Pulmatrix (PULM) Risk Analysis

We are subject to the anti-takeover provisions of Delaware law, including Section 203 of the General Corporation Law of Delaware (the "DGCL"). Under these provisions, if anyone becomes an "interested stockholder," we may not enter into a "business combination" with that person for three (3) years without special approval, which could discourage a third party from making a takeover offer and could delay or prevent a change of control. For purposes of Section 203 of the DGCL, "interested stockholder" means, generally, someone owning fifteen percent (15%) or more of our outstanding voting stock or an affiliate that owned fifteen percent (15%) or more of our outstanding voting stock during the past three (3) years, subject to certain exceptions as described in Section 203 of the DGCL.

We have a public float of less than $250 million and therefore qualify as a smaller reporting company under the rules of the SEC. As a smaller reporting company, we are able to take advantage of reduced disclosure requirements, such as simplified executive compensation disclosures and reduced financial statement disclosure requirements in our SEC filings. Decreased disclosures in our SEC filings due to our status as a smaller reporting company may make it harder for investors to analyze our results of operations and financial prospects. We cannot predict if investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of the reporting exemptions applicable to a smaller reporting company until we are no longer a smaller reporting company, which status would end once we have a public float greater than $250 million. In that event, we could still be a smaller reporting company if our annual revenues were below $100 million and we have a public float of less than $700 million.

We may seek the additional capital necessary to fund our operations through public or private equity offerings, debt financings, and collaborative and licensing arrangements. To the extent we raise additional capital by issuing equity securities, including in a debt financing where we issue convertible notes or notes with warrants and any shares of our common stock to be issued in a private placement, our stockholders may experience substantial dilution. We may, from time to time, sell additional equity securities in one or more transactions at prices and in a manner we determine. If we sell additional equity securities, existing stockholders may be materially diluted. In addition, new investors could gain rights superior to existing stockholders, such as liquidation and other preferences. In addition, the exercise or conversion of outstanding options or warrants to purchase shares of capital stock may result in dilution to our stockholders upon any such exercise or conversion. In addition, we have sponsored the Amended and Restated 2013 Employee, Director and Consultant Equity Incentive Plan (the "Incentive Plan"), which expired on June 10, 2025. No new awards may be made under the Incentive Plan after its expiration date. Awards issued under the Incentive Plan prior to its expiration remain outstanding in accordance with their terms. As of December 31, 2025, an aggregate of 33,858 shares of our common stock could be delivered upon the exercise or conversion of outstanding stock options under the Incentive Plan. We may also issue additional options, warrants and other types of equity in the future as part of stock-based compensation, capital raising transactions, technology licenses, financings, strategic licenses or other strategic transactions. To the extent these options are exercised, existing stockholders would experience additional ownership dilution.

Our common stock is listed on Nasdaq. For continued listing on Nasdaq, we will be required to comply with the continued listing requirements, including the minimum market capitalization standard, the minimum stockholders' equity requirement, the corporate governance requirements and the minimum closing bid price requirement, among other requirements. In the event that we fail to satisfy any of the listing requirements of Nasdaq, our common stock may be delisted. If our securities are delisted from trading on the Nasdaq Stock Market, and we are not able to list our securities on another exchange or to have them quoted on the Nasdaq Stock Market, our securities could be quoted on the OTC Markets. As a result, we could face significant adverse consequences including: - a limited availability of market quotations for our securities;         - a determination that our common stock is a "penny stock," which would require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;- a limited amount of news and analyst coverage; and         - a decreased ability to issue additional securities (including pursuant to short-form registration statements on Form S-3 or obtain additional financing in the future).

The stock market in general, and Nasdaq in particular, as well as biotechnology companies, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of small companies. The market price of our common stock may fluctuate as a result of, among other factors: - the announcement of new products, new developments, services or technological innovations by us or our competitors;         - actual or anticipated quarterly increases or decreases in revenue, gross margin or earnings, and changes in our business, operations or prospects;         - announcements relating to strategic relationships, mergers, acquisitions, partnerships, collaborations, joint ventures, capital commitments, or other events by us or our competitors;         - conditions or trends in the biotechnology and pharmaceutical industries;- changes in the economic performance or market valuations of other biotechnology and pharmaceutical companies;         - general market conditions or domestic or international macroeconomic and geopolitical factors unrelated to our performance or financial condition (including, for example, the conflicts in Ukraine and Israel, supply chain and ongoing inflationary pressures and tariff increases);         - purchase or sale of our common stock by stockholders, including executives and directors;         - volatility and limitations in trading volumes of our common stock;         - our ability to obtain financings to conduct and complete research and development activities including, but not limited to, our human clinical trials, and other business activities;         - any delays or adverse developments or perceived adverse developments with respect to the FDA's review of our planned preclinical and clinical trials;         - ability to secure resources and the necessary personnel to conduct clinical trials on our desired schedule;         - failures to meet external expectations or management guidance;         - changes in our capital structure or dividend policy, future issuances of securities, sales or distributions of large blocks of our common stock by stockholders;         - our cash position;         - announcements and events surrounding financing efforts, including debt and equity securities;         - our inability to enter into new markets or develop new products;         - reputational issues;         - analyst research reports, recommendations and changes in recommendations, price targets, and withdrawals of coverage;         - departures and additions of key personnel;         - disputes and litigation related to intellectual property rights, proprietary rights, and contractual obligations;         - changes in applicable laws, rules, regulations, or accounting practices and other dynamics; and         - other events or factors, many of which may be out of our control. In addition, if the market for stocks in our industry or industries related to our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could fluctuate or decline for reasons unrelated to our business, financial condition and results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.

Should the market price of our common stock decline after the proposed reverse stock split, the percentage decline may be greater, due to the smaller number of shares outstanding, than it would have been prior to the reverse stock split. A reverse stock split is often viewed negatively by the market and, consequently, can lead to a decrease in the overall market capitalization of the Combined Company. If the per share market price does not increase in proportion to the reverse stock split ratio, then the value of the Combined Company, as measured by its stock capitalization, will be reduced. In some cases, the per-share stock price of companies that have effected reverse stock splits subsequently declined back to pre-reverse split levels and, accordingly, it cannot be assured that the total market value of our common stock will remain the same after the reverse stock split is effected, or that the proposed reverse stock split will not have an adverse effect on our common stock price due to the reduced number of shares outstanding after the proposed reverse stock split.

Although our board of directors believes that the anticipated increase in the market price of our common stock could encourage interest in its common stock and possibly promote greater liquidity for its stockholders, such liquidity could also be adversely affected by the reduced number of shares outstanding after the reverse stock split. The reduction in the number of outstanding shares may lead to reduced trading and a smaller number of market makers for our common stock.

The proposed amendment to the Certificate of Incorporation in connection with the proposal to increase the number of authorized shares of common stock of the Company as set forth in the joint proxy statement/prospectus is anticipated to authorize the Combined Company to issue up to a certain number of shares of common stock yet to be determined as of the date of this Annual Report on Form 10-K, and does not anticipate reducing this amount in connection with the proposed reverse stock split. Except in certain instances, as required by law or by the rules of the securities exchange that lists the Combined Company common stock, these additional shares may be issued by the Combined Company without further vote of the Combined Company stockholders. If the Combined Company's board of directors chooses to issue additional shares of the Combined Company common stock, such issuance could have a dilutive effect on the equity, earnings and voting interests of the Combined Company stockholders.

If the proposal to approve an amendment to the Certificate of Incorporation to effect a reverse stock split of the issued and outstanding common stock at a ratio determined by our board of directors and agreed to by Cullgen as further described in the joint proxy statement/prospectus (the "Reverse Stock Split Proposal") is approved, the Combined Company anticipates effecting a reverse stock split in order at a ratio to be determined in the future. While it is expected that the reduction in the number of outstanding shares of common stock will proportionally increase the market price of the Combined Company common stock upon effectiveness of the proposed reverse stock split, it cannot be assured that the proposed reverse stock split will result in any sustained proportionate increase in the market price of the Combined Company common stock, which is dependent upon many factors, including the business and financial performance of the Combined Company, general market conditions, and prospects for future success, which are unrelated to the number of shares of the Combined Company common stock outstanding. While the Combined Company common stock price might meet the initial listing requirements for Nasdaq initially, it cannot be assured that it will continue to do so.

Securities litigation or stockholder derivative litigation frequently follows the announcement of certain significant business transactions, such as the sale of a business division or announcement of a business combination transaction. We, our Board of Directors, and/or Cullgen may become involved in this type of litigation in connection with the Merger, and the Combined Company may become involved in this type of litigation in the future. Litigation often is expensive and diverts management's attention and resources, which could adversely affect the business of us, Cullgen and the Combined Company. In connection with the Merger Agreement and the proxy statement/prospectus, Pulmatrix has received multiple demand letters from purported Pulmatrix stockholders demanding that Pulmatrix disclose certain additional information related to the merger (the "Demands"). Pulmatrix cannot predict the outcome of the Demands. Pulmatrix believes that the claims asserted in the Demands are without merit and intends to defend against them vigorously. Additional demand letters or lawsuits arising out of the Merger may also be received or filed in the future.

The Merger Agreement has set the Exchange Ratio (as defined in the Merger Agreement) formula for the Cullgen common stock, and the Exchange Ratio is only adjustable upward or downward to reflect our and Cullgen's equity capitalization as of immediately prior to the effective time of the Merger and the excess cash we have at the effective time of the Merger. Any changes in the market price of common stock before the completion of the Merger will not affect the number of shares Cullgen securityholders will be entitled to receive pursuant to the Merger Agreement. Therefore, if before the completion of the Merger, the market price of our common stock declines from the market price on the date of the Merger Agreement, then Cullgen securityholders could receive merger consideration with substantially lower value. Similarly, if before the completion of the Merger, the market price of our common stock increases from the market price on the date of the Merger Agreement, then Cullgen securityholders could receive merger consideration with substantially more value for their shares of Cullgen common stock than the parties had negotiated for in the establishment of the Exchange Ratio. For a discussion of the Exchange Ratio, see the section titled "The Merger Agreement-Exchange Ratio" beginning on page 136 of the proxy statement/prospectus.

Upon consummation of the Merger, outstanding shares of Cullgen common stock will be converted into the right to receive shares of our common stock. Cullgen stockholders who receive shares of our common stock in the Merger will become our stockholders. As a result, Cullgen stockholders who become our stockholders will be governed by the Certificate of Amendment, rather than being governed by the Cullgen Charter. Pursuant to the Merger Agreement, the Amended and Restated Certificate of Incorporation (the "Certificate of Incorporation") will be amended, subject to our stockholders' approval of the applicable proposals described in the proxy statement/prospectus, immediately prior to the effective time of the Merger. See the section titled "Comparison of Rights of Holders of Pulmatrix Capital Stock and Cullgen Capital Stock" beginning on page 305 of the proxy statement/prospectus.

Our and Cullgen's officers and directors may have interests in the Merger that are different from, or are in addition to, those of our stockholders and Cullgen stockholders generally. Effective upon the Closing, Ying Luo, Ph.D., Thomas Eastling and Yue Xiong, Ph.D. are expected to be employed as executive officers by the Combined Company. It is expected that five directors designated by Cullgen, Drs. Luo and Xiong, Mr. Eastling, Claire Weston, Ph.D. and Maxwell Kirkby, and one director of our existing board of directors to be agreed to by Cullgen (which such director has not been identified as of the date of this Annual Report) are to be appointed as Combined Company directors after the completion of the Merger and will receive cash and equity compensation in consideration for such service as described in more detail in the section titled "Management Following the Merger" beginning on page 284 of the proxy statement/prospectus. Upon the Merger, the vesting of outstanding equity awards held by our current directors and officers will accelerate. Each outstanding option to acquire shares of Cullgen common stock held by Cullgen executive officers and directors will be converted into an option to acquire shares of our common stock. In addition, our and Cullgen's directors and executive officers also have certain rights to indemnification or to directors' and officers' liability insurance that will survive the completion of the Merger. These interests may have influenced our and Cullgen's directors and executive officers to support or recommend the proposals presented to our and Cullgen's stockholders. See the sections titled "The Merger-Interests of Pulmatrix Directors and Executive Officers in the Merger" beginning on page 124 and "The Merger-Interests of Cullgen Directors and Executive Officers in the Merger" beginning on page 126 of the proxy statement/prospectus.

To the extent that we complete a sale of the assets of the Pulmatrix Legacy Business prior to completion of the Merger or are otherwise deemed a shell company, a significant portion of the Combined Company's securities will be restricted from immediate resale. Holders should be aware that transfers of the Combined Company's securities pursuant to Rule 144 may be limited as Rule 144 is not available, subject to certain exceptions, for the resale of securities initially issued by shell companies (other than business combination related shell companies) or issuers that have been at any time previously a shell company. Our expected disposal of our historical assets and operations in connection with the Merger with Cullgen will make us a shell company. We anticipate that following the consummation of the Merger, the Combined Company will no longer be a shell company. As a result, we anticipate that holders will not be able to sell their restricted Combined Company securities pursuant to Rule 144 without registration until one year after we file the Current Report on Form 8-K following the Closing that includes the required Form 10 information that reflects that the Combined Company is no longer a shell company.

The outstanding Cullgen common stock is privately held and is not traded in any public market. The lack of a public market makes it extremely difficult to determine the fair market value of Cullgen shares. Since the percentage of our common stock to be issued to Cullgen stockholders was determined based on negotiations between the parties, it is possible that the value of our common stock to be issued in connection with the Merger will be greater than the fair market value of Cullgen shares. Alternatively, it is possible that the value of the shares of our common stock to be issued in connection with the Merger will be less than the fair market value of Cullgen shares.

In connection with the Merger and as part of the merger consideration, we expect to issue shares of common stock to Cullgen stockholders. The anticipated issuance of our common stock in the Merger may result in fluctuations in the market price of our common stock, including a stock price decrease. In addition, the perception in the market that the holders of a large number of shares of our common stock may intend to sell shares could reduce the market price of our common stock.