31.1

 

 

CERTIFICATIONS

 

I, Craig Fraser, certify that:

 

1.     I have reviewed this Annual Report on Form 10-K of Windtree Therapeutics, Inc.;

 

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.     I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including our consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.     I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Date: April 16, 2019		/s/ Craig Fraser
		Craig Fraser
		President and Chief Executive Officer

 

 

 

 

Exhibit 31.1

 

CERTIFICATIONS

 

I, John Tattory, certify that:

 

1.     I have reviewed this Annual Report on Form 10-K of Windtree Therapeutics, Inc.;

 

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.     I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including our consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)    Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)    Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.     I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

 

Date: April 16, 2019		/s/ John Tattory
		John Tattory
		Senior Vice President and Chief Financial Officer

 

Exhibit 32.1

 

 

CERTIFICATIONS

 

Pursuant to 18 U.S.C. § 1350, each of the undersigned officers of Windtree Therapeutics, Inc. (the “Company”) hereby certifies that our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (“Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

Date: April 16, 2019

 

/s/ Craig Fraser                         

Craig Fraser

President and Chief Executive Officer

 

/s/ John Tattory                         

John Tattory

Senior Vice President and Chief Financial Officer

 

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.

 

This certification is being furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. This certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

 

 

Exhibit 99.1

 

IN ACCORDANCE WITH THE TEMPORARY HARDSHIP EXEMPTION PROVIDED BY RULE 201 OF REGULATION S-T, THE DATE BY WHICH THE INTERACTIVE DATA FILE IS REQUIRED TO BE SUBMITTED HAS BEEN EXTENDED BY SIX BUSINESS DAYS.