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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-38247
AYTU BIOPHARMA, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or other jurisdiction of incorporation
or organization)
7900 East Union Avenue
Suite 920
Denver, Colorado
(Address of principal executive offices)
47-0883144
(I.R.S. Employer Identification Number)
80237
(Zip Code)
(720) 437-6580
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.0001 per share
Trading Symbol
AYTU
Name of each exchange on which
registered
The NASDAQ Capital Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ⌧
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ⌧
Indicate by a check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large
accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):
Large accelerated filer
Non-accelerated filer
☐
⌧
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☒
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of
an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of common stock held by non-affiliates of the Registrant as of December 30, 2022 was $12.3 million based on the closing price of $3.80 as of that date.
As of September 20, 2023, there were 5,530,027 shares of common stock issued and outstanding.
Table of Contents
PART I
TABLE OF CONTENTS
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
PART II
Item 5
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Item 9C
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
CONTROLS AND PROCEDURES
OTHER INFORMATION
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
Item 15
Item 16
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
FORM 10-K SUMMARY
SIGNATURES
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Forward-Looking Statements
This Annual Report on Form 10-K, or Annual Report, includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act.
All statements other than statements of historical facts contained in this Annual Report, including statements regarding our anticipated
future clinical and regulatory events, future financial position, business strategy and plans and objectives of management for future
operations, are forward-looking statements. Forward-looking statements are generally written in the future tense and/or are preceded by
words such as “may,” “will,” “should,” “forecast,” “could,” “expect,” “suggest,” “believe,” “estimate,” “continue,” “anticipate,”
“intend,” “plan,” or similar words, or the negatives of such terms or other variations on such terms or comparable terminology. Such
forward-looking statements include, without limitation, statements regarding the markets for our approved products and our plans for
our approved products, the anticipated start dates, durations and completion dates, as well as the potential future results, of our ongoing
and future clinical trials, the anticipated designs of our future clinical trials, anticipated future regulatory submissions and events, the
potential future commercialization of our product candidates, our anticipated future cash position and future events under our current
and potential future collaborations. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions,
including without limitation the risks described in “Risk Factors” in Part I, Item 1A of this Annual Report. These risks are not
exhaustive. Other sections of this Annual Report include additional factors that could adversely impact our business and financial
performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to
time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or
the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any
forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We cannot assure
you that the events and circumstances reflected in the forward-looking statements will be achieved or occur and actual results could
differ materially from those projected in the forward-looking statements. We assume no obligation to update or supplement forward-
looking statements.
Unless otherwise indicated or unless the context otherwise requires, references in this Form 10-K to the “Company,” “Aytu,”
“we,” “us,” or “our” are to Aytu BioPharma, Inc. and its wholly owned subsidiaries.
This Annual Report on Form 10-K refers to trademarks, such as Aytu, Adzenys XR-ODT, Cotempla XR-ODT, FlutiCare,
Innovus Pharma, Neos, OmepraCare, Poly-Vi-Flor, Regoxidine, and Tri-Vi-Flor which are protected under applicable intellectual
property laws and are our property or the property of our subsidiaries. This Form 10-K also contains trademarks, service marks,
copyrights and trade names of other companies which are the property of their respective owners. Solely for convenience, our
trademarks and tradenames referred to in this Form 10-K may appear without the ® or ™ symbols, but such references are not intended
to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and tradenames.
We obtained statistical data, market and product data, and forecasts used throughout this Form 10-K from market research,
publicly available information and industry publications. While we believe that the statistical data, industry data and forecasts and
market research are reliable, we have not independently verified the data, and we do not make any representation as to the accuracy of
the information.
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Summary of Risk Factors
The following list summarizes what we believe to be the principal risks relevant to our company. The following summary is
further elaborated on by the full text of the risk factors provided in the “Risk Factors” section of this Annual Report on Form 10-K for
the year ended June 30, 2023. All capitalized terms in this section not defined herein shall have the meanings given to them elsewhere
in this Annual Report. Material risks that may affect our business, operating results and financial condition include, but are not
necessarily limited to, the following:
Risks Related to Our Business and Financial Position
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We have incurred losses since our inception and may incur continued losses in the future. We may never achieve or maintain
profitability, and we may require additional capital to fund our operations.
Our failure to comply with the covenants or other terms of the loan and security agreement with Avenue Capital and our
secured revolving loans with Eclipse could result in a default under those agreements that could materially and adversely
affect the ongoing viability of our business.
Our credit facility agreements contain restrictions that limit our flexibility in operating our business.
We have indefinitely suspended development of our AR101 (enzastaurin) clinical development program and shifted our
strategic focus towards accelerating the growth of our commercial business.
Risks Related to Commercialization
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If we are unable to successfully commercialize our commercial prescription products, our business, financial condition and
results of operations may be materially adversely affected, and the price of our common stock may decline.
The commercial success of our commercial prescription products will depend upon their acceptance by multiple stakeholders,
including physicians, patients, and healthcare payors.
If we are unable to differentiate our commercial prescription products from current and future products or existing methods of
treatments or if the market opportunities for our commercial prescription products are smaller than we believe, our ability to
successfully commercialize our commercial prescription products would be adversely affected and our revenue may be
adversely affected.
If we or our contract manufacturing organizations (“CMOs”) fail to manufacture sufficient quantities of our attention
deficit/hyperactivity disorder (“ADHD”) prescription products, we may be unable to meet market demand and our ability to
generate revenues could be affected.
We may encounter manufacturing problems resulting in insufficient quantities being produced or not having access to the
requisite supplies.
If we do not secure collaborations with strategic partners to test, commercialize and manufacture product candidates, we may
not be able to successfully develop products and generate meaningful revenues.
If third-party payors do not reimburse pharmacies or patients for our commercial prescription products or if reimbursement
levels are set too low for us to sell our commercial prescription products at a profit, our ability to successfully commercialize
our commercial prescription products and our results of operations will be harmed.
If we cannot implement and maintain effective patient affordability programs or improve formulary access for our commercial
prescription products in the face of increasing payor pressures, the adoption of our commercial prescription products by
physicians and patients may decline.
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●
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If the U.S. Food and Drug Administration (“FDA”) or other applicable regulatory authorities approve generic or similar
products that compete with our commercial prescription products, or if the FDA or other applicable regulatory authorities
change or create new pathways that may expedite approval of such products, it could decrease our expected sales of our
commercial prescription products.
Even though we have obtained regulatory approval for our commercial prescription products, we still face extensive FDA
regulatory requirements and may face future regulatory difficulties.
Our relationships with physicians, patients, payors, and pharmacies in the U.S. are subject to applicable anti-kickback, fraud
and abuse laws and regulations. Our failure to comply with these laws could expose us to criminal, civil and administrative
sanctions, reputational harm, and could harm our results of operations and financial conditions.
Risks Related to Our Intellectual Property
●
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If we are unable to protect our intellectual property rights or if our intellectual property rights are inadequate to protect our
technology, our commercial prescription products or our other product candidates, our competitors could develop and
commercialize technology similar to ours, and our competitive position could be harmed.
We may become involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be
expensive, time consuming and unsuccessful.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of
which could be uncertain and could harm our business.
Risks Related to Our Organization, Structure and Operations
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Our efforts to expand and transform our business may require significant investments and may be unsuccessful.
We may have difficulties integrating acquired businesses and as a result, our business, results of operations and/or financial
condition may be materially adversely affected.
Product liability and other lawsuits could divert our resources, result in substantial liabilities and reduce the commercial
potential of our product candidates.
Risks Related to Securities Markets and Investment in Our Securities
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Our failure to meet the continued listing requirements of the Nasdaq Capital Market could result in a delisting of our common
stock.
The price of our common stock may be volatile, and you may lose all or part of your investment.
Future issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans,
could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an
acquisition of us by others.
General Risk Factors
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Our business and operations would suffer in the event of system failures or security breaches whether such failure or breach
was physically affected or affected via a cybersecurity failure.
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Our sales force and other employees, third party logistics partners, CMOs, contract research organizations (“CROs”), principal
investigators, collaborators, independent contractors, consultants and other vendors may engage in misconduct or other
improper activities, including noncompliance with regulatory standards and requirements.
Investing in our securities includes a high degree of risk. You should consider carefully the specific factors discussed below,
together with all of the other information contained in this Annual Report on Form 10-K. If any of the following risks actually
occurs, our business, financial condition, results of operations and future prospects would likely be materially and adversely
affected. This could cause the market price of our securities to decline and could cause you to lose all or part of your
investment.
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ITEM 1. BUSINESS
COMPANY OVERVIEW
AYTU BIOPHARMA, INC.
PART I
Aytu BioPharma, Inc. (“Aytu,” the “Company”, “we”) is a pharmaceutical company focused on commercializing novel
therapeutics and consumer healthcare products. The Company operates through two business segments (i) the Rx Segment, consisting
of prescription pharmaceutical products and (ii) the Consumer Health Segment, which consists of various consumer healthcare
products (the “Consumer Health Portfolio”). We were originally incorporated as Rosewind Corporation on August 9, 2002 in the State
of Colorado and were re-incorporated as Aytu BioScience, Inc in the state of Delaware on June 8, 2015. Following the acquisition of
Neos Therapeutics, Inc. (“Neos”) in March 2021 (the “Neos Acquisition”), we changed our name to Aytu BioPharma, Inc.
We have incurred significant losses in each year since inception. Our net loss was $17.1 million for the year ended June 30,
2023, and as of June 30, 2023, we had an accumulated deficit of $304.1 million. We expect to continue to incur significant expenses in
connection with our ongoing activities, including the integration of our acquisitions, although we do expect to become profitable
following that integration and through continued growth of our commercial business.
Effective January 6, 2023, we effected a 1-for-20 reverse stock split of our outstanding shares of common stock. Unless
specifically provided otherwise herein, the share and per share information that follows in this Annual Report, other than in the
historical financial statements and related notes included elsewhere in this Form 10-K, assumes the effect of the reverse stock split.
RECENT BUSINESS DEVELOPMENT
As part of our ongoing strategic evaluation and go-forward operating plan, we are prioritizing growing our Rx Segment given
the encouraging prescription trends for both our attention deficit hyperactivity disorder (“ADHD”) Portfolio and Pediatric Portfolio,
and the current market trends supporting our products’ growth. We believe focusing resources on our most profitable, rapidly growing
products and business segments provides the most effective pathway to achieve near-term companywide profitability and continued
growth. As part of our plan, we expect to monetize, divest, or otherwise discontinue the Consumer Health Segment in order to
maximize profitability and, if a divestiture is made, provide us with non-dilutive capital.
In fiscal year 2023, we recorded net revenue of $73.8 million in our Rx Segment, the highest revenue achieved in our history.
During the year, the ADHD market encountered several supply chain interruptions, causing a shortage of medications for these
patients. We were able to increase the production of our ADHD medications, Adzenys XR-ODT (“Adzenys”), and Cotempla XR-ODT
(“Cotempla”) to provide patients with alternative solutions to products that have experienced supply chain interruptions. As a result, we
recorded the highest prescription levels for both Adzenys and Cotempla in 2023. Our Pediatric Portfolio products, Poly-VI-Flor, Tri-
Vi-Flor and Karbinal, also recorded record prescriptions in our fiscal 2023, which was largely attributable to sales force execution and
our Aytu Rx Connect program.
We currently manufacture both Adzenys and Cotempla in our facility in Grand Prairie, Texas. In an effort to reduce costs, we
are in the process of transferring the manufacture of these products to a third-party manufacturer. In April 2023, we received approval
from the U.S. Food & Drug Administration (“FDA”) of the Adzenys Prior Approval Supplement (“PAS”), which enables the transfer
of manufacturing of Adzenys to a third-party manufacturer. In June 2023, we submitted the Cotempla PAS to the FDA. We expect to
have a six-month review process for the Cotempla PAS.
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AR101 (enzastaurin) is a development-stage asset we had been developing as an investigational treatment for Vascular Ehlers-
Danlos Syndrome (“VEDS”), a rare connective tissue disorder for which there are no approved treatments. AR101 has received Orphan
Drug Designation from both the FDA and from the European Commission, thus making AR101 eligible for market exclusivity upon
product approval. AR101 also received Fast Track Designation from the FDA given the urgent, unmet need in VEDS. We do not
expect the development of AR101 to advance until we are able to either fund development through operating cash flows, or through an
out-license or sale to a strategic partner as we focus our resources to commercial operations.
In April 2020, we entered into a licensing agreement with Cedars-Sinai Medical Center (“Cedars-Sinai”) to secure worldwide
rights to various potential esophageal and nasopharyngeal uses of Healight, an investigational ultraviolet light-based medical device
platform being investigated as a prospective treatment for severe respiratory infections. The licensing agreement with Cedars-Sinai
grants us a license to all patent and development related technology rights for the intra-corporeal therapeutic use of ultraviolet light in
the field of endotracheal and nasopharyngeal applications. We terminated the Healight license on May 9, 2023 and are in the process of
returning materials and transferring all intellectual property to Cedars-Sinai as we shift our resources to commercial purposes.
In October 2018, we entered into an Exclusive License Agreement (“NeuRx License”) with NeuRx Pharmaceuticals LLC
(“NeuRx”), pursuant to which NeuRx granted Neos an exclusive, worldwide, royalty-bearing license to research, develop,
manufacture, and commercialize certain pharmaceutical products containing NeuRx’s proprietary compound designated as NRX 101,
subsequently referred to as NT0502. NT0502 is a new chemical entity that was being developed for the treatment of sialorrhea, which
is excessive salivation or drooling. In April 2023, and in order to focus our resources on commercial operations, we returned the
NT0502 rights to NeuRx in exchange for royalties and milestone payments on monies received by NeuRx from future licensing
agreements, asset sales or revenue generated on NT0502.
Debt and Equity Financings
Avenue Capital Agreement
On January 26, 2022, we entered into a Loan and Security Agreement (the “Avenue Capital Agreement”) with Avenue
Venture Opportunities Fund II, L.P. and Avenue Venture Opportunities Fund II, L.P. (the “Avenue Capital Lenders”), collectively
(“Avenue Capital”), pursuant to which the Avenue Capital Lenders provided the Company and certain of its subsidiaries with a secured
$15.0 million loan. The interest rate on the loan is the greater of the prime rate and 3.25%, plus 7.4%, payable monthly in arrears. The
maturity date of the loan is January 26, 2025. The proceeds from the Avenue Capital Agreement were used towards the repayment of
existing debt, which was assumed through the acquisition of Neos Therapeutics.
On June 13, 2023, in conjunction with the equity financing described below, we announced that the interest-only period of the
Avenue Capital Agreement was extended further upon the achievement of both the revenue-based milestone and equity raise-based
milestone stipulated in the Avenue Capital Agreement. The interest-only period now extends to the January 26, 2025 maturity date.
Eclipse Loan Agreement
In connection with the Avenue Capital Agreement, we entered into a Consent, Waiver and Second Amendment to Eclipse
Loan Agreement with Eclipse Business Capital LLC (f/k/a Encina Business Credit, LLC) (“Eclipse”), dated as of January 26, 2022 (the
“Eclipse Loan Agreement”). Pursuant to the Eclipse Loan Agreement, we, among other things, extended the maturity date of the
Eclipse Loan Agreement to January 26, 2025 and reduced the maximum availability under the Eclipse Loan Agreement from
$25.0 million to $12.5 million minus a $3.5 million availability block.
On March 24, 2023, the Company and certain of its subsidiaries entered into Amendment No. 4 (the Eclipse Amendment”) to
the Loan and Security Agreement dated October 2, 2019. The Eclipse Amendment, among other things, increased the maximum
amount available under the revolving credit facility provided under the Eclipse Loan
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Agreement to $14.5 million. The ability to make borrowings and obtain advances of revolving loans under the Eclipse Loan Agreement
remains subject to a borrowing base and reserve, and availability blockage requirements.
Equity Financings
In August 2022, we raised gross proceeds of $10.0 million from the issuance of (i) 1,075,290 shares of our common stock, and
in lieu of common stock to certain investors that so chose, pre-funded warrants to purchase 87,500 shares of its common stock (the
“Pre-Funded Warrants”), and (ii) accompanying warrants (the "Common Warrants") to purchase 1,265,547 shares, as adjusted, of our
common stock. We received $9.1 million in proceeds net of underwriting fees and other expenses. In August 2022, the Pre-Funded
Warrants were exercised in full.
In June 2023, we raised gross proceeds of $4.0 million from the issuance of (i) 1,743,695 shares of our common stock, and (ii)
in lieu of common stock to certain investors that so chose, pre-funded warrants to purchase 430,217 shares of common stock and (iii),
accompanying Tranche A warrants to purchase 2,173,912 shares of common stock, (iv) and accompanying Tranche B warrants to
purchase 2,173,912 shares of common stock. We received approximately $3.4 million in proceeds net of underwriting fees and other
expenses.
COMMERCIAL BUSINESS OVERVIEW
We operate through two business segments (i) the Rx Segment, consisting of various prescription pharmaceutical products
sold through third parties, and (ii) the Consumer Health Segment, which consists of various consumer health products sold directly to
consumers. We generate revenue by selling our products through third party intermediaries in our marketing channels as well as
directly to our customers. We currently manufacture our ADHD products at our facility in Grand Prairie, Texas, and use third party
manufacturers for our other prescription and consumer health products.
Rx Segment
Our Rx Segment consists of our ADHD Portfolio and our Pediatric Portfolio. Our prescription products are sold solely in the
United States and are distributed through multiple channels, including sales to pharmaceutical wholesalers and pharmacies, using third-
party logistics enterprises.
We acquired our ADHD Portfolio in March 2021 with the acquisition of Neos Therapeutics. These commercial ADHD
products are extended-release (“XR”) medications formulated in patient-friendly, orally disintegrating tablets (“ODT”) that utilize the
Neos-developed microparticle modified-release drug delivery technology platform. Products containing amphetamine or
methylphenidate are the most commonly prescribed medications in the United States for the treatment of ADHD. Adzenys (for patients
six years of age and above) and Cotempla (for patients six to seventeen years of age) are the first and only FDA-approved
amphetamine and methylphenidate extended-release, orally disintegrating tablets, respectively, for the treatment of ADHD.
Our prescription Pediatric Portfolio includes Karbinal® ER, an extended-release carbinoxamine (antihistamine) suspension
indicated to treat numerous allergic conditions for patients two years and above and Poly-Vi-Flor® and Tri-Vi-Flor®, two
complementary prescription fluoride-based multi-vitamin product lines containing combinations of fluoride and vitamins in liquid and
chewable tablet form for infants and children with fluoride deficiency (Karbinal ER, Poly-Vi-Flor and Tri-Vi-Flor are collectively the
“Pediatric Portfolio”). These products serve established pediatric markets and offer distinct clinical features and patient benefits.
We commercialize our Rx Portfolio through our internal commercial organization that includes approximately forty sales
territories for our ADHD Portfolio and approximately six sales territories for our Pediatric Portfolio.
Our Aytu RxConnect™ patient support program operates through a network of approximately 1,000 pharmacies to offer
affordable, predictable copays and hassle-free availability to all commercially insured patients, regardless of their individual insurance
plan. In addition, RxConnect seeks to significantly reduce the challenges and
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frustrations that health care professionals and their office staff can face when prescribing branded medications, including our
medications, for their patients.
In July 2023, we entered into an exclusive collaboration, distribution and supply agreement with Medomie Pharma Ltd,
(“Medomie”) a privately owned pharmaceutical company, for Medomie to sell Adzenys and Cotempla in Israel and the Palestinian
Authority. We will supply Adzenys and Cotempla to Medomie and Medomie will seek local regulatory approvals and marketing
authorizations for each. This agreement represents Aytu’s first international commercial agreement for Adzenys and Cotempla.
Consumer Health Segment
Our Consumer Health Segment is dedicated to commercializing safe and effective “over-the-counter” (“OTC”) medicines,
personal care products, and dietary supplements to improve health and vitality. Our core products compete in categories such as hair
loss, digestive health, urological health, diabetes management, and allergy. All products are intended to be used by consumers on a
regular basis, and as such, we offer a monthly subscription program to allow for ongoing use and to simplify product ordering and use
by patients. We acquired our Consumer Health Segment, previously known as Innovus Pharmaceuticals, Inc., in February 2020 (the
“Innovus Acquisition”).
The Consumer Health Segment currently sells directly to consumers primarily in the United States through e-commerce
platforms, including branded websites and Amazon.com which utilize marketing strategies focused on search engine optimization,
search marketing and affiliate marketing. Additionally, the segment sells products through direct mail solicitations and advertisements,
allowing consumers to purchase directly through business reply mail, through call centers, or online with shipment directly to their
homes.
We expect to monetize, divest, or otherwise discontinue the Consumer Health Segment in order to maximize profitability and,
if a divestiture is made, provide us with non-dilutive capital.
Development Portfolio – AR101
On April 12, 2021, we entered into an asset purchase agreement with Rumpus VEDS, LLC, Rumpus Therapeutics, LLC, and
Rumpus Vascular, LLC (together “Rumpus”) pursuant to which we acquired commercial global licenses, relating primarily to the
pediatric-onset rare disease development asset enzastaurin, or AR101. AR101 is initially being studied for the treatment of VEDS.
AR101 is an orally available investigational first-in-class small molecule, serine/threonine kinase inhibitor of the PKC beta,
PI3K and AKT pathways. AR101 has been studied in more than 3,300 patients across a range of solid and hematological tumor types
in trials previously conducted by Eli Lilly & Company. Harry “Hal” C. Dietz III, M.D. developed the first preclinical model that
mimics the human condition and recapitulates VEDS, and this model serves as the basis for the plausible clinical benefit and rationale
for conducting a clinical trial with AR101 in VEDS. This novel knock-in mouse model has the same genetic mutation most prevalent in
VEDS patients and is representative of the human condition in both the timing and location of VEDS-related vascular events. The
model has generated identical structural histology and mechanical characteristics, and unbiased findings demonstrated that vascular
structure alone does not lead to vascular events. Objective comparative transcriptional profiling by high-throughput RNA sequencing
of the aorta displayed a molecular signature for excessive PKC/ERK cell signaling that is the purported driver of disease. PKC
inhibitors proved efficacious in multiple pre-clinical and murine (mice) models and indeed prevented death due to vascular rupture.
We have secured exclusive global rights to AR101 in the fields of rare genetic pediatric onset or congenital disorders outside
of oncology. AR101 is protected by a suite of pending patents being pursued in major markets globally which have been licensed from
The Johns Hopkins University (“Johns Hopkins”) and have an earliest priority date of March 2017. In December 2021, the FDA
granted Orphan Drug Designation (“ODD”) to AR101 for the treatment of EDS, inclusive of VEDS, allowing for seven years of
marketing exclusivity in the United States. The FDA has cleared the IND application for AR101, although, we do not expect to
advance development of AR101 until we are able to either fund development through operating cash flows or through an out-license or
sale to a strategic partner.
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OUR STRATEGY
Our goal is to become a leading pharmaceutical company that improves the lives of patients and healthcare consumers. We
will do this by employing a focused approach of in-licensing, acquiring, developing, and commercializing novel prescription
therapeutics and consumer health products. Our primary focus is on commercializing innovative prescription products that address
conditions frequently developed or diagnosed in childhood, including ADHD. We also commercialize consumer healthcare products
through efficient e-commerce and direct-to-patient platforms, although we expect to monetize, divest, or discontinue the Consumer
Health Segment in favor of focusing on the Rx Segment and attaining profitability.
Our strategic priorities are to continue to increase revenues from our Rx Segment and enhance our financial performance
through operational and manufacturing efficiencies and portfolio prioritization. Specifically, we intend to:
● continue to grow our commercial branded, revenue-generating products, by increasing product sales and improving
patient access. Our primary commercial objective is to drive revenue growth of our ADHD and pediatric brands, which
consists of Adzenys, Cotempla, Poly-Vi-Flor, Tri-Vi-Flor, and Karbinal ER. We expect to increase market share using our
internal commercial organization and leveraging our advanced analytics platform to optimize sales force performance
and increase both the breadth, or number of healthcare professionals (“HCPs”) prescribing our medicines, and the depth,
or the number of appropriate patients per HCP for our products;
● leverage our novel Aytu RxConnect patient support platform, which is designed to reduce access barriers to medicines
facing patients and HCPs by providing coverage for all commercially insured patients, regardless of their individual
insurance plan, thus establishing an affordable and predictable monthly co-pay for patients, and eliminating many of the
hassles facing HCPs and their staffs by improving availability of Aytu products at participating pharmacies;
● improve gross margins for our ADHD product franchise through the manufacturing transfer of Adzenys and Cotempla to
a contract manufacturing organization, a transition that is expected to occur in early calendar 2024;
We believe our history of acquiring companies and in-licensing and acquiring products and pipeline assets, along with our
success in building out commercial organizations and executing product launch and growth strategies, is a distinct competitive
advantage. Our transactional adeptness and execution orientation enable us to continue to seek growth opportunities through both
organic growth and opportunistic in-licensing or strategic acquisitions. Further, our commercial infrastructure and distribution
capability is scalable and lends itself to additional on-market assets and future product candidates that fit within our core therapeutic
focus or within our commercial capabilities and infrastructure. As such, in the near term, we may seek to leverage our commercial
model and infrastructure by expanding our commercial portfolio with external product opportunities as we have done since our
inception.
OUR PRODUCTS AND MARKETS
Prescription Products
ADHD Portfolio
ADHD Market and Treatment Options
ADHD is a neurobehavioral disorder characterized by a persistent pattern of inattention and/or hyperactivity/impulsivity that
interferes with functioning and/or development. ADHD can have a profound impact on an individual’s life, causing disruption at
school, work, home and in relationships. It is one of the most common developmental disorders in children and often persists into
adulthood. The Centers for Disease Control and Prevention (“CDC”) reported that six million children in the United States ages 3 to 17
had previously received an ADHD diagnosis
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between 2016-2019, up 36% since 2003. Current ADHD treatment guidelines recommend a multi-faceted approach that uses
medications in conjunction with behavioral interventions.
In 2022, approximately 83.5 million prescriptions for medications with ADHD labeling were written in the United States
generating $21.2 billion in sales. Approximately 91% of these prescriptions were for stimulant medications, such as amphetamine and
methylphenidate, which are and have remained the standard of care for several decades. The market for ADHD medications outside of
the United States is less developed, but we believe it will continue to grow as recognition and awareness of the disorder increase.
Extended-release, or long-acting, dosage forms of stimulant medications are the standard of care for treating ADHD, making
up approximately 43% of ADHD prescriptions. The most prescribed extended-release medications for ADHD, Adderall XR® and
Concerta® (and each of their generic equivalents), are long-acting versions of previously short-acting amphetamine and
methylphenidate medications, respectively. Most of these extended-release dosage forms allow for once-daily dosing in the morning,
which eliminates the need to re-dose during the day. Our products, Adzenys XR-ODT and Cotempla XR-ODT, are extended-release
orally disintegrating tablets that allow for once-daily dosing based upon our internally developed proprietary microparticle delivery
technology and are the only approved extended-release orally disintegrating tablet formulations of amphetamine and methylphenidate
for the treatment of ADHD.
There is significant competition in the ADHD market, including from well-established companies, many of whom have
substantially greater financial, technical and commercial resources than we do, and entrenched existing ADHD products. For example:
● Extended-release amphetamine products are currently marketed in the United States by (i) Takeda Pharmaceutical
Company Limited under the brand names Adderall XR®, Vyvanse® and Mydayis® and (ii) Tris Pharma, Inc. (“Tris”),
under the brand names Dyanavel® XR, Dyanavel® XR tablets;
● Extended-release methylphenidate products are marketed in the United States by (i) Janssen Pharmaceuticals, Inc. under
the brand name Concerta®, (ii) Tris under the brand names Quillivant XR® and QuilliChew ER®, (iii) Rhodes
Pharmaceuticals LP under the brand name Aptensio XR®, (iv) Ironshore Pharmaceuticals Inc. under the brand name
Jornay PM®, (v) Alora Pharmaceuticals under the name Methylphenidate HCl ER 72 mg Tablets, (vi) Novartis under the
brand names Focalin XR® and Ritalin LA® and (vii) Azstarys®, a product developed by KemPharm (now Zevra
Therapeutics) and sold by Corium; and
● a non-stimulant treatment for ADHD was approved by the FDA and commercially launched by Supernus in the U.S in
2021 is being sold under the brand name Qelbree®.
Further, makers of branded drugs could also enhance their own formulations in a manner that competes with our
enhancements of these drugs. We are also aware of efforts by several pharmaceutical companies with ADHD medications in clinical
development, including Cingulate Therapeutics, NLS Pharma and Neurovance, a subsidiary of Otsuka Pharmaceutical Co., Ltd.
Our ADHD Product Portfolio
Our modified-release drug delivery technology platform has enabled us to create extended-release ODT formulations of
amphetamine and methylphenidate. This was achieved by developing an extended-release profile that allows for once daily dosing and
an ODT formulation that allows for easier administration and ingestion and twelve-hour duration of action.
Adzenys XR-ODT and Cotempla XR-ODT are the first and only XR-ODT products for the treatment of ADHD. These XR-
ODT products offer unique attributes to ADHD patients and caregivers, including:
● ease of administration and ingestion because they disintegrate rapidly in the mouth and may be taken without water;
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● taste-masking of bitter ADHD medications, with pleasant-tasting flavor;
● prevention of “cheeking,” the practice of hiding medication in the mouth and later spitting it out rather than swallowing
it; and
Adzenys XR-ODT: Amphetamine XR-ODT for the treatment of ADHD
Adzenys XR-ODT is approved by the FDA for the treatment of ADHD in patients six years and older and is the first FDA-
approved amphetamine XR-ODT for the treatment of ADHD. The New Drug Application (“NDA”) for Adzenys XR-ODT relies on the
efficacy and safety data that formed the basis of FDA approval for the reference listed drug, Adderall XR, 30 mg, together with
bioequivalence, bioavailability, and aggregate safety data from the Adzenys XR-ODT clinical program. Adzenys XR-ODT contains
amphetamine loaded onto a mixture of immediate-release and polymer-coated delayed-release resin particles, which are formulated and
compressed into an ODT along with other tableting excipients using our patented Rapidly Disintegrating Ionic Masking (“RDIM”)
technology. The result is amphetamine with an in vivo extended-release profile delivered through a tablet that quickly disintegrates in
the mouth without the need for water. Adzenys XR-ODT is available in 30-day supply, child-resistant blister packs.
The suite of composition-of-matter patents for Adzenys XR-ODT are scheduled to expire in 2026 and 2032. These patents are
listed in the FDA’s publication of approved drug products with therapeutic equivalence evaluations (the “Orange Book”). In addition,
we entered into a settlement agreement with Actavis Laboratories FL, Inc. (“Actavis”) (acquired by Teva Pharmaceutical Industries),
which resolved all ongoing litigation involving Adzenys XR-ODT patents and Actavis’ ANDA with the FDA for a generic version of
Adzenys XR-ODT. Under the agreement with Actavis, Actavis has the right to manufacture and market its approved generic version of
Adzenys XR-ODT under the ANDA beginning on September 1, 2025, or earlier under certain circumstances.
In conjunction with the approval of the Adzenys XR-ODT NDA, the FDA has required us to conduct certain clinical studies
in preschool (age four to five years) children with ADHD as a post-marketing requirement. A pharmacokinetic study in this population
was completed in 2018, and we are in discussions with the FDA to further clarify the design protocols required to conduct the
remaining studies.
Cotempla XR-ODT: Methylphenidate XR-ODT for the treatment of ADHD
The FDA approved Cotempla XR-ODT for the treatment of ADHD in patients six to seventeen years old. The Cotempla XR-
ODT NDA relies on the efficacy and safety data that formed the basis of FDA approval for the reference listed drug, Metadate CD®,
together with bioavailability/bioequivalence data and efficacy/safety data from the Cotempla XR-ODT clinical program. The results of
the Cotempla XR-ODT Phase 3 clinical efficacy and safety trial showed a statistically significant improvement in ADHD symptom
control compared to placebo across the school day. Onset of effect was observed within one hour post-dose and persisted through 12
hours. No serious adverse events were reported during the study, and the adverse event profile was consistent with the drug’s
mechanism of action.
Cotempla XR-ODT contains methylphenidate loaded onto a mixture of immediate-release and polymer-coated delayed-
release resin particles, which are formulated and compressed into an ODT along with other tableting excipients using our RDIM
technology. The result is methylphenidate with an in vivo extended-release profile delivered through a tablet that quickly disintegrates
in the mouth. Cotempla XR-ODT is available in 30-day supply, child-resistant blister packs. Cotempla XR-ODT is the first FDA-
approved methylphenidate XR-ODT for the treatment of ADHD.
We hold composition-of-matter patents in the U.S. which we expect will provide Cotempla XR-ODT intellectual property
protection until 2032, and a method-of-use patent was issued which will extend protection until 2038. These patents are listed in the
Orange Book. In addition, Neos entered into a settlement agreement with Teva Pharmaceuticals USA, Inc. (“Teva”), which resolved all
ongoing litigation involving the Cotempla XR-ODT patents and Teva’s ANDA with the FDA for a generic version of Cotempla XR-
ODT. Under the agreement with Teva, Neos granted Teva the right to manufacture and market its approved generic version of
Cotempla XR-ODT under the ANDA beginning on July 1, 2026, or earlier under certain circumstances.
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In conjunction with the approval of the Cotempla XR-ODT NDA, the FDA required us to perform additional clinical studies
in preschool (age four to five years) children with ADHD as a post-marketing requirement. A pharmacokinetic study in this population
was completed in 2019. In light of a new draft guidance for industry that was published in May 2019, “Attention Deficit Hyperactivity
Disorder: Developing Stimulant Drugs for Treatment Guidance for Industry,” we remain in discussions with the FDA to gain
concurrence on the design of the protocols required to meet the remaining post-marketing requirements.
Pediatric Portfolio
Poly-Vi-Flor and Tri-Vi-Flor: Our fluoride-based multivitamin prescription supplement product line for infants and
children
Poly-Vi-Flor and Tri-Vi-Flor are two complementary prescription fluoride-based supplement product lines containing
combinations of vitamins and sodium fluoride in various oral formulations. These prescription supplements are prescribed for infants
and children to treat or prevent fluoride deficiency due to poor diet or low levels of fluoride in drinking water and other sources while
also providing multi-vitamin support and folic acid supplementation. Because these products contain at least .25 mg of sodium
fluoride, Poly-Vi-Flor and Tri-Vi-Flor are classified as products that should be administered under the supervision of a licensed
prescriber.
Fluoride supplementation has been proven to protect teeth from decay. Community water fluoridation prevents tooth decay by
providing frequent and consistent contact with low levels of fluoride. By keeping the teeth strong and solid, fluoride stops cavities from
forming and can rebuild the tooth’s surface. Community water fluoridation began in the United States in 1945 and is the process of
adjusting the amount of fluoride in drinking water to a level recommended for preventing tooth decay. As of 2016, more than 200
million people, or nearly 3 in 4 Americans who use public water supplies, drank water with enough fluoride to prevent tooth decay.
However, Americans living in municipalities that do not fluoridate the water supply or in rural areas that rely on well water supplies do
not receive recommended levels of fluoride through fluoridation. Therefore, many children living in these areas often require daily
fluoride supplementation as part of their mineral and vitamin intake. In many instances, physicians prescribe fluoride-based multi-
vitamins (Vitamins A, B, C, D and folic acid) regularly to supplement their fluoride intake and enable convenient supplementation.
Infants are prescribed easier-to-take multi-vitamin drops while older children are prescribed tablet formulations.
In 2022, 8 million multi-vitamin prescriptions were written in the U.S. Of those prescriptions, multi-vitamins containing
sodium fluoride accounted for 1.1 million total prescriptions. Common multi-vitamin combinations contain vitamins A, B, C, D and E,
but no other prescription pediatric multi-vitamin products contain Metafolin, which makes the Poly-Vi-Flor and Tri-Vi-Flor product
lines distinct, single-source brands. Other brands include Tri-Vite (marketed by Method Pharmaceuticals), Floriva (marketed by
BonGeo Pharmaceuticals) and Quflora (marketed by Carwin Pharmaceutical Associates).
Poly-Vi-Flor is available in both chewable tablet and oral liquid suspension multivitamin formulations in six different product
presentations: Poly-Vi-Flor Chewable Tablets .25 mg, .50 mg, and 1 mg tablets, Poly-Vi-Flor Chewable Tablets with Iron, Poly-Vi-Flor
Oral Suspension and Poly-Vi-Flor Oral Suspension with Iron. Poly-Vi-Flor contains Vitamin A, Vitamins B1, B2, B3, and B6, Vitamin
C, Sodium Fluoride in various doses and Metafolin, a proprietary, trademarked L-methylfolate form of folic acid developed by and
licensed from Merck & Cie (“Merck”). Beginning in the second half of fiscal 2023, we introduced Poly-Vi-Flor and Tri-Vi-Flor
containing Arcofolin, Arcofolin offers an improved profile over Metafolin as a body ready L-methylfolate. Arcofolin’s low water
content and low molecular weight of the counterion yield higher levels of assayed folate than other forms of L-methylfolate currently
available on the market. It also has an improved purity profile, enhanced water solubility and an excellent overall stability profile. The
addition of Arcofolin also broadens the brands’ IP protection and extends the patent life and provides further differentiation with this
novel ingredient.
Tri-Vi-Flor is available as an oral liquid suspension in two different strengths (.25 mg and .50 mg fluoride) containing Vitamin
A, Vitamin C, Vitamin D3, Sodium Fluoride, Sodium Benzoate and L-methylfolate. By virtue of its
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L-methylfolate content, Tri-Vi-Flor offers a similar clinical profile: a fluoride-based multivitamin containing a proprietary, body-ready
L-methylfolate.
Arcofolin®, which we also licensed exclusively in our field of use, is Merck’s manufactured calcium salt of L-5-
methyltetrahydrofolic or L-methylfolate. It is a ‘body ready’ alternative to folic acid and offers good stability, solubility, and
bioavailability. Folic acid supplementation is recommended in various patient groups, but a significant number of patients have
difficulty metabolizing folate due to an enzymatic deficiency caused by a genetic mutation affecting the enzyme
methylenetetrahydrofolate reductase, or MTHFR. MTHFR converts ingested folate (such as supplemented folic acid) into L-
methylfolate, the body’s usable form. Clinical studies have demonstrated that 75% of patients may have at least one MTHFR genetic
mutation while 40% may have two mutations. These mutations lead to impaired function of the enzyme and result in folate deficiency.
Both Arcofolin and Metafolin are unaffected by the MTHFR mutation, thereby directly delivering bioavailable L-methylfolate, and
offering a distinct clinical advantage over other folic acid supplements.
The core family of patent covering Arcofolin has a priority date of March 31, 2017 and describes a crystalline sodium salt of
5-methyl-(6S)- tetrahydrofolic acid wherein the molar ratio of 5-methyl-(6S)-tetrahydrofolic acid to sodium is from 1:0.5 to 1:1.5 (in
mol/mol) and/or hydrates and/or solvates thereof, as well as a process of obtaining the same. Upon issuance, the standard 20-year
exclusivity for this patent would expire in 2037.
The prescription multi-vitamin market is dominated by generic products, with brands accounting for 9.5% of the multivitamin
plus fluoride market for the year ending December 31, 2022. Poly-Vi-Flor and Tri-Vi-Flor primarily compete in the generic
prescription multi-vitamin fluoride market and with the branded products FLORIVA and QFLORA.
Karbinal ER: Extended release carbinoxamine oral suspension for the treatment of seasonal and perennial allergies
Karbinal® ER (carbinoxamine maleate extended-release oral suspension) is an H1 receptor antagonist (antihistamine)
indicated to treat seasonal and perennial allergic rhinitis, vasomotor rhinitis, allergic conjunctivitis due to inhalant allergens and food,
mild, uncomplicated allergic skin manifestations of urticaria and angioedema, dermatographism, as therapy for anaphylactic reactions
adjunctive to epinephrine and other standard measures after the acute manifestations have been controlled, and amelioration of the
severity of allergic reactions to blood or plasma for patients two years of age and above.
Over 50 million Americans suffer from allergies in any given year, and allergies are the sixth leading cause of chronic illness
in the U.S. Numerous allergy treatments exist to address allergies and allergic symptoms depending upon the symptom(s). Oral
antihistamines are considered a mainstay of allergy treatment, and the prescription antihistamine market is a large category with
approximately 52 million prescriptions written in 2021. The prescription antihistamine category is dominated by generic products and
consists of first generation and second-generation molecules. Generally, first-generation antihistamines block both histaminic and
muscarinic receptors and pass the blood-brain barrier. Second-generation antihistamines mainly block histaminic receptors, but they do
not pass the blood-brain barrier. First generation antihistamines, which are generally characterized as more sedating, accounted for 6%
of 2021 total prescriptions, while non-sedating, second generation antihistamines accounted for 94% of total prescriptions. The most
widely prescribed oral, second-generation antihistamines are cetirizine (brand name Zyrtec®) and loratadine (brand name Claritin®).
Diphenhydramine (brand name Benadryl®) is the most widely prescribed first-generation molecule.
Karbinal ER is the only FDA-approved, 12-hour carbinoxamine oral suspension and is an effective antihistamine with a broad
range of indications. Karbinal ER is positioned as a second-line allergy treatment for patients who continue to suffer from allergic
symptoms following initial treatment with a second-generation, non-sedating antihistamine. Further, as Karbinal ER is an oral
suspension formulation, children are the primary target patient given their preference for liquid treatments and, in many cases, their
inability to swallow tablets or capsules. Karbinal ER is indicated for children as young as two years of age. Karbinal has a pleasant
strawberry-banana taste and is available in 480 mL bottles.
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Through a supply and distribution agreement with Tris, we own exclusive rights to distribute Karbinal ER in the U.S. through
August 2032, unless the agreement is terminated earlier pursuant to the termination provisions in the agreement. As part of the
agreement, we pay sales-based royalties based on net revenue. Additionally, we are committed to make annual minimum payments to
Tris through 2025.
Two core patents protect Karbinal ER in the U.S., and both parents are listed in the FDA’s Orange Book. The first patent
describes a coated drug-ion exchange resin complex comprising a core composed of a drug complexed with a pharmaceutically
acceptable ion-exchange resin. The priority date for this family is March 29, 2009, so the standard 20-year exclusivity for this patent
will expire in 2029. The second patent describes an aqueous liquid suspension containing a coated drug-ion exchange resin complex
comprising a core molecule complexed with a pharmaceutically acceptable ion-exchange resin and an uncoated ion exchange resin
complex. The priority date for this family is June 15, 2007, so the standard 20-year exclusivity for this patent will expire in 2027.
Karbinal ER faces competition from OTC products such as non-sedating antihistamines, sedating antihistamines as well as
nasal steroids, nasal antihistamines, and anticholinergics.
Consumer Health Segment
We acquired our consumer health business through the acquisition of Innovus Pharmaceuticals, Inc. in February 2020. The
consumer health business is focused on OTC medicines and consumer health products designed to address common conditions. Now
doing business as Aytu Consumer Health, we commercialize numerous products in the U.S. and Canada through two distinct marketing
channels: e-commerce platforms including our websites and Amazon.com and via direct mail campaigns.
We classify our products into three categories:
● ANDA/Medical Device OTC products, which compete in large consumer health categories and are marketed primarily
through Amazon.com;
● OTC monograph products, which compete in large consumer health categories; and
● Dietary supplements and personal care products, which are proprietary products with strong scientific evidence and
clinical support.
The following represents the core Aytu Consumer Health OTC medicines, which are expected to be the Consumer Health
Segment’s primary profit drivers:
● Regoxidine® - for Men & Women – proprietary over-the-counter aerosol foam that works to treat hair loss in both men
and women.
● OmepraCareDR® - acid reducer to treat frequent heartburn.
● EsomepraCareDR® - acid reducer to treat frequent heartburn.
Given the company’s shift in focus and objective of generating near-term profitability, we expect to divest, monetize, or
discontinue the Consumer Health operations by the end of fiscal 2024 or shortly thereafter.
We own over 200 trademarks for products in our Consumer Health Portfolio and own or license patents covering 9 of these
products, some of which we plan to either license, sell, or discontinue as part of the planned divestiture, sale, or discontinuation of the
Consumer Health Segment.
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MANUFACTURING
ADHD Product Portfolio
For the production of our ADHD products, we lease a manufacturing site in Grand Prairie, Texas. This facility has 77,112
square feet of manufacturing and laboratory space and contains dedicated current Good Manufacturing Practices (“cGMP”)
manufacturing suites for both Adzenys XR-ODT and Cotempla XR-ODT. We hold U.S. Drug Enforcement Administration (“DEA”)
manufacturing and analytical licenses and maintain storage and use of Schedule II through IV controlled substances. The manufacture
of our products is subject to extensive cGMP regulations, which impose various procedural and documentation requirements and
govern all areas of record keeping, production processes and controls, personnel and quality control.
We are in the process of transferring the manufacturing of our ADHD products to a contract manufacturing organization
(“CMO”). The transfer of the manufacturing of pharmaceutical products requires several steps including knowledge and method
transfer, manufacturing of materials for feasibility studies and confirmation batch materials, bioequivalence studies, inspections from
regulatory agencies, and regulatory filings. We have completed the required activities, including the successful completion of
bioequivalence studies, which are required in order to enable the transfer of both Adzenys XR-ODT and Cotempla XR-ODT. The
Adzenys XR-ODT Prior Approval Supplement (“PAS”) was approved by the FDA in April 2023, and the Cotempla XR-ODT PAS was
submitted to the FDA in June 2023. We expect to receive approval for the Cotempla XR-ODT PAS by early calendar 2024. Thus, we
expect the CMO to begin manufacturing both ADHD products in early calendar 2024.
In conjunction with transferring the manufacturing of our ADHD products to a CMO, we entered into an agreement with
AMT Manufacturing Solutions, LLC, a newly established, full service CMO, to sublease 22,909 square feet of our Grand Prairie,
Texas manufacturing facility. This sublease represents over 30% of our facility. In addition, commencing as early as April 1, 2024, but
no later than December 31, 2024, the sublease will be expanded to include the remaining portion of the manufacturing facility. This
agreement enables us to reduce costs associated with exiting the facility and allows for increased supply chain flexibility.
Pediatric Product Portfolio
We contract with CMOs for the manufacture and testing of our Pediatric Portfolio products. We have entered into the
following key supply agreements for the commercial manufacture and supply of certain of these products:
● Poly-Vi-Flor and Tri-Vi-Flor drops are purchased through a supply agreement with a CMO based in the U.S., and we
expect to add our multivitamin chewable tables to this supply agreement. Until that time, the chewable tablets are being
produced and purchased without a supply agreement specifically covering those purchases. Merck & Cie is responsible
for providing Metafolin and Arcofolin to our designated CMO.
● A supply agreement with Tris Pharma for the supply of Karbinal. This agreement terminates in August 2033, subject to
earlier termination or extension in accordance with the terms of the agreement.
We believe the third-party manufacturers of our Pediatric Portfolio products have adequate capacity to manufacture sufficient
quantities of these products to meet anticipated commercial demands. As we rely on CMOs, we employ personnel with extensive
technical, manufacturing, supply chain management, and analytical and quality experience to oversee contract manufacturing and
testing activities, and to compile manufacturing and quality information for our regulatory submissions. Manufacturing is subject to
extensive regulations that impose various procedural and documentation requirements, and which govern record-keeping,
manufacturing processes and controls, personnel, quality control and quality assurance, among other activities. Our systems and our
contractors are required to comply with these regulations, and we assess this compliance regularly through monitoring of performance
and a formal audit program.
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Consumer Health Segment
The Consumer Health Segment maintains relationships with a number of manufacturers and brokers from which it obtains its
products. We attempt to work with a variety of manufacturers to broaden our supplier base and to optimize product acquisition costs
and delivery schedules. For our OTC medicines we have relationships with three primary suppliers and one broker through which we
source our consumer health products.
RESEARCH AND DEVELOPMENT
We have indefinitely suspended product candidate research and development activities in favor of focusing our resources on
our commercialization efforts. With this re-focusing on commercial operations, development of our lead product candidate, AR101, is
on indefinite hold. We are pursuing strategic partnerships in order to advance this program but have no assurance that a partnership will
be consummated.
Our Development Pipeline: AR101 (enzastaurin for the treatment of Vascular Ehlers-Danlos Syndrome (VEDS))
AR101 (enzastaurin) is an orally available investigational first-in-class small molecule, serine/threonine kinase inhibitor of the
protein kinase C (“PKC”) beta, PI3K and AKT pathways. AR101 has been studied in more than 3,300 patients across a range of solid
and hematological tumor types. AR101 was originally developed by Eli Lilly and Company (“Lilly”), and worldwide rights were
acquired by Denovo Biopharma in September 2014 following Lilly’s discontinuation of the enzastaurin development program.
VEDS is a rare genetic disorder typically diagnosed in childhood and characterized by arterial aneurysm, dissection and
rupture, bowel rupture and rupture of the gravid uterus. VEDS is the severe subtype of Ehlers-Danlos Syndrome, affecting 1 in 50,000
people worldwide. VEDS results from pathogenic variants in the COL3A1 gene, which encodes the chains of type III procollagen, a
major protein in vessel walls and hollow organs. Twenty-five percent of VEDS patients have a first complication by the age of 20
years, and more than 80 percent have at least one complication by the age of 40. VEDS patients have a median lifespan of 51 years.
There are currently no FDA approved treatments for VEDS.
The research underpinning the application of enzastaurin for the treatment of VEDS has been conducted by Dr. Harry (Hal)
Dietz and his research colleagues. Dr. Dietz is the Victor A. McKusick Professor of Genetics in the departments of medicine,
pediatrics, and molecular biology and genetics at The Johns Hopkins University School of Medicine and director of the William S.
Smilow Center for Marfan Syndrome Research. He has also been an investigator at Howard Hughes Medical Institute since 1997. Dr.
Dietz is a leading scientist in the field of genetic connective tissue disorders and developed the first preclinical model that mimics the
human condition and recapitulates VEDS. His group’s research findings were published in the Journal of Clinical Investigation in
February 2020. The VEDS knock-in murine (mouse) preclinical model from Dr. Dietz has the same genetic mutation most prevalent in
VEDS patients and is representative of the human condition in both the timing and location of vascular events. The model has
generated identical structural histology and mechanical characteristics, and unbiased findings demonstrated that structure alone does
not lead to vascular events. Objective comparative transcriptional profiling by high-throughput RNA sequencing of the aorta displayed
a consistent molecular signature for excessive PKC/ERK cell signaling that is now known to be the driver of disease. Based on the
scientific rationale for intervention along the PKC/ERK pathway, PKC inhibition and treatment with PKCβ inhibitors proved
efficacious in multiple pre-clinical and murine studies and indeed prevented death due to vascular rupture.
In fiscal 2022 we received Orphan Drug Designation for AR101 in Ehlers-Danlos Syndrome including VEDS and in Europe,
allowing for seven years’ marketing exclusivity in the United States and ten years in Europe. We also received Fast Track designation
for AR101 in VEDS by the FDA, allowing for an accelerated review timeline upon submission of the New Drug Application (“NDA”)
and more frequent interaction with the FDA during the development process.
AR101 is protected by a suite of five pending patents being pursued in major markets globally which have been licensed from
Johns Hopkins and have an earliest priority date of March 2017. The cornerstone of the intellectual
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property family surrounds enzastaurin initially targeting the treatment of VEDS focused on the U.S. and certain foreign jurisdictions
which include Europe, Japan, China, Brazil, Mexico, Canada, Israel, Australia, New Zealand, and South Korea. This pending patent
provides compositions and methods for treating VEDS and associated connective tissue disorders and has a priority date of October
2018. The second pending patent provides methods and compositions for the diagnosis, treatment, and prevention of Marfan syndrome
and related diseases, disorders and conditions and has a priority date of March 2017, in select geographies. The third pending patent,
titled “Targeted Epigenetic Therapy for Inherited Aortic Aneurysm Conditions,” broadens the coverage of the potential therapeutic
application of AR101/Enzastaurin and has a priority date of September 2017. The fourth pending patent, titled “Pathway Targets for the
Treatment of Vascular Ehlers-Danlos Syndrome”, and the fifth pending patent, titled “Endothelin-1 Signaling Contributes to Vascular
Rupture Risk”, deepens the scientific evidence of the pathophysiology of Vascular Ehlers-Danlos Syndrome and are highly
confirmatory of the therapeutic approach for AR101/Enzastaurin. These pending patents have priority dates of September 2020 and
February 2022 respectively. Additional molecule intellectual property is afforded through the license with Denovo whose pending
patent provides methods and compositions for the prediction of the activity of enzastaurin and has a priority date of September 1, 2016.
INTELLECTUAL PROPERTY
We seek trademark protection in the United States when appropriate. We currently own or license registered trademarks for
Aytu, Aytu Biopharma, Neos Therapeutics, Innovus Pharma, Healight, Poly-Vi-Flor, Adzenys, Adzenys XR-ODT, Adzenys ER and
Cotempla XR-ODT in the United States, as well as trademarks related to our DTRS technology.
From time to time, we may find it necessary or prudent to obtain licenses from third party intellectual property holders.
GOVERNMENT REGULATION
We are subject to extensive regulation by the FDA and other federal, state, and local regulatory agencies. The FDCA and the
FDA's implementing regulations set forth, among other things, requirements for the testing, development, manufacture, quality control,
safety, effectiveness, approval, labeling, storage, record-keeping, reporting, distribution, import, export, sale, advertising and promotion
of our products and product candidates. We may seek approval for, and market, our products in other countries in the future. Generally,
our activities in other countries will be subject to regulation that is similar in nature and scope as that imposed in the U.S., although
there can be important differences.
Development and Approval
Under the FDCA, FDA approval of an NDA is required before any new drug can be marketed in the U.S. NDAs in the case of
new drugs, or PMAs or 510(k)s in the case of medical devices, may require extensive studies and submission of a large amount of data
by the applicant, including the following:
Preclinical Testing. Preclinical testing generally includes laboratory evaluation of product chemistry and formulation, as well
as toxicological and pharmacological studies in several animal species to assess the toxicity and dosing of the product.
Clinical Trials. Clinical trials involve the administration of a drug to healthy human volunteers or to patients, under the
supervision of a qualified investigator.
● Phase 1 clinical trials involve the initial administration of the investigational drug to humans, typically to a small
group of healthy human subjects, but occasionally to a group of patients with the targeted disease or disorder. Phase
1 clinical trials generally are intended to evaluate the safety, metabolism and pharmacologic actions of the drug, the
side effects associated with increasing doses, and, if possible, to gain early evidence of effectiveness.
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● Phase 2 clinical trials generally are controlled studies that involve a relatively small sample of the intended patient
population and are designed to develop initial data regarding the product's effectiveness, to determine dose response
and the optimal dose range, and to gather additional information relating to safety and potential AEs.
● Phase 3 clinical trials are conducted after preliminary evidence of effectiveness has been obtained and are intended
to gather the additional information about safety and effectiveness necessary to evaluate the drug's overall risk-
benefit profile, and to provide a basis for physician labeling. Generally, Phase 3 clinical development programs
consist of expanded, multi-site, large-scale studies of patients with the target disease or disorder to obtain statistical
evidence of the efficacy and safety of the drug at the proposed dosing regimen. Phase 3 data often form the core
basis on which the FDA evaluates a drug’s safety and effectiveness when considering the product application.
Post-Approval Regulation
Once approved, drug products are subject to continuing regulation by the FDA. If ongoing regulatory requirements are not
met or if safety or manufacturing problems occur after the product reaches the market, the FDA may at any time withdraw product
approval or take actions that would limit or suspend marketing. Additionally, the FDA may require post-marketing studies or clinical
trials, changes to a product’s approved labeling, including the addition of new warnings and contraindications, or the implementation of
other risk management measures, including distribution-related restrictions, if there are new safety information developments.
DEA Regulation
Our ADHD products are considered a “controlled substance” as defined in the Controlled Substances Act of 1970, or CSA,
because Adzenys XR-ODT contains amphetamine and Cotempla XR-ODT contains methylphenidate. Because amphetamine and
methylphenidate are Schedule II controlled substances, the DEA has Adzenys XR-ODT and Cotempla XR-ODT listed and regulated as
Schedule II controlled substances. None of our pediatric products (Poly-Vi-Flor, Tri-Vi-Flor and Karbinal ER) are considered
“controlled substances.”
Annual registration is required for any facility that manufactures, distributes, dispenses, imports or exports any controlled
substance. The registration is specific to the particular location, activity and controlled substance schedule.
The DEA establishes annually an aggregate quota for how much of a controlled substance may be produced in and/or
imported into the U.S. based on the DEA’s estimate of the quantity needed to meet legitimate scientific and medicinal needs. The DEA
may adjust aggregate production quotas and individual production and procurement quotas from time to time during the year, although
the DEA has substantial discretion in whether or not to make such adjustments. Our or our manufacturers’ quotas of an active
ingredient may not be sufficient to meet commercial demand or complete clinical trials. Any delay, limitation or refusal by the DEA in
establishing our or our manufacturers’ quota for controlled substances could delay or stop our clinical trials or product launches, which
could have a material adverse effect on our business, financial position and results of operations.
Individual states also independently regulate controlled substances. We and our manufacturers will be subject to state
regulation on distribution of these products, including, for example, state requirements for licensures or registration. Additionally, we
use third-party logistics firms to inventory and fill sales orders for our commercial portfolio.
We contract with third parties for the manufacture and testing of Karbinal, Poly-Vi-Flor and Tri-Vi-Flor. Poly-Vi-Flor and Tri-
Vi-Flor are not supplied under any contract. We have entered into the following key supply agreements for the commercial
manufacture and supply of certain of these products:
● A supply agreement with Tris for the supply of Karbinal. This agreement terminates in August 2033, subject to earlier
termination or extension in accordance with the terms of the agreement.
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● Poly-Vi-Flor and Tri-Vi-Flor drops are produced under a supply agreement with a CMO based in the U.S., and we expect
to expand that agreement to include the chewable tablet formations. Until that time, the Ploy-Vi-Flor chewable tablets are
produced by the same CMO on a purchase order-to-purchase order basis, Merck & Cie is responsible for providing
Metafolin and Arcofolin to our designated CMO.
We believe our third-party manufacturers have adequate capacity to manufacture sufficient quantities of these products to
meet anticipated commercial demands. Because we rely on CMOs, we employ personnel with extensive technical, manufacturing,
supply chain management, and analytical and quality experience to oversee contract manufacturing and testing activities, and to
compile manufacturing and quality information for our regulatory submissions. Manufacturing is subject to extensive regulations that
impose various procedural and documentation requirements, and which govern record-keeping, manufacturing processes and controls,
personnel, quality control and quality assurance, among other activities. Our systems and our contractors are required to comply with
these regulations, and we assess this compliance regularly through monitoring of performance and a formal audit program.
For the production of our ADHD products, we lease one manufacturing site in Grand Prairie, Texas. This facility has 77,112
square feet of manufacturing and laboratory space, and contains dedicated cGMP manufacturing suites for both Adzenys XR-ODT and
Cotempla XR-ODT. We hold DEA manufacturing and analytical licenses, and maintain storage and use of Schedule II through IV
controlled substances. The manufacture of our products is subject to extensive cGMP regulations, which impose various procedural
and documentation requirements and govern all areas of record keeping, production processes and controls, personnel, and quality
control.
We are in the process of a technology transfer to outsource the manufacturing of our ADHD products to a CMO. The transfer
of the manufacturing of pharmaceutical products requires several steps including knowledge and method transfer, manufacturing of
materials for feasibility study and confirmation batch materials, bioequivalence studies and regulatory filings. We have completed the
required activities, including the successful completion of bioequivalence studies, which are required in order to enable the transfer of
both Adzenys XR-ODT and Cotempla XR-ODT. The Adzenys XR-ODT Prior Approval Supplement (“PAS”) was approved by the
FDA in April 2023, and the Cotempla XR-ODT PAS was submitted to the FDA in June 2023. We expect to receive approval for the
Cotempla XR-ODT PAS by early calendar 2024. We expect the CMO to begin manufacturing both ADHD products in early calendar
2024.
HUMAN CAPITAL
As of June 30, 2023, we employed 150 full-time employees, including 53 who are involved in operations, 5 who are directly
involved in research and development, 60 who are involved in commercialization and 32 who are involved in general and
administrative activities. All of our colleagues are located in the U.S. Of these colleagues, 45% are female and 55% are male. Our
colleagues are not represented by a labor union.
Our values – team-oriented, hard-working, relentlessly determined, integrity, visionary, entrepreneurial, and servant-minded -
are built on the foundation that the colleagues we hire and the way we treat one another promote creativity, innovation, and
productivity, which spur our success. This culture depends in large part on our ability to attract, retain and develop a diverse population
of talents and high-performing employees at all levels of our organization. Providing market competitive pay and benefit programs,
opportunities to participate in the success they help create, while engaging colleagues in important dialogue regarding organization
performance, we create a culture of inclusion in which all colleagues have the opportunity to thrive.
AVAILABLE INFORMATION
Our principal executive offices are located at 7900 East Union Avenue, Suite 920, Denver, Colorado 80237 USA, and our
phone number is (720) 437-6580.
We maintain a website on the internet at http://aytubio.com. We make available, free of charge, through our website, by way
of a hyperlink to a third-party site that includes filings we make with the SEC website (www.sec.gov), our annual reports on Form 10-
K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to
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those reports electronically filed or furnished pursuant to Section 15(d) of the Exchange Act. The information on our website is not,
and shall not be deemed to be, a part of this Annual Report on Form 10-K or incorporated into any other filings we make with the SEC.
In addition, the public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street,
N.E., Washington D.C., 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-
800-SEC-0330.
CODE OF ETHICS
We have adopted a written code of ethics that applies to our officers, directors, and employees, including our principal
executive officer and principal accounting officer. We intend to disclose any amendments to, or waivers from, our code of ethics that
are required to be publicly disclosed pursuant to rules of the SEC by filing such amendment or waiver with the SEC. This code of
ethics and business conduct can be found in the corporate governance section of our website, https://investors.aytubio.com/corporate-
governance#CorporateGovernance.
ITEM 1A. RISK FACTORS
Investing in our securities includes a high degree of risk. You should consider carefully the specific factors discussed below,
together with all of the other information contained in this Annual Report on Form 10-K. If any of the following risks actually occurs,
our business, financial condition, results of operations and future prospects would likely be materially and adversely affected. This
could cause the market price of our securities to decline and could cause you to lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS AND FINANCIAL POSITION
We have incurred losses to date and can give no assurance of profitability.
We have incurred losses in each year since our inception. As of the filing of this Annual Report on Form 10-K, there is a
substantial doubt regarding our ability to continue as a going concern. Our net loss for the years ended June 30, 2023 and 2022 was
$17.1 million and $108.8 million, respectively. We have not demonstrated the ability to be a profit-generating enterprise to date. Even
though we expect to have revenue growth in the next several fiscal years, it is uncertain that the revenue growth will be significant
enough to offset our expenses and generate a profit in the future. Potential investors should evaluate us in light of the expenses, delays,
uncertainties, and complications typically encountered by healthcare businesses, many of which will be beyond our control. These risks
include the following:
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uncertain market acceptance of our products;
difficulties in maintaining coverage and reimbursement for our products;
lack of sufficient capital;
U.S. and foreign regulatory approval of our products;
unanticipated problems, delays, and expense relating to product development and implementation;
lack of sufficient intellectual property;
the ability to attract and retain qualified employees;
competition; and
technological changes.
As a result of the increasingly competitive nature of the markets in which we compete, our historical financial data is of
limited value in anticipating future operating expenses. Our planned expense levels will be based in part on our
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expectations concerning future operations, which is difficult to forecast accurately based on our historical strategy of product and/or
business acquisition to develop our product and business portfolio. We may be unable to adjust spending in a timely manner to
compensate for any unexpected budgetary shortfall.
To obtain revenues from our products, we must succeed, either alone or with others, in a range of challenging activities,
including expanding markets for our existing products, manufacturing, marketing and selling our existing products, satisfying any post-
marketing requirements, and obtaining reimbursement for our products from private insurance or government payors. We, and our
collaborators, as applicable, may not be successful in these activities and, even if we or our collaborators do, we may never generate
revenues that are sufficient to achieve profitability.
We have not established sources of ongoing revenue sufficient to cover operating costs and allow us to continue as a going
concern.
Since our inception, we have had significant operating losses. As of June 30, 2023, we had accumulated deficit of $304.1
million. Even though we plan to mitigate the conditions that raise substantial doubt about our ability to continue as a going concern, we
may continue to incur net losses, and our ability to generate positive cash flows from operating activities is uncertain for the
foreseeable future. We have not established an ongoing source of revenue sufficient to cover operating costs. Our ability to continue as
a going concern is dependent on our continued operational improvements, refinancing, or obtaining adequate capital to fund operating
losses until we become profitable. If we are unable to generate sufficient cash flows or obtain adequate capital, we may be unable to
develop and commercialize our product offerings and we could be forced to cease operations.
We may need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain necessary
capital when needed may force us to delay, limit or terminate our product expansion efforts or other operations. Further,
future sales and issuances of our common stock or rights to purchase common stock will result in dilution of the percentage
ownership of our existing stockholders and could cause our stock price to fall.
We are expending resources to commercialize our prescription products and to service our debt obligations. We may require
additional funding through public or private equity or debt financings, government or other third-party funding, marketing and
distribution arrangements and other collaborations, strategic alliances and licensing arrangements, or a combination of these
approaches. As of June 30, 2023, our cash and cash equivalents totaled $23.0 million. During the year ended June 30, 2023, we raised
approximately $15.6 million, net of fees, from a combination of common stock offerings.
Our operating plans may change as a result of many factors currently unknown to us, and we could need additional capital in
the future to continue our operations and may need to seek additional funds sooner than planned. Raising funds in the current economic
environment may present additional challenges. Even if we believe we have sufficient funds for our current or future operating plans,
we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.
If we sell common stock, convertible securities or other equity securities in more than one transaction, any such sales may
result in material dilution to our existing stockholders, and new investors could gain rights, preferences, and privileges senior to those
of our existing common stockholders. Further, any future sales of our common stock by us or resales of our common stock by our
existing stockholders could cause the market price of our common stock to decline. Any future grants of securities exercisable or
convertible into our common stock, or the exercise or conversion of such shares, and any sales of such shares in the market, could also
have an adverse effect on the market price of our common stock.
In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at
all. The incurrence of additional indebtedness would result in increased fixed payment obligations and we may be required to agree to
additional restrictive covenants, such as further limitations on our ability to incur additional debt, additional limitations on our ability to
acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our
business. We could also be required to seek
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funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable and we may
be required to relinquish rights to some of our technologies or products or otherwise agree to terms unfavorable to us, any of which
may have a material adverse effect on our business, operating results and prospects.
If we are unable to obtain funding on a timely basis, we may be unable to expand the market for our products or expand our
operations generally or otherwise capitalize on our business opportunities, as desired, which could materially affect our business,
financial condition and results of operations.
We may not have cash available to us in an amount sufficient to enable us to make interest or principal payments on our
indebtedness when due.
We have a $15.0 million term loan with Avenue Capital and up to $14.5 million of secured revolving loans with Eclipse. As of
June 30, 2023, $1.6 million was outstanding under the secured revolving loan. All obligations under our loans are secured by
substantially all of our existing property and assets subject to certain exceptions. These debt financings and any future debt financings
may create additional financial risk for us, particularly if our business or prevailing financial market conditions are not conducive to
paying off or refinancing our outstanding debt obligations at maturity.
As a result, we may not have sufficient funds, or may be unable to arrange for additional financing, to pay the amounts due on
our outstanding indebtedness under our debt agreements. Further, funds from external sources may not be available on economically
acceptable terms, if at all. For example, if we raise additional funds through collaboration, licensing or other similar arrangements, it
may be necessary to relinquish potentially valuable rights to our products or technologies, or to grant licenses on terms that are not
favorable to us. If adequate funds are not available when and if needed, our ability to make interest or principal payments on our debt
obligations, and finance our operations and other general corporate activities would be significantly limited and we may be required to
delay, significantly curtail, or eliminate one or more of our programs.
Failure to satisfy our current and future debt obligations under our loan agreements with Avenue Capital or Eclipse could
result in an event of default and, as a result, our lenders could accelerate all of the amounts due. In the event of an acceleration of
amounts due under one or both of our debt agreements as a result of an event of default, we may not have sufficient funds or may be
unable to arrange for additional financing to repay our indebtedness. In addition, our lenders could seek to enforce their security
interests in any collateral securing such indebtedness.
The terms of our loan agreement place restrictions on our operating and financial flexibility. If we raise additional capital
through debt financing, the terms of any new debt could further restrict our operating and financial flexibility.
The loan agreements with Avenue Capital and Eclipse subject us to financial covenants and restrictions on our ability to incur
liens, incur additional indebtedness, make certain dividends and distributions with respect to equity securities, engage in mergers and
acquisitions or make asset sales without the prior written consent of the lender. Failure to comply with such covenants could permit the
lenders to declare our obligations under the loan agreements, together with accrued interest and fees, to be immediately due and
payable, plus any applicable additional amounts relating to a prepayment or termination.
These restrictive covenants could limit our flexibility in operating our business and our ability to pursue business
opportunities that we or our stockholders may consider beneficial. Any declaration by the lender of an event of default could
significantly harm our business and prospects and could cause the price of our common stock to decline. We may not have enough
available cash or be able to raise additional funds through equity or debt financings to repay these outstanding obligations at the time
any event of default occurs. Further, if we raise any additional capital through debt financing, the terms of such additional debt could
further restrict our operating and financial flexibility.
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We recently announced that we have been engaged in discussions with various parties regarding potential strategic transactions
and potential financing options. There can be no assurance that this process will result in the pursuit or consummation of any
potential transaction, or that any such potential transaction, if implemented, will provide sufficient funding to continue our
operations.
We recently announced that we are engaged in discussions with various parties regarding potential strategic transactions and
potential financing, which could include a financing, sale or licensing of assets, acquisition, merger, business combination, and/or other
strategic transaction or series of related transactions. This process, including any uncertainty created by this process, involves a number
of risks which could impact our business and our stockholders, including the following:
● significant fluctuations in our stock price could occur in response to developments relating to the process or market
speculation regarding any such developments;
● we may encounter difficulties in hiring, retaining and motivating key personnel during this process or as a result of
uncertainties generated by this process or any developments or actions relating to it;
● we may incur substantial increases in general and administrative expense associated with increased legal fees and the
need to retain and compensate third-party advisors; and
● we may experience difficulties in preserving the commercially sensitive information that may need to be disclosed to
third parties during this process or in connection with an assessment of our strategic options.
The review process also requires significant time and attention from management, which could distract them from other tasks
in operating our business or otherwise disrupt our business. Such disruptions could cause concern to our suppliers, strategic partners or
other constituencies and may have a material impact on our business and operating results and volatility in our share price.
There can be no assurance that this process will result in the pursuit or consummation of any potential transaction or strategy,
or that any such potential transaction or strategy, if implemented, will provide sufficient funding to conduct our operations. Any
outcome of this process would be dependent upon a number of factors that may be beyond our control, including, among other things,
market conditions, industry trends, regulatory approvals, and the availability of financing on reasonable terms. The occurrence of any
one or more of the above risks could have a material adverse impact on our business, financial condition, results of operations and cash
flows.
We have indefinitely suspended development of our AR101 (enzastaurin) clinical development program and shifted our
strategic focus towards accelerating the growth of our commercial business. If we fail to execute successfully on this
reprioritized strategic focus, our business, results of operations and financial condition could be materially and adversely
affected.
We have indefinitely suspended our AR101 (enzastaurin) clinical development program and shifted our focus towards
accelerating the growth of our commercial business and achieving operating cash flows. Though we expect that the suspension of this
program will save over $20 million in projected future study costs over the next three fiscal years, the process of reorienting our
business strategy may be costly, time consuming and complex, and we have incurred, and may in the future incur, costs related to this
strategic shift. Our strategic reprioritization may result in unexpected expenses or liabilities and/or write-offs. There is no assurance
that we will be successful at executing on our revised strategy or that any particular course of action, business arrangement or
transaction, or series of transactions, will be pursued, successfully consummated, lead to increased stockholder value, or achieve the
anticipated results.
If we are unable to execute successfully on our reprioritized strategic focus, our cash resources may not last as long as
estimated and our business, results of operations and financial condition could be materially and adversely affected.
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Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of June 30, 2023, we had federal net operating loss carryforwards of approximately $504.0 million. The available net
operating losses, if not utilized to offset taxable income in future periods, will begin to expire in 2024 and, except for certain indefinite-
lived net operating loss carryforwards, will completely expire in 2037. Under the Internal Revenue Code of 1986, as amended (the
“Code”) and the regulations promulgated thereunder, including, without limitation, the consolidated income tax return regulations,
various corporate ownership changes could limit our ability to use our net operating loss carryforwards and other tax attributes to offset
our income.
An “ownership change” (generally a 50% change in equity ownership over a three-year period) under Section 382 of the Code
could limit our ability to offset, post-change, our U.S. federal taxable income. Section 382 of the Code imposes an annual limitation on
the amount of post-ownership change taxable income a corporation may offset with pre-ownership change net operating loss
carryforwards and certain recognized built-in losses. We believe that the June 2021 acquisition of Neos caused an ownership change of
Neos, resulting in a limitation in our ability to use their pre-acquisition net operating loss carryovers. We also believe that the financing
transactions in fiscal 2022 and 2023 may have caused, together with equity ownership changes in the past three years, an ownership
change resulting in a limitation of our ability to use our pre-acquisition net operating loss carryovers. The ownership change scenario
could result in an increased future tax liability to us.
If we fail to establish and maintain proper internal controls, our ability to produce accurate financial statements or comply
with applicable regulations could be impaired.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Pursuant to
Section 404 of the Sarbanes-Oxley Act, our management conducted an assessment of the effectiveness of our internal controls over
financial reporting for the quarter ended September 30, 2022, and concluded that a certain control was not effective. We concluded that
we had a material weakness in internal control over financial reporting related to accounting for complex warrant issuances and the
classification of these issued warrants. In addition, we concluded that we had a material weakness in internal control over financial
reporting for the year ended June 30, 2023 related to our analysis for the accounting for valuation of our inventory. Our Audit
Committee conducted an internal investigation to identify and determine plans to remediate the material weaknesses and to enhance
our overall control environment. We will not consider the material weaknesses remediated until our enhanced control is operational for
a sufficient period of time and tested, enabling management to conclude that the enhanced controls are operating effectively. Our
remediation plan includes the implementation of controls over the process of reviewing significant and complex contracts and
agreements and we believe that the issues have been remediated.
If in the future we were to conclude that our internal controls over financial reporting were not effective, we cannot be certain
as to the timing of completion of our evaluation, testing and remediation actions or their effect on our operations because there is
presently no precedent available by which to measure compliance adequacy. As a consequence, we may not be able to complete any
necessary remediation process in time to meet our deadline for compliance with Section 404 of the Sarbanes-Oxley Act. Also, there
can be no assurance that we will not identify one or more material weaknesses in our internal controls in connection with evaluating
our compliance with Section 404 of the Sarbanes-Oxley Act. The presence of material weaknesses could result in financial statement
errors which, in turn, could require us to restate our operating results.
If we are unable to conclude that we have effective internal controls over financial reporting or if our independent auditors are
unwilling or unable to provide us, when required, with an attestation report on the effectiveness of internal controls over financial
reporting as required by Section 404 of the Sarbanes-Oxley Act, investors may lose confidence in our operating results, our stock price
could decline and we may be subject to litigation or regulatory enforcement actions. In addition, if we are unable to meet the
requirements of Section 404 of the Sarbanes-Oxley Act, we may not be able to maintain listing on the NASDAQ Capital Market. Due
to our current filing status, we are not required to have our independent registered public accounting firm deliver an attestation report
on the effectiveness of our internal control over financial reporting.
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We have been and in the future may become a defendant in one or more stockholder derivative, class-action, and other
litigation, and any such lawsuits may adversely affect our business, financial condition, results of operations and cash flows.
We and certain of our officers and directors have been and may in the future become defendants in one or more stockholder
derivative actions or other class-action lawsuits. For example:
● Two putative class action lawsuits were filed on February 9, 2022 and March 7, 2022 derivatively and on behalf of
all Aytu stockholders, challenging the grant in 2021 of certain stock option awards to directors and officers, and
seeking rescission of the awards, unspecified damages to stockholders as a result of the awards, and attorneys’ fees.
● A shareholder derivative suit was filed on September 12, 2022, derivatively and on behalf of all Aytu stockholders,
against certain of our current and former directors and stockholders, alleging breaches of fiduciary duties in
connection with certain acquisitions, and seeking unspecified damages, equitable relief, restitution, disgorgement of
profits, enhanced governance and internal procedures, and attorneys’ fees.
See Part I, Item 3. Legal Proceedings for more information on these lawsuits.
These lawsuits can divert our management’s attention and resources from our ordinary business operations, and we would
likely incur significant expenses associated with their defense (including, without limitation, substantial attorneys’ fees and other fees
of professional advisors and potential obligations to indemnify current and former officers and directors who are or may become parties
to such actions). In connection with these lawsuits, we may be required to pay material damages, consent to injunctions on future
conduct and/or suffer other penalties, remedies or sanctions, or issue additional shares upon the exercise of certain warrants, which may
cause additional dilution. In addition, any such future lawsuits could adversely impact our reputation and/or ability to launch and
commercialize our products, thereby harming our ability to generate revenue. Accordingly, the ultimate resolution of these matters and
any future matters could have a material adverse effect on our business, financial condition, results of operation and cash flow and,
consequently, could negatively impact the trading price of our common stock.
RISKS RELATED TO COMMERCIALIZATION
We are heavily dependent on the commercial success of our commercial products. To date, we have not generated sufficient
revenues from the sales of these products to achieve profitability and we may never achieve or maintain profitability.
Our ability to become profitable depends upon our ability to generate increased revenues from sales of our prescription and
consumer health product portfolios. While we have been selling pharmaceutical products for several years, we have limited
commercial experience selling our current lineup of pharmaceutical products, having only generated revenues from the sale of our
pediatric products since acquiring that portfolio in November 2019 and from our ADHD products since acquiring that portfolio in
March 2021. None of our marketed prescription or consumer health products have thus far generated product sales revenues at levels
sufficient for us to attain profitability. We have not generated any revenues from product sales of any other product candidates and, to
date, have incurred significant operating losses.
We have incurred, and anticipate continuing to incur, significant costs associated with commercialization of our approved
products and, if approved, any other product candidates that we may develop. It is possible that we will never attain sufficient product
sales revenues to achieve profitability.
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If we are unable to differentiate our products from branded drugs or existing generic therapies for similar treatments, or if the
FDA or other applicable regulatory authorities approve additional generic products that compete with any of our products, our
ability to successfully commercialize such products would be adversely affected.
We expect to compete against branded drugs with distinct clinical attributes and to compete with their generic counterparts
that will be sold for a lower price. Although we believe that our Rx Portfolio is or will be differentiated from branded drugs and their
generic counterparts, if any, including through clinical efficacy or through improved patient compliance, ease of administration, and
our patient support programs, it is possible that such differentiation will not impact our market position. If we are unable to achieve
significant differentiation for our products and accompanying support services against other drugs, the opportunity for our products to
achieve premium pricing and be commercialized successfully would be adversely affected.
After a New Drug Application (“NDA”), including a 505(b)(2) application, is approved, the covered product becomes a
“listed drug” that, in turn, can be cited by potential competitors in support of approval of an abbreviated new drug application, or
ANDA. The FDCA, implementing regulations and other applicable laws provide incentives to manufacturers to create modified, non-
infringing versions of a drug to facilitate the approval of an ANDA or other application for generic substitutes. These manufacturers
might only be required to conduct a relatively inexpensive study to show that their product has the same active ingredient(s), dosage
form, strength, route of administration, and conditions of use, or labeling as our product candidate and that the generic product is
bioequivalent to ours, meaning it is absorbed in the body at the same rate and to the same extent as our product candidate. These
generic equivalents, which must meet the same quality standards as the listed drugs, would be significantly less costly than ours to
bring to market and companies that produce generic equivalents are generally able to offer their products at lower prices.
Thus, after the introduction of a generic competitor, a significant percentage of the sales of any branded product, such as our
Rx Portfolio products, can be lost to the generic version. Accordingly, competition from generic equivalents to our products could
materially adversely impact our revenues, profitability and cash flows and substantially limit our ability to obtain a return on the
investments we have made in our products. For example, on July 25, 2016, Neos received a paragraph IV certification from Actavis
advising them that Actavis filed an ANDA with the FDA for a generic version of Adzenys XR-ODT. On October 17, 2017, Neos
entered into a Settlement Agreement and a Licensing Agreement with Actavis (which is now owned by Teva), pursuant to which Neos
granted Actavis the right to manufacture and market its now approved generic version of Adzenys XR-ODT under the ANDA
beginning on September 1, 2025, or earlier under certain circumstances. On October 31, 2017, Neos received a paragraph IV
certification from Teva advising them that Teva filed an ANDA with the FDA for a generic version of Cotempla XR-ODT. On
December 21, 2018, Neos entered into a Settlement Agreement and a Licensing Agreement with Teva, pursuant to which we have
granted Teva the right to manufacture and market its now approved generic version of Cotempla XR-ODT under the ANDA beginning
on July 1, 2026, or earlier under certain circumstances.
While we expect to wind down or monetize our Consumer Health Segment, the Consumer Health Segment relies heavily on
obtaining products that change from a prescription to over the counter through an FDA approval process. Any delays in this
process might impact the financial performance of our consumer Health Segment.
Our Consumer Health Segment has pursued opportunities where existing prescription drugs have recently, or are expected to,
change from a prescription to over-the-counter. Historically the FDA has highly scrutinized any product application submitted to
switch a product from prescription to unsupervised over-the-counter use by the general public. The continued expansion of Rx-to-OTC
switches is important to our Consumer Health Segment’s future growth. Reluctance of FDA to approve Rx-to-OTC switches in new
product categories could impact that growth and could impact the financial performance of our Consumer Health Segment.
Our pharmaceutical and consumer health products may prove to be difficult to effectively commercialize as planned or on the
timeframes we announce and expect.
Various commercial, regulatory, and manufacturing factors may impact our ability to maintain or grow revenues from sales of
our pharmaceutical and consumer health product offerings. Moreover, we have limited
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experience selling some of our current products given their acquisition from other companies or their recent approval. We sometimes
estimate for planning purposes the timing of the accomplishment of various scientific, clinical, regulatory, and other product
development objectives and, from time to time, we may publicly announce the expected timing of some of these milestones. The
achievement of many of these milestones may be outside of our control and if we fail to achieve announced milestones in the
timeframes we announce and expect, the commercialization of our products may be delayed and our business, prospects and results of
operations may be harmed. Specifically, we may encounter difficulty by virtue of the following, each of which could be negatively
impacted if expected timeframe goals are not achieved:
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our available capital resources;
our inability to have clear proprietary rights to the products;
our inability to manufacture or cost-effectively manufacture the products;
our inability to adequately market and increase sales of any of these products;
existence of adverse side effects that make using the products less desirable;
our inability to attract and retain a skilled support team, marketing staff and sales force necessary to increase the
market for our approved products and to maintain market acceptance for our products;
our inability to secure continuing prescribing of any of these products by current or previous users of the product;
our inability to effectively transfer and scale manufacturing as needed to maintain an adequate commercial supply of
these products;
reimbursement and medical policy changes that may adversely affect the pricing, profitability or commercial appeal
of pharmaceutical products; and
our inability to effectively identify and align with commercial partners outside the U.S., or the inability of those
selected partners to gain the required regulatory, reimbursement, and other approvals needed to enable commercial
success of our products.
We rely on limited sources of supply for our products, and any disruption in the chain of supply may impact production and
sales of our products, and cause delays in developing and commercializing our currently manufactured and commercialized
products.
Some of our products are produced in single annual production lots by single-source suppliers. Due to the limited production
quantities, production of these lots may not be prioritized by the third-party manufacturer, and may not be scheduled and produced at
all. We are reliant on a limited number of suppliers for resin, drug compounds, coating and other component substances of our final
products. If any of these single source suppliers were to breach or terminate its supply agreement, if any, with us or otherwise not
supply us, we would need to identify an alternative source for the supply of component substances for our products. If we fail to
procure supply of our products, we could lose potential revenue and our business, financial condition, results of operation and
reputation could be adversely affected.
Identifying an appropriately qualified source of alternative supply for any one or more of the component substances for our
products could be time consuming, and we may not be able to do so without incurring material delays in the development and
commercialization of our approved products or a decrease in sales of our approved products, which could harm our financial position
and commercial potential for our products. Any alternative vendor would also need to be qualified through an FDA Prior Approval
Supplement process which could result in further delay. The FDA, DEA, or other regulatory agencies outside of the United States may
also require additional studies if we enter into
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agreements with new suppliers for the manufacture of our ADHD products that differ from the suppliers used for clinical development
of such products.
These factors could cause the delay of commercialization of our products, cause us to incur higher costs and prevent us from
commercializing them successfully. Furthermore, if our suppliers fail to deliver the required commercial quantities of components and
APIs on a timely basis and at commercially reasonable prices, including if our suppliers did not receive adequate DEA quotas for the
supply of certain scheduled components, and we are unable to secure one or more replacement suppliers capable of production at a
substantially equivalent cost, commercialization of our ADHD products may be delayed or we could lose potential revenue and our
business, financial condition, results of operation and reputation could be adversely affected.
We rely on third parties manufacture certain products, and third-party manufacturing risks and inefficiencies may result in
costs and delays that prevent us from successfully commercializing products and adversely affect our ability to produce our
products.
Our ADHD products are currently manufactured in our own production facility in Grand Prairie, Texas. We are in the process
of outsourcing the manufacturing of our ADHD products to a third-party manufacturer to produce commercial quantities of our ADHD
products beginning in late calendar 2023 or early calendar 2024. If the third party is not successful or does not meet our expectations
(for example, timeliness of production, quantity of production, maintenance of needed documentation or regulatory compliance), we
may have to find a different manufacturer and incur expenses and delays in the process. Manufacturers of our ADHD products must
comply with good manufacturing practice ("GMP") requirements enforced by the FDA, NMPA, EMA and other comparable foreign
health authorities through facilities inspection programs. These requirements include quality control, quality assurance, and the
maintenance of records and documentation. Manufacturers of our FDA regulated products may be unable to comply with these GMP
requirements and with other FDA, NMPA, EMA, DEA, state, and foreign regulatory requirements. A failure to comply with these
requirements may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure
or recall, or withdrawal of product approval. If the safety of any quantities supplied is compromised due to a manufacturer’s failure to
adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize our
drugs, which would seriously harm our business.
For all other products and any future product, we expect to use third-party manufacturers because we do not expect to have
our own manufacturing capabilities. In determining the required quantities of any product and the manufacturing schedule, we must
make significant judgments and estimates based on inventory levels, current market trends and other related factors. Because of the
inherent nature of estimates and our limited experience in marketing our current products, there could be significant differences
between our estimates and the actual amounts of product we require. If we do not effectively maintain our supply agreements, we will
face difficulty finding replacement suppliers, which could harm sales of those products. If we fail in similar endeavors for future
products, we may not be successful in establishing or continuing the commercialization of our products.
Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured these components
ourselves, including:
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reliance on third parties for regulatory compliance and quality assurance;
possible breaches of manufacturing agreements by the third parties because of factors beyond our control;
possible regulatory violations or manufacturing problems experienced by our suppliers; and
possible termination or non-renewal of agreements by third parties, based on their own business priorities, at times
that are costly or inconvenient for us.
Further, if we are unable to secure the needed financing to fund our internal operations, we may not have adequate resources
required to effectively and rapidly transition to a third-party CMO for our ADHD products. We may
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not be able to meet the demand for our products if one or more of any third-party manufacturers is unable to supply us with the
necessary components that meet our specifications. It may be difficult to find alternate suppliers for any of our products in a timely
manner and on terms acceptable to us.
The manufacturing processes and facilities of third-party manufacturers we have engaged for our current approved products
are, and any future third-party manufacturer will be, required to comply with the federal Quality System Regulation, or QSR, which
covers procedures and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization,
storage and shipping of devices. The FDA enforces the QSR through periodic unannounced inspections of manufacturing facilities.
Any inspection by the FDA could lead to additional compliance requests that could cause delays in our product commercialization.
Failure to comply with applicable FDA requirements, or later discovery of previously unknown problems with the manufacturing
processes and facilities of third-party manufacturers we engage, including the failure to take satisfactory corrective actions in response
to an adverse QSR inspection, can result in, among other things:
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administrative or judicially imposed sanctions;
injunctions or the imposition of civil penalties;
recall or seizure of the product in question;
total or partial suspension of production or distribution;
the FDA’s refusal to grant pending future clearance or pre-market approval;
withdrawal or suspension of marketing clearances or approvals;
clinical holds;
warning letters;
refusal to permit the export of the product in question; and
criminal prosecution.
Any of these actions, in combination or alone, could prevent us from marketing, distributing or selling our products, and
would likely harm our business.
In addition, a product defect or regulatory violation could lead to a government-mandated or voluntary recall by us. We
believe the FDA would request that we initiate a voluntary recall if a product was defective or presented a risk of injury or gross
deception. Regulatory agencies in other countries have similar authority to recall drugs or devices because of material deficiencies or
defects in design or manufacture that could endanger health. Any recall would divert our management attention and financial resources,
expose us to product liability or other claims, and harm our reputation with customers.
Third party performance failures may increase our development costs, delay our ability to obtain regulatory approval, and
delay or prevent the commercialization of our products. While we believe that there are numerous alternative sources to provide these
services, in the event that we seek such alternative sources, we may not be able to enter into replacement arrangements without
incurring delays or additional costs.
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If we or our contract manufacturer fail to manufacture our ADHD products in sufficient quantities and at acceptable quality
and pricing levels, or fail to obtain adequate DEA quotas for controlled substances, or to fully comply with cGMP regulations,
we may face delays in the commercialization of these products, or be unable to meet market demand, and may be unable to
generate potential revenues.
The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development
of advanced manufacturing techniques and process controls, and the use of specialized processing equipment. Pharmaceutical
companies often encounter difficulties in manufacturing, particularly in scaling up production of their products. These problems
include manufacturing difficulties relating to production costs and yields, quality control, including stability of the product and quality
assurance testing, shortages of qualified personnel, as well as compliance with federal, state, and foreign regulations. If we are unable
to demonstrate stability in accordance with commercial requirements, or if our raw material manufacturers were to encounter
difficulties or otherwise fail to comply with their obligations to us, our ability to obtain FDA approval and market our products would
be jeopardized. We purchase raw materials and components from various suppliers in order to manufacture our ADHD products. If we
are unable to source the required raw materials from our suppliers, or if we do not obtain DEA quotas or receive inadequate DEA
quotas, we may experience delays in manufacturing our ADHD products, and may not be able to meet customer demand for our
products.
In addition, we and our contract manufacturer must comply with federal, state, and foreign regulations, including cGMP
requirements enforced by the FDA through its facilities inspection program. These requirements include, among other things, quality
control, quality assurance and the maintenance of records and documentation. We may be unable to comply with these cGMP
requirements and with other FDA and foreign regulatory requirements. A failure to comply with these requirements may result in fines
and civil penalties, suspension of production, suspension or delay in product approval, product seizure or voluntary recall, or
withdrawal of product approval. If the safety of any of our products is compromised due to failure to adhere to applicable laws or for
other reasons, we may not be able to obtain, or to maintain once obtained, regulatory approval for such products or successfully
commercialize such products, and we may be held liable for any injuries sustained as a result. Any of these factors could cause a delay
in commercialization of our products, entail higher costs or adversely impact our commercialization of our products. Any
manufacturing defect or error discovered after products have been produced and distributed could result in even more significant
consequences, including costly recall procedures, re-stocking costs, damage to our reputation and potential for product liability claims.
If our manufacturing facility becomes damaged or inoperable or we decide to or are required to vacate our facility, our ability
to manufacture our ADHD products may be jeopardized. Our inability to continue manufacturing adequate supplies of our
products could adversely affect our ability to generate revenues.
While we are in the process of transferring manufacturing at our Grand Prairie, Texas facility to a third-party manufacturer, all
of our ADHD products manufacturing capabilities are currently housed in our sole manufacturing facility located in Grand Prairie,
Texas. Our facility and equipment could be harmed or rendered inoperable by natural or manmade disasters, including war, fire,
tornado, power loss, communications failure or terrorism, any of which may render it difficult or impossible for us to operate our drug
delivery technology platform and manufacture our products for some period of time. While we seek to maintain finished goods
inventory of our products outside of this facility, it is unlikely that the level of such inventory would be sufficient if we were to sustain
anything other than a short-term disruption in our ability to manufacture our products at our Grand Prairie, Texas facility. The inability
to manufacture our products if our facility or our equipment is inoperable, for even a short period of time, may result in the loss of
customers or harm to our reputation, and we may be unable to regain those customers or repair our reputation in the future.
Furthermore, our facility and the equipment we use to manufacture our products could become damaged and time consuming to repair
or replace. It would be difficult, time consuming and expensive to rebuild our facility or repair or replace our equipment or to complete
the transfer of our proprietary technology to a third party, particularly in light of the requirements for a DEA registered manufacturing
and storage facility like ours and FDA site change requirements.
We carry insurance for damage to our property and the disruption of our business, but this insurance may not cover all of the
risks associated with damage or disruption to our business, may not provide coverage in amounts sufficient to cover our potential
losses and may not continue to be available to us on acceptable terms, if at all. An
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inability to continue manufacturing adequate supplies of our ADHD products at our Grand Prairie, Texas facility could result in a
disruption in the supply of our products to physicians and pharmacies, which would adversely affect our ability to generate revenues.
In conjunction with transferring the manufacturing of our ADHD products to a CMO, we entered into an agreement with
AMT Manufacturing Solutions, LLC to sublease approximately 30% of our Grand Prairie, Texas manufacturing facility. Commencing
as early as April 1, 2024, but no later than December 31, 2024, the sublease will be expanded to include the remaining portion of the
manufacturing facility.
If we do not secure collaborations with strategic partners to test, commercialize and manufacture products, we may not be able
to successfully develop products and generate meaningful revenues.
We may enter into collaborations with third parties to commercialize and manufacture our products. If we are able to identify
and reach an agreement with one or more collaborators, our ability to generate revenues from these arrangements will depend on our
collaborators’ abilities to successfully perform the functions assigned to them in these arrangements. Collaboration agreements
typically call for milestone payments that depend on successful demonstration of efficacy and safety, obtaining regulatory approvals,
and clinical trial results. Collaboration revenues are not guaranteed, even when efficacy and safety are demonstrated. Further, the
economic environment at any given time may result in potential collaborators electing to reduce their external spending, which may
prevent us from developing our products.
Collaboration agreements typically provide for the ownership of intellectual property. In some instances, there may not be
adequate written provisions to address clearly the resolution of intellectual property rights that may arise from a collaboration and we
may be limited in our ability to use, make or sell these inventions. Litigation may be necessary to resolve an ownership dispute, and if
we are not successful, we may be precluded from using certain intellectual property, or may lose our exclusive rights in that intellectual
property.
Even if we succeed in securing collaborators, the collaborators may fail to develop or effectively commercialize our products.
Collaborations involving our products pose a number of risks, including the following:
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collaborators may not have sufficient resources or may decide not to devote the necessary resources due to internal
constraints such as budget limitations, lack of human resources, or a change in strategic focus;
collaborators may believe our intellectual property is not valid or is unenforceable or the product candidate infringes
on the intellectual property rights of others;
collaborators may dispute their responsibility to conduct development and commercialization activities pursuant to
the applicable collaboration, including the payment of related costs or the division of any revenues;
collaborators may decide to pursue a competitive product developed outside of the collaboration arrangement;
collaborators may not be able to obtain, or believe they cannot obtain, the necessary regulatory approvals;
collaborators may delay the development or commercialization of our products in favor of developing or
commercializing their own or another party’s products; or
collaborators may decide to terminate or not to renew the collaboration for these or other reasons.
As a result, collaboration agreements may not lead to development or commercialization of our products in the most efficient
manner or at all.
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Collaboration agreements are generally terminable without cause on short notice. Once a collaboration agreement is signed, it
may not lead to commercialization of a product. We also face competition in seeking out collaborators. If we are unable to secure
collaborations that achieve the collaborator’s objectives and meet our expectations, we may be unable to advance our products and may
not generate meaningful revenues.
We face substantial competition from companies with considerably more resources and experience than we have, which may
result in others discovering, developing, receiving approval for, or commercializing products before or more successfully than
us.
The biopharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We
compete with companies that design, manufacture and market already-existing and new products. We anticipate that we will face
increased competition in the future as new companies enter the market with new technologies and/or our competitors improve their
current products. One or more of our competitors may offer technology superior to ours and render our technology obsolete or
uneconomical. Most of our current competitors, as well as many of our potential competitors, have greater name recognition, more
substantial intellectual property portfolios, longer operating histories, significantly greater resources to invest in new technologies,
more substantial experience in product marketing and new product development, greater regulatory expertise, more extensive
manufacturing capabilities and the distribution channels to deliver products to customers. Our competitors may be more successful in
acquiring new products than we are. If we fail to acquire new products, implementation of our business plan would be delayed, which
could have a negative adverse effect on our business and prospects. If we are not able to compete successfully, we may not generate
sufficient revenue to become profitable. Our ability to compete successfully will depend largely on our ability to:
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expand the market for our approved products, especially our pharmaceutical and devices regulated by the FDA;
successfully commercialize our products alone or with commercial partners;
discover and develop products that are superior to other products in the market;
obtain required regulatory approvals;
attract and retain qualified personnel; and
obtain patent and/or other proprietary protection for our products.
Established pharmaceutical companies devote significant financial resources to discovering, developing or licensing novel
compounds that could make our products obsolete. Our competitors may obtain patent protection, receive FDA approval, and
commercialize medicines before us. Other companies are or may become engaged in the discovery of compounds that may compete
with the products we are developing.
We compete with companies that design, manufacture and market treatments that compete with our products. Many of our
competitors have substantially greater financial, technical and other resources, such as larger research and development staff and more
experienced marketing and manufacturing organizations. Mergers and acquisitions in the biotechnology and pharmaceutical industries
may result in even more resources being concentrated in our competitors. As a result, these companies may obtain regulatory approval
more rapidly than we are able and may be more effective in selling and marketing their products as well. Smaller or early-stage
companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established
companies. Competition may increase further as a result of advances in the commercial applicability of technologies and greater
availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing on an
exclusive basis drug products or drug delivery technologies that are more effective or less costly than that of our products or any
product candidate that we are currently developing or that we may develop.
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We anticipate that we will face increased competition in the future as new companies enter the market with new technologies
and our competitors improve their current products. One or more of our competitors may offer technology superior to ours and render
our technology obsolete or uneconomical. Most of our current competitors, as well as many of our potential competitors, have greater
name recognition, more substantial intellectual property portfolios, longer operating histories, significantly greater resources to invest
in new technologies, more substantial experience in new product development, greater regulatory expertise, more extensive
manufacturing capabilities and the distribution channels to deliver products to customers. If we are not able to compete successfully,
we may not generate sufficient revenue to become profitable. If we are not able to compete effectively against our current and future
competitors, our business will not grow, and our financial condition and operations will suffer.
Government restrictions on pricing and reimbursement, as well as other healthcare payor cost-containment initiatives, may
negatively impact our ability to generate revenues.
The continuing efforts of the government, insurance companies, managed care organizations and other payors of health care
costs to contain or reduce costs of health care may adversely affect one or more of the following:
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our or our collaborators’ ability to set a price we believe is fair for our approved products;
our ability to generate revenue from our approved products and achieve profitability; and
the availability of capital.
The Patient Protection and Affordable Care Act, or PPACA, and the Health Care and Education Reconciliation Act, or the
Health Care Reconciliation Act, significantly impacted the provision of, and payment for, health care in the U.S. Various provisions of
these laws are designed to expand Medicaid eligibility, subsidize insurance premiums, provide incentives for businesses to provide
health care benefits, prohibit denials of coverage due to pre-existing conditions, establish health insurance exchanges, and provide
additional support for medical research. Amendments to the PPACA and/or the Health Care Reconciliation Act, as well as new
legislative proposals to reform healthcare and government insurance programs, along with the trend toward managed healthcare in the
U.S., could influence the purchase of medicines and medical devices and reduce demand and prices for our products, if approved. This
could harm our or our collaborators’ ability to market any approved products and generate revenues. As we expect to receive
significant revenues from reimbursement of our Rx Portfolio products by commercial third-party payors and government payors, cost
containment measures that health care payors and providers are instituting and the effect of further health care reform could
significantly reduce potential revenues from the sale of any of our products approved in the future, and could cause an increase in our
compliance, manufacturing or other operating expenses. In addition, in certain foreign markets, the pricing of prescription drugs and
devices is subject to government control and reimbursement may in some cases be unavailable. We believe that pricing pressures at the
federal and state level, as well as internationally, will continue and may increase, which may make it difficult for us to sell any
approved product at a price acceptable to us or any of our future collaborators.
In addition, in some foreign countries, the proposed pricing for a drug or medical device must be approved before it may be
lawfully marketed. The requirements governing pricing vary widely from country to country. For example, the EU provides options for
its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement
and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product,
or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the
market. A member state may require that physicians prescribe the generic version of a drug instead of our approved branded product.
There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow
favorable reimbursement and pricing arrangements for any of our products or product candidates. Historically, pharmaceutical products
launched in the EU do not follow price structures of the U.S. and generally tend to have significantly lower prices.
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Our financial results will depend on the acceptance among clinicians, third-party payors and the medical community of our
products.
Physicians may not choose to prescribe our products if we or any collaborator is unable to demonstrate that, based on
experience, clinical data, side-effect profiles and other factors, our product is preferable to existing medicines or treatments. Our future
success depends on the acceptance by our target customers, third-party payors, and the medical community that our products are
reliable, safe, and cost-effective. We cannot predict the degree of market acceptance of any of our approved products. Many factors
may affect the market acceptance and commercial success of our products, including:
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our ability to convince our potential customers of the advantages, safety and economic value our products and
product candidates over existing technologies and products;
the approved labeling for the product and any required warnings;
the prevalence and severity of adverse events or publicity;
potential product liability claims
the relative convenience and ease of our products over existing technologies and products;
the introduction of new technologies and competing products that may make our products less attractive for our
target customers;
our success in training medical personnel on the proper use of our products;
the willingness of third-party payors to reimburse our target customers that adopt our products;
increases in rebate payments with payors;
the acceptance in the medical community of our products;
the extent and success of our manufacturing, marketing, and sales efforts; and
general economic conditions.
If our future products fail to gain market access and acceptance, this will have a material adverse impact on our ability to
generate revenue to provide a satisfactory, or any, return on our investments. Even if some therapies achieve market access and
acceptance, the market may prove not to be large enough to allow us to generate significant revenue.
If third-party payors do not reimburse our customers for the products we sell or if reimbursement levels are set too low for us
to sell one or more of our products at a profit, our ability to sell those products and our results of operations will be harmed.
While our pharmaceutical products are approved and generating revenues in the U.S., they may not receive, or continue to
receive, clinician or patient acceptance, or they may not maintain adequate reimbursement from third party payors. In the future, we
might possibly sell other products to target customers substantially all of whom receive reimbursement for the health care services they
provide to their patients from third-party payors, such as Medicare, Medicaid, other domestic and foreign government programs,
private insurance plans and managed care programs. Reimbursement decisions by particular third-party payors depend upon a number
of factors, including each third-party payor’s determination that use of a product is:
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appropriate and medically necessary for the specific indication;
cost effective; and
neither experimental nor investigational.
Third-party payors may deny reimbursement for covered products if they determine that a medical product was not used in
accordance with cost-effective diagnosis methods, as determined by the third-party payor, or was used for an unapproved indication.
Third-party payors also may refuse to reimburse for procedures and devices deemed to be experimental.
Obtaining coverage and reimbursement approval for a product from each government or third-party payor is a time consuming
and costly process that could require us to provide supporting scientific, clinical and cost-effectiveness data for the use of our potential
product to each government or third-party payor. We may not be able to provide data sufficient to gain acceptance with respect to
coverage and reimbursement. In addition, eligibility for coverage does not imply that any product will be covered and reimbursed in all
cases or reimbursed at a rate that allows our potential customers to make a profit or even cover their costs.
Third-party payors are increasingly attempting to contain health care costs by limiting both coverage and the level of
reimbursement for medical products and services. Levels of reimbursement may decrease in the future, and future legislation,
regulation or reimbursement policies of third-party payors may adversely affect the demand for and reimbursement available for any
product or product candidate, which in turn, could negatively impact pricing. If our customers are not adequately reimbursed for our
products, they may reduce or discontinue purchases of our products, which would result in a significant shortfall in achieving revenue
expectations and negatively impact our business, prospects and financial condition.
Reporting and payment obligations under the Medicaid Drug Rebate Program and other governmental drug pricing programs
are complex and may involve subjective decisions. Any failure to comply with those obligations could subject us to penalties
and sanctions.
As a condition of reimbursement by various federal and state health insurance programs, pharmaceutical companies are
required to calculate and report certain pricing information to federal and state agencies. The regulations governing the calculations,
price reporting and payment obligations are complex and subject to interpretation by various government and regulatory agencies, as
well as the courts. Reasonable assumptions have been made where there is a lack of regulations or clear guidance and such assumptions
involve subjective decisions and estimates. Pharmaceutical companies are required to report any revisions to their calculations, price
reporting and payment obligations previously reported or paid. Such revisions could affect liability to federal and state payers and also
adversely impact reported financial results of operations in the period of such restatement.
Uncertainty exists as new laws, regulations, judicial decisions, or new interpretations of existing laws, or regulations related to
our calculations, price reporting or payments obligations increases the chances of a legal challenge, restatement or investigation. If a
company becomes subject to investigations, restatements, or other inquiries concerning compliance with price reporting laws and
regulations, it could be required to pay or be subject to additional reimbursements, penalties, sanctions or fines, which could have a
material adverse effect on the business, financial condition and results of operations. In addition, it is possible that future healthcare
reform measures could be adopted, which could result in increased pressure on pricing and reimbursement of products and thus have an
adverse impact on financial position or business operations.
Further, state Medicaid programs may be slow to invoice pharmaceutical companies for calculated rebates resulting in a lag
between the time a sale is recorded and the time the rebate is paid. This results in a company having to carry a liability on its
consolidated balance sheets for the estimate of rebate claims expected for Medicaid patients. If actual claims are higher than current
estimates, the company’s financial position and results of operations could be adversely affected.
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In addition to retroactive rebates and the potential for 340B Program refunds, if a pharmaceutical firm is found to have
knowingly submitted any false price information related to the Medicaid Drug Rebate Program to the Centers for Medicare &
Medicaid Services (“CMS”), it may be liable for civil monetary penalties. Such failure could also be grounds for CMS to terminate the
Medicaid drug rebate agreement, pursuant to which companies participate in the Medicaid program. In the event that CMS terminates a
rebate agreement, federal payments may not be available under government programs, including Medicaid or Medicare Part B, for
covered outpatient drugs.
Additionally, if a pharmaceutical company overcharges the government in connection with the FSS program or Tricare Retail
Pharmacy Program, whether due to a misstated Federal Ceiling Price or otherwise, it is required to refund the difference to the
government. Failure to make necessary disclosures and/or to identify contract overcharges can result in allegations against a company
under the FCA and other laws and regulations. Unexpected refunds to the government, and responding to a government investigation
or enforcement action, would be expensive and time-consuming, and could have a material adverse effect on our business, financial
condition, results of operations and growth prospects.
Our collaborators are also subject to similar requirements outside of the U.S. and thus the attendant risks and uncertainties. If
our collaborators suffer material and adverse effects from such risks and uncertainties, our rights and benefits for our licensed products
could be negatively impacted, which could have a material and adverse impact on our revenues.
Our future growth may depend, in part, on our ability to penetrate foreign markets, where we would be subject to additional
regulatory burdens and other risks and uncertainties.
Our future profitability may depend, in part, on our ability to commercialize our products in foreign markets for which we
intend to primarily rely on collaboration with third parties such as the agreement we entered into with Medomie Pharma Ltd. in July
2023 to sell Adzenys and Cotempla in Israel and the Palestinian Authority. If we commercialize our products in foreign markets, we
would be subject to additional risks and uncertainties, including:
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our inability to directly control commercial activities because we are relying on third parties;
the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements;
different medical practices and customs in foreign countries affecting acceptance in the marketplace;
import or export licensing requirements;
longer accounts receivable collection times;
longer lead times for shipping;
language barriers for technical training;
reduced protection of intellectual property rights in some foreign countries, and related prevalence of generic
alternatives to our products;
foreign currency exchange rate fluctuations;
our customers’ ability to obtain reimbursement for our products in foreign markets; and
the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.
Foreign sales of our products could also be adversely affected by the imposition of governmental controls, political and
economic instability, trade restrictions and changes in tariffs.
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We are subject to U.S. and foreign anti-corruption and anti-money laundering laws with respect to our operations and non-
compliance with such laws can subject us to criminal and/or civil liability and harm our business.
We are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the U.S. domestic bribery statute
contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and other state and national anti-bribery and anti-money
laundering laws in countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and
their employees, agents, third-party intermediaries, joint venture partners and collaborators from authorizing, promising, offering, or
providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector. We may have direct or
indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other
organizations. In addition, we may engage third party intermediaries to obtain necessary permits, licenses, and other regulatory
approvals. We can be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees,
representatives, contractors, partners, and agents, even if we do not explicitly authorize or have actual knowledge of such activities.
We have adopted a Code of Business Conduct and Ethics that mandates compliance with the FCPA and other anti-corruption
laws applicable to our business throughout the world. We cannot ensure, however, that our employees and third party intermediaries
will comply with this code or such anti-corruption laws. Noncompliance with anti-corruption and anti-money laundering laws could
subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of
profits, significant fines, damages, other civil and criminal penalties or injunctions, suspension and/or debarment from contracting with
certain persons, the loss of export privileges, reputational harm, adverse media coverage, and other collateral consequences. If any
subpoenas, investigations, or other enforcement actions are launched, or governmental or other sanctions are imposed, or if we do not
prevail in any possible civil or criminal litigation, our business, results of operations and financial condition could be materially
harmed. In addition, responding to any such action will likely result in a materially significant diversion of management's attention and
resources and significant defense and compliance costs and other professional fees. In certain cases, enforcement authorities may even
cause us to appoint an independent compliance monitor which can result in added costs and administrative burdens.
We are subject to various health care fraud and abuse and reimbursement laws pertaining to the marketing of our approved
products.
We are subject to various federal and state laws pertaining to healthcare fraud and abuse, including prohibitions on the offer of
payment or acceptance of kickbacks or other remuneration for the purchase of our products, including inducements to potential patients
to request our products and services. Additionally, any product promotion educational activities, support of continuing medical
education programs, and other interactions with health-care professionals must be conducted in a manner consistent with the FDA
regulations, Physician Payments Sunshine Act, and the Anti-Kickback Statute. The Anti-Kickback Statute prohibits persons or entities
from knowingly and willfully soliciting, receiving, offering or providing remuneration, directly or indirectly, to induce either the
referral of an individual, or the furnishing, recommending, or arranging for a good or service, for which payment may be made under a
federal healthcare program such as the Medicare and Medicaid programs. Violations of the Anti-Kickback Statute can also carry
potential federal False Claims Act liability. Additionally, many states have adopted laws similar to the Anti-Kickback Statute. Some of
these state prohibitions apply to referral of patients for healthcare items or services reimbursed by any third-party payer, not only the
Medicare and Medicaid programs, and do not contain identical safe harbors. These and any new regulations or requirements may be
difficult and expensive for us to comply with, may adversely impact the marketing of our existing products or delay introduction of our
products, which may have a material adverse effect on our business, operating results and financial condition.
Adzenys XR-ODT and Cotempla XR-ODT contain controlled substances, and their manufacture, use, sale, importation,
exportation, prescribing and distribution are subject to regulation by the DEA.
Adzenys XR-ODT and Cotempla XR-ODT, (collectively, our “Controlled Substance Products”), which are approved by the
FDA, are regulated by the DEA as Schedule II controlled substances. Before any commercialization of any product candidate that
contains a controlled substance, the DEA determines the controlled substance schedule of a
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drug, taking into account the recommendation of the FDA. Our Controlled Substance Products are, and our other future products may,
if approved, be regulated as “controlled substances” as defined in the Controlled Substances Act of 1970, or CSA, and the
implementing regulations of the DEA, which establish registration, security, recordkeeping, reporting, storage, distribution,
importation, exportation, inventory, quota and other requirements administered by the DEA. These requirements are applicable to us, to
our third-party manufacturers and to distributors, prescribers, and dispensers of our products. For example, Schedule II controlled
substances are subject to various restrictions, including, but not limited to, mandatory written prescriptions and the prohibition of
refills. The DEA regulates the handling of controlled substances through a closed chain of distribution. This control extends to the
equipment and raw materials used in their manufacture and packaging, in order to prevent loss and diversion into illicit channels of
commerce. A number of states and foreign countries also independently regulate these drugs as controlled substances. State-controlled
substance laws and regulations may have more extensive requirements than those determined by the DEA and FDA. Though state-
controlled substances laws often mirror federal law because the states are separate jurisdictions, they may schedule products separately.
While some states automatically schedule a drug when the DEA does so, other states require additional state rulemaking or legislative
action, which could delay commercialization. Some state and local governments also require manufacturers to operate a drug
stewardship program that collects, secures, transports, and safely disposes of unwanted drugs. The DEA regulates controlled substances
as Schedule I, II, III, IV or V substances. Schedule I substances by definition have no established medicinal use, and may not be
marketed or sold in the U.S. A pharmaceutical product may be listed as Schedule II, III, IV or V, with Schedule II substances are
considered to present the highest risk of abuse and Schedule V substances the lowest relative risk of abuse among such substances.
Amphetamine and methylphenidate, which are the active ingredients in our Adzenys XR-ODT and Cotempla XR-ODT
products, respectively, are listed by the DEA as a Schedule II controlled substance under the CSA. Scheduled controlled substances are
subject to DEA regulations relating to supply, procurement, manufacturing, storage, distribution, and physician prescription
procedures. We currently manufacture these products in our own facilities, which are registered with and inspected by the DEA. Our
planned contract manufacturer is also registered with and inspected by the DEA.
Registered entities are subject to DEA inspection and also must follow specific labeling and packaging requirements, and
provide appropriate security measures to control against diversion of controlled substances. Security requirements vary by controlled
substance schedule with the most stringent requirements applying to Schedule I and Schedule II controlled substances. Required
security measures include background checks on employees and physical control of inventory through measures such as vaults and
inventory reconciliations. Failure to follow these requirements can lead to significant civil and/or criminal penalties and possibly even
lead to a revocation of a DEA registration. The DEA also has a production and procurement quota system that controls and limits the
availability and production of Schedule I or II controlled substances. If we or any of our suppliers of raw materials that are DEA
classified as Schedule I or II controlled substances are unable to receive any quota or a sufficient quota to meet demand for our
products, if any, our business would be negatively impacted.
Annual registration is required for any facility that manufactures, distributes, dispenses, imports or exports any controlled
substance. The registration is specific to the particular location, activity and controlled substance schedule.
Because of their restrictive nature, these laws and regulations could limit commercialization of our products containing
controlled substances. Failure to comply with these laws and regulations could also result in withdrawal of our DEA registrations,
disruption in manufacturing and distribution activities, consent decrees, criminal and civil penalties, and state actions, among other
consequences.
The design, development, manufacture, supply and distribution of our products are highly regulated processes and technically
complex.
We are subject to extensive regulation of the preparation and manufacture of our products for commercial sale. Components of
a finished therapeutic product approved for commercial sale or used in late stage clinical trials must be manufactured in accordance
with cGMPs and equivalent foreign standards. These regulations govern manufacturing processes and procedures, including record
keeping, and the implementation and operation of quality systems to control and assure the quality of investigational products and
products approved for sale. Poor control of production processes
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can lead to the introduction of adventitious agents or other contaminants, or to inadvertent changes in the properties or stability of our
products that may not be detectable in final product testing. The development, manufacture, supply, and distribution of our approved
products as well as any of our future potential products, are highly regulated processes and technically complex. We, along with our
third-party suppliers, must comply with all applicable regulatory requirements of the FDA and foreign authorities. For instance,
because each of our ADHD products is a regulated drug product and subject to the DEA and state-level regulations, we have had to,
and will continue to, need to secure state licenses from each required state in which we intend to sell such product allowing us to
distribute a regulated drug product in such state.
Regulatory authorities also may audit our manufacturing facilities. If any such inspection or audit identifies a failure to
comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such
an inspection or audit, we may be required to take remedial measures that may be costly and/or time consuming for us to implement
and that may include the temporary or permanent suspension of commercial sales or the temporary or permanent closure of our facility.
Any such remedial measures imposed upon us could materially harm our business. If we fail to maintain regulatory compliance, the
FDA can impose regulatory sanctions including, among other things, refusal to approve a pending application for a new drug product
or revocation of a pre-existing approval, or civil or criminal penalties. As a result, our business, financial condition and results of
operations may be materially harmed.
There is a risk we may be unable to sell and distribute certain of our products if we cannot continue to comply with the
serialization requirements of the Drug Quality and Security Act within the necessary time frames.
Title II of the Drug Quality and Security Act of 2013 provided increased FDA oversight over tracking and monitoring of the
sale and distribution of prescription drugs. We are required to provide product identification information, or serialization, at the
manufacturing batch, or lot level. In addition, we are required to track and verify wholesaler and pharmacy authentication and
verification. By the end of 2023 we will be required to conduct unit level tracking throughout the entire supply chain. We are now
serializing our products and are compliant with the Drug Quality and Security Act, but there is no guarantee that we will be able to
continue to satisfy each ever-stringent product identification requirements. Failing to do so could result in a delay or inability to sell our
products within the United States.
Failure to comply with health and data protection laws and regulations could lead to U.S. federal and state government
enforcement actions, including civil or criminal penalties, private litigation, and adverse publicity and could negatively affect
our operating results and business.
We and any potential collaborators may be subject to U.S. federal and state data protection laws and regulations, such as laws
and regulations that address privacy and data security. In the United States, numerous federal and state laws and regulations, including
state data breach notification laws, state health information privacy laws, and federal and state consumer protection laws, govern the
collection, use, disclosure, and protection of health-related and other personal information. In addition, we may obtain health
information from third parties, including research institutions which are subject to privacy and security requirements under HIPAA, as
amended by Health Information Technology for Economic and Clinical Health (“HITECH”). To the extent that we act as a business
associate to a healthcare provider engaging in electronic transactions, we may also be subject to the privacy and security provisions of
HIPAA, as amended by HITECH, which restricts the use and disclosure of patient-identifiable health information, mandates the
adoption of standards relating to the privacy and security of patient-identifiable health information, and requires the reporting of certain
security breaches to healthcare provider customers, the federal government, and media outlets with respect to such information.
Additionally, many states have enacted similar laws that may impose more stringent requirements on entities like ours. Depending on
the facts and circumstances, we could be subject to significant civil, criminal, and administrative penalties if we obtain, use, or disclose
individually identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or permitted by
HIPAA.
Compliance with U.S. and foreign privacy and data protection laws and regulations could require us to take on more onerous
obligations in our contracts, restrict our ability to collect, use and disclose data, or in some cases, impact our ability to operate in
certain jurisdictions. Failure to comply with these laws and regulations could result in
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government enforcement actions (which could include civil, criminal, and administrative penalties), private litigation, and/or adverse
publicity and could negatively affect our operating results and business. Moreover, employees and other individuals about whom we or
our potential collaborators obtain personal information, as well as the providers who share this information with us, may limit our
ability to collect, use and disclose the information. Claims that we have violated individuals’ privacy rights, failed to comply with data
protection laws, or breached our contractual obligations, even if we are not found liable, could be expensive and time-consuming to
defend and could result in adverse publicity that could harm our business.
We may use hazardous chemicals and biological materials in our business. Any claims relating to improper handling, storage
or disposal of these materials could be time-consuming and costly.
Our research and development processes may involve the controlled use of hazardous materials, including chemicals and
biological materials. We cannot eliminate the risk of accidental contamination or discharge and any resultant injury from these
materials. We may be sued for any injury or contamination that results from our use or the use by third parties of these materials, and
our liability may exceed any insurance coverage and our total assets. Federal, state and local laws and regulations govern the use,
manufacture, storage, handling and disposal of these hazardous materials and specified waste products, as well as the discharge of
pollutants into the environment and human health and safety matters. Compliance with environmental laws and regulations may be
expensive and may impair our research and development efforts. If we fail to comply with these requirements, we could incur
substantial costs, including civil or criminal fines and penalties, clean-up costs or capital expenditures for control equipment or
operational changes necessary to achieve and maintain compliance. In addition, we cannot predict the impact on our business of new or
amended environmental laws or regulations or any changes in the way existing and future laws and regulations are interpreted and
enforced.
RISKS RELATED TO OUR INTELLECTUAL PROPERTY
We are dependent on our relationships and license agreements, and we rely on the intellectual property rights granted to us
pursuant to the license agreements.
A number of our patent and trademark rights are derived from our license agreements with third parties. Pursuant to these
license agreements, we have licensed rights to various patents, patent applications, trademarks and trademark applications within and
outside of the United States. We may lose our rights to this intellectual property if we breach our obligations under such license
agreements, including, without limitation, our financial obligations to the licensors. If we violate or fail to perform any term or
covenant of the license agreements, the licensors may terminate the license agreements upon satisfaction of applicable notice
requirements and expiration of any applicable cure periods. Additionally, any termination of license agreements, whether by us or the
licensors may not relieve us of our obligation to pay any license fees owing at the time of such termination. If we fail to retain our
rights under these license agreements, we will not be able to commercialize certain products subject to patent or patent application or
trademark or trademark application, and our business, results of operations, financial condition and prospects would be materially
adversely affected. In addition, the licensor may not be able to obtain valid and enforceable patents that protect the licensed products
and may not be able to prevent third parties from infringing on those rights.
From time to time we may renegotiate the terms of our existing licensing agreements or other material contracts. There can be
no guarantee that the terms of the renegotiated license agreement will be viewed favorably by the market although the renegotiated
terms might be advantageous to our business or that the other party would agree to material changes to benefit the Company. For
example, in May 2022, we negotiated to terminate the License, Development, Manufacturing and Supply agreement with Tris. The
negotiations resulted in reducing the future minimum payments we owed to Tris by approximately $8 million. If we were unable to
renegotiate the terms of the agreement, it would have had a material negative impact on our cash flows and financial position.
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The expiration or loss of patent protection may adversely affect our future revenues and operating results.
The suite of composition-of-matter patents for Adzenys XR-ODT are scheduled to expire in 2026 and 2032. The composition-
of-matter patents in the U.S. for Cotempla XR-ODT expire in 2032, and the method-of-use patent expires in 2038. There is no
guarantee that we will be able to extend the life of these patents or to obtain additional patents, licenses, or other instruments that can
provide us with a comparable level of exclusivity to the intellectual property underlying the expiring patents.
We rely on patent, trademark and other intellectual property protection in the discovery, development, manufacturing and sale
of our products. In particular, patent protection is, in the aggregate, important in our marketing of products in the United States. Patents
covering our products normally provide market exclusivity, which is important for the profitability of many of our products.
As patents for certain of our products expire, we may face competition from lower priced generic or bioequivalent products.
In general, the expiration or loss of patent protection for a product may allow market entry by substitute products that could
significantly reduce sales for the original product in a short amount of time. If our competitive position is compromised because of
generic or bioequivalent products or otherwise, it could have a material adverse effect on our business and results of operations. In
addition, proposals emerge from time to time for legislation to further encourage the early and rapid approval of generic or
bioequivalent products. Any such proposals that are enacted into law could increase the negative effect of generic competition.
Our ability to compete may decline if we do not adequately protect or enforce our intellectual property rights.
Our success depends in part on our ability to manufacture, use, sell and offer to sell our products and in obtaining and
maintaining intellectual property rights in our products, proprietary know-how and technology advances. We rely on patent protection,
as well as a combination of trademark and trade secret laws to protect and prevent others from making, using and/or selling our
compounds, processes, apparatuses and technology. While a presumption of validity exists with respect to patents issued to us in the
U.S., there can be no assurance that any of our patents will not be challenged, invalidated, circumvented or rendered unenforceable.
Such means may afford only limited protection of our intellectual property and may not (i) prevent our competitors from duplicating
our inventions; (ii) prevent our competitors from gaining access to our proprietary information and technology; or (iii) permit us to gain
or maintain a competitive advantage. In addition, our competitors or other third parties may obtain patents that restrict or preclude our
ability to lawfully practice, produce or sell our products in a competitive manner.
Obtaining and maintaining a patent portfolio entails significant expense and resources. We may or may not choose to pursue
or maintain protection for particular inventions. In addition, there are situations in which failure to make certain payments or
noncompliance with certain requirements in the patent process can result in abandonment or lapse of a patent or patent application,
resulting in partial or complete loss of patent rights in the relevant jurisdiction. If we choose to forgo patent protection or allow a patent
application or patent to lapse purposefully or inadvertently, our competitive position could suffer. In addition, the patent scope can be
limited in prosecution or by the courts after issuance.
In addition, we may face claims by third parties that our agreements with employees, contractors, or consultants obligating
them to assign intellectual property to us are ineffective, or in conflict with prior or competing contractual obligations of assignment,
which could result in ownership disputes. Litigation may be necessary to resolve an ownership dispute, and if we are not successful, we
may be precluded from using certain intellectual property, or may lose our exclusive rights in that intellectual property. Either outcome
could have an adverse impact on our business.
Legal actions to enforce our patent rights and administrative challenges at the U.S. Patent and Trademark Office can be expensive and
may involve the diversion of significant management time. In addition, these actions could be unsuccessful and could also result in the
invalidation of our patents or a finding that they are unenforceable. We may or may not choose to pursue litigation or other actions
against those that have infringed on our patents, or used them without authorization, due to the associated expense and time
commitment of monitoring these activities. If we fail to protect or to enforce our intellectual property rights successfully, our
competitive position could suffer, which could harm our business, prospects, financial condition and results of operations.
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If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to patent protection, because we operate in the highly technical field of development of therapies and medical
devices, we rely in part on trade secret protection in order to protect our proprietary technology and processes. However, trade secrets
are difficult to protect. We expect to enter into confidentiality and intellectual property assignment agreements with our employees,
consultants, outside scientific and commercial collaborators, sponsored researchers, and other advisors. These agreements generally
require that the other party keep confidential and not disclose to third parties all confidential information developed by the party or
made known to the party by us during the course of the party’s relationship with us. These agreements also generally provide that
inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, these agreements
may not be honored and may not effectively assign intellectual property rights to us.
In addition to contractual measures, we try to protect the confidential nature of our proprietary information using physical and
technological security measures. Such measures may not, for example, in the case of misappropriation of a trade secret by an employee
or third party with authorized access, provide adequate protection for our proprietary information. Our security measures may not
prevent an employee or consultant from misappropriating our trade secrets and providing them to a competitor, and recourse we take
against such misconduct may not provide an adequate remedy to protect our interests fully. Enforcing a claim that a party illegally
disclosed or misappropriated a trade secret can be difficult, expensive, and time-consuming, and the outcome is unpredictable. In
addition, courts outside the U.S. may be less willing to protect trade secrets. Trade secrets may be independently developed by others in
a manner that could prevent legal recourse by us. If any of our confidential or proprietary information, such as our trade secrets, were
to be disclosed or misappropriated, or if any such information was independently developed by a competitor, our competitive position
could be harmed.
We may not be able to enforce our intellectual property rights throughout the world.
The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the U.S. Many
companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign
jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other
intellectual property protection, especially those relating to pharmaceuticals and medical devices. This could make it difficult for us to
stop the infringement of some of our patents, if obtained, or the misappropriation of our other intellectual property rights. For example,
many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition,
many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In
these countries, patents may provide limited or no benefit. In addition, some countries allow patents to be challenged by third parties in
administrative proceedings, which may result in a reduction in scope or cancelation of some or all of the claims. Patent protection must
ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes.
Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in
such countries.
Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and
attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be
inadequate. In addition, changes in the law and legal decisions by courts in the U.S. and foreign countries may affect our ability to
obtain adequate protection for our technology and the enforcement of intellectual property.
A dispute concerning the infringement or misappropriation of our proprietary rights or the proprietary rights of others could
be time consuming and costly, and an unfavorable outcome could harm our business.
There is significant litigation in the pharmaceutical industry regarding patent and other intellectual property rights. While we
are not currently subject to any pending intellectual property litigation, and are not aware of any such threatened litigation, we may be
exposed to future litigation by third parties based on claims that our products infringe
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the intellectual property rights of others. If our development and commercialization activities are found to infringe any such patents, we
may have to pay significant damages or seek licenses to such patents. A patentee could prevent us from using the patented drugs,
compositions or devices that relate to our prescription and consumer health business. We may need to resort to litigation to enforce a
patent issued to us, to protect our trade secrets, or to determine the scope and validity of third-party proprietary rights. From time to
time, we may hire scientific personnel or consultants formerly employed by other companies or universities involved in one or more
areas similar to the activities conducted by us. Either we or these individuals may be subject to allegations of trade secret
misappropriation, wrongful disclosure of confidential information, or other similar claims as a result of prior affiliations. If we become
involved in litigation, it could consume a substantial portion of our managerial and financial resources, regardless of whether we win or
lose. We may not be able to afford the costs of litigation. Any adverse ruling or perception of an adverse ruling in defending ourselves
against these claims could have a material adverse impact on our cash position and stock price. Any legal action against us or our
collaborators could lead to:
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payment of damages, potentially treble damages, if we are found to have willfully infringed a party’s intellectual
property rights;
injunctive or other equitable relief that may effectively block our ability to further develop, commercialize, and sell
products; or
we or our collaborators having to enter into license arrangements that may not be available on commercially
reasonable or acceptable terms, if at all, all of which could have a material adverse impact on our cash position and
business, prospects and financial condition. As a result, we could be prevented from commercializing our products.
RISKS RELATED TO OUR ORGANIZATION, STRUCTURE AND OPERATION
Our efforts to expand and transform our businesses may require significant investments; if our strategies are unsuccessful, our
business, results of operations and/or financial condition may be materially adversely affected.
We continuously evaluate opportunities for expansion and change. These initiatives may involve making acquisitions, entering
into partnerships and joint ventures, divesting assets, restructuring our existing operations and assets, creating new financial structures
and building new facilities—any of which could require a significant investment and subject us to new kinds of risks. We may incur
additional indebtedness to finance these opportunities. If our strategies for growth and change are not successful, we could face
increased financial pressure, such as increased cash flow demands, reduced liquidity and diminished access to financial markets, and
the equity value of our businesses could be diluted.
The implementation of strategies for growth and change may create additional risks, including:
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diversion of management time and attention away from existing operations;
requiring capital investment that could otherwise be used for the operation and growth of our existing businesses;
disruptions to important business relationships;
increased operating costs;
limitations imposed by various governmental entities; and
difficulties due to lack of or limited prior experience in any new markets we may enter.
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Our inability to mitigate these risks or other problems encountered in connection with our strategies for growth and change
could have a material adverse effect on our business, results of operations and financial condition. In addition, we may fail to fully
achieve the savings or growth projected for current or future initiatives notwithstanding the expenditure of substantial resources in
pursuit thereof.
We may have difficulties integrating acquired products and businesses and as a result, our business, results of operations
and/or financial condition may be materially adversely affected.
We have completed a number of acquisitions, and we intend to continue to acquire additional products and businesses through
mergers, asset purchases or in-licensing, businesses or products, or form strategic alliances as part of our business strategy. Such
growth strategies involve risks, including:
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inability to efficiently operate new businesses or to integrate acquired products and businesses;
inability to accurately predict delays in realizing the costs and benefits of acquisitions, partnerships, or joint ventures;
unexpected losses of customers or suppliers of an acquired or existing business;
difficulties in retaining key employees of acquired businesses;
difficulties in realizing projected synergies;
failure of the acquired business to produce the expected value;
exposure to unanticipated liabilities, including unexpected environmental exposures, litigation challenging a merger,
product liability or illegal activities conducted by an acquired company or a joint venture partner.
Our inability to address these risks in a timely manner or at all could cause us to fail to realize the anticipated benefits of such
acquisitions or joint ventures and could have a material adverse effect on our business, results of operations and financial condition.
In fiscal 2023, the great majority of our gross revenue and gross accounts receivable were due to three significant customers,
the loss of which could materially and adversely affect our results of operations.
Three customers contributed greater than 10% of our gross revenue during the years ended June 30, 2023 and 2022. During
the years ended June 30, 2023 and 2022, three customers accounted for 78% of gross revenue, respectively. The loss of one or more of
our significant customers could have a material adverse effect on our business, operating results or financial condition. Any reduction,
delay or cancellation of an order from these customers or the loss of any of these customers could cause our revenue to decline. If we
are unable to diversify our customer base, we will continue to be susceptible to risks associated with customer concentration.
Our accounts receivable subjects us to credit risk.
We are also subject to credit risk from our accounts receivable related to our product sales. As of June 30, 2023, three
customers accounted for 83% of gross accounts receivable. Our profitability and cash flow are dependent on receipt of timely payments
from customers. Any delay in payment by our customers may have an adverse effect on our profitability, working capital and cash
flow. There is no assurance that we will be able to collect all or any of its trade receivables in a timely matter. If any of our customers
face unexpected situations such as financial difficulties, we may not be able to receive full or any payment of the uncollected sums or
enforce any judgment debts against such clients, and our business, results of operations and financial condition could be materially and
adversely affected.
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We depend on key personnel and attracting qualified management personnel and our business could be harmed if we lose
personnel and cannot attract new personnel.
Our success depends to a significant degree upon the technical and management skills of our directors, officers, and key
personnel. Any of our directors could resign from our board at any time and for any reason. Although our named executive officers
Joshua Disbrow and Mark Oki have employment agreements, the existence of an employment agreement does not guarantee the
retention of the executive officer for any period of time, and each agreement obligates us to pay the officer lump sum severance of two
and a half years and one year, respectively, of salary if we terminate him without cause, as defined in the agreement, which could hurt
our liquidity. The loss of the services of either of these individuals would likely have a material adverse effect on us. Our success also
will depend upon our ability to attract and retain additional qualified management, marketing, technical, and sales executives and
personnel. We do not maintain key person life insurance for any of our officers or key personnel. The loss of any of our directors or key
executives, or the failure to attract, integrate, motivate, and retain additional key personnel could have a material adverse effect on our
business.
We compete for such personnel, including directors, against numerous companies, including larger, more established
companies with significantly greater financial resources than we possess. There can be no assurance that we will be successful in
attracting or retaining such personnel, and the failure to do so could have a material adverse effect on our business, prospects, financial
condition, and results of operations.
Product liability and other lawsuits could divert our resources, result in substantial liabilities and reduce the commercial
potential of our products.
We will be exposed to potential product liability and professional indemnity risks that are inherent in the research,
development, manufacturing, marketing, and use of therapeutic candidates. Any failure of future therapeutic candidates by us and our
corporate collaborators may expose us to liability claims as may the potential sale of any therapies approved in the future. These claims
might be made by patients who use our therapies, healthcare providers, pharmaceutical companies, our corporate collaborators or other
third parties that research or sell our therapies. Any claims against us, regardless of their merit, could be difficult and costly to defend
and could materially adversely affect the market for our future therapeutic candidates or any prospects for commercialization of our
future therapeutic candidates.
The risk that we may be sued on product liability claims is inherent in the development and commercialization of
pharmaceutical, medical device, dietary supplement and personal care products. Side effects of, or manufacturing defects in, products
that we develop and commercialized could result in the deterioration of a patient’s condition, injury or even death. Once a product is
approved for sale and commercialized, the likelihood of product liability lawsuits increases. Claims may be brought by individuals
seeking relief for themselves or by individuals or groups seeking to represent a class. Large judgments have been awarded in class
action lawsuits based on drugs that had unanticipated side effects. These lawsuits may divert our management from pursuing our
business strategy and may be costly to defend. In addition, if we are held liable in any of these lawsuits, we may incur substantial
liabilities and may be forced to limit or forgo further commercialization of the affected products.
We may be subject to legal or administrative proceedings and litigation other than product liability lawsuits which may be
costly to defend and could materially harm our business, financial condition and operations.
Although we maintain general liability and product liability insurance, this insurance may not fully cover potential liabilities.
In addition, insurance coverage is increasingly expensive and difficult to obtain. For example, we have experienced increasing
difficulty in procuring insurance coverage for our products, in particular, our ADHD products, due to their status as controlled
substances. Inability to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential
product or other legal or administrative liability claims could prevent or inhibit the commercial production and sale of any of our
products that receive regulatory approval, which could adversely affect our business. Product liability claims could also harm our
reputation, which may adversely affect our collaborators’ ability to commercialize our products successfully. A successful product
liability claim or series of
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claims brought against us, particularly if judgments exceed our insurance coverage, could decrease our cash and adversely affect our
business.
Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims
against us and may reduce the amount of money available to the Company.
Our certificate of incorporation provides that we will indemnify our directors to the fullest extent permitted by Delaware law.
In addition, as permitted by Section 145 of the Delaware General Corporation Law, our bylaws provide that:
● we may, in our discretion, indemnify other officers, employees and agents in those circumstances where
indemnification is permitted by applicable law;
● we are required to advance expenses, as incurred, to our directors and executive officers in connection with
defending a proceeding, except that such directors or executive officers shall undertake to repay such advances if it
is ultimately determined that such person is not entitled to indemnification;
● we will not be obligated pursuant to our bylaws to indemnify any director or executive officer in connection with
any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be
made by law, (ii) the proceeding was authorized by our Board of Directors, (iii) such indemnification is provided
by us, in our sole discretion, pursuant to the powers vested in the corporation under applicable law or (iv) such
indemnification is required to be made pursuant to our amended and restated bylaws;
the rights conferred in our bylaws are not exclusive, and we are authorized to enter into indemnification agreements
with our directors, officers, employees and agents and to obtain insurance to indemnify such persons; and
●
● we may not retroactively amend our bylaw provisions to reduce our indemnification obligations to directors,
officers, employees and agents.
As a result, if we are required to indemnify one or more of our directors or executive officers, it may reduce our available
funds to satisfy successful third-party claims against us, may reduce the amount of money available to us and may have a material
adverse effect on our business and financial condition.
Public concern over the abuse of medications that are controlled substances, including increased legislative, legal and
regulatory action, could negatively affect our business.
Products containing controlled substances may generate public controversy. Certain governmental and regulatory agencies, as
well as state and local jurisdictions, are focused on the abuse of controlled substances such as opioids in the United States. State and
local governmental agencies have commenced investigations into pharmaceutical companies and others in the supply chain in
connection with the distribution of opioid medications. For example, on March 7, 2018 and April 18, 2019, Neos Therapeutics, which
we now own, received citations advising Neos that the County of Harris Texas and the County of Walker Texas filed lawsuits on
December 13, 2017 and January 11, 2019, respectively, against Neos and various other alleged manufacturers, promoters, sellers and
distributors of opioid pharmaceutical products. Through these lawsuits, each of Harris County and Walker County seek to recoup as
damages some of the expenses they allegedly have incurred to combat opioid use and addiction. Each of Harris County and Walker
County also seeks punitive damages, disgorgement of profits and attorneys’ fees. In addition, multiple lawsuits have been filed against
pharmaceutical companies alleging, among other claims, failures to provide effective controls and procedures to guard against the
diversion of controlled substances, negligence by distributing controlled substances to pharmacies that serve individuals who abuse
controlled substances, and failures to report suspicious orders of controlled substances in accordance with regulations. Certain cases
noted above have recently been settled, some for hundreds of millions of dollars. In the future, political pressures and adverse publicity
could lead to delays in, and increased expenses for, and limit or restrict, the introduction and marketing of our products, the withdrawal
of currently approved products from the market, or result in other legal action.
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In addition, we are aware of other legislative, regulatory or industry measures to address the misuse of prescription opioid
medications which could affect our business in ways that we may not be able to predict. Liabilities for taxes or assessments under any
such laws will likely have an adverse impact on our results of operations, unless we are able to mitigate them through operational
changes or commercial arrangements where permitted and may result in us ceasing to continue to sell our products in these
jurisdictions.
Certain of our stockholders own a significant percentage of our stock and may and their interests may conflict with yours.
As of June 30, 2023, one stockholder holds approximately 20% of our outstanding common stock and holds warrants which
can be exercised to purchase additional shares of our common stock resulting in ownership of approximately 40% of our currently
outstanding common stock. Accordingly, this stockholder will be able to exert a significant degree of influence over our management
and affairs and over matters requiring security holder approval.
In addition, in connection with our recent public offering of securities in June 2023, this stockholder has been granted the right
to designate an individual to join our board of directors, who has since joined the board of directors, and to nominate an additional
candidate who is acceptable to us to be elected to the Board, subject to Nasdaq regulations. The interests of this stockholder could
conflict with the interests of our other stockholders.
Our business could be negatively affected as a result of the actions of activist stockholders.
Proxy contests have been waged against many companies in the pharmaceutical industry over the last several years. It is
possible that one or more of our stockholders may publicly voice opposition to certain aspects of our corporate governance and
strategy, or undertake a proxy contest to reconstitute our board. If faced with a proxy contest or other type of stockholder activism, we
may not be able to respond successfully to the contest or other type of activism which would be disruptive to our business. Even if we
are successful, our reputation and/or business could be adversely affected by a proxy contest or other form of stockholder activism
because:
● responding to proxy contests and other actions by activist stockholders can be costly and time-consuming, disrupting
operations and diverting the attention of management and employees;
● perceived uncertainties as to our company and future strategic direction may result in the loss of potential financing,
acquisitions, collaboration, in-licensing or other business opportunities, and may make it more difficult to attract and retain
qualified personnel and business partners; and
● if individuals are elected to our board of directors with a specific agenda, it may adversely affect our ability to effectively and
timely implement our strategic plan and create additional value for our stockholders.
Any or all of these activities could cause our stock price to decline or experience periods of volatility, and could be
particularly problematic as our company seeks to transition to a commercial enterprise in a challenging environment.
RISK RELATED TO SECURITIES MARKETS AND INVESTMENT IN OUR SECURITIES
Our failure to meet the continued listing requirements of the Nasdaq Capital Market could result in a delisting of our common
stock.
If we fail to satisfy the continued listing requirements of the Nasdaq Capital Market, such as the corporate governance
requirements or the minimum closing bid price requirement, the exchange may take steps to delist our common stock. Such a delisting
would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common
stock when you wish to do so. In the event of a delisting notification, we anticipate that we would take actions to restore our
compliance with applicable exchange requirements, such as stabilize our market price, improve the liquidity of our common stock,
prevent our common stock from dropping below such exchange’s minimum bid price requirement, or prevent future non-compliance
with such exchange’s listing requirements.
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Effecting a reverse stock split, if determined by the Board in its discretion, may not achieve one or more of our objectives.
We have effected five reverse stock splits since June 8, 2015, each of which has impacted the trading liquidity of the shares of
our common stock. There can be no assurance that the market price per share of our common stock after a reverse stock split will
remain unchanged or increase in proportion to the reduction in the number of shares of our common stock outstanding before the
reverse stock split. The market price of our shares may fluctuate and potentially decline after a reverse stock split. Accordingly, the
total market capitalization of our common stock after a reverse stock split may be lower than the total market capitalization before the
reverse stock split. Moreover, the market price of our common stock following a reverse stock split may not exceed or remain higher
than the market price prior to the reverse stock split.
Additionally, there can be no assurance that a reverse stock split will result in a per-share market price that will attract
institutional investors or investment funds or that such share price will satisfy investing guidelines of institutional investors or
investment funds. As a result, the trading liquidity of our common stock may not necessarily improve. Further, if a reverse stock split is
effected and the market price of our common stock declines, the percentage decline may be greater than would occur in the absence of
a reverse stock split.
Our share price is volatile and may be influenced by numerous factors, some of which are beyond our control.
The trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to
various factors, some of which are beyond our control. In addition to the factors discussed in this “Risk Factors” section and elsewhere
in this prospectus, these factors include:
●
●
●
●
●
●
●
●
●
the success of products we acquire for development or commercialization relative to the success of our competitors;
product safety;
conditions or trends in the healthcare, biotechnology and pharmaceutical industries, including healthcare payment
systems;
our ability to effectively manage operations, financial decisions, internal controls over financial reporting or
disclosure controls, performance relative to projections, and attract and retain employees;
our dependence on third parties, including CROs and scientific and medical advisors;
adverse regulatory decisions or changes in laws or regulations;
disputes or other developments relating to patents and other proprietary rights and our ability to obtain patent
protection for our products;
general political and economic conditions and effects of natural or man-made catastrophic events; and
other events or factors, many of which are beyond our control.
In addition, the stock market in general, and the stocks of small-cap healthcare, biotechnology, and pharmaceutical companies
in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the
operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common
stock, regardless of our actual operating performance. The realization of any of the above risks or any of a broad range of other risks,
including those described in these “Risk Factors,” could have a dramatic and material adverse impact on the market price of our
common stock. You might not be able to resell your shares at or above the price you paid for them.
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If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our
stock price and any trading volume could decline.
Any trading market for our common stock that may develop will depend in part on the research and reports that securities or
industry analysts publish about us or our business. We cannot control the number of securities and industry analysts who publish
research on us, the extent of their coverage or the content of their reports. Downgrades of our stock or publishing inaccurate or
unfavorable research about our business, would likely lead to a decline in our stock price. If one or more of these analysts cease
coverage of our company or fail to publish reports on us regularly, we could lose market visibility and demand for our stock could
decrease, which might cause our stock price and any trading volume to decline.
Some provisions of our charter documents and applicable Delaware law may discourage an acquisition of us by others, even if
the acquisition may be beneficial to some of our stockholders.
Provisions in our Certificate of Incorporation and Amended and Restated Bylaws, as well as certain provisions of Delaware
law, could make it more difficult for a third-party to acquire us, even if doing so may benefit some of our stockholders. These
provisions include:
●
●
●
●
●
the authorization of 50.0 million shares of “blank check” preferred stock, the rights, preferences and privileges of
which may be established and shares of which may be issued by our Board of Directors at its discretion from time to
time and without stockholder approval;
limiting the removal of directors by the stockholders;
allowing for the creation of a staggered board of directors;
eliminating the ability of stockholders to call a special meeting of stockholders; and
establishing advance notice requirements for nominations for election to the board of directors or for proposing
matters that can be acted upon at stockholder meetings.
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by
making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the
members of our management. In addition, we are subject to Section 203 of the Delaware General Corporation Law, which generally
prohibits a Delaware corporation from engaging in any of a broad range of business combinations with an interested stockholder for a
period of three years following the date on which the stockholder became an interested stockholder, unless such transactions are
approved by the board of directors. This provision could have the effect of discouraging, delaying or preventing someone from
acquiring us or merging with us, whether or not it is desired by or beneficial to our stockholders.
Any provision of our Certificate of Incorporation or Bylaws or of Delaware law that is applicable to us that has the effect of
delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our
common stock in the event that a potentially beneficial acquisition is discouraged, and could also affect the price that some investors
are willing to pay for our common stock.
We do not intend to pay cash dividends on our capital stock in the foreseeable future.
We have never declared or paid any dividends on our common stock and do not anticipate paying any dividends in the
foreseeable future. Any payment of cash dividends in the future would depend on our financial condition, contractual restrictions,
solvency tests imposed by applicable corporate laws, results of operations, anticipated cash requirements and other factors and will be
at the discretion of our Board of Directors. Our stockholders should not expect that we will ever pay cash or other dividends on our
outstanding capital stock.
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We are and may continue to be subject to short selling strategies.
Short sellers of our stock may be manipulative and may attempt to drive down the market price of shares of our Common
Stock. Short selling is the practice of selling securities that the seller does not own but rather has borrowed from a third party with the
intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the
value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller
expects to pay less in that purchase than it received in the sale. As it is therefore in the short seller’s best interests for the price of the
stock to decline, many short sellers (sometime known as “disclosed shorts”) publish, or arrange for the publication of, negative
opinions regarding the relevant issuer and its business prospects to create negative market momentum and generate profits for
themselves after selling a stock short. Although traditionally these disclosed shorts were limited in their ability to access mainstream
business media or to otherwise create negative market rumors, the rise of the Internet and technological advancements regarding
document creation, videotaping and publication by blogging have allowed many disclosed shorts to publicly attack a company’s
credibility, strategy and veracity by means of so-called “research reports” that mimic the type of investment analysis performed by
large Wall Street firms and independent research analysts. These short attacks have, in the past, led to selling of shares in the market,
on occasion in large scale and broad base. Issuers who have limited trading volumes and are susceptible to higher volatility levels than
large-cap stocks, can be particularly vulnerable to such short seller attacks. These short seller publications are not regulated by any
governmental, self-regulatory organization or other official authority in the United States, are not subject to certification requirements
imposed by the SEC and, accordingly, the opinions they express may be based on distortions or omissions of actual facts or, in some
cases, fabrications of facts. In light of the limited risks involved in publishing such information, and the enormous profit that can be
made from running a successful short attack, unless the short sellers become subject to significant penalties, it is more likely than not
that disclosed short sellers will continue to issue such reports.
Significant short selling of a company’s stock creates an incentive for market participants to reduce the value of that
company’s common stock. Short selling may lead to the placement of sell orders by short sellers without commensurate buy orders
because the shares borrowed by short sellers do not have to be returned by any fixed period of time. If a significant market for short
selling our common stock develops, the market price of our common stock could be significantly depressed.
The Sabby litigation may result in the issuance of additional shares on the exercise of certain of our warrants and cause
dilution to existing shareholders.
A complaint was filed on February 22, 2023 by holders of certain warrants to purchase common stock, against the Company.
The complaint alleges that the Company improperly adjusted the exercise price of the warrants and miscalculated the number of shares
the warrantholders may receive, and that the Company failed to provide prompt notice to the warrantholders of such adjustment. The
complaint seeks, among other things, a declaratory judgment of the warrant share calculation such that 2,325,581 warrant shares be due
to the warrantholders on the exercise of the warrants rather than 1,265,547 shares. While we believe that this lawsuit is without merit
and we intend to vigorously defend against it, we are not able to predict at this time whether this proceeding will have a material
impact on our financial condition or results of operations. If this lawsuit is successful and the warrantholders exercise their warrants, it
will result in significant dilution of the percentage ownership of our existing stockholders and could cause our stock price to fall. See
Part I, Item 3. Legal Proceedings for more information on this lawsuit.
GENERAL RISK FACTORS
Our business and operations would suffer in the event of system failures, cybersecurity attacks or other security breaches.
We utilize information technology, or IT, systems and networks to process, transmit and store electronic information in
connection with our business activities. As use of digital technologies has increased, cyber incidents, including deliberate cybersecurity
attacks and attempts to gain unauthorized access to computer systems and networks, have increased in frequency and sophistication.
These threats pose a risk to the security of our systems and networks and
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the confidentiality, availability, and integrity of our data. There can be no assurance that we will be successful in preventing cyber
attacks or successfully mitigating their effects.
Despite the implementation of security measures, our internal computer systems and those of our contractors and consultants
are vulnerable to damage from such cybersecurity attacks, including computer viruses, unauthorized access, ransomware attacks,
phishing expeditions, natural disasters, terrorism, war and telecommunication and electrical failures. Such an event could cause
interruption of our operations. To the extent that any disruption or security breach were to result in a loss of or damage to our data, or
inappropriate disclosure of confidential or proprietary information, we could suffer reputational harm or face litigation or adverse
regulatory action and the development of our products could be delayed.
Our sales force and other employees, third party logistics partners, CMOs, CROs, principal investigators, collaborators,
independent contractors, consultants and other vendors may engage in misconduct or other improper activities, including
noncompliance with regulatory standards and requirements.
Major bank failure or sustained financial market illiquidity, could adversely affect our business, financial condition and results
of operations.
We face certain risks in the event of a sustained deterioration of domestic or international financial market liquidity. In
particular:
● We may be unable to access funds in our deposit accounts on a timely basis. Any resulting need to access other sources of
liquidity or short-term borrowing would increase our costs.
● In the event of a major bank failure, we could face major risks to the recovery of our bank deposits. A substantial portion
of our cash and cash equivalents are either held at banks that are not subject to insurance protection against loss or exceed
the deposit insurance limit. While we are not currently aware of any liquidity issues directly impacting the financial
institutions where we hold cash deposits or securities, if financial liquidity deteriorates, there can be no assurance we will
not experience an adverse effect, which may be material, on our ability to access capital and on our business, financial
condition and results of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We lease or sublease various properties, including office buildings, manufacturing, research and development facilities and
sales offices within the U.S. We continuously review and evaluate our facilities as a part of our strategy to optimize our business
operations. The following table sets forth a list of our properties as of June 30, 2023.
Location
Englewood, CO
Grand Prairie, TX
Berwyn, PA
Oceanside, CA
ITEM 3. LEGAL PROCEEDINGS
Leased/Owned
Leased
Leased
Leased
Leased
Purpose
Corporate headquarters
Administrative offices, Laboratory and Manufacturing facilities
Office
Warehouse
Witmer Class-Action Securities Litigation. A shareholder derivative suit was filed on September 12, 2022 in the Delaware
Chancery Court by Paul Witmer, derivatively and on behalf of all Aytu stockholders, against Armistice Capital, LLC, Armistice Capital
Master Fund, Ltd., Steve Boyd (Armistice’s Chief Investment Officer and Managing Partner, and a former director of Aytu), and
certain other current and former directors of Aytu, Joshua Disbrow, Gary
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Cantrell, John Donofrio, Jr., Michael Macaluso, Carl Dockery and Ketan B. Mehta. Plaintiff amended the complaint on April 5, 2023.
The Amended Complaint drops Mr. Macaluso as a defendant and alleges that (i) Armistice facilitated the sale of assets of Cerecor in
2019 and Innovus in 2020 to Aytu in exchange for convertible securities which it subsequently converted and sold at a profit on the
open market; (ii) the Armistice defendants breached their fiduciary duties, were unjustly enrichment and wasted corporate assets in
connection with these acquisitions; (iii) the Armistice defendants breached their fiduciary duties by engaging in as insider trading; and
(iv) the other directors breached their fiduciary duties, and aided and abetted the Armistice defendants breaches of fiduciary duties, in
connection with these acquisitions. The Amended Complaint seeks unspecified damages, equitable relief, restitution, disgorgement of
profits, enhanced governance and internal procedures, and attorneys’ fees. While we believe that this lawsuit is without merit and have
vigorously defended against it, we have agreed to settle the matter for various corporate governance modifications and the payment of
plaintiff’s attorneys’ fees.
Sabby Litigation. A complaint was filed on February 22, 2023 in the Supreme Court of the State of New York by Sabby
Volatility Warrant Master Fund LTD (“Sabby”) and Walleye Opportunities Master Fund Ltd (“Walleye”), holders of certain warrants to
purchase common stock, against the Company. The complaint alleges that the Company improperly adjusted the exercise price of the
warrants and miscalculated the number of shares the warrantholders may receive, and that the Company failed to provide prompt notice
to the warrantholders of such adjustment. The complaint seeks a declaratory judgment of the warrant share calculation, that 575,000
warrant shares be due to Sabby on exercise of its warrants rather than 312,908 shares, and that 100,000 warrant shares be due to
Walleye on exercise of its warrants rather than 54,146 shares. While we believe that this lawsuit is without merit and we intend to
vigorously defend against it, we are not able to predict at this time whether this proceeding will have a material impact on our financial
condition or results of operations.
Stein Litigation. Cielo Stein (“Stein”), a former sales specialist, filed a complaint on February 1, 2023 in Jefferson County
Circuit Court in Kentucky against the Company and its wholly-owned subsidiary Neos Therapeutics. The complaint alleges that Aytu
retaliated against Stein in violation of the Kentucky Civil Rights Act after she opposed what she contends was unwelcome behavior by
her supervisor. The complaint also alleges that the Company’s response to Stein’s subsequent complaint to human resources was
inadequate. The complaint seeks an award of unspecified compensatory damages, emotional-distress damages, and attorneys’ fees and
costs. The Company removed the lawsuit to the United States District Court for the Western District of Kentucky and filed a motion to
dismiss the complaint, which is pending. Due to the early stage of litigation, we are not able to predict at this time whether this
proceeding will have a material impact on our financial condition or results of operations, and intend to vigorously defend this case in
the event it is not dismissed.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock has been listed on the NASDAQ Capital Market under the symbol “AYTU” since October 20, 2017.
On January 6, 2023, we effected a 1-for-20 reverse stock split of our outstanding shares of common stock. Unless specifically
provided otherwise herein, the share and per share information that follows in this Annual Report on Form 10-K other than in the
historical financial statements and related notes included elsewhere in this Form 10-K, assumes the effect of the reverse stock split.
On September 20, 2023, the closing price as reported on the Nasdaq of our common stock was $1.585, and there were 190
holders of record of our common stock.
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Equity Compensation Plan Information
On May 18, 2023, our stockholders approved the adoption of the Aytu BioPharma, Inc. 2023 Equity Incentive Plan (the "2023
Equity Incentive Plan”). Prior to our adoption of the 2023 Equity Incentive Plan, we awarded equity incentive grants to our directors
and employees under the Aytu BioScience, Inc. 2015 Stock Option and Incentive Plan (“Aytu 2015 Plan”) and the Neos Therapeutics,
Inc. 2015 Stock Options and Incentive Plan (“the Neos 2015 Plan”) (collectively the “2015 Plans”). For the 2023 Equity Incentive
Plan, the stockholders approved (a) 200,000 new shares, (b) 87,155 shares available for grant under the 2015 Plans be “rolled over” to
the 2023 Equity Incentive Plan and (c) any shares that are returned to the company under the 2015 Plans be added to the 2023 Equity
Incentive Plan.
The following table displays equity compensation plan information as of June 30, 2023 relating to securities reserved for
future issuance upon exercise.
Number of
Securities to Weighted-
Average
be Issued
Exercise
upon
Exercise of
Price of
Outstanding Outstanding
Number of
Securities
Remaining
Available for
Issuance under
Equity
Compensation
Plans
(Column C -
Excluding
Securities
Reflected in
(Column (A))
84,560
2,595
87,155
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders(2)
Plan Category
Total
Options,
Warrants
and Rights
(Column A)
94,302
4,419
98,721
Options,
Warrants
and Rights
(Column B)(1)
15.17
$
127.77
$
18.37
$
(1)
It reflects the weighted-average exercise prices of options outstanding. Restricted stocks and restricted stock units (RSUs) do not
have exercise prices (see Note 15 - Equity Incentive Plan).
(2) It reflects the equity plan we assumed pursuant to the Neos Acquisition and restricted stock previously issued outside of the Aytu
2015 Plan (see Note 15 - Equity Incentive Plan).
Dividend Policy
We have never declared or paid any dividends on our capital stock. We currently intend to retain all available funds and any
future earnings, if any, to fund the development and expansion of our business, and we do not anticipate paying any cash dividends in
the foreseeable future. Any future determination to pay dividends will be made at the discretion of our board of directors. Our ability to
pay dividends on our common stock is limited by restrictions under the terms of our credit facility with Avenue Capital. In addition,
any future indebtedness that we may incur could preclude us from paying dividends. Investors should not purchase our common stock
with the expectation of receiving cash dividends.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our
financial statements and the related notes appearing elsewhere in this Annual Report. Some of the information contained in this
discussion and analysis, including information with respect to our plans and strategy for our business and related financing strategy,
includes forward-looking statements that involve risks and uncertainties. You should read the “Risk Factors” section of this 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.
OBJECTIVE
The purpose of the Management Discussion and Analysis (the “MD&A”) is to present information that management believes
is relevant to an assessment and understanding of our results of operations and cash flows for the fiscal year ended June 30, 2023 and
our financial condition as of June 30, 2023. The MD&A is provided as a supplement to, and should be read in conjunction with, our
financial statements and notes.
OVERVIEW
We are a commercial-stage pharmaceutical company focused on commercializing novel therapeutics and consumer healthcare
products. We operate through two business segments (i) the Rx Segment, consisting of various prescription pharmaceutical products
sold through third party wholesalers (the Rx Portfolio”), and (ii) the Consumer Health Segment, which consists of various consumer
health products sold directly to consumers. We generate revenue by selling our products through third party intermediaries in our
marketing channels as well as directly to our customers. We currently manufacture our products for the treatment of ADHD at our
manufacturing facility in Grand Prairie, Texas and use third party manufacturers for our other prescription and consumer health
products. We also have a product candidate in development, AR101 (enzastaurin) for the treatment of VEDS, for which the
development has been indefinitely suspended.
We have incurred significant losses in each year since inception. Our net losses were $17.1 million and $108.8 million for the
years ended June 30, 2023 and 2022, respectively. As of June 30, 2023 and 2022, we had an accumulated deficit of approximately
$304.1 million and $287.1 million, respectively. We expect to continue to incur significant expenses in connection with our ongoing
activities, including the integration of our acquisitions and the commercialization of our product pipeline.
SIGNIFICANT DEVELOPMENTS
Business Environment
We have continued to experience significant inflationary pressure and supply chain disruptions related to the sourcing of raw
materials, energy, logistics and labor during fiscal 2023. While we do not have sales or operations in Russia or Ukraine, it is possible
that the conflict or actions taken in response, could adversely affect some of our markets and suppliers, economic and financial
markets, costs and availability of energy and materials, or cause further supply chain disruptions. We expect that inflationary pressures
and supply chain disruptions could continue to be significant across the business throughout the year.
Commercial Products
On March 23, 2022, our newly issued US patent No. 11,166,947 for Cotempla XR-ODT was listed in the U.S. FDA
publication "Approved Drug Products with Therapeutic Equivalence Evaluations", commonly known as the "Orange Book." The
Cotempla XR-ODT patent covers methods of use for the effective pediatric dosing of methylphenidate for the treatment of attention
deficit hyperactivity disorder. The Orange Book listing extends the exclusivity period for Cotempla XR-ODT to 2038. Teva
Pharmaceuticals USA, Inc. has the right to manufacture and
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market its generic version of Cotempla XR-ODT under its ANDA beginning on July 1, 2026, or earlier under certain circumstances.
Development Products
AR101
On December 7, 2021, the FDA granted Orphan Drug Designation (“ODD”) to AR101 for the treatment of Ehlers-Danlos
Syndrome, a group of rare inherited connective tissue disorders that includes the severe subtype VEDS. The FDA grants ODD status to
drugs and biologics that are intended for the safe and effective treatment, diagnosis or prevention of rare diseases, or conditions that
affect fewer than 200,000 people in the U.S. ODD affords us with certain financial incentives to support clinical development and the
potential for up to seven years of market exclusivity in the U.S. upon regulatory approval.
On December 13, 2021, the FDA cleared the IND application for AR101 in VEDS to enable the initiation of the AR101
PREVEnt Trial in VEDS.
On March 2, 2022, the European Commission granted orphan designation to AR101 (enzastaurin) for the treatment of Ehlers-
Danlos Syndrome. The European Medicines Agency orphan designation affords us with certain benefits and incentives, including
clinical protocol assistance, differentiated evaluation procedures for Health Technology Assessments in certain countries, access to a
centralized marketing authorization procedure valid in all EU member states, reduced regulatory fees and 10 years of market
exclusivity.
On April 19, 2022, we were notified by the FDA that AR101 received Fast Track designation. Fast Track is a process
designed to facilitate the development, and expedite the review, of drugs to treat serious conditions and fill an unmet medical need. Fast
Track addresses a broad range of serious conditions, and the request can be initiated by a pharmaceutical company at any time during
the development process. FDA reviews the request and decides based on whether or not the drug fills an unmet medical need in a
serious condition. Once a drug receives Fast Track designation, early and frequent communication between the FDA and the sponsor is
encouraged throughout the entire drug development and review process.
In October 2022, we announced the indefinite suspension of the development of AR101 to focus on our commercial
operations.
Healight
In November 2021, we received U.S. Patent Number 11,179,575, titled "Internal Ultraviolet Therapy," which is the first issued
patent protecting the Healight investigational device and covers methods of treating a patient for an infectious condition inside the
patient's body through the insertion of a UV-light-emitting delivery tube inside a respiratory cavity of the patient at specific UV-A light
wavelengths. The term of this patent extends to August of 2040.
In April 2022, our preclinical pilot study showed that administration of Healight delayed the time to development of VAP in a
novel porcine model. The proof-of-concept study was conducted at Hospital Clinic de Barcelona under the supervision of principal
investigator Antonio Torres, M.D., Ph.D., FERS, FCCP, ATSF, Senior Consultant, Pulmonology Department - one of the only centers
in the world with access to this well-characterized porcine model of VAP caused by oropharyngeal secretions colonized by
Pseudomonas aeruginosa. In the study, administration of the Healight UV-A endotracheal catheter resulted in a 46% reduction in
multidrug-resistant Pseudomonas aeruginosa (“PA C1-17”) versus controls following two separate 20-minute treatments. Based on
these positive data, Hospital Clinic de Barcelona and we conducted a second, larger porcine VAP study to guide the future development
of Healight for patients with VAP. We have since terminated the license agreement with Cedars-Sinai Medical Center (“CSMC”) and
have discontinued development of Healight.
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Debt and Equity Financings
On January 26, 2022, we entered into the Avenue Capital Agreement with the Avenue Capital, pursuant to which Avenue
Capital provided the Company and certain of its subsidiaries with a secured $15.0 million loan. The interest rate on the loan is the
greater of the prime rate and 3.25%, plus 7.4%, payable monthly in arrears. The maturity date of the loan is January 26, 2025. The
proceeds from the Avenue Capital Agreement were used towards the repayment of the Deerfield Facility, which was otherwise due and
payable on May 11, 2022.
In connection with the Avenue Capital Agreement, we entered into an amendment to the Eclipse Loan Agreement. Pursuant to
the amendment, the Company, among other things, extended the maturity date of the Eclipse Loan Agreement to January 26, 2025 and
reduced the maximum availability under the Eclipse Loan Agreement from $25.0 million to $12.5 million minus a $3.5 million
availability block.
On March 24, 2023, we entered into an Amendment No. 4 (the “Eclipse Amendment”) to the Loan and Security Agreement
dated October 2, 2019. The Eclipse Amendment, among other things, provided for an aggregate increase of $2.0 million to the Eclipse
Lender’s commitment to make revolving loans from time to time under the Eclipse Agreement and increased the maximum amount
available under the revolving credit facility provided under the Eclipse Agreement to $14.5 million. The ability to make borrowings
and obtain advances of revolving loans under the Eclipse Agreement remains subject to a borrowing base and reserve, and availability
blockage requirements.
On March 7, 2022, upon closing of an underwritten public offering, we raised gross proceeds of $7.6 million from the
issuance of (i) 151,500 shares of our common stock, (ii) pre-funded warrants to purchase up to 151,500 shares of common stock, and
(iii) common stock purchase warrants to purchase up to 333,300 shares of common stock. We received $6.8 million in proceeds net of
underwriting fees and other expenses. In April 2022, the pre-funded warrants were exercised in full.
On August 11, 2022, upon the closing of an underwritten public offering, we raised proceeds of $10.0 million from the
issuance of (i) 1,075,290 shares of our common stock, and, in lieu of common stock to certain investors that so chose, pre-funded
warrants to purchase 87,500 shares of our common stock, and (ii) accompanying warrants to purchase 1,265,547 shares of our common
stock. We received $9.1 million in proceeds net of underwriting fees and other expenses. In August 2022, the pre-funded warrants were
exercised in full.
On January 6, 2023, we effected a 1-for-20 reverse stock split of our common stock. All share and per share amounts in this
quarterly report have been adjusted to reflect the effect of the Reverse Stock Split. Aytu’s Board of Directors implemented the reverse
stock split with the objective of regaining compliance with the $1.00 minimum bid price requirement of the Nasdaq Capital Market. On
January 23, 2023, Nasdaq confirmed we regained compliance with this listing rule.
A cash payment was made to each stockholder in lieu of any fractional interest in a share to which each stockholder would
otherwise be entitled as a result of the reverse stock split. The reverse stock split reduced the number of shares of outstanding common
stock from approximately 68.8 million shares to approximately 3.4 million shares. As a result of the reverse stock split, proportional
adjustments were also made to outstanding warrants and options, and to the shares available for grant in our equity incentive plan.
On June 8, 2023, we entered into a securities purchase agreement with certain institutional investors named therein and a
placement agency agreement with Maxim Group LLC, pursuant to which the Company agreed to issue and sell to investors in the
offering an aggregate of 1,743,695 shares of the Company’s common stock, pre-funded warrants in lieu of shares to purchase 430,217
shares of common stock, accompanying Tranche A warrants to purchase 2,173,912 shares of common stock, and accompanying
Tranche B warrants to purchase 2,173,912 shares of common stock in a best-efforts offering. The common warrants may be exercised
for either shares of common stock or pre-funded warrants to purchase common stock at a future exercise price of $0.0001 per share in
the same form as the pre-funded warrant. The gross proceeds were $4.0 million and net proceeds were approximately $3.4 million after
deducting offering expenses. The offering closed on June 13, 2023.
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During the year ended June 30, 2023, we issued 699,929 shares of common stock under the ATM Sales Agreement (as defined
below) with total gross proceeds of approximately $3.0 million before deducting commissions of 3% and other offering expenses
including legal and audit fees.
Discontinued Products
As part of our realization of post-acquisition synergies and product prioritization, we have implemented a portfolio
rationalization plan whereby we will discontinue or divest five non-core products in our Rx Segment: Cefaclor Oral Suspension,
Flexichamber, Tussionex, Tuzistra XR, and ZolpiMist. These products, collectively, contributed $1.6 million and $2.1 million in net
revenue during the years ended June 30, 2023 and 2022, respectively.
RESULTS OF OPERATIONS
Comparison of the years ended June 30, 2023 and 2022
Product revenue, net
Cost of sales
Gross profit
Operating expenses
Advertising and direct marketing
Other selling and marketing
General and administrative
Research and development
Goodwill impairment expense
Other impairment expense
Amortization of intangible assets
Gain from contingent consideration
Total operating expenses
Loss from operations
Other income (expense)
Other expense, net
Gain on extinguishment of debt
Gain on derivative warrant liability
Total other income, net
Loss before income tax
Income tax (benefit) expense
Net loss
Revenue by segment
Net revenue by segment:
Rx Segment
Consumer Health Segment
Total net revenue
2023
Year Ended
June 30,
2022
(In thousands)
$
$
107,399
40,767
66,632
$
96,669
44,386
52,283
17,217
24,231
28,630
4,095
—
5,705
4,788
(969)
83,697
(17,065)
(4,779)
—
4,793
14
(17,051)
—
(17,051)
$
19,589
19,124
31,167
12,662
65,802
9,656
5,844
(1,655)
162,189
(109,906)
(757)
169
1,605
1,017
(108,889)
(110)
(108,779)
2023
Year Ended
June 30,
2022
(In thousands)
73,799
33,600
107,399
$
$
61,121
35,548
96,669
$
$
$
$
$
$
60
Change
10,730
(3,619)
14,349
(2,372)
5,107
(2,537)
(8,567)
(65,802)
(3,951)
(1,056)
686
(78,492)
92,841
(4,022)
(169)
3,188
(1,003)
91,838
110
91,728
Change
12,678
(1,948)
10,730
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During the year ended June 30, 2023, net product revenue increased by $10.7 million, or 11% compared to the year ended
June 30, 2022. The increase in our Rx Segment product lines was primarily due to higher volume due to shortages of competing
ADHD products, the effectiveness of our Aytu Rx Connect program, and the effectiveness of our sales and marketing programs. The
decrease in the Consumer Health Segment’s net revenue was due to the reduction of our direct mailing business to focus our efforts on
the higher profitability of our e-commerce business. We expect the revenue from our Consumer Health Segment to continue to
decrease in fiscal 2024 as we look to monetize or discontinue this segment.
Gross margin by segment
Gross margin by segment:
Rx Segment
Consumer Health Segment
Total gross margin by segment
Year Ended
June 30,
2022
2023
Change
71%
43%
62%
56%
51%
54%
15%
(8)%
8%
During the year ended June 30, 2023, gross margins increased by 8% compared to the year ended June 30, 2022. The
improvement in Rx Segment gross margin percentage was primarily due to the greater volumes resulting in greater utilization of our
manufacturing facilities. The lower gross margin in our Consumer Health Segment was due to the focus on our e-commerce business,
which has lower gross margins, but higher contribution margins than our direct mailing business. In addition, we recorded an inventory
impairment write-off of $2.1 million in the Consumer Health Segment.
Advertising and direct marketing (Consumer Health Segment)
During the year ended June 30, 2023, advertising and direct marketing expenses decreased by $2.4 million, or 12%, compared
to the year ended June 30, 2022. Advertising and direct marketing expense include direct-to-consumer marketing, advertising, sales,
and customer support and processing fees related to our Consumer Health Segment. The reduction in advertising and direct marketing
costs were due to our focus on our e-commerce business during fiscal 2023. We expect advertising and direct marketing expenses to
decrease from 2023 levels as we continue to reduce our direct mailing business and monetize or discontinue our Consumer Health
Segment.
Other selling and marketing
During the year ended June 30, 2023, other selling and marketing expense increased $5.1 million, or 27%, compared to the
year ended June 30, 2022. The increase was primarily driven by higher commission expense, a result of the higher subscriptions
generated by our sales force. In addition, we incurred increased commercial marketing program fees due to the higher volumes
generated.
General and administrative
During the year ended June 30, 2023, general and administrative expense decreased by $2.5 million or 8%, compared to the
year ended June 30, 2022. The decrease was primarily due to reductions of redundancies from the Neos and Innovus acquisitions.
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Research and development
Research and development:
AR101
ADHD
Healight
Others
Total Research and development
2023
Year Ended
June 30,
2022
(In thousands)
Change
$
$
1,880
1,803
250
162
4,095
$
$
10,673
702
926
361
12,662
$
$
(8,793)
1,101
(676)
(199)
(8,567)
During the year ended June 30, 2023, research and development expense decreased by $8.6 million, or 68%, compared to the
year ended June 30, 2022. Our research and development costs were primarily associated with our AR101 product candidate and
support of our ADHD products, Adzenys and Contempla, and to a lesser extent, the development of our Healight product candidate,
and support for our commercialized products. In October 2022, we announced the suspension of the development of AR101 and
Healight to focus on our commercial operations, resulting in the decrease in expenses in fiscal 2023.
Impairment expense
During the year ended June 30, 2023, we recognized total impairment expense of $5.7 million, consisting of (i) $5.6 million
intangible assets, and (ii) $0.1 million other assets. The impairments were due to increased focus on our commercial efforts in the Rx
Segment and discontinued product distributions in the Consumer Health Segment. See Note 7 – Goodwill and Other Intangible Assets
in the accompanying consolidated financial statements for further information.
During the year ended June 30, 2022, we recognized total impairment expense of $75.5 million, consisting of (i) $65.8 million
in goodwill, (ii) $7.1 million intangible assets, (iii) $2.0 million inventory, (iv) $0.4 million other assets and (v) $0.2 million property
and equipment. The impairment expense related to write-down of assets was due to the discontinuation of commercializing certain
products and products not marketed. See Note 7 – Goodwill and Other Intangible Assets in the accompanying consolidated financial
statements for further information.
Amortization of intangible assets
During the year ended June 30, 2023, amortization expense of intangible assets, excluding amounts included in cost of sales,
decreased by $1.1 million, or 18%, compared to the year ended June 30, 2022. The decreases were primarily related to the smaller
intangible asset base due to the impairments of certain intangible assets during fiscal year 2022.
Gain or loss from contingent consideration
We fair value our acquisition-related contingent considerations based on our projected results, any changes are reflected
through income or expense. During the year ended June 30, 2023, the gain from contingent considerations decreased by $0.7 million,
or 41%, compared to the year ended June 30, 2022. The decrease was primarily due to the contingent considerations (including CVRs)
expiring or winding down during the fiscal year of 2023.
Other (expense) income, net
During the year ended June 30, 2023, other expense, net increased by $4.0 million compared to the year ended June 30, 2022.
Other expense, net, includes interest expense, accretion from fixed payment arrangements, and other income. In the fiscal year ended
June 30, 2022, we received payments related to the divestiture of Natesto, which was recorded as other income. Starting the third
quarter of fiscal 2023, we did not receive such payments.
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Unrealized gain or loss on derivative warrant liabilities
We fair value our derivative warrant liabilities using either the Monte Carlo simulation model or the Black-Scholes option
pricing model. Derivative warrant liabilities are revalued at each reporting period and changes are reflected through income or expense.
During the year ended June 30, 2023, the net gain from derivative warrant liability increased by $3.2 million when compared to
the year ended June 30, 2022. The net increase was primarily due to higher fair values of derivative liabilities from warrants issued
during fiscal year 2023. See Note 14 – Stockholders’ Equity and Note 12 – Fair Value Considerations in the accompanying
consolidated financial statements for further details.
Income tax benefit
For the fiscal year ended 2023, there was no income tax benefit, primarily driven by the Internal Revenue Code Section 382
limitation on net operating loss utilization.
For the fiscal year ended 2022, the impairment of the Rx Segment book goodwill decreased the net deferred tax liability by
$0.1 million resulting in an income tax benefit of $0.1 million.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The following table sets forth the primary sources and uses of cash for the periods indicated:
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net Cash Used in Operating Activities
Year Ended June 30,
2022
2023
(In thousands)
$ (28,823)
(3,248)
$
1,530
$
(5,129)
(117)
8,871
$
$
$
Change
$
$
$
23,694
3,131
7,341
Net cash used in operating activities during these periods primarily reflected our net losses, partially offset by changes in
working capital and non-cash charges including goodwill and intangible asset impairment, inventory write-down, changes in fair values
of various liabilities, stock-based compensation expense, depreciation, amortization and accretion, and other charges.
During the fiscal year ended June 30, 2023, net cash used in operating activities totaled $5.1 million. The decrease in net cash
used was primarily the result of the decrease in operating loss, and increases in accounts payable and accrued liabilities, partially offset
by an increase in accounts receivable, inventory, and prepaid expenses.
During the fiscal year ended June 30, 2022, net cash used in operating activities totaled $28.8 million. The use of cash was
approximately $81.4 million less than the net loss primarily due to non-cash charges of depreciation, amortization and accretion,
impairment of goodwill and intangible assets, stock-based compensation, inventory and other assets write-downs and loss on debt
extinguishment. These charges were offset by gains from change in fair values of contingent consideration and contingent value rights.
In addition, our use of cash decreased due to changes in working capital including decreases in accounts receivable, inventory and
prepaids, offset by a decrease in accrued liabilities and accounts payable.
Net Cash Used in Investing Activities
Net cash used in investing activities is generally related to our merger and acquisitions as well as purchase of assets to support
our operations.
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Net cash used in investing activities was $0.1 million during the year ended June 30, 2023.
Net cash used in investing activities of $3.2 million during the year ended June 30, 2022, was primarily due to $3.2 million
payment of contingent consideration.
Net Cash from Financing Activities
Net cash provided by financing activities of $8.9 million during the year ended June 30, 2023, was primarily from $3.4
million of net proceeds from our securities purchase agreement in June 2023, $9.1 million of net proceeds from our August 2022 equity
raise, and $2.9 million net proceeds from our sales under the ATM Sales Agreement; partially offset by $2.3 million of net payments
made under our short-term line of credit, and fixed payment arrangements totaling $4.3 million.
Net cash provided by financing activities of $1.5 million during the year ended June 30, 2022, was primarily from $15.0
million proceeds from long-term debt and $11.7 million net proceeds from issuance of our common stock, partially offset by $16.1
million full repayment of long-term debt, $4.1 million net reduction in our revolving loan, $4.4 million in payments of fixed payment
arrangements and $0.5 million payment of debt issuance costs.
Capital Resources
Sources of Liquidity
We have obligations related to our loan agreements, contingent considerations related to our acquisitions, milestone payments
for licensed products and manufacturing purchase commitments.
We finance our operations through a combination of sales of our common stock and warrants, borrowings under our line of
credit facility and cash generated from operations.
Shelf Registrations
On September 28, 2021, we filed a shelf registration statement on Form S-3, which was declared effective by the SEC on
October 7, 2021. This shelf registration statement covered the offering, issuance and sale by the Company of up to an aggregate of
$100.0 million of its common stock, preferred stock, debt securities, warrants, rights and units (the “2021 Shelf”). As of June 30, 2023,
approximately $82.4 million remains available under the 2021 Shelf. This availability is subject to SEC 1.B.6 limitations of Form S-3.
On June 8, 2020, the Company filed a shelf registration statement (the “2020 Shelf”), which was declared effective by the
SEC on June 17, 2020, covering up to $100.0 million of its common stock, preferred stock, debt securities, warrants, rights, and units.
The 2020 Shelf expired in June 2023.
In June 2020, under the 2020 Shelf, we initiated an at-the-market offering program ("ATM"), which allows us to sell and issue
shares of our common stock from time-to-time. On June 2, 2021, we terminated our “at-the-market” sales agreement with a sales agent,
and on June 4, 2021, we entered into a Controlled Equity OfferingSM Sales Agreement (the “ATM Sales Agreement”) with a sales
agent, pursuant to which we agreed to sell up to $30.0 million of our common stock from time to time in “at-the-market” offerings
under the 2020 Shelf. During the year ended June 30, 2023, we issued 699,929 shares of common stock under the ATM Sales
Agreement, with total net proceeds of approximately $2.9 million. As of June 30, 2023, we had approximately $3.0 million of capacity
under the ATM Sales Agreement due to baby self-limitations. As our market capitalization increases, these limitations will be adjusted
and we will be able to issue additional ATM sales. We terminated the Controlled Equity Offering in July 2023.
Underwriting & Placement Agency Agreements
On June 8, 2023, we entered into a securities purchase agreement with certain institutional investors named therein and a
placement agency agreement with Maxim Group LLC, pursuant to which the Company agreed to issue and
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sell to investors in the offering an aggregate of 1,743,695 shares of the Company’s common stock, pre-funded warrants in lieu of shares
to purchase 430,217 shares of common stock, accompanying Tranche A warrants to purchase 2,173,912 shares of common stock, and
accompanying Tranche B warrants to purchase 2,173,912 shares of common stock in a best-efforts offering. The common warrants
may be exercised for either shares of common stock or pre-funded warrants to purchase common stock at a future exercise price of
$0.0001 per share in the same form as the pre-funded warrant. The gross proceeds were $4.0 million, and net proceeds were
approximately $3.4 million after deducting offering expenses. The offering closed on June 13, 2023.
On August 11, 2022, we closed an underwritten public offering, pursuant to which we sold an aggregate of (i) 1,075,290
shares of its common stock, (ii), pre-funded warrants to purchase 87,500 shares of its common stock, and (ii) accompanying warrants
to purchase 1,265,547 shares of our common stock. The shares of common stock (or pre-funded warrants) and the accompanying
common warrants were issued separately but could only be purchased together. The combined public offering price for each share of
common stock and accompanying common warrant was $8.60, and the combined offering price for each pre-funded warrant and
accompanying common warrant is $8.58, which equals the public offering price per share of the common stock and accompanying
common warrant, less the $0.001 per share exercise price of each pre-funded warrant. The pre-funded warrants were exercised in full
in August 2022. The common warrants are exercisable at any time after the date of issuance for a period of five years from the date
such common warrants are first exercisable. The number of shares of common stock issuable upon exercise of the common warrants is
subject to adjustment in certain circumstances, including a stock split of, stock dividend on, or a subdivision, combination or
recapitalization of the common stock. The Company received gross proceeds of $10.0 million and net proceeds were approximately
$9.1 million, after deducting underwriting discounts and commissions and estimated offering expenses.
On March 7, 2022, we closed on an underwritten public offering, pursuant to which, we sold (i) 151,500 shares of our
common stock, (ii) pre-funded warrants to purchase up to 151,500 shares of common stock, and (iii) common warrants to purchase up
to 333,300 shares of common stock. The shares of common stock and the pre-funded warrants were each sold in combination with
corresponding common warrants, with one common warrant to purchase 1.1 shares of common stock for each share of common stock
or each pre-funded warrant sold. The pre-funded warrants have an exercise price of $0.002 per share of common stock and were
exercised in full in April 2022. The common warrants have an exercise price of $26.00 per share of common stock and are exercisable
six months after the date of issuance and have a term of five years from the date of exercisability. We raised gross proceeds of $7.6
million before commission and other costs of $0.8 million.
Avenue Capital Agreement
On January 26, 2022, we entered into the Avenue Capital Agreement, pursuant to which the Company received $15.0 million
loan. The interest rate on the loan is the greater of the prime rate and 3.25%, plus 7.4%, payable monthly in arrears. We met certain
milestones which resulted in monthly payments consisting of interest only. The principal amount will become due on the maturity date
of the loan is January 26, 2025. The proceeds from the Avenue Capital Agreement were used towards the repayment of outstanding
debt.
In the event we prepay the outstanding principal prior to the maturity date, we will pay Avenue Capital a fee equal to (i) 3.0%
of the loan if such event occurs on or before January 26 2023, (ii) 2.0% of the loan if such event occurs after January 26, 2023 but on
or before January 26, 2024, and (iii) 1.0% of the loan if such event occurs after January 26, 2024 but before January 26, 2025. In
addition, upon the payment in full of the obligations, we shall pay to Avenue Capital a non-refundable fee in the amount of $0.6 million
(“Final Payment”). See Note 11 – Long-term Debt in the accompanying consolidated financial statements for further information.
Eclipse Loan Agreement
The Eclipse Loan Agreement, as amended, provides us with up to $14.5 million in Revolving Loans, of which up to $2.5
million may be available for short-term swingline loans, against 85% of eligible accounts receivable. The Revolving Loans bore
interest at Secure Overnight Financing Rate (“SOFR”), plus 4.50% through April 2022. Beginning in May 2022 through maturity, the
Revolving Loans bear interest at the SOFR plus 4.50%. In addition, we are
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required to pay an unused line fee of 0.50% of the average unused portion of the maximum Revolving Loans amount during the
immediately preceding month. Interest is payable monthly in arrears. The maturity date under the Eclipse Loan Agreement, as
amended, is January 26, 2025.
In the event that, for any reason, all or any portion of the Eclipse Loan Agreement is terminated prior to the scheduled
maturity date, in addition to the payment of all outstanding principal and unpaid accrued interest, we are required to pay a fee equal
to (i) 2.0% of the Revolving Loans commitment if such event occurs on or before January 26, 2023, (ii) 1.0% of the Revolving Loans
commitment if such event occurs after January 26, 2023 but on or before January 26, 2024, and (iii) 0.5% of the Revolving Loans
commitment if such event occurs after January 26, 2024 but on or before January 26, 2025. We may permanently terminate the Eclipse
Loan Agreement with at least five business days prior notice. See Note 10 – Line of Credit in the accompanying consolidated financial
statements for further information.
Contractual Obligations, Commitments and Contingencies
As a result of our acquisitions and licensing agreements, we are contractually and contingently obliged to pay, when due,
various fixed and contingent milestone payments. See Note 18 – Commitments and Contingencies in the accompanying consolidated
financial statements for further information.
On May 12, 2022, the Company entered into an agreement with Tris to terminate the License, Development, Manufacturing
and Supply Agreement dated November 2, 2018 related to Tuzistra (the “Tuzistra License Agreement”). Pursuant to such termination,
the Company agreed to pay Tris a total of approximately $6 million to $9 million, which reduced our total liability for minimum
payments by approximately $8.0 million from the original License Agreement. The settlement payment will be paid
in three installments from December 2022 through July 2024, with a provision that allows for the Company to pay interest on any
principal amounts due but remaining unpaid past the scheduled payment date.
Upon closing of the acquisition of a line of prescription pediatric products from Cerecor, Inc. in October 2019, we assumed
payment obligations that require us to make fixed and product milestone payments. As of June 30, 2023, up to $3.8 million of fixed
and product milestone payments remain through 2026 and are expected to be paid from the revenue generated by Karbinal ER.
In connection with the February 2020 acquisition of Innovus Pharmaceuticals, Inc. (the “Innovus Acquisition”), all of
Innovus’s shares were converted to our common stock and contingent value rights (“CVRs”), which represents contingent additional
consideration of up to $16.0 million payable to satisfy future performance milestones. As of June 30, 2023, up to $5.0 million of
potential CVR milestone payments remain, which we do not expect to pay. These CVR milestone payments expire on December 31,
2023.
In connection with our Innovus Acquisition, we assumed a contingent obligation which required us to make milestone
payment of $0.5 million, between fiscal year 2026 through fiscal year 2033 to Novalere, if and when certain levels of FlutiCare sales
are achieved.
In connection with our acquisition of the Rumpus assets, upon satisfaction of milestones, we may be required to pay up to
$67.5 million in regulatory and commercial-based earn-out payments to Rumpus. Under the licensing agreement with Denovo
Biopharma LLC (“Denovo”), we are required to make a payment of $0.6 million for a license fee in April 2022 and upon achievement
of regulatory and commercial milestones, up to $101.7 million. Under the licensing agreement with Johns Hopkins University
(“JHU”), upon achievement of regulatory and commercial milestone, we may be required to pay up to $1.6 million to JHU. In fiscal
2022, two milestones payable to Rumpus were achieved totaling $4.0 million, which were paid in 109,447 shares of common stock and
$2.6 million in cash.
CRITICAL ACCOUNTING ESTIMATES
Our management’s discussion and analysis of financial condition and results of operations is based on our financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.
GAAP”). The preparation of our financial statements requires us to make estimates and judgments
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that affect the reported amounts of assets and liabilities and the disclosure of any contingent assets and liabilities at the date of the
financial statements, as well as reported revenue and expenses during the reporting periods. On an ongoing basis, we evaluate our
estimates and judgments. We base our estimates on our historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. Our actual results may differ materially from these estimates
under different assumptions or conditions.
While our significant accounting policies are described in more detail in Note 2 – Summary of Significant Accounting policies
to the notes to our audited financial statements included elsewhere in this Annual Report on Form 10-K, we believe the following
accounting policies to be critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Revenue recognition
We generate revenue from product sales through our Rx Segment and Consumer Health Segment. We evaluate our contracts
with customers to determine revenue recognition using the following five-step model: (1) identify the contract with the customer;
(2) identify the performance obligations and if they are distinct; (3) determine the transaction price; (4) allocate the transaction price to
the performance obligations; and (5) recognize revenue when (or as) a performance obligation is satisfied.
Net product sales in the Rx Segment consist of sales of prescription pharmaceutical products under the Rx Portfolio,
principally to a limited number of wholesale distributors and pharmacies in the United States. Rx product revenue is recognized at the
point in time that control of the product transfers to the customer in accordance with shipping terms (i.e., upon delivery), which is
generally “free-on-board” destination when shipped domestically within the United States and “free-on-board” shipping point when
shipped internationally consistent with the contractual terms.
The Company makes estimates of the net sales price, including estimates of variable consideration to be incurred on the
respective product sales (known as “Gross to Net” adjustments). Estimating gross to net adjustments and applying the constraint on
variable consideration requires the use of significant management judgment and other market data.
The Gross to Net adjustments include:
● Savings offers The Company offers savings programs for its patients covered under commercial payor plans in which the
cost of a prescription to such patients is discounted.
● Prompt payment discounts Prompt payment discounts are based on standard provisions of wholesalers’ services.
● Wholesale distribution fees Wholesale distribution fees are based on definitive contractual agreements for the
management of the Company’s products by wholesalers.
● Rebates The Rx Portfolio products are subject to commercial managed care and government (i.e. Medicaid) programs
whereby discounts and rebates are provided to participating managed care organizations and federal and/or state
governments. Calculations related to rebate accruals are estimated based on historical information from third-party
providers.
● Wholesaler chargebacks The Rx Portfolio products are subject to certain programs with wholesalers whereby pricing on
products is discounted below wholesaler list price to participating entities. These entities purchase products through
wholesalers at the discounted price, and the wholesalers charge the difference between their acquisition cost and the
discounted price back to the Company following the product purchases of the wholesalers’ end customers.
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● Returns Wholesalers’ contractual return rights are limited to defective product, product that was shipped in error, product
ordered by customer in error, product returned due to overstock, product returned due to dating or product returned due to
recall or other changes in regulatory guidelines. The return policy for expired product allows the wholesaler to return
such product starting six months prior to expiry date to twelve months post expiry date. The Company analyzes return
data available from sales since inception date to determine a reliable return rate.
Savings offers, rebates and wholesaler chargebacks reflect the terms of underlying agreements, which may vary. Accordingly,
actual amounts will depend on the mix of sales by product and contracting entity. Future returns may not follow historical trends. Our
periodic adjustments of our estimates are subject to time delays between the initial product sale and ultimate reporting and settlement
of deductions. We continually monitor these provisions and do not believe variances between actual and estimated amounts have been
material.
A 10% increase or decrease in these estimates impacts net sales by a corresponding increase or decrease of approximately
$3.3 million.
We generate Consumer Health Segment product revenue from sales of various consumer health products through e-commerce
platforms and direct mail. Revenue is generally recognized “free-on-board” shipping point, as those are the agreed-upon contractual
terms. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing
transaction that are collected by us from a customer are excluded from revenue. Shipping and handling costs associated with outbound
freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of
sales.
Impairment of Long-lived Assets
We assess impairment of long-lived assets annually and when events or changes in circumstances indicates that their carrying
value amount may not be recoverable. Long-lived assets consist of property and equipment, net and goodwill and other intangible
assets, net. Circumstances which could trigger a review include but are not limited to: (i) significant decreases in the market price of
the asset; (ii) significant adverse changes in the business climate or legal or regulatory factors; (iii) changes in business plans or (iv)
expectations that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life. If the
estimated future undiscounted cash flows, excluding interest charges, from the use of an asset are less than the carrying value, a write-
down would be recorded to reduce the related asset to its estimated fair value. Such estimates involve projections of future sales and
costs, which may vary from actual results. Declines in the outlook for the related products, particularly soon after fair-value
measurement upon acquisition or prior impairment, can negatively impact our ability to recover the carrying value and can result in an
impairment charge.
Our strategy is to continue building our portfolio of revenue-generating products by leveraging our commercial team’s
expertise to build leading brands within large therapeutic markets. As a result of focusing on building the portfolio of revenue-
generating prescription products, we have decided to abandon active development of its NT0502 (N-desethyloxybutynin), a new
chemical entity that is for the treatment of sialorrhea, which is excessive salivation or drooling. During the year ended June 30, 2023,
we incurred an impairment charge of $2.6 million related to NT0502 and have terminated the licensing agreement. We also terminated
the license agreement with Cedars-Sinai Medical Center surrounding the Healight technology platform as an additional result of
terminating the development of the Healight program. Further, the acquired product distribution rights from Innovus was impaired by
$3.0 million due to discontinuance of products in the Consumer Health Segment.
During the year ended June 30, 2022, in connection with the decision to discontinue commercializing or divesting certain
products within the Rx Segment that have minimal revenue and gross margin contribution, the Company recorded $4.9 million
impairment expense for the write-down of intangible assets consisting of (i) $2.6 million for AcipHex Sprinkle, (ii) $1.4 million for
ZolpiMist, (iii) $0.5 million for Tussionex, (iv) $0.2 million for Cefaclor and (v) $0.2 million for the Neos tradename. Additionally, our
Consumer Health Segment recorded an impairment of $2.2 million related to products no longer being marketed and products that have
been underperforming.
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Goodwill
Goodwill is recorded as the difference between the fair value of the purchase consideration and the fair value of the net
identifiable tangible and intangible assets acquired. As described in Note 2 – Summary of Significant Accounting Policies to our
financial statements, Goodwill is reviewed for impairment at least annually or whenever events or changes in circumstances indicate
that the carrying amount of an intangible asset may not be recoverable. If, after assessing events or circumstances, we determine it is
more likely than not that the fair value of a reporting unit is less than its carrying amount, we perform a quantitative impairment test by
comparing the fair value of the reporting unit with the carrying value. If the fair value of a reporting unit is less than the carrying
amount, an impairment charge is recorded in the amount of the difference. The fair value of a reporting unit is estimated using a
combination of a market multiple and a discounted cash flow approach. Determining the fair value of a reporting unit requires the use
of estimates, assumptions and judgment. The principal estimates and assumptions that we use include prospective financial information
(revenue growth, operating margins, and capital expenditures), future market conditions, weighted average costs of capital, a terminal
growth rate, comparable multiples of publicly traded companies in our industry, and the earnings metrics and multiples utilized. We
believe that the estimates and assumptions used in impairment assessments are reasonable. We have determined that we have two
reporting units that require periodic review for goodwill impairment, the Rx Segment, and the Consumer Health Segment.
During the fiscal year 2022, our market capitalization significantly declined. The decline was considered a qualitative factor
that led us to assess whether an impairment had occurred. The evaluation indicated that the goodwill related to one of the reporting
units within the Rx Segment and Consumer Health Segment was potentially impaired. We performed a quantitative impairment test. As
a result, we recorded an impairment charge of $65.8 million for the year ended June 30, 2022. At June 30, 2022, we had no goodwill
recorded on our balance sheet.
Warrants
Equity classified warrants are valued using a Black-Scholes options pricing model at issuance and are not remeasured.
Liability classified warrants are carried at fair value using either the Black-Scholes option pricing or Monte Carlo simulation model.
Changes in the fair value of liability classified warrants in subsequent periods are recorded as a gain or loss on remeasurement and
reported as a component of cash flows from operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide
information under this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are identified in Item (a)(1) of Part IV and begin at page F-1 of this Annual
Report on Form 10-K and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining adequate “disclosure controls and procedures,” as such term
is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure
that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in SEC rules and
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forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on the evaluation of our
disclosure controls and procedures as of June 30, 2023, our principal executive officer and principal financial officer concluded that our
controls were not effective as of the end of the period covered by this report. Notwithstanding the material weakness, our management
believes that the financial statements included elsewhere in this report present fairly, in all material respects, our financial position,
results of operations, changes in stockholders’ equity and cash flows in conformity with GAAP.
In connection with the preparation of our financial statements for the period ended June 30, 2023, we concluded that we had a
material weakness in internal control over financial reporting related to our analysis for the accounting for valuation of our inventory.
At year end, it was determined that the analysis of over/under absorbed manufacturing costs was not performed, which could have led
to material misstatement of our financial statement. If not addressed, the deficiency could result in a material misstatement in the
future. In response, we have incorporated the process for quantifying any over or under absorbed manufacturing costs, and having the
appropriate level of management evaluate the analysis and materiality of any over or under absorption.
Management’s Annual 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 Rules 13a-15(f) under the Exchange Act). Our management assessed the effectiveness of our internal control over
financial reporting as of June 30, 2023. In making this assessment, our management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Our management has
concluded that, as of June 30, 2023, our internal control over financial reporting is effective based on these criteria.
Grant Thornton, LLP, the independent registered public accounting firm that audited our financial statements included in this
Annual Report on Form 10-K, was not required to issue an attestation report on our internal control over financial reporting.
Changes in Internal Control over Financial Reporting
Previous Disclosure of Material Weakness in Internal Controls Over Financial Reporting
As disclosed in our September 30, 2022 Form 10-Q/A, we identified a material weakness in controls over the accounting for
complex warrant issuances and the classification of these issued warrants. This material weakness resulted in the failure to prevent
material adjustments in accounting for the warrants as equity classification when the warrants should have been classified as liabilities
and marked to market each reporting period. While we have processes to properly identify and evaluate the appropriate accounting
technical pronouncements, other literature, and consultation with third-party experts, we did not classify the warrants correctly.
Remediation Plan
Our Audit Committee conducted an internal investigation to identify and determine a plan to remediate the material weakness
described above and to enhance our overall control environment. We will not consider the material weakness remediated until our
enhanced control is operational for a sufficient period of time and tested, enabling management to conclude that the enhanced controls
are operating effectively. Our remediation plan includes the implementation of controls over the process of reviewing significant and
complex contracts and agreements.
Changes in Internal Control Over Financial Reporting
Except for the material weakness noted above, there have been no changes in the Company’s internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2023,
that have material effect, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENT INSPECTIONS
Not applicable
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The following table sets forth the names and ages of all of our directors and executive officers. Our Board of Directors is
currently comprised of five members, who are elected annually to serve for one year or until their successor is duly elected and
qualified, or until their earlier resignation or removal. We have two executive officers that serve at the discretion of the Board of
Directors and are appointed by the Board of Directors.
Name
Joshua R. Disbrow
Mark Oki
Greg Pyszczymuka
Carl C. Dockery
John A. Donofrio, Jr.
Abhinav Jian
Vivian H. Liu
Age
48
54
44
60
55
32
61
Position
Chairman and Chief Executive Officer
Chief Financial Officer, Secretary, and Treasurer
Chief Commercial Officer
Director
Director
Director
Director
The following is a biographical summary of the experience of our executive officers and directors during the past five years,
and an indication of directorships held by the directors in other companies subject to the reporting requirements under the federal
securities law.
Joshua R. Disbrow – Chairman and Chief Executive Officer
Mr. Disbrow has been employed by us since April 16, 2015 and a member of our Board of Directors since January 2016. Prior
to the closing of the merger between Luoxis Diagnostics, Inc. and Vyrix Pharmaceuticals, Inc. that formed Aytu BioPharma, Mr.
Disbrow was the Chief Executive Officer of Luoxis since January 2013. Mr. Disbrow jointly served as the Chief Operating Officer of
Ampio Pharmaceuticals, Inc. (“Ampio”) from December 2012 until April 2015. Prior to joining Ampio, he served as the Vice President
of Commercial Operations at Arbor Pharmaceuticals, LLC (“Arbor”), a specialty pharmaceutical company, from May 2007 through
October 2012. He joined Arbor as that company’s second full-time employee. Mr. Disbrow led the company’s commercial efforts from
inception to the company’s acquisition in 2010 and growth to over $127 million in net sales in 2011 and to over $250 million in net
sales in 2012. By the time Mr. Disbrow departed Arbor in late 2012, he handled the growth of the commercial organization to comprise
over 150 people in sales, marketing sales training, managed care, national accounts, and other commercial functions. Mr. Disbrow has
spent over 26 years in the pharmaceutical, diagnostic, and medical device industries and has held positions of increasing responsibility
in sales, sales management, marketing, commercial operations, commercial strategy, and business development. Prior to joining Arbor,
Mr. Disbrow served as Regional Sales Manager with Cyberonics, Inc., a medical device company focused on neuromodulation
therapies from June 2005 through April 2007. Prior to joining Cyberonics he was the Director of Marketing at LipoScience Inc., an in
vitro diagnostics company. Mr. Disbrow holds an MBA from Wake Forest University School of Business and BS in Management from
North Carolina State University. Mr. Disbrow’s experience in executive management and commercialization within the pharmaceutical
industry, monetizing company opportunities, and corporate finance led to the conclusion that he should serve as a member of our Board
of Directors.
Mark K. Oki – Chief Financial Officer, Secretary, and Treasurer
Mr. Oki has served as our Chief Financial Officer since January 2022 and as our Secretary and Treasurer since May 5, 2022.
From October 2015 through January 2022, Mr. Oki served as Chief Financial Officer of Vivus LLC, (formerly Vivus Inc.) a
commercial-stage pharmaceutical company. Vivus was a Nasdaq listed company up to December 2020. From April 2006 to October
2015, Mr. Oki held several positions at Alexza Pharmaceuticals, Inc., a publicly listed specialty pharmaceutical company, most recently
as Senior Vice President, Finance, Chief Financial Officer and Secretary. Before Alexza, Mr. Oki held roles of increasing responsibility
at life science companies, Pharmacyclics, Inc. and Incyte Genomics, Inc. (now Incyte Corporation). Mr. Oki began his career in public
accounting at Deloitte &
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Touche, LLP (now Deloitte). Mr. Oki received his degree in Business Administration – Accounting and graduated with honors from
San Jose State University and is a Certified Public Accountant (inactive).
Greg Pyszczymuka – Chief Commercial Officer
Mr. Pyszczymuka has served as our Chief Commercial Officer since January 2022. Prior to joining the Company, at the
closing of the company’s merger with Neos Therapeutics in March 2021, Greg Pyszczymuka served as Vice President, Commercial at
Neos Therapeutics since June 2020. He previously served as Vice President, Commercial Strategy & Market Access at Neos from
November 2018 to June 2020, and as Executive Director of Channel Strategy & Access Programs. Prior to joining Neos, Greg had
served in roles of increasing responsibility over a 15-year career including sales management, brand management, channel strategy,
managed markets and new products planning. Greg joined Neos most recently from Aqua Pharmaceuticals (an Almirall company), and
previously was with Iroko Pharmaceuticals, Zogenix, and Endo Pharmaceuticals. He holds a B.S. from Rutgers University and an
M.B.A. from Argosy University.
John A. Donofrio, Jr. - Director
Mr. Donofrio joined our Board of Directors in July 2016. He is a senior pharmaceutical executive with over 30 years of
experience in the industry across a broad range of areas, including President, Chief Financial Officer, and Chief Operating Officer
positions. Mr. Donofrio has significant finance experience in consolidated financial reporting, international accounting and internal
controls, financial systems development and implementation, cost accounting, inventory management, supply chain, transfer pricing,
budget and forecast planning, integration of mergers and acquisitions and business development. Since March 2022 Mr. Donofrio has
served as Executive Vice President, Chief Operating Officer of Novan Inc., a publicly held specialty dermatology company, and as
President of Novan Inc.’s wholly owned subsidiary EPI Health, a specialty pharmaceutical company commercializing products in the
dermatology market. From March 2019 until its acquisition by Novan, Inc in March 2022, Mr. Donofrio served as EPI Health’s
President. Mr. Donofrio previously served as Chief Financial Officer and Head of Business Development at TrialCard from March of
2018 to March 2019. TrialCard is a technology-driven pharmaceutical services company providing patient access and support programs
to the pharmaceutical and biotechnology industries. Prior to joining TrialCard, Mr. Donofrio was the Chief Financial Officer and Head
of North American Business Development for Merz North America, or Merz, from August 2013 to March 2018. Merz is a specialty
healthcare company that develops and commercializes innovative treatment solutions in aesthetics, dermatology and neurosciences in
the United States and Canada. At Merz, Mr. Donofrio was accountable for financial performance, cost management, business
development and strategic business planning and analysis for the finance organization in North America. Prior to joining Merz, Mr.
Donofrio served as Vice President, Stiefel Global Finance, U.S. Specialty Business and Puerto Rico for Stiefel, a GlaxoSmithKline plc
company from July 2009 to July 2013. In that role, Mr. Donofrio was responsible for the financial strategy, management reporting, and
overall control framework for the Global Dermatology Business Unit. Mr. Donofrio served as a director of Vyrix from February 2014
to April 2015. Mr. Donofrio holds a degree in Accounting from North Carolina State University. Mr. Donofrio’s broad executive
leadership experience and financial expertise along with experience in the pharmaceutical industry led to the conclusion that he should
serve as a member of our Board of Directors.
Carl C. Dockery – Director
Mr. Dockery joined our Board of Directors in April 2016. Mr. Dockery is a financial executive with 30 years of experience as
an executive in the insurance and reinsurance industry and more recently since 2006 as the founder and president of a registered
investment advisory firm, Alpha Advisors, LLC. Mr. Dockery’s career as an insurance executive began in 1988 as an officer and
director of two related and closely held insurance companies, including serving as secretary of Crossroads Insurance Co. Ltd. of
Bermuda and as vice president of Gulf Insurance Co. Ltd. of Grand Cayman. Familiar with the London reinsurance market, in the
1990s, Mr. Dockery worked at Lloyd’s and the London Underwriting Centre brokering various types of reinsurance placements. From
September 2014 through September 2019, Mr. Dockery served as a director of CytoDyn Inc. (OTCQB: CYDY), and a publicly-traded
biotechnology company focused on the development and potential commercialization of humanized monoclonal antibodies for the
treatment and prevention of HIV and cancers. Mr. Dockery graduated from Southeastern University with a Bachelor of Arts in
Humanities. Mr. Dockery’s financial expertise and experience, as well as his experience as a
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director of a publicly traded biopharmaceutical company led to the conclusion that he should serve as a member of our Board of
Directors.
Abhinav “Abi” Jain - Director
Mr. Jain joined our Board of Directors in June 2023. Since July 2019, Mr. Jain has served as an Analyst at Nantahala Capital
Management and is focused on investments in various sectors, including specialty and generic pharmaceuticals. From 2015-2017, Mr.
Jain was an Associate at Angelo, Gordon & Co., an alternative asset manager. At Angelo, Gordon & Co., Mr. Jain focused on private
equity and structured credit investments. He graduated from Massachusetts Institute of Technology in 2012 with an S.B. in Chemical-
Biological Engineering and from The Wharton School of the University of Pennsylvania in 2019 with an M.B.A. with honors in
Finance and Entrepreneurial Management. Mr. Jain’s financial expertise and experience led to the conclusion that he should serve as a
member of our Board of Directors. Mr. Jain was appointed pursuant to a board designation right granted to Nantahala Capital
Management, LLC to appoint one director to our Board of Directors, pursuant to the Securities Purchase Agreement dated June 8, 2023
with Nantahala and other investors.
Vivian H. Liu - Director
Ms. Liu joined our Board of Directors in July 2022. Ms. Liu currently serves as Head of Corporate Affairs for PREMIA
Holdings (HK) Limited, a developer of clinical-genomic oncology databases and service provider to pharmaceutical companies seeking
to operate clinical trials throughout Asia. Prior to joining PREMIA, Ms. Liu served in various roles, including as a member of Board of
Directors and President, Chief Executive Officer and Chief Financial Officer for Innovus Pharmaceuticals, Inc., a publicly listed
consumer healthcare company acquired by Aytu BioPharma in February 2020. Prior to Innovus, she served as the President and Chief
Executive Officer of FasTrack Pharmaceuticals, Inc. From 2017-2018, she served as the Chief Operating Officer and a member of the
Board of Directors of Cesca Therapeutics, Inc. Previously, Vivian served as Managing Director of OxOnc Services Company, an
oncology development company, and prior to that, Ms. Liu co-founded and served as President, Chief Executive Officer, and board
director of NexMed, Inc., a drug development company which was later renamed Apricus BioSciences. Prior to her appointment as
President of NexMed, Ms. Liu served in several executive capacities, including as Executive Vice President, Chief Operating Officer,
Chief Financial Officer and Vice President of Corporate Affairs. Ms. Liu has an M.P.A. from the University of Southern California and
a B.A. from the University of California, Berkeley. Ms. Liu’s experience in executive management within the pharmaceutical industry,
as a director of a publicly traded biotech company and in corporate finance led to the conclusion that she should serve as a member of
our Board of Directors.
Family Relationships
Jarrett T. Disbrow, our Chief Business Officer is the brother of Joshua R. Disbrow, our Chairman and Chief Executive Officer.
There are no other family relationships among or between any of our current or former executive officers and directors.
Involvement in Certain Legal Proceedings
Mr. Oki was the Chief Financial Officer of Vivus, Inc. at the time a Chapter 11 petition was filed under the Federal
bankruptcy laws in July 2020. Mr. Donofrio was Executive Vice President, Chief Operating Officer of Novan, Inc. at the time a
Chapter 11 petition was filed under the Federal bankruptcy laws in July 2023.
Our directors or executive officers have not been involved in any legal proceedings in the past 10 years that would require
disclosure under Item 401(f) of Regulation S-K promulgated under the Securities Act.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act requires our officers and directors and persons who own more than 10% of our
outstanding common stock to file reports of ownership and changes in ownership with the Securities
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and Exchange Commission. These officers, directors and stockholders are required by regulations under the Securities Exchange Act to
furnish us with copies of all forms they file under Section 16(a).
Based solely on our review of the copies of forms we have received, we believe that all such required reports have been timely
filed, except for one late filing of a Form 4 by Josh Disbrow relating to a rescission of 80,000 shares of restricted common stock on
December 20, 2022, which was inadvertently filed one day late on December 23, 2022, and two late filings of Form 4s by Greg
Pyszczymuka, one of which related to the conversion of 833 restricted stock units to shares of common stock on April 25, 2023, which
was inadvertently filed late on June 20, 2023, and the second of which related to the conversion of 208 restricted stock units to shares
of common stock on June 30, 2023, which was inadvertently filed late on July 6, 2023.
Code of Ethics
The information required by this Item regarding our Code of Ethics is found in Part I, Item 1, under the caption “Code of
Ethics.”
Board Committees
Our Board has established an Audit Committee, Compensation Committee and a Nominating and Governance Committee.
Our Audit Committee consists of Mr. Donofrio (Chair), Mr. Dockery, Mr. Jain, and Ms. Liu. Our Compensation Committee consists of
Ms. Liu (Chair), Mr. Dockery, Mr. Jain, and Mr. Donofrio. Our Nominating and Governance Committee consists of Mr. Dockery
(Chair), Mr. Donofrio, Mr. Jain, and Ms. Liu. The independence of our directors is discussed in Part III, Item 13 under the caption
“Director Independence.”
Each of the above-referenced committees operates pursuant to a formal written charter. The charters for these committees,
which have been adopted by our Board, contain a detailed description of the respective committee’s duties and responsibilities and are
available on our website at http://www.aytubio.com under the “Investor Relations—Corporate Governance” tab.
Our Board has determined Mr. Donofrio qualifies as an audit committee financial expert, as defined in Item 407(d)(5) of
Regulation S-K promulgated by the SEC.
Stockholder Proposals
Our bylaws establish procedures for stockholder nominations for elections of directors and bringing business before any
annual meeting or special meeting of stockholders. A stockholder entitled to vote in the election of directors may nominate one or more
persons for election as directors at a meeting only if written notice of such stockholder’s intent to make such nomination or
nominations has been delivered to our Corporate Secretary at our principal executive offices not less than 90 days nor more than
120 days prior to the first anniversary of the prior year’s annual meeting. In the event that the date of the annual meeting is more than
30 days before or more than 60 days after the anniversary date of the prior year’s annual meeting, the stockholder notice must be given
not more than 120 days nor less than the later of 90 days prior to the date of the annual meeting or, if it is later, the 10th day following
the date on which the date of the annual meeting is first publicly announced or disclosed by us. These notice deadlines are the same as
those required by the SEC’s Rule 14a-8.
Pursuant to the bylaws, a stockholder’s notice must set forth among other things: (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the rules and regulations thereunder; and (b) as to
any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is made.
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There have been no changes to these nominating procedures since the adoption of the bylaws.
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation
In accordance with Item 402 of Regulation S-K promulgated by the SEC, we are required to disclose certain information
regarding the makeup of and compensation of our Company’s named executive officers.
In establishing executive compensation, our Board is guided by the following goals:
● compensation should consist of a combination of cash and equity awards that are designed to fairly pay the executive officers
for work required for a company of our size and scope;
● compensation should align the executive officers’ interests with the long-term interests of stockholders; and
● compensation should assist with attracting and retaining qualified executive officers and directors.
Compensation of Directors
Our current compensation package for non-employee directors, effective July 1, 2020, consists of: an annual cash retainer of
$70,000 for the non-executive Board chair, $40,000 for each other director, $20,000 for each audit committee and compensation
committee chair, $10,000 for nominating and governance committee chair, and $10,000 for each other committee member of the audit
and compensation committees and $5,000 for each other committee member of the nominating and governance committee; a grant of
6,500 restricted shares of stock or restricted stock units upon appointment to the Board; and an annual stock option grant of 1,500
shares thereafter.
The following table provides information regarding all compensation paid to non-employee directors of Aytu during the
fiscal year ended June 30, 2023.
Name
Carl C. Dockery (1)(2)
John A. Donofrio Jr. (1)(2)
Abhinav Jian (1)(2)
Vivian H. Liu (1)(2)
Fees Earned
or Paid in
Cash
70,000
90,000
3,306
63,750
$
$
$
$
Stock
Awards
$
$
$
$
— $
— $
— $
$
25,870
Total
70,000
90,000
3,306
89,620
(1) As of June 30, 2023, the number of restricted shares held by each non-employee director was as follows: 3,893 restricted shares for Mr.
Dockery and 762 restricted shares for Mr. Donofrio, both adjusted for the recission of shares from the Aponowicz and Paguia settlement
(for more information, see Stipulation of Compromise and Settlement in Note 15 to the Consolidated Financial Statements included in
Aytu’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023). Ms. Liu held 6,825 restricted shares.
(2) As of June 30, 2023, the number of stock options held by each non-employee director was as follows: (i) 200 shares for Mr. Dockery; (ii)
200 shares for Mr. Donofrio.
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Executive Officer Compensation
The following table sets forth all cash compensation earned, as well as certain other compensation paid or accrued for
the years ended June 30, 2023 and 2022 to each of the following named executive officers.
Name and
Principal
Position
(a)
Named Executive Officers:
Joshua R. Disbrow
Chief Executive Officer
since December 2012
Mark K. Oki
Year
(b)
Salary
($)
(c)
Bonus
($)
(d)
Stock
Award
($)
(e)
Option
Award
($)(1)
(f)
2023
2022
$ 590,000
$ 590,000
$ 118,000
$
$
— $
— $
— $
—
—
Chief Financial Officer, Secretary
and Treasurer since January 2022
2023
2022
$ 415,000
$ 183,558
$
$
83,000
50,000
$
$ 135,000
— $
$
— $
— $
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
(h)
Non-Equity
Incentive
Plan
Compensation
($)
(g)
All Other
Compensation
($)
(i)
Total ($)
(j)
—
—
— $
— $
—
—
— $ 708,000
— $ 590,000
— $
— $
24,840
$ 522,840
— $ 368,558
Greg Pyszczymuka
Chief Commercial Officer
2023
$ 375,000
$ 150,000
$
15,046
$
— $
— $
— $
— $ 540,046
(1) Option awards are reported at fair value at the date of grant.
Our executive officers are reimbursed by us for any out-of-pocket expenses incurred in connection with activities conducted
on our behalf. Executives are reimbursed for business expenses directly related to our business activities, such as travel, primarily for
business development as we grow and expand our product lines. On average, each executive incurs between $1,000 to $3,000 of out-
of-pocket business expenses each month. The executive management team meets weekly and determines which activities they will
work on based upon what we determine will be most beneficial to the Company and our stockholders. No interest is paid on amounts
reimbursed to the executives.
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Outstanding Equity Awards at Fiscal Year-End 2023
The following table contains certain information concerning unexercised options for the Named Executive Officers as of June
30, 2023.
Option Awards
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned Options
(#)
Option
Exercise
Price ($)
Option
Expiration
Date
Stock Awards
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Market
Number
of
Shares
Value of
or Units Shares or
of Stock
That
Have
Not
Vested
(#)
Units of
Stock
That
Have Not Have Not
Vested ($)
(1)
Vested
(#)
Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($)
— $ 290.00
—
—
—
—
—
— $
— $
—
—
—
—
—
—
6/8/2030
—
—
—
—
—
—
— $
37
2,227
13,334
563
2
16,163
2,917
$
$
—
59
3,563
21,334
901
3
25,861
4,667
4.00
10/1/2032
— $
— $
— $
2,917
3,335
3,335
$
$
$
4,667
5,336
5,336
— $
— $
—
—
—
—
—
— $
— $
— $
— $
—
—
—
—
—
—
—
—
—
—
—
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
375
—
—
—
—
—
375
—
—
—
—
125
—
—
—
—
—
125
—
—
7,031
7,031
Name
Named Executive Officers:
Joshua R. Disbrow
Chief Executive Officer
Total
Mark K. Oki
Chief Financial Officer
Total
Greg Pyszczymuka
Chief Commercial Officer
Total
(1) Based on $1.60 per share which was the closing price of our common stock on NASDAQ on June 30, 2023, the last trading day of that
fiscal year.
Employment Agreements
Joshua R. Disbrow Agreement
On February 13, 2023, we entered into an amended and restated employment agreement with Mr. Disbrow. The agreement
supersedes any prior employment agreements or amendments with the Company. The agreement was amended to: (i) provide for one-
year employment terms with auto-renewal; (ii) modify the acceleration provision in connection with a change of control such that he
would need to be terminated within 12 months following a change of control for “Cause” or resign for “Good Reason”; and (iii)
provide associated changes to the “Cause” definition to (a) change material misconduct in connection with his employment to willful
malfeasance or willful misconduct; and (b) change material breach of the employment agreement to willful and deliberate breach.
Mark K. Oki Agreement
On February 13, 2023, we entered into an amended and restated employment agreement with Mr. Oki. The agreement
supersedes any prior employment agreements with the Company. The agreement was amended to: (i) modify the equity acceleration
provision to conform to Mr. Disbrow’s agreement relating to the equity awards referenced and acceleration language; and (ii) provide
associated changes to the “Cause” definition to (a) change material misconduct in connection with his other agreements with the
Company to willful malfeasance or willful misconduct; (b) make conforming changes related to Mr. Oki’s unintended but material
breach of the agreement instead of a material and repeated breach; and (c) change gross negligence in connection with his employment
to willful malfeasance.
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Greg Pyszczymuka Agreement
On March 21, 2023, we entered into an amended and restated employment agreement with Mr. Pyszczymuka. The agreement
supersedes any prior employment agreements with the Company. The agreement was amended to: (i) modify the equity acceleration
provision to conform to Mr. Disbrow’s agreement relating to the equity awards referenced and acceleration language; and (ii) provide
associated changes to the “Cause” definition to (a) change material misconduct in connection with his other agreements with the
Company, to willful malfeasance or willful misconduct; (b) make conforming changes related to Mr. Pyszczymuka’s unintended but
material breach of the agreement, instead of a material and repeated breach; and (c) change gross negligence in connection with his
employment to willful malfeasance.
Payments Provided Upon Termination for Good Reason or Without Cause
Pursuant to the employment agreements, in the event employment is terminated without Cause by us or the officer terminates
his employment with Good Reason, we will be obligated to pay him any accrued compensation and, in the case of Mr. Disbrow, (i) a
lump sum payment equal to two and one half (2.5) times his base salary in effect at the date of termination; (ii) continued participation
in the health and welfare plans for up to two years; and (iii) a pro-rata amount of the target bonus determined by the percentage of time
he was employed during the fiscal year. Messrs. Oki and Pyszczymuka shall receive, (i) a payment equal to his base salary in effect at
the date of termination; (ii) immediate vesting of all stock-based awards; (iii) continued participation in the health and welfare plans for
up to 12 months; and (iv) a pro-rata amount of the target bonus determined by the percentage of time he was employed during the fiscal
year.
“Good Reason” means (i) there is a material reduction of the level compensation (excluding any bonuses) except where there
is a general reduction applicable to the management team generally; (ii) there is a material reduction in overall responsibilities or
authority, or scope of duties; or (iii) without the officer’s written consent, a material change in the principal geographic location at
which the officer must perform his services (it being understood that the relocation of the officer to a facility or a location within forty
(40) miles of the State Capitol Building in Denver, Colorado shall not be deemed material for purposes of the employment
agreements).
“Cause” means (i) willful malfeasance or willful misconduct in connection with his employment; (ii) conviction of, or entry of
a plea of guilty to, or entry of a plea of nolo contendere with respect to, any crime other than a traffic violation or infraction which is a
misdemeanor; (iii) willful and deliberate violation of a Company policy, (iv) unintended but material breach of any written policy
applicable to all employees adopted by the Company which is not cured to the reasonable satisfaction of the Board of Directors within
thirty (30) business days after notice thereof; (v) the unauthorized use or disclosure of any proprietary information or trade secrets of
the Company or any other party as to which the officer owes an obligation of nondisclosure as a result of the officer’s relationship with
the Company, or (vi) the willful and deliberate breach of the employment agreement.
Payments Provided Upon a Change in Control
In the event the officer’s employment is terminated within 12 months of a Change in Control of us, all stock options, restricted
stock, and other stock-based grants granted or may be granted in the future by us to the officers will immediately vest and become
exercisable. In addition, Mr. Disbrow shall be paid a pro-rata amount of the target bonus determined by the percentage of time he was
employed during the fiscal year. In addition, Mr. Oki shall receive (i) a payment equal to his base salary in effect at the date of the
Change in Control; (ii) continued participation in the health and welfare plans for up to 12 months; and (iii) a pro-rata amount of the
target bonus determined by the percentage of time he was employed during the fiscal year.
“Change in Control” means: the occurrence of any of the following events:
● the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity; or
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● a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power and
outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and
outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable)
immediately upon completion of such transaction
● the sale of all of the stock of the Company to an unrelated person, entity or group thereof acting in concert; or
● any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such
transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity
immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the
Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The following table sets forth information with respect to the beneficial ownership of our common stock as of August 31,
2023 for:
● each beneficial owner of more than 10% of our outstanding common stock;
● each of our director and named executive officers; and
● all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the SEC. These rules generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities and
include common stock that can be acquired within 60 days of August 31, 2023. The percentage ownership information shown in the
table is based upon 5,530,027 shares of common stock outstanding as of August 31, 2023.
Except as otherwise indicated, all of the shares reflected in the table are shares of common stock and all persons listed below
have sole voting and investment power with respect to the shares beneficially owned by them, subject to applicable community
property laws. The information is not necessarily indicative of beneficial ownership for any other purpose.
In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that
person, we deemed outstanding shares of common stock subject to options and warrants held by that person that are immediately
exercisable or exercisable within 60 days of August 31, 2023. We did not deem these shares outstanding, however, for the purpose of
computing the percentage ownership of any other person. Beneficial ownership representing less than 1% is denoted with an asterisk
(*). The information in the tables below are based on information known to us or ascertained by us from public filings made by the
stockholders. Except as otherwise indicated in the table
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below, addresses of the director, executive officers and named beneficial owners are in care of Aytu BioPharma, Inc., 7900 East Union
Avenue, Suite 920, Denver, Colorado 80237.
5% or more Beneficial Owners
Nantahala Capital Management, LLC (1)
Non-employee Directors
Carl C. Dockery(2)
John A. Donofrio Jr.(3)
Vivian H. Liu(4)
Named Officers
Joshua R. Disbrow(5)
Mark K. Oki (6)
Greg Pyszczymuka (7)
All directors and executive officers as a group, including those named above (eight persons) (8)
* Represents beneficial ownership of less than 1%.
Number of
Percentage of
Shares
Beneficially
Owned
Shares
Beneficially
Owned
1,086,812
19.7 %
8,402
962
6,825
71,966
9,500
22,143
190,951
*
*
*
1.30 %
*
*
3.45 %
(1) The number of shares is from a schedule 13D/A filed by Nantahala Capital Management with the SEC on June 16, 2023. Based on such
filing, Nantahala Capital Management are deemed to have the voting and dispositive power with respect to 1,086,812 shares of common
stock. Nantahala Capital have their principal business office at 130 Main St. 2nd Floor, Nan Canaan, CT 06840.
(2) Consists of (i) 4,259 shares of common stock, (ii) 3,893 unvested restricted shares, and (iii) 200 shares of common stock issuable upon
the exercise of vested options, (iv) 50 shares of common stock held by Alpha Venture Capital Partners, L.P Mr. Dockery is the President
of the general partner of Alpha Venture Capital Partners, L.P. and therefore may be deemed to beneficially own the shares beneficially
owned by Alpha Venture Capital Partners, L.P.
(3) Consists of (i) 762 unvested restricted shares, (ii) 200 shares of common stock issuable upon the exercised of vested options.
(4) Consists of 6,825 unvested restricted shares.
(5) Consists of (i) 55,428 shares of common stock, (ii) 16,163 unvested restricted shares, (iii) 375 shares of common stock issuable upon the
exercise of vested options. Does not include 116 shares of common stock held by an irrevocable trust for estate planning in which Mr.
Disbrow is a beneficiary. Mr. Disbrow does not have or share investment control over the shares held by the trust, Mr. Disbrow is not the
trustee of the trust (nor is any member of Mr. Disbrow’s immediate family) and Mr. Disbrow does not have or share the power to revoke
the trust. As such, under Rule 16a 8(b) and related rules, Mr. Disbrow does not have beneficial ownership over the shares purchased and
held by the trust.
(6) Consists of (i) 6,583 shares of common stock, (ii) 2,917 shares of unvested restricted shares.
(7) Consists of (i) 20,267 shares of common stock, (ii) 1,876 shares of unvested restricted shares.
(8)
In addition to the above stated for directors and officers, includes (i) 63,941 shares of common stock, and (ii) 7,212 shares of unvested
restricted shares.
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related Party Transactions
We describe below all transactions and series of similar transactions, other than compensation arrangements, during the last
three fiscal years, to which we were a party or will be a party, in which:
● the amounts involved exceeded or will exceed $120,000; and
● any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family
of the foregoing persons, had or will have a direct or indirect material interest.
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Jarrett T. Disbrow, the brother of Joshua R. Disbrow, our Chief Executive Officer, is employed by us as Chief Business
Officer and President, Consumer Health. His total annual salary and other cash compensation was approximately $427,000, which
consists of $365,000 base salary plus $62,000 cash bonus during the year ended June 30, 2023, and he receives benefits consistent with
other employees serving in the same capacity.
Review, Approval or Ratification of Transactions with Related Persons
Effective upon its adoption in July 2016, pursuant to the Audit Committee Charter, the Audit Committee is responsible for
reviewing and approving all related party transactions as defined under Item 404 of Regulation S-K, after reviewing each such
transaction for potential conflicts of interests and other improprieties. Our policies and procedures for review and approval of
transactions with related persons are in writing in our Code of Conduct and Ethics available on our website at http://www.aytubio.com
under the “Investor Relations—Corporate Governance” tab.
Prior to the adoption of the Audit Committee Charter, and due to the small size of our company, we did not have a formal
written policy regarding the review of related party transactions, and relied on our Board of Directors to review, approve or ratify such
transactions and identify and prevent conflicts of interest. Our Board of Directors reviewed any such transaction in light of the
particular affiliation and interest of any involved director, officer or other employee or stockholder and, if applicable, any such person’s
affiliates or immediate family members.
Director Independence
Our common stock is listed on the NASDAQ Capital Market. Therefore, we must comply with the exchange rules regarding
director independence. Audit Committee members must satisfy the independence criteria set forth in Rule 10A-3 under the Securities
Exchange Act of 1934, as amended, for listed companies. In order to be considered to be independent for purposes of Rule 10A-3, a
member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the
board of directors or any other board committee: (1) accept, directly or indirectly, any consulting, advisory or other compensatory fee
from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries.
Four of our five directors are independent under the definition of NASDAQ. Josh Disbrow is not independent under either
definition due to being an executive officer of our Company.
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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Grant Thornton, LLP, or Grant Thornton has served as our independent auditor since December 2022 and has been appointed
by our Audit Committee to continue as our independent auditor for the fiscal year ending June 30, 2023.
Plante & Moran, PLLC, or Plante Moran has served as our independent auditor until December 2022.
The following table presents aggregate fees for professional services rendered by our principal independent registered public
accounting firms, Grant Thornton for the fiscal year ended June 30, 2023, and Plante Moran for the year ended June 30, 2022, for the
audit of our annual financial statements.
Year Ended
June 30,
2023
2022
Audit fees
Audit related fees*
Total fees
$
$
$
(In thousands)
940
—
940
$
547
32
579
* Audit-related fees for both fiscal years 2023 and 2022 were comprised of fees related to registration statements, including S-1, S-3 and S-
8 filings, our registered offerings, and at-the-market (ATM) offerings.
In addition to the amounts above, $0.1 million in professional services was rendered by Plante Moran as our principal
independent auditor for the financial statements included in our Form 10–Q and 10-Q/A during the fiscal year ended June 30, 2023.
Dismissal of Independent Registered Public Accountants.
On December 12, 2022, the Audit Committee of the Board of Directors of Aytu BioPharma, Inc. (the “Company”) dismissed Plante &
Moran, PLLC (“Plante Moran”), as the Company’s independent registered public accounting firm.
The reports of Plante Moran on the Company’s consolidated financial statements for the fiscal years ended June 30, 2022 and 2021
did not contain any adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting
principles, except for Plante Moran’s report on the financial statements for the year ended June 30, 2022, which contained an explanatory
paragraph expressing substantial doubt about the Company’s ability to continue as a going concern.
During the fiscal years ended June 30, 2022 and 2021, and through the date of Plante Moran’s dismissal, there were (i) no
“disagreements” (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between the Company and Plante
Moran on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not
resolved to the satisfaction of Plante Moran would have caused Plante Moran to make reference to the subject matter of the disagreement in
connection with its reports on the Company’s consolidated financial statements for such years and (ii) no “reportable events” as that term is
defined in Item 304(a)(1)(v) of Regulation S-K, except for the material weakness in the Company’s internal control over financial reporting
previously reported in Part II, Item 9A “Controls and Procedures” in the Company’s Annual Report on Form 10-K for the year ended June 30,
2021, as amended.
The Company concluded that it had a material weakness in its internal control over financial reporting related to the analysis for the
accounting for the impairment of long-lived assets, including goodwill and other intangible assets. The Company performs an assessment to
determine if an impairment of long-lived assets has occurred annually or when circumstances indicate an impairment may have occurred. This
assessment was prepared by internal staffing and reviewed by the Chief Financial Officer. At the June 30, 2021 fiscal year end, it was
determined that the Company improperly aggregated certain assets when performing this assessment. This resulted in an incorrect conclusion
that no impairment had occurred. This deficiency did not result in a revision of any of the Company’s previously issued financial statements.
However, if not addressed, the deficiency could have resulted in a material misstatement in the future. In response, the Company incorporated
utilization of third-party providers to review its assumptions and computations in the Company’s impairment analysis for completeness and
accuracy. The Company believes that its controls are now designed properly and operating effectively.
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The material weakness was discussed with the Audit Committee. The Company has authorized Plante Moran to respond fully to
inquiries of Grant Thornton LLP (“Grant Thornton”), the Company’s successor accountant as described below, concerning the material
weaknesses.
Engagement of New Independent Registered Public Accountants.
On December 12, 2022, the Audit Committee appointed Grant Thornton LLP as the Company’s independent registered public
accounting firm for the fiscal year ended June 30, 2023.
During the fiscal years ended June 30, 2021 and 2022 and the subsequent interim period through December 12, 2022, neither the
Company nor anyone on its behalf has consulted with Grant Thornton with respect to either (i) the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated
financial statements, and neither a written report nor oral advice was provided to the Company that Grant Thornton concluded was an
important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any
matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item
304 of Regulation S-K) or a reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K).
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ITEM 15. EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
(a)(1)
Financial Statements
PART IV
The following documents are filed as part of this Form 10-K, as set forth on the Index to the Consolidated Financial
Statements found on page F-1.
● Reports of Independent Registered Public Accounting Firms
● Consolidated Balance Sheets as of June 30, 2023 and 2022
● Consolidated Statements of Operations for the years ended June 30, 2023 and 2022
● Consolidated Statements of Stockholders’ Equity for the years ended June 30, 2023 and 2022
● Consolidated Statements of Cash Flows for the years ended June 30, 2023 and 2022
● Notes to Consolidated Financial Statements
(a)(2)
Financial Statement Schedules
Not Applicable.
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(a)(3) Exhibits
Exhibit
No.
Description
Registrant’s
Form
Date Filed
Exhibit
Number
Filed
Herewith
2.1
2.2
2.3
2.4
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.7
4.7
4.7
Agreement and Plan of Merger, dated as of September 12, 2019, by and
among Aytu BioScience, Inc., Aytu Acquisition Sub, Inc. and Innovus
Pharmaceuticals, Inc.
Asset Purchase Agreement, dated October 10, 2019, by and between Aytu
Bioscience, Inc. and Cerecor Inc.
Agreement and Plan of Merger, dated as of December 10, 2020, by and
among Aytu BioScience, Inc., Neutron Acquisition Sub, Inc. and Neos
Therapeutics, Inc.
Asset Purchase Agreement, dated April 12, 2021, by and among Aytu
BioPharma, Inc., Rumpus VEDS LLC, Rumpus Therapeutics LLC, Rumpus
Vascular LLC, Christopher Brooke and Nathaniel Massari.
Certificate of Incorporation effective, June 3, 2015.
Certificate of Amendment of Certificate of Incorporation, effective June 1,
2016.
Certificate of Amendment of Certificate of Incorporation, effective June 30,
2016.
Certificate of Amendment of Certificate of Incorporation, effective August
25, 2017.
Certificate of Amendment to the Restated of Certificate of Incorporation,
effective August 10, 2018.
Certificate of Amendment to the Restated Certificate of Incorporation,
effective December 8, 2020.
Certificate of Amendment of Certificate of Incorporation, effective March
22, 2021.
Certificate of Amendment of Certificate of Incorporation, effective January
6, 2023.
Amended and Restated Bylaws.
Form of Placement Agent Common Stock Purchase Warrant.
Form of Common Stock Purchase Warrant.
Form of Common Stock Purchase Warrant.
Form of Placement Agent Common Stock Purchase Warrant.
Form of Wainwright Warrant.
Form of Prefunded Common Stock Purchase Warrant.
Form of Common Stock Purchase Warrant.
Form of Pre-Funded Warrant
Form of Common Warrant.
Form of Pre-Funded Warrant.
8-K
8-K
8-K
10-Q
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
09/18/19
10/15/19
12/10/20
05/17/21
06/09/15
06/02/16
07/01/16
08/29/17
08/10/18
12/08/20
03/22/21
01/25/23
05/09/22
03/13/20
03/13/20
03/20/20
03/20/20
07/02/20
03/04/22
03/04/22
08/10/22
08/10/22
S-1/A
06/05/23
86
2.1
2.1
2.1
2.4
3.1
3.1
3.1
3.1
3.1
3.1
3.1
3.1
3.1
4.2
4.1
4.1
4.2
4.1
4.1
4.2
4.1
4.2
4.1
Table of Contents
4.7
4.7
4.8
10.1
10.2
10.3
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.22
Form of Tranche A Warrant.
Form of Tranche B Warrant.
Description of Securities
Registration Rights Agreement dated July 27, 2016, by and between Aytu
BioScience, Inc. and Lincoln Park Capital Fund, LLC.
2015 Stock Option and Incentive Plan, as amended on July 26, 2017.
Registration Rights Agreement, dated August 11, 2017, between Aytu
BioScience, Inc. and the investors named therein.
Amended and Restated Exclusive License Agreement, dated June 11, 2018,
between Aytu BioScience, Inc. and Magna Pharmaceuticals, Inc.
Common Stock Purchase Warrant.
License, Development, Manufacturing and Supply Agreement, dated
November 2, 2018.
Second Amendment to Lease Agreement, dated April 4, 2019.
Employment Agreement with Joshua R. Disbrow, dated April 16, 2019.
Amended and restated License and Supply Agreement with Acerus
Pharmaceuticals, dated July 29, 2019.
Form of Contingent Value Rights Agreement.
Loan and Security Agreement, by and between Neos Therapeutics, Inc.,
Neos Therapeutics Brands, LLC, and Neos Therapeutics, LP, Neos
Therapeutics Commercial, LLC, PharmaFab Texas, LLC, and Encina
Business Credit, LLC, dated October 2, 2019.
Registration Rights Agreement, dated October 11, 2019.
First Amendment to Asset Purchase Agreement with Cerecor, Inc., dated
November 1, 2019.
Registration Rights Agreement with Cerecor, Inc., dated November 1, 2019.
Transition Services Agreement, dated November 1, 2019.
Consent and Limited Waiver Agreement, dated November 1, 2019.
Consent and Limited Waiver Agreement, dated November 1, 2019.
Waiver and Amendment to the July 29, 2019 Amended and Restated
License and Supply Agreement, dated November 29, 2019.
Form of Restricted Stock Cancelation and Exchange Agreement.
Commitment Letter, dated as of December 10, 2020, by and among Aytu
BioScience, Inc., Neos Therapeutics, Inc. and Encina Business Credit, LLC
87
S-1/A
S-1/A
10-K
8-K
8-K
8-K
10-K
10-Q
10-Q
10-Q
10-Q
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K/A
8-K/A
8-K
8-K
8-K
06/05/23
06/05/23
09/27/22
07/28/16
07/27/17
08/16/17
09/06/18
02/07/19
02/07/19
05/14/19
05/14/19
08/02/19
09/18/19
10/3/2019
10/15/19
11/04/19
11/04/19
11/04/19
11/04/19
11/07/19
12/02/19
07/02/20
12/10/20
4.2
4.3
4.9
10.2
10.1
10.2
10.31
10.5
10.2
10.3
10.1
10.1
10.1
10.1
10.3
10.1
10.2
10.7
10.6
10.6
10.1
10.1
10.3
Table of Contents
10.23
10.24
10.26
10.27
10.28
10.29
10.30
10.31
10.33†
10.34&
10.35&
10.36
10.37&
10.38#&
10.38
10.38
10.38
10.38†
10.38†
Consent, Waiver and Amendment No. 1 to Loan and Security Agreement,
by and among Aytu BioScience, Inc., Neos Therapeutics, Inc., Neos
Therapeutics Brands, LLC, Neos Therapeutics, LP, Neos Therapeutics
Commercial, LLC, PharmaFab Texas, LLC, and Encina Business Credit,
LLC, dated March 19, 2021.
8-K
03/22/21
Termination and Transition Agreement between Aytu BioPharma, Inc. and
Acerus Pharmaceuticals Corporation, dated March 31, 2021.
10-Q
05/17/21
10.2
10.9
Employment Agreement between Aytu BioPharma, Inc. and Christopher
Brooke, dated April 12, 2021
10-Q
05/17/21
10.13
Option Agreement between Rumpus VEDS, LLC and Denovo Biopharma
LLC, dated December 21, 2019.
10-Q
05/17/21
10.14
Exclusive License Agreement between Rumpus VEDS, LLC and Johns
Hopkins University, dated December 20, 2019.
10-Q
05/17/21
10.15
Controlled Equity OfferingSM Sales Agreement, dated June 4, 2021, by and
between the registrant and Cantor Fitzgerald & Co.
8-K
06/04/21
1.1
Asset Purchase Agreement, dated July 1, 2021 by and between Aytu
BioPharma, Inc. and UAB “Caerus Biotechnologies.”
Termination Agreement, dated June 29, 2021 by and between Aytu
BioPharma, Inc. and Avrio Genetics, LLC.
Restricted Stock Award Agreement between Aytu BioPharma, Inc. and
Mark Oki, effective January 17, 2022.
Loan and Security Agreement dated January 26, 2022 between the registrant
and the Avenue Capital Lenders and Avenue Capital Agent.
Consent, Joinder and Second Amendment to Loan and Security Agreement
dated January 26, 2022 between the registrant and Eclipse Business Capital
LLC.
Registration Rights Agreement dated January 26, 2022 between Aytu and
each of the warrant holders.
Form of Warrant.
Settlement and Termination of License Agreement between the Registrant
and TRIS Pharma, Inc., dated May 12, 2022.
Form of Indemnification Agreement
Amendment No. 4 to Loan and Security Agreement by and among Neos
Therapeutics, Inc., Neos Therapeutics Brands, LLC, Neos Therapeutics, LP,
Neos Therapeutics Commercial, LLC, PharmaFab Texas, LLC, Aytu
Therapeutics, LLC, Innovus Pharmaceuticals, Inc., Semprae Laboratories,
Inc., Novalere, Inc., Delta Prime Savings Club, Inc. and Eclipse Business
Capital LLC, dated March 24, 2023.
Second Amendment to Loan Documents by and among Avenue Capital
Management II L.P., certain lenders and Aytu BioPharma, Inc., dated March
24, 2023.
Form of Placement Agency Agreement
Form of Securities Purchase Agreement
88
10-K
10-K
10-Q
10-Q
10-Q
10-Q
10-Q
10-Q
8-K
9/28/2021
10.79
9/28/2021
10.80
02/14/22
02/14/22
02/14/22
02/14/22
02/14/22
05/16/22
07/01/22
10.2
10.3
10.4
10.5
10.6
10.1
10.1
10-Q
05/11/23
10.1
10-Q
S-1/A
S-1/A
05/11/23
06/05/23
06/05/23
10.2
10.42
10.43
Table of Contents
10.45†
10.46†
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
Amended and Restated Employment Agreement by and between the
Company and Joshua R. Disbrow dated February 13, 2023
Amended and Restated Employment Agreement by and between the
Company and Mark Oki dated February 13, 2023
Sublease Agreement by and between the Company and AMT
Manufacturing Solutions, LLC dated April 27, 2023
Commercial Lease Agreement dated June 10, 1999, between Walstib, L.P.
and Pharmafab, Inc.
First Amendment to Lease dated September 1, 2002, between Walstib, L.P.
and PFAB, LP
Second Amendment to Lease dated September 4, 2003, between Teachers
Insurance and Annuity Association of America and PFAB, LP
Third Amendment to Lease dated October 1, 2003, Between TIAA and
PFAB, LP
Fourth Amendment to Lease dated May 1, 2009, between TIAA and Neos
Therapeutics, LP (formerly PFAB, LP)
Fifth Amendment to Lease dated April 5, 2010, between TIAA and Neos
Therapeutics, LP
Sixth Amendment to Lease dated August 14, 2013, between Riverside
Business Green, LP and Neos Therapeutics, LP
10.55†
Amended and Restated Employment Agreement by and between the
Company and Greg Pyszczymuka dated March 21, 2023
21.1
23.1
23.2
24.1
31.1
31.2
32.1
101 INS
101 SCH
101 CAL
101 DEF
101 LAB
101 PRE
List of Subsidiaries
Consent of Plante & Moran, PLLC, Independent Registered Public
Accounting Firm
Consent of Grant Thornton, LLP, Independent Registered Public
Accounting Firm
Power of Attorney (contained on signature page hereto)
Certificate of the Chief Executive Officer of Aytu BioScience, Inc. pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
Certificate of the Chief Financial Officer of Aytu BioScience, Inc. pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
Certificate of the Chief Executive Officer and the Chief Financial Officer of
Aytu BioScience, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
XBRL Instance Document - the instance document does not appear in the
Interactive Data File because its XBRL tags are embedded within the Inline
XBRL document.
Inline XBRL Taxonomy Schema Linkbase Document
Inline XBRL Taxonomy Calculation Linkbase Document
Inline XBRL Taxonomy Definition Linkbase Document
Inline XBRL Taxonomy Labels Linkbase Document
Inline XBRL Taxonomy Presentation Linkbase Document
89
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Table of Contents
104
†
#
Cover Page Interactive Data File (formatted as Inline XBRL and contained
in Exhibit 101)
X
Indicates is a management contract or compensatory plan or arrangement.
The company has received confidential treatment of certain portions of this agreement. These portions have been omitted and filed
separately with the Securities and Exchange Commission pursuant to a confidential treatment request.
& Pursuant to Item 601(b)(10) of Regulation S-K, portions of this exhibit (indicated by asterisks) have been omitted as the registrant has
determined that (1) the omitted information is not material and (2) the omitted information would likely cause competitive harm to the
registrant if publicly disclosed.
ITEM 16. FORM 10-K SUMMARY
None
90
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: October 12, 2023
AYTU BIOPHARMA, INC.
By: /s/ Joshua R. Disbrow
Joshua R. Disbrow
Chairman and Chief Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
We the undersigned directors and officers of Aytu BioPharma, Inc. (the “Company”), hereby severally constitute and appoint
Joshua R. Disbrow and Mark Oki, and each of them singly, our true and lawful attorneys, with full power to them, and to each of them
singly, to sign for us and in our names in the capacities indicated below, to file any and all amendments to this Annual Report on Form
10‐K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys‐in‐fact and agents, and each of them, full power and authority to do and perform each and
every act and thing, ratifying and confirming all that said attorneys‐in‐fact and agents or any of them or their or his substitute or
substitutes may lawfully do or cause to be done by virtue thereof.
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 in the capacities indicated, on October 12, 2023.
Signature
/s/ Joshua R. Disbrow
Joshua R. Disbrow
/s/ Mark K. Oki
Mark K. Oki
/s/ John A. Donofrio, Jr.
John A. Donofrio, Jr.
/s/ Carl C. Dockery
Carl C. Dockery
/s/ Abhinav Jain
Abhinav Jain
/s/ Vivian H. Liu
Vivian H. Liu
Title
Chairman and Chief Executive Officer
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial and Accounting Officer)
Lead Independent Director
Director
Director
Director
91
Table of Contents
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
AYTU BIOPHARMA, INC.
Reports of Independent Registered Public Accounting Firms (PCAOB ID 248 & 166)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
F-1
F-4
F-5
F-6
F-7
F-9
92
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Aytu BioPharma, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheet of Aytu BioPharma, Inc. (a Delaware corporation) and
subsidiaries (the “Company”) as of June 30, 2023, the related consolidated statements of operations, stockholders’ equity, and cash
flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of June 30, 2023, and the results of its
operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States
of America.
Going concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As
discussed in Note 1 to the financial statements, the Company’s net loss was $17.1 million and cash used in operating activities was $5.1
million for the year ended June 30, 2023, and as of that date, the Company’s accumulated deficit was $304.1 million. These conditions,
along with other matters as set forth in Note 1, raise substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans in regard to these matters are also described in Note 1. The 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 audit. 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 audit 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 audit 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 audit 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 audit 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 audit provides a reasonable basis for our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication
of critical audit matters does not alter in any way our opinion on
F-1
Table of Contents
the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing an opinion on
the critical audit matter or on the accounts or disclosures to which it relates.
Variable consideration in contracts with customers
As described in Note 2 to the financial statements, the Company makes estimates of the net sales price, including estimates of
variable consideration to be incurred on the respective product sales. A key source of information used by management to develop the
estimate for the ADHD portfolio savings offerings and commercial rebates (collectively the “GtN adjustments”) is inventory levels in
the distribution channel as of the balance sheet date. We identified this key source of information as a critical audit matter.
The principal considerations for our determination that those inventory levels in the distribution channel as of the balance
sheet date are a critical audit matter are (a) the inherent limitations over management’s visibility and insight into the underlying details
of the source data, which requires management to depend and rely on external data from multiple sources and (b) the extent to which
the external data is used by management to develop the estimate of GtN adjustments.
Our audit procedures related to this critical audit matter included the following, among others.
(i)
(ii)
We evaluated the relevance and reliability of the external data used by management to develop the estimate of
inventory levels in the distribution channel as of the balance sheet date.
We tested management’s process of reconciling the external data from multiple sources used to develop the estimate of
inventory levels in the distribution channel as of the balance sheet date.
(iii) We evaluated the appropriateness and consistency in the application of the inventory levels in the distribution channel as
of the balance sheet date as it relates to management’s methods and assumptions used in developing the estimate of GtN
adjustments.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2022.
Denver, Colorado
October 12, 2023
F-2
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Aytu BioPharma, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Aytu BioPharma, Inc. (the “Company”) as of June 30, 2022; the
related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended; and the related notes
(collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of June 30, 2022, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on the Company’s
financial statements based on our audit. 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 audit 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 audit, 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 audit 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 audit 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 audit provides a reasonable basis for our opinion.
/s/ Plante & Moran, PLLC
Denver, Colorado
September 27, 2022, except for Note 2, as to which the date is October 12, 2023
We served as the Company’s auditor from 2015 to 2022.
F-3
Table of Contents
Assets
Current assets
Cash and cash equivalents
Accounts receivable, net
Inventories
Prepaid expenses
Other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use asset
Intangible assets, net
Other non-current assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Accounts payable and other
Accrued liabilities
Short-term line of credit
Current portion of debt
Other current liabilities
Total current liabilities
Debt, net of current portion
Derivative warrant liabilities
Other non-current liabilities
Total liabilities
AYTU BIOPHARMA, INC.
Consolidated Balance Sheets
(In thousands, except shares and per-share amounts)
$
$
$
June 30,
2023
2022
$
$
$
22,985
28,937
11,995
8,047
868
72,832
1,815
2,054
58,970
792
63,631
136,463
13,478
46,799
1,563
85
7,090
69,015
14,713
6,403
6,975
97,106
19,360
21,712
10,849
7,375
633
59,929
3,025
3,271
70,632
766
77,694
137,623
10,987
44,187
3,813
96
5,359
64,442
14,279
1,796
12,798
93,315
Commitments and contingencies (Note 18)
Stockholders’ equity
Preferred Stock, par value $.0001; 50,000,000 shares authorized; no shares issued or outstanding as of
June 30, 2023 and June 30, 2022
Common Stock, par value $.0001; 200,000,000 shares authorized; shares issued and outstanding
5,517,174 and 1,928,941, respectively, as of June 30, 2023 and June 30, 2022
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
—
—
1
343,485
(304,129)
39,357
—
331,386
(287,078)
44,308
Total liabilities and stockholders’ equity
$
136,463
$
137,623
See the accompanying Notes to the Consolidated Financial Statements.
F-4
Table of Contents
Product revenue, net
Cost of sales
Gross profit
Operating expenses
Selling and marketing
General and administrative
Research and development
Impairment of goodwill
Impairment of other assets
Amortization of intangible assets
Gain from contingent consideration
Total operating expenses
Loss from operations
Other income (expense)
Other expense, net
Gain on extinguishment of debt
Gain on derivative warrant liability
Total other income, net
Loss before income tax
Income tax benefit
Net loss
AYTU BIOPHARMA, INC.
Consolidated Statements of Operations
(In thousands, except share and per-share amounts)
Year Ended
June 30,
2023
2022
$
107,399
40,767
66,632
41,448
28,630
4,095
—
5,705
4,788
(969)
83,697
96,669
44,386
52,283
38,713
31,167
12,662
65,802
9,656
5,844
(1,655)
162,189
(17,065)
(109,906)
(4,779)
—
4,793
14
(17,051)
—
(17,051)
$
(757)
169
1,605
1,017
(108,889)
(110)
(108,779)
3,339,906
1,469,875
(5.11)
$
(74.01)
$
$
$
Weighted average number of common shares outstanding
Basic and diluted net loss per common share
See the accompanying Notes to the Consolidated Financial Statements.
F-5
Table of Contents
AYTU BIOPHARMA, INC.
Consolidated Statements of Stockholders’ Equity
(In thousands, except shares)
Balance, June 30, 2022
— $ — 1,928,941 $ — $ 331,386 $ (287,078) $
44,308
Preferred Stock
Common Stock
Shares Amount
Shares
Amount
Additional
Paid-in
Capital
Total
Accumulated
Stockholders’
Deficit
Equity
Stock-based compensation
Issuance of common stock, net of $1,004
issuance cost
Net loss
Balance, June 30, 2023
—
—
(18,180)
—
—
—
—
— $ —
3,606,413
-
5,517,174
$
—
1
—
1
6,046
—
6,046
6,053
—
$ 343,485
—
(17,051)
$ (304,129) $
6,054
(17,051)
39,357
Preferred Stock
Common Stock
Shares Amount
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Stockholders’
Total
Deficit
Balance, June 30, 2021
— $ — 1,374,521 $ — $ 315,867 $ (178,299) $
Stock-based compensation
Issuance of common stock, net of $1,048
issuance cost
Issuance of common stock related to
milestone payment
Tax withholding for stock-based
compensation
Net loss
Balance, June 30, 2022
— —
20,434
—
5,248
—
—
424,539
—
8,854
— —
109,447
—
1,425
—
—
—
— —
— —
— $ —
— —
— —
1,928,941
$ — $ 331,386
(8)
—
—
(108,779)
$ (287,078) $
See the accompanying Notes to the Consolidated Financial Statements
F-6
Equity
137,568
5,248
8,854
1,425
(8)
(108,779)
44,308
Table of Contents
AYTU BIOPHARMA, INC.
Consolidated Statements of Cash Flows
(In thousands)
Operating Activities
Net loss
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation, amortization and accretion
Impairment expense
Inventory write-down
Stock-based compensation expense
Gain on derivative warrant liability
Gain from contingent considerations
Amortization of senior debt (premium) discount
Shares issuance related to milestone payment
Gain on debt extinguishment
Other noncash adjustments
Changes in operating assets and liabilities:
Accounts receivable
Inventory
Prepaid expenses and other current assets
Accounts payable and other
Accrued liabilities
Other operating assets and liabilities, net
Net cash used in operating activities
Investing Activities
Contingent consideration payment
Other investing activities
Net cash used in investing activities
Financing Activities
Net proceeds from issuance of stock
Payment made to fixed payment arrangement
Net payments made on short-term line of credit
Payments made to borrowings
Proceeds from borrowings
Payment for debt issuance costs
Other financing activities
Net cash provided by financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
See accompanying Notes to Consolidated Financial Statements
F-7
Year Ended
June 30,
2023
2022
$
(17,051)
$
(108,779)
8,815
5,705
2,351
6,046
(4,793)
(969)
559
—
—
7
(7,153)
(3,609)
(914)
2,384
3,605
(111)
(5,129)
(5)
(112)
(117)
15,575
(4,266)
(2,250)
(96)
—
(92)
—
8,871
3,625
19,360
22,985
$
10,146
75,458
2,186
5,248
(1,605)
(1,655)
(126)
1,425
(193)
(65)
6,533
1,299
2,228
(7,681)
(13,292)
50
(28,823)
(3,178)
(70)
(3,248)
11,694
(4,409)
(4,121)
(16,101)
15,000
(526)
(7)
1,530
(30,541)
49,901
19,360
$
Table of Contents
AYTU BIOPHARMA, INC.
Consolidated Statements of Cash Flows, Cont’d
(In thousands)
Supplemental cash flow data
Cash paid for interest
Non-cash investing and financing activities:
Other noncash investing and financing activities
See accompanying Notes to Consolidated Financial Statements
F-8
Year Ended
June 30,
2023
2022
$
$
3,812
147
$
$
3,148
54
Table of Contents
AYTU BIOPHARMA, INC.
Notes to the Consolidated Financial Statements
1. Nature of Business and Financial Condition
Aytu BioPharma, Inc. (“Aytu,” or the “Company”), is a pharmaceutical company focused on commercializing novel
therapeutics and consumer health products. The Company operates through two business segments (i) the Rx Segment, consisting of
prescription pharmaceutical products and (ii) the Consumer Health Segment, which consists of various consumer healthcare products
(the “Consumer Health Portfolio”). The Company was originally incorporated as Rosewind Corporation on August 9, 2002 in the State
of Colorado and was re-incorporated as Aytu BioScience, Inc in the state of Delaware on June 8, 2015. Following the acquisition of
Neos Therapeutics, Inc. (“Neos”) in March 2021, (the “Neos Acquisition”) the Company changed its name to Aytu BioPharma, Inc.
On January 6, 2023, the Company effected a reverse stock split in which each common stockholder received one share of
common stock for every twenty shares held (“Reverse Stock Split”). Where applicable, all share and per share amounts in this annual
report have been adjusted to reflect the effect of the Reverse Stock Split.
The Rx Segment primarily consists of two product portfolios: Adzenys XR-ODT (amphetamine) extended-release orally
disintegrating tablets and Cotempla XR-ODT (methylphenidate) extended-release orally disintegrating tablets for the treatment of
attention deficit hyperactivity disorder (“ADHD”) together the “ADHD Portfolio”, and the “Pediatric Portfolio” consisting of Poly-Vi-
Flor and Tri-Vi-Flor, two complementary prescription fluoride-based supplement product lines containing combinations of fluoride and
vitamins in various formulations for infants and children with fluoride deficiency, and Karbinal ER, an extended-release antihistamine
suspension containing carbinoxamine indicated to treat numerous allergic conditions.
The Consumer Health Portfolio consists of multiple consumer health products competing in large healthcare categories,
including allergy, hair regrowth, diabetes support, digestive health, urological health and general wellness, commercialized through
direct mail and e-commerce marketing channels.
The Company’s strategy is to continue building its portfolio of revenue-generating products, leveraging its commercial team’s
expertise to build leading brands within large therapeutic and consumer markets. As a result of focusing on building the portfolio of
revenue-generating products, the Company has indefinitely suspended active development of its clinical development program AR101
(enzastaurin), and has terminated the license agreements relating to Healight and NT0502 (N-desethyloxybutynin).
As of June 30, 2023, the Company had $23.0 million of cash and cash equivalents and $28.9 million in accounts receivable.
The Company incurred a net loss of $17.1 million and $108.8 million during the years ended June 30, 2023 and 2022, respectively. The
Company had an accumulated deficit of $304.1 million and $287.1 million as of June 30, 2023 and 2022, respectively. Cash used in
operations was $5.1 million and $28.8 million during the years ended June 30, 2023 and 2022, respectively.
In addition, the Company has non-operating liabilities that are scheduled to, or may become current in the eighteen months
following the filing of this 10-K, most notably the maturity of the $15 million Avenue Capital term note (the “Avenue Note”). The
Company expects to refinance the Avenue Note in the event it does not have sufficient cash on hand to retire it. As a result, there exists
substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include
adjustments that might be necessary if the Company is unable to continue as a going concern.
Management plans to mitigate the conditions that raise substantial doubt about its ability to continue as a going concern are
primarily focused on i) eliminating expenses for clinical development, ii) winding down or monetizing the Consumer Health Segment,
which has generated negative cash flows since its acquisition in 2021, iii) refinancing its $15 million Avenue Note (see Note 11 –
Long-term Debt) to extend its maturity date, and, if necessary iv) raising additional capital through public or private equity, debt
offerings, or monetizing additional assets in order to meet its obligations.
F-9
Table of Contents
Management believes that the Company has access to capital resources, however, the Company cannot provide any assurance that it
will be able to raise additional capital, monetize assets, or obtain new financing on commercially acceptable terms. If the Company is
unable to support its operations and obligations, it may be required to curtail its operations, or delay the execution of its business plan.
Alternatively, any efforts by the Company to reduce its expenses may adversely impact its ability to sustain revenue-generating
activities or otherwise operate its business. As a result, there can be no assurance that the Company will be successful in implementing
its plans to alleviate this substantial doubt about its ability to continue as a going concern.
2. Summary of Significant Accounting Policies
Principals of Consolidation. The Company’s consolidated financial statements include the accounts of: Aytu Therapeutics,
LLC, Innovus Pharmaceuticals, Inc. and Neos Therapeutics, Inc. and their respective wholly owned subsidiaries. All significant inter-
company balances and transactions have been eliminated in consolidation.
Basis of Presentation. The Company’s consolidated financial statements have been prepared in accordance with generally
accepted accounting principles in the United States (“U.S. GAAP”).
Use of estimates. The preparation of financial statements and footnotes requires the use of management estimates, judgments
and assumptions. Actual results may differ from estimates. In the accompanying consolidated financial statements, estimates are used
for, but not limited to, stock-based compensation; revenue recognition, determination of variable consideration for accruals of
chargebacks, administrative fees and rebates, government rebates, returns and other allowances; allowance for doubtful accounts;
inventory impairment; determination of right-of-use assets and lease liabilities; valuation of financial instruments, derivative warrant
liabilities, intangible assets, long-lived assets, and goodwill; purchase price allocations, and the depreciable lives of long-lived assets;
accruals for contingent liabilities; and determination of the income tax provision, deferred taxes and valuation allowance.
Prior Period Reclassification. Certain prior year amounts in the consolidated statements of operations and statements of cash
flows have been reclassified to conform to the current year presentation, including a reclassification made in the presentation of
amortization of intellectual property, and a reclassification of fair value adjustment from contingent consideration. Amortization of
intellectual property was previously included in research and development expenses and is currently recorded in amortization of
intangible assets expenses on the consolidated statements of operations. Gain or loss from the fair value of contingent consideration
was previously included in Other expense, net, and is currently recorded in operating expenses on the consolidated statements of
operations. These reclassifications did not impact operating results or cash flows for the fiscal years ended June 30, 2023 and 2022 or
its financial position as of June 30, 2023 or June 30, 2022.
Previously Reported Financial Statements. The classification of certain of the Company’s warrants was previously recorded
as equity. These warrants according to U.S. GAAP should have been classified as derivative warrant liabilities at fair value and marked
to market at each reporting period, with changes in fair value recorded in earnings. The affected filing periods include the audited
financial statements as of June 30, 2022.
SEC Staff Accounting Bulletin No. 99, “Materiality,” and the Financial Accounting Standards Board (“FASB”), Statement of
Financial Accounting Concepts No. 2 “Qualitative Characteristics of Accounting Information” indicate that quantifying and
aggregating adjustments is only the beginning of an analysis of materiality and that both quantitative and qualitative factors must be
considered in determining whether individual adjustments are material. The Company evaluated the adjustments and determined that
the impact was not material to the consolidated financial statements as of and for the fiscal year ended June 30, 2022. As a result,
adjustments for the immaterial adjustments were applied to this period for comparative purposes. The adjustments did not change the
Company’s reported total assets, cash and cash equivalents, operating expenses, operating losses or cash flows from operations.
F-10
Table of Contents
The consolidated financial statements as of and for the fiscal year ended June 30, 2022 have been adjusted as shown in the
following tables.
Balance Sheet data
Derivative warrant liabilities
Total liabilities
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
Statement of Operation data
Gain on derivative warrant liability
Total other income, net (1)
Loss before income tax
Net loss
Basic and diluted net loss per common share
Statement of Stockholders' Equity data
Issuance of common stock, net of issuance cost
Statement of Cash Flow data
Net loss
Gain on derivative warrant liability
As Previously
Reported
As of June 30, 2022
Adjustment
(in thousands)
-
91,531
334,560
(288,472)
46,092
$
$
$
$
$
1,796
1,784
(3,174)
1,394
(1,784)
As Previously
Reported
Twelve Months Ended
June 30, 2022
Adjustment
(in thousands)
211
1,278
(110,283)
(110,173)
(75.00)
11,652
$
(110,173)
(211)
$
$
$
$
$
$
$
1,394
(261)
1,394
1,394
0.99
(2,798)
1,394
(1,394)
$
$
$
$
$
$
$
$
$
$
$
$
$
As Adjusted
1,796
93,315
331,386
(287,078)
44,308
As Adjusted
1,605
1,017
(108,889)
(108,779)
(74.01)
8,854
(108,779)
(1,605)
$
$
$
$
$
$
$
$
$
$
$
$
$
1)
Includes reclassification of gain or loss from the fair value of contingent consideration. See Prior Period Reclassification in Note 2 – Summary of Significant
Accounting Policies.
Previously Reported Segment Information. During the year ended June 30, 2023, the Company identified an omission
regarding the disclosure of certain key metrics of its reportable segments under ASC 280 related to the year ended June 30, 2022.
During the year ended June 30, 2022, the Company inappropriately reported the net income of each of its two segments as opposed to
operating income which more closely aligns with the adjusted EBITDA metric that is utilized by its chief operating decision maker.
The impact on June 30, 2022 was that $92.4 million and $17.5 million of operating loss relating to the Rx Segment and Consumer
Health segment, respectively, should have been reported as a separate line. The Company assessed the materiality of this omission on
the previously issued interim and annual consolidated financial statements in accordance with SEC Staff Accounting Bulletin No. 99.
The Company concluded that the omission was not material to any of the previously issued consolidated financial statements and
began reporting operating results by segment in accordance with ASC 280 on a prospective basis starting with the year ended June 30,
2023
Cash and Cash Equivalents. The Company’s primary objectives for investment of available cash are the preservation of
capital and the maintenance of liquidity. The Company invests its available cash balances in bank deposits and money market funds.
The cash balances in bank deposits are subject to FDIC (the “Federal Deposit Insurance Corporation”) insurance limits, and cash
balances in the money market funds are not FDIC insured. The Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents.
F-11
Table of Contents
Accounts Receivable, net. Accounts receivable represent amounts due from customers less allowances for doubtful accounts,
discounts and pricing chargebacks. An allowance for doubtful accounts, when needed, is based upon the financial condition and
payment history of customers; collections experience on other accounts; and economic factors or events expected to affect future
collections. The allowance for doubtful accounts was zero for both years ended June 30, 2023 and 2022. The allowance for discounts
was $1.8 million and $1.3 million for the years ended June 30, 2023 and 2022, respectively. The allowance for chargebacks was $1.2
million for both years ended June 30, 2023 and 2022.
The table below presents the opening and closing balances of receivables from customers.
Opening balance, June 30, 2022
Closing balance, June 30, 2023
Increase
Opening balance, June 30, 2021
Closing balance, June 30, 2022
Decrease
Accounts Receivable, gross
(in thousands)
24,219
31,927
7,708
30,325
24,219
(6,106)
$
$
$
$
The table below details the change in allowance for discount, and allowance for chargeback for the periods presented.
Allowance for Discount
Allowance for Chargeback
Total Allowance
Balance, June 30, 2021
Charges to expense
Payments
Balance, June 30, 2022
Charges to expense
Payments
Balance, June 30, 2023
$
$
$
(in thousands)
1,133
6,760
(6,592)
1,301
9,074
(8,597)
1,778
$
$
$
1,016
4,598
(4,408)
1,206
4,554
(4,548)
1,212
$
$
$
2,149
11,358
(11,000)
2,507
13,628
(13,145)
2,990
Inventories. Inventories consist of raw materials, work in process and finished goods and are recorded at the lower of cost or
net realizable value, with cost determined on a first-in, first-out basis. Prior to regulatory approval, before economic benefit is probable,
pre-launch inventories are expensed as research and development.
The Company periodically reviews the composition of its inventories in order to identify obsolete, slow-moving or otherwise
unsaleable items. If evidence exists that the net realizable value of inventory is lower than its cost, the difference is recognized as a loss
in the period the impairment is identified.
Going Concern Determination. In connection with the preparation for each annual and interim financial reporting period,
management evaluates whether there are events that, in the aggregate, raise substantial doubt about the Company’s ability to continue
as a going concern within one year after the financial statements are issued. The evaluation is based on relevant conditions and events
that are known and reasonably knowable within one year after the date that the financial statements are issued. Recurring operating
losses or year over year negative cash flows from operating activities are considered negative trends.
F-12
Table of Contents
Property and equipment, net. Property and equipment are recorded at cost less accumulated depreciation. Furniture and
equipment are depreciated on a straight-line basis over their estimated useful lives which are generally two to seven years. Leasehold
improvements are amortized over the shorter of the estimated useful life or remaining lease term. The Company begins depreciating
assets when they are placed into service. Maintenance and repairs are expensed as incurred.
Leases. At the inception of an arrangement, the Company determines if an arrangement is, or contains, a lease. Lease
classification, recognition and measurement are determined at the lease commencement date. Lease liabilities and right-of-use
(“ROU”) assets are recorded based on the present value of lease payments over the expected lease term, including options to extend or
terminate the lease when it is reasonably certain that the Company will exercise that option. In determining the present value of the
lease payments, the Company uses the implicit interest rate when readily determinable and uses the Company’s incremental borrowing
rate when the implicit rate is not readily determinable based upon the information available at the lease commencement date.
Fixed lease payments, or in substance fixed, are recognized over the expected term of the lease using the effective interest
method. Variable lease payments are expensed as incurred. Fixed and variable lease expenses on operating leases are recognized within
cost of sales and operating expenses in the Company’s consolidated statements of operations. ROU asset amortization and interest costs
on financing leases are recorded within cost of sales and interest expense, respectively, in the Company’s consolidated statements of
operations. The Company has elected to account for payments on short-term leases as lease expense on a straight-line basis over lease
terms of 12 months or less.
Operating leases are included in other liabilities in the Company’s consolidated balance sheets. Financing leases are included
in property and equipment, net, current portion of long-term debt and long-term debt, net of current portion in the Company’s
consolidated balance sheets.
Income from subleasing is recognized on a straight-line basis over the sublease term, subject to collectability issues which will
limit the income recognized to payment received until collectability is no longer an issue. Any variable payments are recognized as
incurred.
Fair Value of Financial Instruments.
Acquisitions. In an acquisition of a business or a group of assets, the Company uses the acquisition method of accounting
which identifies, recognizes, and measures the identifiable assets acquired, liabilities assumed and any non-controlling interest at their
acquisition date fair values. Any excess of the purchase consideration over the fair values of the net identifiable assets acquired is
recorded as goodwill. If the Company determines the assets acquired do not meet the definition of a business, the transaction is
accounted for as an acquisition of assets, which records the assets acquired at the purchase price and does not result in goodwill.
Contingent consideration is accounted for Acquired in-process research and development with no alternative future use is charged to
expense.
Warrants. The Company accounts for warrants as either equity-classified or liability-classified instruments based on an
assessment of the warrant’s specific terms and applicable authoritative guidance in FASB Accounting Standards Codification (“ASC”)
480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment
considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to
ASC480, and whether the warrants meet all of the requirements for equity classification under ASC 815,including whether the warrants
are indexed to the Company’s own common shares and whether the warrant holders could potentially require “net cash settlement” in a
circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the
use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while
the warrants are outstanding. Liability classified warrants are valued using the Monte Carlo simulation model or the Black-Scholes
option pricing model at issuance, and for each reporting period. Equity classified warrants are valued using the Black-Scholes model.
Revenue Recognition. The Company generates revenue from product sales through its prescription pharmaceutical products
segment (“Rx Segment”) and its consumer healthcare products segment (“Consumer Health
F-13
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Segment”). The Company evaluates its contracts with customers to determine revenue recognition using the following five-step model:
(1) identify the contract with the customer; (2) identify the performance obligations; (3) determine the transaction price; (4) allocate the
transaction price to the performance obligations; and (5) recognize revenue when (or as) a performance obligation is satisfied. There is
not a recognized financing component related to product sales.
Rx Segment
Net product sales for the Rx Segment (which includes the ADHD Portfolio and the Pediatric Portfolio) consist of sales of
prescription pharmaceutical products, principally to a limited number of wholesale distributors and pharmacies in the United States. Rx
product revenue is recognized at the point in time that control of the product transfers to the customer in accordance with shipping
terms (i.e., upon delivery), which is generally “free-on-board” destination when shipped domestically within the United States and
“free-on-board” shipping point when shipped internationally consistent with the contractual terms.
Rx product revenue is recognized net of consideration paid to the Company’s customers and other adjustments to the
transaction price (known as “Gross to Net” adjustments). Estimating adjustments to the transaction price and applying the constraint on
variable consideration requires the use of significant management judgment and other market data. Gross to Net adjustments include
provisions for product returns, wholesaler distribution fees and chargebacks for discounted pricing to participating entities, managed
care rebate programs, savings programs for patients covered under commercial payor plans and other deductions.
The Company makes estimates of the net sales price, including estimates of variable consideration to be incurred on the
respective product sales (known as “Gross to Net” adjustments). Estimating gross to net adjustments and applying the constraint on
variable consideration requires the use of significant management judgment and other market data.
The Gross to Net adjustments include:
● Savings offers The Company offers savings programs for its patients covered under commercial payor plans in which
the cost of a prescription to such patients is discounted.
● Prompt payment discounts Prompt payment discounts are based on standard provisions of wholesalers’ services.
● Wholesale distribution fees Wholesale distribution fees are based on definitive contractual agreements for the
management of the Company’s products by wholesalers.
● Rebates The Rx Portfolio products are subject to commercial managed care and government (i.e. Medicaid)
programs whereby discounts and rebates are provided to participating managed care organizations and federal and/or
state governments. Calculations related to rebate accruals are estimated based on historical information from third-
party providers.
● Wholesaler chargebacks The Rx Portfolio products are subject to certain programs with wholesalers whereby pricing
on products is discounted below wholesaler list price to participating entities. These entities purchase products
through wholesalers at the discounted price, and the wholesalers charge the difference between their acquisition cost
and the discounted price back to the Company following the product purchases of the wholesalers’ end customers.
● Returns Wholesalers’ contractual return rights are limited to defective product, product that was shipped in error,
product ordered by customer in error, product returned due to overstock, product returned due to dating or product
returned due to recall or other changes in regulatory guidelines. The return policy for expired product allows the
wholesaler to return such product starting six months prior
F-14
Table of Contents
to expiry date to twelve months post expiry date. The Company analyzes return data available from sales since
inception date to determine a reliable return rate.
Savings offers, rebates and wholesaler chargebacks reflect the terms of underlying agreements, which may vary. Accordingly,
actual amounts will depend on the mix of sales by product and contracting entity. Future returns may not follow historical trends. The
Company’s periodic adjustments of its estimates are subject to time delays between the initial product sale and ultimate reporting and
settlement of deductions. The Company continually monitors these provisions and do not believe variances between actual and
estimated amounts have been material.
Consumer Health Segment
The Consumer Health Segment revenue (consisting of the Consumer Health Portfolio) is from sales of various consumer
health products through e-commerce platforms and direct-to-consumer marketing channels. Revenue is generally recognized “free-on-
board” shipping point, as those are the agreed-upon contractual terms. Taxes assessed by a governmental authority that are both
imposed on and concurrent with a specific revenue-producing transaction that are collected by the Company from a customer are
excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a
customer are accounted for as a fulfillment cost and are included in cost of sales.
Customer Contract Costs. The Company expenses the incremental costs to obtain a contract as incurred, since they are
satisfied within one year.
Concentration of Credit Risk. Financial instruments that potentially subject the Company to credit risk concentrations consist
of cash, cash equivalents and accounts receivable.
The Company maintains deposits in financial institutions in excess of federally insured limits. The Company periodically
monitors the credit quality of the financial institutions with which it invests and believes that the Company is not exposed to significant
credit risk due to the financial position of those institutions.
The Company is also subject to credit risk from accounts receivable related to product sales. The Company’s customers,
sometimes referred to as partners or customers, are primarily large wholesale distributors that resell the Company’s products to
retailers. The loss of one or more of these large customers could have a material adverse effect on the Company’s business, operating
results or financial condition. The Company does not charge interest or require collateral related to its accounts receivable. Credit terms
are generally forty to sixty days.
The following table presents customers that contributed more than 10% of gross revenue and accounts receivable:
Customer A
Customer B
Customer C
Percentage of gross revenue
Percentage of accounts receivable
June 30,
2023
2022
2023
2022
43 %
18 %
17 %
41 %
20 %
18 %
50 %
19 %
14 %
52 %
25 %
18 %
Costs of Sales. Costs of sales consists primarily of manufactured product cost, products acquired from third-party
manufacturers, freight, production, and indirect manufacturing overhead costs and FDA fees for commercialized products. Certain of
the Company’s sales activities depend on licensing arrangements that may require periodic milestone payments or royalty payments,
which are also included in costs of sales. In addition, distribution, shipping and handling costs invoiced by the Company's third-party
logistics companies are included in costs of sales.
Stock-Based Compensation. The Company accounts for share-based payments compensation expense using a fair value based
model.
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Table of Contents
Restricted stock and restricted stock unit grants are valued based on the estimated grant date fair value of the Company’s
common stock and recognized ratably over the requisite service period.
Stock option grants are valued using the Black-Scholes option pricing model and compensation costs are recognized ratably
over the period of service using the graded method. The Black-Scholes option pricing model requires the Company to estimate the
expected term of the award, the expected volatility, the risk-free interest rate, and the expected dividends. The expected term is
determined using the “simplified method,” which is the midpoint between the vesting date and the end of the contractual term. The
risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for the expected term of the award. The
Company doesn’t anticipate paying any dividends in the near future. Forfeitures are recognized as they occur.
Research and Development. Research and development costs are expensed as incurred and include salaries and benefits,
facilities costs, overhead costs, raw materials, laboratory and clinical supplies, clinical trial costs, contract services, milestone payments
and fees paid to regulatory authorities for review and approval of the Company’s product candidates and other related costs.
Intangible Assets. The Company records acquired intangible assets based on fair value on the date of acquisition. Finite-lived
intangible assets are recorded at cost and amortized on a straight-line basis over the estimated lives of the assets. Indefinite-lived
intangible assets are not subject to amortization.
Impairment of Long-lived Assets and Goodwill. The Company assesses impairment of asset groups, including intangible
assets, when events or changes in circumstances indicate that their carrying amount may not be recoverable. Long-lived assets consist
of property and equipment, net, right of use assets and other intangible assets, net. Circumstances which could trigger a review include,
but are not limited to: (i) changes in Company plans; (ii) competition; (iii) significant adverse changes in the business climate or legal
or regulatory factors; (iv) or, expectations that the asset will more likely than not be sold or disposed of significantly before the end of
its estimated useful life. If the estimated future undiscounted cash flows, excluding interest charges, from the use of an asset are less
than its carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value.
Goodwill is reviewed for impairment at least annually or whenever events or changes in circumstances, including a decline in
the Company’s stock price, indicate that its carrying amount is less than its fair value. If qualitative factors, such as general economic
conditions, the Company’s outlook and market performance of the Company’s industry forecasted financial performance indicate that it
is more likely than not that a reporting unit’s fair value is less than its carrying amount, the Company performs a quantitative analysis
of fair value. The Company determines the fair value of a reporting unit utilizing a discounted cash flow model. Significant
assumptions inherent in the valuation methodologies include, but are not limited to, prospective financial information, growth rates,
terminal value, discount rates and comparable multiples from publicly traded companies in the Company’s industry.
Contingent consideration. The consideration for our acquired businesses and licenses often includes future payments that are
contingent upon the occurrence of a particular event or events. The Company records an obligation for such contingent payments at fair
value on the acquisition date. Changes in the fair value of contingent consideration obligations are recognized in the consolidated
statements of income.
Advertising Costs. Advertising costs consist of the direct marketing activities related to the Consumer Health Segment. The
Company expenses all advertising costs as incurred. The Company incurred $11.1 million and $13.6 million of advertising costs for
the years ended June 30, 2023 and 2022, respectively.
Income Taxes. The provision for income taxes is determined using the asset and liability approach of accounting for income
taxes. Under this approach, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and net operating loss and tax
credit carryforwards. The amount of deferred taxes on these temporary differences is determined using the tax rates that are expected to
apply to the period when the asset is realized or the liability is settled, as applicable, based on tax rates and laws in the respective tax
jurisdiction enacted as of the
F-16
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balance sheet date. A valuation allowance is recorded to reduce the net deferred tax asset when it is more likely than not that some
portion or all of its deferred tax asset will not be utilized.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of to be sustained
upon an examination.
The Company recognizes interest and penalties related to uncertain tax positions in Income tax (provision) benefit in the
consolidated statements of operations.
Debt issuance costs, discounts (premiums). Debt issuance costs reflect fees paid to lenders and third parties directly related to
issuing debt. Debt issuance costs and discounts (premiums) related to term loans are reported as direct deductions (increases) to the
outstanding debt and amortized over the term of the debt using the effective interest method as an addition (reduction) to interest
expense. Debt issuance costs related to a line of credit facility are classified as assets and subsequently amortized over the term of the
line of credit as additional interest expense.
Segment information. The Company’s operating segments engage in business activities from which it may earn revenues and
incur expenses and for which discrete information is available and regularly reviewed by the Company’s chief operating decision
maker, who is the Company’s Chief Executive Officer, to make decisions about resources to be allocated to the segment and to assess
performance. Operating segments are aggregated for reporting purposes when the operating segments are identified as similar in
accordance with the basic principles and aggregation criteria in the accounting standards. The Company’s reporting segments are based
on product lines, which have different lines of management responsibility and marketing strategies. The Company has two reportable
segments: the Rx Segment and the Consumer Health Segment.
Paragraph IV litigation costs. Legal costs incurred by the Company in the enforcement of the Company’s intellectual
property rights are charged to expense.
Business Combination and Contingent considerations. The Company recognizes the identifiable tangible and intangible
assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The excess of purchase price over
the aggregate fair values is recorded as goodwill. The Company calculates the fair value of the identifiable tangible and intangible
assets acquired and liabilities assumed to allocate the purchase price at the acquisition date.
The consideration for our acquisitions and certain licensing agreements often includes future payments that are contingent
upon the occurrence of a particular event or events. The Company records an obligation for such contingent payments at fair value on
the acquisition date. Management estimates the fair value of contingent consideration obligations through valuation models that
incorporate probability-adjusted assumptions related to the achievement of the milestones and thus likelihood of making related
payments. The Company revalues its contingent consideration obligations each reporting period using Monte Carlo simulation.
Changes in the fair value of contingent consideration obligations are recognized in the consolidated statements of income.
Net Loss Per Common Share. Basic income (loss) per common share is calculated by dividing the net income (loss) available
to the common shareholders by the weighted average number of common shares outstanding during that period. Diluted net loss per
share reflects the potential of securities that could share in the net loss of the Company. For the years ended June 30, 2023 and 2022,
the Company incurred a net loss and did not include common equivalent shares in the computation of diluted net loss per share because
the effect would have been anti-dilutive.
F-17
Table of Contents
The following table sets-forth securities excluded from the calculation of diluted earnings per share.
Warrant to purchase common stock
Employee stock options
Employee unvested restricted stock
Employee unvested restricted stock units
Total
Recently Adopted Accounting Pronouncements
(Note 16)
(Note 15)
(Note 15)
(Note 15)
June 30,
2023
6,538,052
52,762
40,996
4,963
6,636,773
2022
434,328
3,899
85,377
8,500
532,104
Reference Rate Reform. In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standard
Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): “Facilitation of the Effects of Reference Rate Reform on Financial
Reporting”, which provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other
transactions that reference LIBOR or another reference rate expected to be discontinued if contract modifications are made on or before
December 31, 2022. The Company adopted the guidance effective July 1, 2022 for the accounting of its LIBOR indexed revolving
loans by prospectively applying the interest rate. The Company elected not to reassess the discount rate of its leases. The adoption of
this standard did not have a material impact on the Company’s consolidated financial position and results of operations.
Earnings Per Share. In May 2021, the FASB issued ASU 2021-04, “Earnings Per Share (Topic260), Debt – Modifications
and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts
in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-
Classified Written Call Options”. The amendments in ASU 2021-04 provide guidance to clarify and reduce diversity in an issuer’s
accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain
equity classified after modification or exchange. ASU 2021-04 is effective for all entities for fiscal years beginning after December 15,
2021, and interim periods within those fiscal years, with early adoption permitted. The adoption of ASU 2021-04 and related updates
did not have a material impact on the Company’s consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
Debt—Debt with Conversion and Other Options. In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with
Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40)
— “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”, which simplifies the accounting for convertible
instruments by removing major separation models currently required. Consequently, more convertible debt instruments will be reported
as a single liability instrument with no separate accounting for embedded conversion features. ASU 2020-06 removes certain
settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity
contracts to qualify for it. The standard also simplifies the diluted net income per share calculation in certain areas. The amendments in
this update are effective for public entities that are smaller reporting companies, as defined by the Securities and Exchange
Commission (”SEC”), for the fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early
adoption is permitted through a modified retrospective or full retrospective method. The Company will adopt the guidance on July 1,
2024 and does not expect the adoption of the standard to have any material impact on the Company’s consolidated financial statements.
Financial Instruments – Credit Losses. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit
Losses” requiring the measurement of expected credit losses for financial instruments held at the reporting date based on historical
experience, current conditions and reasonable forecasts. The main objective of ASU 2016-13 is to provide additional information about
the expected credit losses on financial instruments and other commitments to extend credit. The standard is effective for smaller
reporting companies for fiscal periods beginning after December 15, 2022. In May 2019, the FASB issued ASU 2019-05, “Financial
Instruments – Credit Losses”, to allow entities to irrevocably elect the fair value option for certain financial assets previously measured
at amortized cost
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upon adoption of the new credit losses standard. The effective dates and transition for ASU 2019-05 aligns with those of ASU 2016-13.
In March 2022, the FASB issued ASU 2022-02, “Financial Instruments – Credit Losses (topic 326) Troubled Debt Restructurings and
Vintage Disclosures” which eliminates the accounting guidance for troubled debt restructurings by creditors and adds disclosure
requirements for current period gross write-offs by year of origination for financing receivables and net investments in leases. The
Company had adopted ASU 2016-13 and ASU 2019-05 for the fiscal year ended June 30, 2024. The effective dates for the
amendments in ASU 2022-02 align with those of ASU 2016-13. The Company had evaluated the impact of adoption of ASUs 2016-13,
2019-05, and 2022-02 and concluded that the application of the new standards did not have a material impact on the Company’s
consolidated financial statements.
Management has evaluated other recently issued accounting pronouncements and does not believe that any of these
pronouncements will have a significant impact on our consolidated financial statements and related disclosures.
3. Revenues from Contracts with Customers
The Company disaggregates its revenue into two segments, the Rx Segment and the Consumer Health Segment. The Rx
Segment includes the ADHD Portfolio, comprised of Adzenys XR-ODT and Cotempla XR-ODT; and the Pediatric Portfolio,
comprised of Poly-Vi-Flor, Tri-Vi-Flor, and Karbinal ER. The Consumer Health portfolio is comprised of over ten consumer health
products competing in large healthcare categories.
Revenues by Segment: Net revenue disaggregated by segment for the years ended June 30, 2023 and 2022 were as follows.
Rx Segment
Consumer Health Segment
Consolidated revenue
Year Ended
June 30,
2023
2022
(In thousands)
$
$
73,799 $
33,600
107,399 $
61,121
35,548
96,669
Revenues by Product Portfolio: Net revenue disaggregated by significant product portfolios in the Rx Segment for the years
ended June 30, 2023 and 2022 were as follows.
Rx Segment
ADHD
Pediatric
Other
Year Ended
June 30,
2023
2022
(In thousands)
$
$
46,855
25,377
1,567
73,799
$
$
42,855
16,084
2,182
61,121
Other includes discontinued and deprioritized products in the Rx Segment. The Consumer Health Segment is comprised of
one product portfolio, the Consumer Health Portfolio.
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Revenues by Geographic location. The following table reflects product revenues by geographic location as determined by the
billing address of the Company’s customers:
Year Ended
June 30,
2023
2022
$
$
U.S.
International
Total net revenue
4. Inventories
Inventories consist of the following:
Raw materials
Work in process
Finished goods
Inventories
(In thousands)
$
106,918
481
107,399
$
94,606
2,063
96,669
June 30,
2023
June 30,
2022
(In thousands)
1,301 $
2,956
7,738
11,995
$
1,814
1,838
7,197
10,849
$
$
The Company incurred charges of $2.4 million and $4.2 million to reduce the carrying value of inventory to net realizable
value during the years ended June 30, 2023 and 2022, respectively, primarily as a result of unsalable and slow-moving products.
5. Property and Equipment
Property and equipment, net consist of the following:
Manufacturing equipment
Leasehold improvements
Office equipment, furniture and other
Lab equipment
Assets under construction
Property and equipment, gross
Less accumulated depreciation and amortization
Property and equipment, net
June 30,
2023
June 30,
2022
(In thousands)
2,433 $
999
1,125
832
107
5,496
(3,681)
1,815
$
2,487
999
1,128
832
—
5,446
(2,421)
3,025
$
$
Depreciation expense was $1.3 million and $1.6 million for the years ended June 30, 2023 and 2022, respectively. During the
year ended June 30, 2022, the Company recognized a gain of $0.1 million on the disposal of equipment.
During the year ended June 30, 2022, in connection with the decision to divest Tussionex, the Company recorded a $0.2
million impairment charge related to manufacturing equipment associated with this product.
6. Leases
The Company’s operating leases are for its offices, manufacturing facilities and equipment, and its finance leases are for
equipment. These leases have original lease periods expiring between 2022 and 2027. Most leases include
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option provisions under which the parties may extend the lease term. Certain non-real estate leases also include options to purchase the
leased property. The Company’s lease agreements generally do not contain any material residual value guarantees or material
restrictive covenants.
In connection with the Neos Acquisition, Aytu assumed an operating lease ROU asset and lease liability of $3.5 million,
which represented the present value of the remaining lease payments as of the acquisition date, for the office space and manufacturing
facilities at Grand Prairie, Texas. As the lease agreement does not provide an implicit rate, a borrowing rate of 6.7% was used to
determine the present value of future lease payments. The finance leases are related to equipment finance leases with fixed contract
terms and an implicit interest rate of approximately 5.9%.
In April 2023, the Company entered into an agreement with a manufacturing company to sublease 22,909 square feet of the
Company’s manufacturing facility in Grand Prairie, Texas (the “Sublease Agreement”). The sublease commenced in May 2023 and
will terminate on December 31, 2024. The Sublease Agreement provides the sublessee an option to expand the subleased property to
include the remaining 54,203 square feet of the Company’s manufacturing facility. The expansion date may commence as early as
April 1, 2024 but no later than December 31, 2024 (the “Expansion Date”). Under the terms of the Sublease Agreement, the sublessee
will pay base rent of approximately $20,500 per month through the Expansion Date. Beginning on the Expansion Date, base rent will
be $70,686 per month through the expiration of the sublease. In addition to the base rent, the sublessee will pay the Company certain
operating expenses incurred by the Company.
During the fiscal year ended June 30, 2023, in addition to the sublease mentioned above, the Company entered into an
operating lease agreement to relocate its principal office (See Note 18 – Commitments and Contingencies). During the fiscal year
ended June 30, 2022, the Company commenced a five-year operating lease and recorded an ROU of $0.3 million.
The components of lease expenses are as follows;
Lease cost:
Operating lease cost
Short-term lease cost
Finance lease cost:
Amortization of leased assets
Interest on lease liabilities
Total net lease cost
Year Ended
June 30,
2023
2022
Statement of Operations Classification
(In thousands)
$
$
1,402
97
66
9
1,574
$
1,299 Operating expenses
152 Operating expenses
73 Cost of sales
14 Other (expense), net
$
1,538
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Supplemental balance sheet information related to leases is as follows:
Assets:
Operating lease assets
Finance lease assets
Total leased assets
Liabilities:
Current:
Operating leases
Finance leases
Non-current
Operating leases
Finance leases
Total lease liabilities
June 30,
2023
June 30,
2022
(In thousands)
Balance Sheet Classification
$
$
$
$
2,054
159
2,213
1,258
85
832
—
2,175
$
$
$
3,271 Operating lease right-of-use asset
256 Property and equipment, net
3,527
1,227 Other current liabilities
96 Current portion of debt
2,090 Other liabilities
84 Debt, net of current portion
$
3,497
Remaining lease terms and discount rates used are as follows;
Weighted-Average Remaining Lease Term (years)
Operating lease assets
Finance lease assets
Weighted-Average Discount Rate
Operating lease assets
Finance lease assets
Supplemental cash flow information related to leases is as follows:
Cash flow classification of lease payments:
Operating cash flows - operating leases
Operating cash flows - finance leases
Financing cash flows - finance leases
June 30,
2023
June 30,
2022
1.72
0.87
7.78 %
6.54 %
2.63
1.73
7.48 %
6.43 %
Year Ended
June 30,
2023
2022
(In thousands)
$
$
$
1,436
9
96
$
$
$
1,016
15
102
As of June 30, 2023, the maturities of the Company’s future minimum lease payments were as follows:
2024
2025
2026
2027
Total lease payments
Less: Imputed interest
Lease liabilities
Operating
Finance
(In thousands)
$
$
1,378
749
90
46
2,263
(173)
2,090
$
$
88
—
—
—
88
(3)
85
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7. Goodwill and Other Intangible Assets
Goodwill
There were no goodwill carrying amounts in the consolidated balance sheets as of June 30, 2023 and 2022. The carrying
amount of goodwill by reportable segment and changes during the year ended June 30, 2022 are as follows:
Balance as of June 30, 2021
Goodwill impairment
Balance as of June 30, 2022
Rx Segment
Consumer Health
Segment
(In thousands)
Consolidated
$
$
57,165
(57,165)
$
— $
8,637
(8,637)
$
— $
65,802
(65,802)
—
During the year ended June 30, 2022, the Company’s market capitalization significantly declined. The decline was considered
a qualitative factor that led management to reassess whether an impairment had occurred. Management’s evaluation indicated that the
goodwill related to its reporting units in both the Rx and Consumer Health segments were potentially impaired. The Company then
performed a quantitative impairment test by calculating the fair value of the reporting unit and compared that amount to its carrying
value. Significant assumptions inherent in the valuation methodologies include, but were not limited to prospective financial
information, growth rates, terminal value, discount rates and comparable multiples from publicly traded companies in our industry. The
decline in market capitalization was an indicator of increased risk thereby increasing the discount rates in the valuation models. The
Company determined the fair value of the reporting unit utilizing the discounted cash flow model. Using a risk adjusted weighted-
average discount rate, the fair value of the reporting units was less than its carrying value. The Company recognized an impairment
charge of $57.2 million in the Rx Segment, associated with the Cerecor and Neos acquisition and a $8.6 million impairment charge in
the Consumer Health Segment related to the goodwill associated with the Innovus Acquisition.
Other Intangible Assets
The tables below provide the summary of the Company’s intangible assets as of June 30, 2023 and June 30, 2022,
respectively. Carrying amounts are net of any impairment charges from prior periods. Intangible asset with zero net carrying amount at
the end of a reporting period is not presented in the table of a future reporting period.
Carrying
Amount
Accumulated
Amortization
June 30, 2023
Impairment
(In thousands)
Net
Carrying
Amount
Weighted-
Average
Remaining
Life (in years)
Definite-lived intangibles:
Acquired product technology right
Acquired technology right
Acquired product distribution rights
Indefinite-lived intangibles:
Acquired in-process R&D
Total
$
$
42,176
30,200
9,182
81,558
2,600
2,600
84,158
$
$
(10,881)
(4,054)
(4,678)
(19,613)
—
—
(19,613)
$
$
F-23
— $
—
(2,975)
(2,975)
(2,600)
(2,600)
(5,575)
31,295
26,146
1,529
58,970
—
—
11.49
14.75
1.00
12.67
Indefinite-lived
$
58,970
12.67
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Definite-lived intangibles:
Acquired product technology right
Acquired technology right
Acquired product distribution rights
Other intangible assets
Indefinite-lived intangibles:
Acquired in-process R&D
Total
$
June 30, 2022
Carrying
Amount
Accumulated
Amortization
Impairment
(In thousands)
Net Carrying
Amount
45,400
30,200
11,354
4,666
91,620
2,600
2,600
94,220
$
(7,667)
(2,278)
(3,581)
(3,004)
(16,530)
—
—
(16,530)
(3,224)
—
(2,172)
(1,662)
(7,058)
—
—
(7,058)
$
$
34,509
27,922
5,601
—
68,032
2,600
2,600
70,632
Weighted-
Average
Remaining
Life (in years)
12.33
15.75
7.60
—
13.35
Indefinite-lived
13.35
The following table summarizes the estimated future amortization expense to be recognized over the next five years and
periods thereafter:
2024
2025
2026
2027
2028
Thereafter
Total future amortization expense
Acquired Product Technology Rights
June 30,
(In thousands)
6,518
4,989
4,989
4,989
4,989
32,496
58,970
$
$
The acquired Product technology rights are related to the rights to production, supply and distribution agreements of various
products pursuant to the acquisitions of Pediatric Portfolio in November 2019 and the Neos Acquisition in March 2021.
Karbinal® ER. The Company acquired and assumed all rights and obligations pursuant to the Supply and Distribution
Agreement, as Amended, with Tris for the exclusive rights to commercialize Karbinal® ER in the United States (the “Tris Karbinal
Agreement”). The Tris Karbinal Agreement’s initial term terminates in August of 2033, with an optional initial 20-year extension.
Poly-Vi-Flor and Tri-Vi-Flor. The Company acquired and assumed all rights and obligations pursuant to a Supply and License
Agreement and various assignment and release agreements, including a previously agreed to Settlement and License Agreements (the
“Poly-Tri Agreements”) for the exclusive rights to commercialize Poly-Vi-Flor and Tri-Vi-Flor in the United States.
ADHD Portfolio. As part of the Neos Acquisition, the Company acquired developed product technology for the production
and sale of Adzenys XR-ODT and Cotempla XR-ODT. The formulations for the ADHD products are protected by patented technology.
The estimated economic life of these proprietary technologies is 17 years.
Acquired Technology Right
TRRP Technology. As part of the Neos Acquisition, the Company acquired Time Release Resin Particle (“TRRP”) proprietary
technology, which is a proprietary drug delivery technology protected by the Company as a trade secret that allows the Company to
modify the drug release characteristics of each of its respective products. The TRRP
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technology underlines each of Neos’ core products and can potentially be used in future product development initiatives as well.
Acquired Product Distribution Rights (and customer list)
In connection with the Innovus Acquisition, the Company obtained 35 products with a combination of over 300 registered
trademarks and/or patent rights and customer lists. As of June 30, 2022, the customer list intangible asset was fully amortized. During
the fiscal year ended June 30, 2023, this intangible asset was impaired by $3.0 million due to the discontinuance of products in the
Consumer Health Segment.
Acquired In-Process R&D
IPR&D – NT0502. As part of the Neos Acquisition, the Company acquired in-process research and development associated
with NT0502, a new chemical entity that is for the treatment of sialorrhea, which is excessive salivation or drooling. As this is an
indefinite-lived intangible asset, this acquired asset remains an indefinite-lived asset until the completion or abandonment of the
associated research and development efforts. If a product using this technology is eventually approved for commercial sale, at that
time, the IPR&D will begin amortizing on a straight-line over the life of the product. During the fiscal year ended June 30, 2023, the
Company fully impaired the IPR&D of NT0502 due to the termination of its development program.
Other
Other intangible assets consist of customer lists, trade names and other technology and licenses.
Certain of the Company’s amortizable intangible assets include renewal options, extending the expected life of the asset. The
renewal periods range between approximately 1 to 20 years depending on the license, patent or other agreement. Renewals are
accounted for when they are reasonably assured. Intangible assets are amortized using the straight-line method over the estimated
useful lives. Amortization expense of intangible assets was $6.1 million and $7.8 million during the years ended June 30, 2023 and
2022, respectively.
The Company’s strategy is to continue building its portfolio of revenue-generating products by leveraging its commercial
team’s expertise to build leading brands within large therapeutic and consumer health markets. As a result of focusing on building the
portfolio of revenue-generating products, the Company decided to abandon active development of its NT0502 (N-desethyloxybutynin),
a new chemical entity that is for the treatment of sialorrhea, which is excessive salivation or drooling. During the year ended June 30,
2023, the Company incurred an impairment charge of $2.6 million related to NT0502 and terminated the licensing agreement. The
Company also terminated the license agreement with Cedars-Sinai Medical Center surrounding the Healight technology platform as an
additional result of terminating the development of the Healight program. Further, the acquired product distribution rights from
Innovus was impaired by $3.0 million due to discontinuance of products in the Consumer Health Segment.
During the year ended June 30, 2022, in connection with the decision to discontinue commercializing or divesting certain
products within the Rx Segment that have minimal revenue and gross margin contribution, the Company recorded $4.9 million
impairment expense for the write-down of intangible assets consisting of (i) $2.6 million for AcipHex, (ii) $1.4 million for ZolpiMist,
(iii) $0.5 million for Tussionex, (iv) $0.2 million for Cefaclor and (v) $0.2 million for the Neos tradename. Additionally, the
Company’s Consumer Health Segment recorded an impairment of $2.2 million related to products no longer being marketed and
products that have been underperforming.
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8. Accrued liabilities
Accrued liabilities consist of the following:
Accrued savings offers
Accrued program liabilities
Accrued compensation
Accrued customer and product related fees
Return reserve
Other accrued liabilities
Total accrued liabilities
The following table details the change in return reserve for the periods presented:
Balance, June 30, 2021
Charges to expense
Payments
Balance, June 30, 2022
Charges to expense
Payments
Balance, June 30, 2023
$
$
$
June 30,
2023
June 30,
2022
(In thousands)
$
$
15,739
11,012
5,675
6,579
5,777
2,017
46,799
$
$
12,711
9,468
4,765
7,817
5,770
3,656
44,187
Return Reserve
(In thousands)
6,367
8,568
(9,165)
5,770
8,353
(8,346)
5,777
Savings offers represent programs for the Company’s patients covered under commercial payor plans in which the cost of a
prescription to such patients is discounted.
Program liabilities include government and commercial rebates.
Accrued customer and product related fees include accrued expenses and deductions for rebates, wholesaler chargebacks and
fees, and other product-related fees and deductions.
Accrued employee compensation includes sales commissions, vacation earned, and accrued payroll.
Other accrued liabilities consist of accrued license fees, professional fees, credit card liabilities, taxes payable, legal
settlements, and samples expense, none of which individually represent greater than five percent.
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9. Other Liabilities
Fixed payment arrangement
Operating lease liabilities
Contingent value rights
Contingent consideration
Other
Total other liabilities
Less: current portion
Total other liabilities, noncurrent
June 30,
2023
June 30,
2022
(In thousands)
$
$
10,420
2,090
—
—
1,555
14,065
(7,090)
6,975
$
$
13,051
3,317
578
396
815
18,157
(5,359)
12,798
Fixed payment arrangements. Fixed payment arrangements represent obligations to an investor assumed as part of the
acquisition of products from Cerecor, Inc. in 2019, including fixed and variable payments. These obligations included fixed monthly
payments equal to $0.1 million from November 2019 through January 2021 plus $15.0 million due in January 2021, of which $15.0
million was paid down early in March 2020. Monthly variable payments due to the same investor are equal to 15.0% of net revenue
generated from a subset of the Pediatric Portfolio, subject to an aggregate monthly minimum of $0.1 million, except for January 2021,
when a one-time payment of $0.2 million was due and paid. The variable payment obligation was to continue until the earlier of (i)
aggregate variable payments of approximately $9.3 million have been made or (ii) February 12, 2026.
On June 21, 2021, the Company entered into a Waiver, Release and Consent pursuant to which the Company paid $2.8 million
to the investor in early satisfaction of the fixed obligation. The Company agreed to pay the remaining fixed obligation of $3.0 million
in six equal quarterly payments of $0.5 million each over six quarters beginning September 30, 2021. The Company accounted the
Waiver, Release and Consent as a debt and remeasured the related liabilities using a discounted cash flow model. This fixed payment
arrangement was paid in full by January 2023.
The Tris Karbinal Agreement grants the Company exclusive right to distribute and sell the product in the United States. The
initial term of the agreement was 20 years. The Company will pay Tris a royalty equal to 23.5% of net sales. The Tris Karbinal
Agreement also contains minimum unit sales commitments, which is based on a commercial year that spans from August 1 through
July 31, of 70,000 units annually through 2025. The Company is required to pay Tris a royalty make whole payment of $30 for each
unit under the 70,000-unit annual minimum sales commitment through 2025. The Tris Karbinal Agreement make-whole payment is
capped at $2.1 million each year. The annual payment is due in August of each year. The Tris Karbinal Agreement also has multiple
commercial milestone obligations that aggregate up to $3.0 million based on cumulative net sales, the first of which is triggered at
$40.0 million of net revenues. As of June 30, 2023, the fixed payment arrangement balance was $1.7 million in other current liabilities
and $2.1 million in other non-current liabilities on the consolidated balance sheet.
On May 12, 2022, the Company entered into an agreement with Tris to terminate the License, Development, Manufacturing
and Supply Agreement dated November 2, 2018 (the “License Agreement”). Pursuant to such termination, the Company agreed to pay
Tris a total of approximately $6.0 million to $9.0 million, which reduced our total liability for minimum payments by approximately
$8.0 million from the original License Agreement. The settlement payment will be paid in three installments from December 2022
through July 2024. As of June 30, 2023, the balance was $6.6 million.
Contingent value rights. Contingent value rights (“CVRs”) represent contingent consideration related to the Company’s 2020
acquisition of Innovus of up to $16.0 million payable upon attainment of future performance milestones. Consideration can be satisfied
in up to 470,000 shares of the Company’s common stock, or cash either upon the option of the Company or in the event there are
insufficient shares available to satisfy such obligations. In the fiscal years ended June 30, 2020 and 2021, the Company issued to the
CVR holders 6,191 and 5,160 shares of common stock, respectively, upon achievement of specified revenues. No milestones were met
during the fiscal years ended June 30,
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2022 and 2023. As of June 30, 2023, up to $5.0 million of future milestone payments potentially remain. During the years ended June
30, 2023 and 2022, the Company recognized a gain of $0.6 million and $0.8 million, respectively, in the consolidated statements of
operations related to the changes in fair values of CVRs. As of June 30, 2023 and 2022, the CVRs balance was zero and $0.6 million,
respectively.
Contingent consideration. Contingent consideration represents the fair value of potential future payments in connection with
acquisitions that are contingent upon the occurrence of a particular event or events. The Company records an obligation for such
contingent payments at fair value on the acquisition date. Subsequent changes in the fair value of contingent consideration obligations
are recognized in the consolidated statements of income.
In connection with the Company’s 2020 acquisition of Innovus, the Company recognized approximately $0.2 million in
product related contingent consideration. The fair value was based on a discounted value of the future contingent payment using a 30%
discount rate based on the estimated risk that the milestones are achieved.
Prior to June 30, 2022, the Company’s contingent consideration liabilities included obligations under licensing arrangements
for Tuzistra XR. The royalty and make-whole milestone payments related to licensing agreements with TRIS Pharma, Inc. (“Tris”) for
Tuzistra XR were being accounted for as contingent consideration and revalued at each reporting period. As a result of the
discontinuation of commercializing Tuzistra (see Note 3 – Revenue from Contracts with Customers) and a settlement agreement with
Tris, the Company concluded that the product milestone payments underlying the contingent consideration liability ceased to exist. The
Company reversed the remaining contingent consideration liabilities of $8.5 million and recorded a liability of $7.6 million related to
the settlement payments payable to Tris for termination of the Tuzistra licensing agreement. The settlement payments are included in
fixed payment arrangements at their present value using the Company’s estimated borrowing rate. The Company recognized $0.9
million gain on settlement of the Tris contingent consideration liabilities in the consolidated statements of operations for the year ended
June 30, 2022.
Prior to June 30, 2022, the royalty payments related to licensing agreements with Magna Pharmaceuticals, Inc. (“Magna”) for
ZolpiMist were being accounted for as contingent consideration and revalued at each reporting period. As a result of the
discontinuation of commercializing ZolpiMist, the Company concluded that the royalty-based product milestone payments underlying
the contingent consideration liability ceased to exist. In 2022, the Company reversed the remaining contingent consideration liabilities
of $0.6 million and recorded the $50,000 payment due for termination of the Manga licensing agreements in other current liabilities.
The Company recognized a $0.6 million gain from termination of the contingent consideration liability in the consolidated statements
of operations for the year ended June 30, 2022.
During the year ended June 30, 2023 and 2022, the Company recognized a gain of $0.4 million and a loss of $0.5 million,
respectively, from the changes in fair values of contingent considerations. As of June 30, 2023 and 2022, the contingent consideration
balance was zero and $0.4 million, respectively.
Other. Consist of taxes payable and deferred cost related to our technology transfer.
10. Line of Credit
Upon closing of the Neos Acquisition in March 2021, the Company assumed obligations under the secured credit agreement
that Neos had entered into with Eclipse Business Capital LLC (f/k/a Encina Business Credit, LLC) (“Eclipse”) as agent for the lenders
(the “Eclipse Loan Agreement”). Under the Eclipse Loan Agreement, Eclipse extended up to $25.0 million in secured revolving loans
to Neos (the “Revolving Loans”), of which up to $2.5 million was available for short-term swingline loans, against 85% of eligible
accounts receivable. The Revolving Loans thereunder accrued variable interest through maturity at the one-month Secure Overnight
Financing Rate (“SOFR), plus 4.50%. The Eclipse Loan Agreement included an unused line fee of 0.50% of the average unused
portion of the maximum revolving facility amount during the immediately preceding month. Interest is payable monthly in arrears. The
original maturity date under the Eclipse Loan Agreement was May 11, 2022.
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Table of Contents
In connection with the Avenue Capital Agreement, described in Note 12 – Long Term Debt, the Company entered into a
Consent, Waiver and Second Amendment to Eclipse Loan Agreement, dated as of January 26, 2022 (together, the “Eclipse Second
Amendment”). Pursuant to the Eclipse Second Amendment, Eclipse (i) consented to Aytu and certain of its subsidiaries joining as
obligors to the Revolving Loans provided by the Eclipse Loan Agreement, (ii) consented to the Company entering into the Avenue
Capital Agreement, (iii) extended the maturity date of the Eclipse Loan Agreement to January 26, 2025, (iv) removed the requirement
for the Company to comply with the ongoing fixed charge coverage ratio financial covenant applicable to the borrowers under the
Eclipse Loan Agreement, (v) consented to the first priority lien granted by Aytu in favor of the Avenue Capital Agent, (vi) reduced the
maximum availability under the Revolving Loans from $25.0 million to $12.5 million minus a $3.5 million availability block, (vii)
increased the availability block from $1.0 million to $3.5 million, (viii) consented to the full repayment under the Deerfield Facility,
defined below, and (ix) made certain other modifications to conform to the Avenue Capital Agreement and to reflect the consummation
of the transactions thereof, in each case subject to the terms and conditions of the Eclipse Second Amendment.
The Company incurred $0.1 million in legal and other fees related to the Eclipse Second Amendment, all of which were
recorded as deferred financing costs and are being amortized on a straight-line basis over the remaining term of the Eclipse Loan
Agreement as interest expense. The unamortized cost of $0.1 million as of June 30, 2022 was included in other noncurrent assets in the
consolidated balance sheets.
On March 24, 2023, the Company and certain of its subsidiaries entered into an Amendment No. 4 (the Eclipse Amendment”)
to the Loan and Security Agreement dated October 2, 2019 (as amended by Amendment No. 1, dated March 19, 2021, Amendment No.
2, dated January 26, 2022, Amendment No. 3, dated June 1, 2022, and the Eclipse Amendment (the “Eclipse Agreement”). The Eclipse
Amendment, among other things, provided for an aggregate increase of $2.0 million to the Eclipse Lender’s commitment to make
revolving loans from time to time under the Eclipse Agreement and increased the maximum amount available under the revolving
credit facility provided under the Eclipse Agreement to $14.5 million. The ability to make borrowings and obtain advances of
revolving loans under the Eclipse Agreement remains subject to a borrowing base and reserve, and availability blockage requirements.
In the event that, for any reason, all or any portion of the Eclipse Loan Agreement is terminated prior to the scheduled
maturity date, in addition to the payment of all outstanding principal and unpaid accrued interest, the Company is required to pay a fee
equal to (i) 2.0% of the Revolving Loans commitment if such event occurs on or before January 26, 2023, (ii) 1.0% of the Revolving
Loans commitment if such event occurs after January 26, 2023 but on or before January 26, 2024, and (iii) 0.5% of the Revolving
Loans commitment if such event occurs after January 26, 2024 but on or before January 26, 2025. The Company may permanently
terminate the Eclipse Loan Agreement with at least five business days prior notice to Eclipse.
The Eclipse Loan Agreement contains customary affirmative covenants, negative covenants and events of default, as defined
in the agreement, including covenants and restrictions that, among other things, require the Company to satisfy certain capital
expenditure limitations and other financial covenants, and restrict the Company’s ability to incur liens, incur additional indebtedness,
make certain dividends and distributions with respect to equity securities, engage in mergers and acquisitions or make asset sales
without the prior written consent of Eclipse. A failure to comply with these covenants could permit Eclipse to declare the Company’s
obligations under the Eclipse Loan Agreement, together with accrued interest and fees, to be immediately due and payable, plus any
applicable additional amounts relating to a prepayment or termination, as described above. As of June 30, 2023, the Company was in
compliance with the covenants under the Eclipse Loan Agreement as amended.
The Company’s obligations under the Eclipse Loan Agreement are secured by substantially all of the Company’s assets, with
a first priority lien in favor of Eclipse on the ABL Priority Collateral, and a second priority lien in favor of Eclipse on the Term Loan
Priority Collateral, as each is defined in the Replacement Term Loan Intercreditor Agreement, as defined in the Eclipse Loan
Agreement, as amended by the Eclipse Second Amendment.
Total interest expense on the Revolving Loans, including amortization of deferred financing costs, were $0.7 million and $0.4
million for the years ended June 30, 2023 and 2022. As of June 30, 2023 and 2022, the outstanding Revolving
F-29
Table of Contents
Loans under the Eclipse Loan Agreement, as amended, were $1.6 million and $3.8 million, respectively. Unused line of credit amount
as of June 30, 2023 was $9.3 million.
11. Long-term Debt
Deerfield Debt. Upon closing of the Neos Acquisition, the Company assumed a senior secured term credit facility (the
“Deerfield Facility”) with Deerfield Private Design Fund III, L.P. and Deerfield Partners, L.P. (collectively, “Deerfield”) with an
outstanding balance of $16.6 million.
The Company evaluated and determined that the fair value of the remaining outstanding debt was $17.4 million as of the
March 19, 2021 acquisition date. Accordingly, the Company recorded a premium of $0.8 million, which was the difference between
carrying amount and the fair value of the debt and was being amortized into interest expense using the effective interest method over
the remaining term of the debt.
On January 26, 2022, the Company repaid the remaining principal outstanding in full, plus exit fees and accrued interest under
the Deerfield Facility. The Company recognized a gain of $0.2 million during the year ended June 30, 2022 related to the
extinguishment of the Deerfield Facility. Total interest expense on the facility, net of premium amortization, was $0.8 million for the
period from July 1, 2021 through full repayment on January 26, 2022.
Avenue Capital Loan. On January 26, 2022 (“Closing Date”), the Company entered into a Loan and Security Agreement (the
“Avenue Capital Agreement”) with Avenue Venture Opportunities Fund II, L.P. and Avenue Venture Opportunities Fund II, L.P. as
lenders (the “Avenue Capital Lenders”), and Avenue Capital Management II, L.P. as administrative agent (the “Avenue Capital
Agent”), collectively (“Avenue Capital”), pursuant to which the Avenue Capital Lenders provided the Company and certain of its
subsidiaries with a secured $15.0 million loan. The interest rate on the loan is the greater of the prime rate and 3.25%, plus 7.4%,
payable monthly in arrears. The maturity date of the loan is January 26, 2025. The proceeds from the Avenue Capital Agreement were
used towards the repayment of the Deerfield Facility.
Pursuant to the Avenue Capital Agreement, the Company will make interest only payments for the first 18 months following
the Closing Date (“Interest-only Period”). The Interest-only Period could be extended automatically without any action by any party
for six months provided as of the last day of the Interest-only Period then in effect, the Company received, prior to June 15, 2023, a
specified amount of net proceeds from the sale and issuance of its equity securities (“Interest-only Milestone 1”). The Interest-only
Period could further be extended automatically without any action by any party for an additional six months provided, the Company
has achieved, prior to December 31, 2023, (i) Interest-only Milestone 1 and (ii) a specified amount of trailing 12 months revenue as of
the date of determination.
In the event the Company prepays the outstanding principal prior to the maturity date, the Company will pay Avenue Capital a
fee equal to (i) 3.0% of the loan if such event occurs on or before January 26, 2023, (ii) 2.0% of the loan if such event occurs after
January 26, 2023 but on or before January 26, 2024, and (iii) 1.0% of the loan if such event occurs after January 26, 2024 but before
January 26, 2025. In addition, upon the payment in full of the obligations, the Company shall pay to Avenue Capital a fee in the
amount of $0.6 million (“Final Payment”). The Company accounted for the Final Payment as additional obligations on the debt, with
the corresponding charge being recorded as debt discount.
The Company’s obligations under Avenue Capital Agreement are secured by substantially all of the Company’s assets, with a
first priority lien in favor of the Avenue Capital Agent on the Term Loan Priority Collateral, and a second priority lien in favor of the
Avenue Capital Agent on the ABL Priority Collateral, as each is defined in the Intercreditor Agreement, as defined in the Avenue
Capital Agreement.
The Avenue Capital Agreement contains customary affirmative covenants, negative covenants and events of default, as
defined in the agreement, including covenants and restrictions that, among other things, require the Company to satisfy certain capital
expenditure limitations and other financial covenants, and restricts the Company’s ability to incur liens, incur additional indebtedness,
make certain dividends and distributions with respect to equity securities, engage in mergers and acquisitions or make asset sales
without the prior written consent of the Avenue Capital Lenders.
F-30
Table of Contents
A failure to comply with these covenants could permit the Avenue Capital Lenders to declare the Company’s obligations under the
agreement, together with accrued interest and fees, to be immediately due and payable, plus any applicable additional amounts relating
to a prepayment or termination, as described above. As of June 30, 2023, the Company was in compliance with the covenants under the
Avenue Capital Agreement.
On January 26, 2022 (“Issuance Date”), as consideration for entering into the Avenue Capital Agreement, the Company issued
warrants to the Avenue Capital Lenders to purchase shares of common stock at an exercise price equal to $24.20 per share (the
“Avenue Capital Warrants”). The Avenue Capital Warrants provided that in the event the Company were to engage in an equity
offering at a price lower than $24.20 prior to June 30, 2022, the exercise price would be adjusted to the effective price of such equity
offering and the number of shares of common stock to be issued under the Avenue Capital Warrants would be adjusted as set forth in
the agreement. The Avenue Capital Warrants were immediately exercisable and expire on January 31, 2027. At inception, the Company
accounted for the Avenue Capital Warrants as a derivative warrant liability as the number of warrants was not fixed at the Issuance
Date. The fair value of the Avenue Capital Warrants at issuance was approximately $0.6 million.
On March 7, 2022, the Company closed on an equity offering of shares of common stock and warrants, as described in Note
15 – Stockholders Equity, at an offering price of $25.00 per share. As this offering precluded the Company from pursuing any equity
financing prior to July 7, 2022 and the effective price of the March 7, 2022 offering was more than the exercise price of the Avenue
Capital Warrants, the shares of common stock issuable upon exercise of the Avenue Capital Warrants were set at an exercise price of
$24.20.
On October 25, 2022, the Company entered into an agreement with Avenue Venture Opportunities Fund, L.P (“Avenue”) to
extend the interest-only period of its existing senior secure loan facility held with Avenue. The amendment to the original loan
agreement, which was executed in January 2022, extends the interest-only period to January of 2024. In exchange for this extension of
the interest-only period, the Company and Avenue agreed to reset the exercise price of the warrants issued in conjunction with the
original loan agreement to $8.60, corresponding to the warrant exercise price associated with the Company’s August 2022 equity
financing.
On June 13, 2023, in conjunction with the Securities Purchase Agreement described in Note 16 – Warrants, the interest-only
period of the Avenue Capital Agreement was extended further upon the achievement of both the revenue-based milestone and equity
raise-based milestone stipulated in the Avenue Capital Agreement. The interest-only period now extends to the January 26, 2025
maturity date.
In addition to the debt discounts discussed above, the Company also incurred $0.4 million loan origination, legal and other
fees. The debt discount and issuance costs are being amortized over the term of the loan, using the effective interest method resulting in
an effective rate of 16.59%. Total interest expense on the Avenue Capital loan including debt discount amortization, were $2.7 million
and $0.9 million for the years ended June 30, 2023 and 2022.
Long-term debt consists of the following;
Long-term debt, due on January 26, 2025
Long-term, final payment fee
Unamortized discount and issuance costs
Financing leases, maturing through May 2024
Total debt
Less: current portion
Non-current portion of debt
F-31
June 30,
2023
(In thousands)
$
$
15,000
638
(925)
85
14,798
(85)
14,713
Table of Contents
Future principal payments of long-term debt, including financing leases, are as follows;
2024
2025
Future principal payments
Less unamortized discount and issuance costs
Less current portion
Non-current portion of debt
12. Fair Value Measurements
June 30,
(In thousands)
85
15,638
15,723
(925)
(85)
14,713
$
$
We determine the fair value of financial and non-financial assets using the fair value hierarchy, which establishes three levels
of inputs that may be used to measure fair value as follows:
Level 1: Inputs that reflect unadjusted quoted prices in active markets that are accessible to Aytu for identical assets or liabilities;
Level 2: Inputs include quoted prices for similar assets and liabilities in active or inactive markets or that are observable for the asset or
liability either directly or indirectly; and
Level 3: Unobservable inputs that are supported by little or no market activity.
The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued
liabilities, derivative warrant liabilities, contingent consideration liabilities, fixed payment arrangements, and short-term and long-term
debt. The carrying amounts of certain short-term financial instruments, including cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximate their fair value due to their short maturities. Short-term and long-term debt are
reported at their amortized costs on our consolidated balance sheets. The remaining financial instruments are reported on our
consolidated balance sheets at amounts that approximate current fair values. The Company’s policy is to recognize transfers in and/or
out of fair value hierarchy as of the date in which the event or change in circumstances caused the transfer. There were no transfers
between Level 1, Level 2 and Level 3 in the periods presented.
F-32
Table of Contents
Recurring Fair Value Measurement
The following table presents the Company’s financial assets and liabilities that were accounted for at fair value on a recurring
basis as of June 30, 2023 and 2022, by level within the fair value hierarchy:
Liabilities:
Derivative warrant liabilities
Total
Liabilities:
Contingent consideration
CVR liability
Derivative warrant liabilities
Total
Fair Value at June 30,
2023
(Level 1)
(Level 2)
(Level 3)
Fair Value Measurements at June 30, 2023
(In thousands)
$
$
6,403 $
6,403 $
— $
— $
— $
— $
6,403
6,403
Fair Value at June 30,
2022
(Level 1)
(Level 2)
(Level 3)
Fair Value Measurements at June 30, 2022
$
$
(In thousands)
— $
—
—
— $
396 $
578
1,796
2,770 $
— $
—
—
— $
396
578
1,796
2,770
Cash and cash equivalents in the consolidated balance sheets include bank deposits and money market funds, and reflect their
fair value at Level 1 in the fair value hierarchy.
Non-Recurring Fair Value Measurement
The Company’s financial assets and liabilities that were accounted for at fair value on a non-recurring basis during the years
ended June 30, 2023 and 2022, were fixed payment arrangements, goodwill and intangible assets.
Fixed payment arrangements are recognized at their amortized cost basis using market appropriate discount rates and are
accreted up to their notional face value over time. Significant assumptions used in valuing the fixed payment arrangements were
discount rates from 10.0% to 15.4%, and are classified as Level 3 inputs in the fair value hierarchy. In May 2022, the Company
recognized a fixed payment arrangement liability of $7.6 million relating to the termination of the License, Development,
Manufacturing and Supply Agreement with Tris. See Note 9 – Other Liabilities for further information on fixed payment arrangements.
Based on the Company’s impairment analyses for fiscal years 2023 and 2022, the Company recorded an impairment charge of
$5.6 million on intangible assets during the year ended June 30, 2023; and an impairment charge of $7.1 million on intangible assets
and $65.8 million on goodwill for the year ended June 30, 2022. Valuation of goodwill and intangible assets involves significant Level
3 inputs in estimating their fair values. These input assumptions included revenue growth rates, forecasted EBITDA margins, and the
selection of a discount rate. These assumptions may be affected by expectations about future market or economic conditions. See Note
7 - Goodwill and Other Intangible Assets and Note 2 - Summary of Significant Accounting Policies, for further discussion on the fair
value measurement of goodwill and other intangible assets.
F-33
Table of Contents
Summary of Level 3 Input Changes
The following table sets forth a summary of changes to those fair value measures using Level 3 inputs for the year ended June
30, 2023:
Balance as of June 30, 2022
Included in earnings
Purchases, issues, sales and settlements:
Issues
Settlements
Balance as of June 30, 2023
Level 3 Inputs
CVR
Liability
$
578
(578)
Contingent
Consideration
(In thousands)
396
$
(391)
Warrant
Liability
$
1,796
(6,391)
—
—
— $
—
(5)
— $
10,998
—
6,403
$
Changes in the fair value of contingent liabilities in subsequent periods are recorded as a gain or loss in the consolidated
statements of operations.
Significant assumptions used in valuing the CVRs were as follows:
2023
2022
June 30,
Leveraged Beta
Market risk premium
Risk-free interest rate
Discount
Company specific discount
0.84
6.35 %
5.47 %
22.00 %
10.00 %
Significant assumptions used in valuing the derivative warrant liabilities at issuance date were as follows:
Expected volatility
Equivalent term (years)
Risk-free rate
Dividend yield
Expected volatility
Equivalent term (years)
Risk-free rate
Dividend yield
F-34
0.85
6.22 %
2.86 %
20.50 %
10.00 %
August 9,
2022
89.89 %
4.11
3.09 %
0.00 %
83.26 %
5.01
3.87 %
0.00 %
June 8,
2023
Table of Contents
Significant assumptions used in valuing the derivative warrant liabilities, marked to market, were as follows:
Expected volatility
Equivalent term (years)
Risk-free rate
Dividend yield
June 30,
2023
83.42 %
3.59-4.95
4.13-4.40 %
0.00 %
Expected volatility was based primarily on historical volatility. The Company chose to use a two-year lookback on historical
volatility to avoid the effects of COVID-19 and the Innovus acquisition. The Company believes this method produced an estimate that
was representative of the Company’s expectations of future volatility over the expected term of these warrants, and will not differ
materially. If expected volatility by the active market is higher than estimated, the derivative may result in a greater fair value. The
expected life was based on the remaining contractual term of the warrants. The risk-free rate was based on the U.S. Treasury rate that
corresponded to the expected term of the warrants.
13. Income Taxes
For the fiscal year of 2023, there was no income tax benefit, primarily driven by Section 382 limitation on post-TCJA (“Tax
Cuts and Jobs Act”) net operating loss (“NOL”) utilization, further described below. As of June 30, 2023, the Company had $0.1
million deferred tax asset (DTA) included in other non-current assets, $0.1 million deferred tax liability (DTL) included in other long-
term liabilities, and $0.1 million income tax payable in accrued liabilities in the consolidated balance sheet.
Section 382 Limitation
Under the provisions of the Internal Revenue Code, substantial changes in the Company’s ownership may result in limitations
on the amount of NOL carryforwards that can be utilized in future years. NOL carryforwards are subject to examination in the year
they are utilized regardless of whether the tax year in which they are generated has been closed by statute. The amount subject to
disallowance is limited to the NOL utilized. Accordingly, the Company may be subject to examination for prior NOLs generated as
such NOLs are utilized.
As part of the Company’s Section 382 analysis, an ownership change was determined to have occurred in March 2022 at a
point in time when the Company had a net unrealized built-in gain. As such, the NOL generated during that period has been allocated
and the post-change NOL (approximately $12 million) is determined to be fully available to offset fiscal 2023 pre-change income
subject to the 80% limitation. The Company also determined that ownership change occurred in June 2023 at a time that the Company
was in a net unrealized loss position. As a result of the Section 382 analysis, the Company had estimated $0.3 million of disallowed
recognized built-in loss and had carried forward as an operating loss as of June 30, 2023.
The Company had federal net operating losses of approximately $504.0 million as of June 30, 2023, that subject to limitation
(as described above), may be available in future tax years to offset taxable income. Of the available federal net operating losses,
approximately $172.0 million can be carried forward indefinitely, while the remaining balance will begin to expire in 2024 and
completely expire in 2027. As of June 30, 2023, the Company had research and development credits of $3.0 million, which begin to
expire in 2024. The available state net operating losses, if not utilized to offset taxable income in future periods, will begin to expire in
2025 through 2039.
As of June 30, 2023, the Company had various state NOL carryforwards. The determination of the state NOL carryforwards is
dependent on apportionment percentages and state laws that can change from year to year and impact the amount of such
carryforwards.
F-35
Table of Contents
The Company notes there is diversity in practice regarding the treatment of deductions or loss carryforwards that are expected
to expire unutilized. Generally, it is not appropriate to use zero as an applicable tax rate and rather, a deferred tax asset should be
recorded at the applicable tax rate and a valuation of an equal amount would be provided. However, under certain circumstances it
may be appropriate to follow an alternative approach and use a zero rate to write off the asset against the valuation allowance, reducing
the valuation allowance and gross deferred tax assets disclosed. The Company considered both accounting viewpoints and determined
it would present its NOL carryforwards gross with a full valuation allowance and not apply a zero rate to NOL carryforwards expected
to expire unutilized.
In review of the Company’s consolidated deferred position excluding NOLs and other tax attributes, the Company is in a net
DTA position and therefore all NOLs are being fully valued and not utilized against a net DTL.
The provision for income taxes consisted of the following:
Current:
Federal
State
Total current tax expense
Deferred:
Federal
State
Total deferred tax expense
Provision for income taxes
Year Ended June 30,
2023
2022
(In thousands)
$
$
$
80
46
126
(109)
(17)
(126)
— $
—
7
7
(91)
(26)
(117)
(110)
Income tax benefit resulting from applying statutory rates in jurisdictions in which the Company is taxed (Federal and various
states) differs from the income tax provision (benefit) in the financial statements. Reconciliation of the U.S. federal statutory income
tax rates to our effective tax rate is as follows.
Tax at statutory rate
State income taxes, net of federal benefit
Permanent difference
Stock based compensation
Contingent consideration
162(m) limitation
Goodwill impairment
Transaction costs
Change in tax rate
Remeasurement of deferred taxes
Effect of phased-in tax rate
Loss on debt extinguishment and interest expense
Change in valuation allowance
Derivative income
Other
Net income tax provision (benefit)
Year Ended June 30,
2023
2022
$ (3,581)
16
—
—
(193)
—
—
—
—
—
—
—
3,641
—
117
—
$
(In thousands)
(22.30)% $ (23,159)
601
—
273
(155)
76
9,733
—
—
—
—
—
12,472
—
49
(110)
0.10 %
— %
— %
(1.20)%
— %
— %
— %
— %
— %
— %
— %
22.68 %
— %
0.72 %
0.00 % $
(21.00)%
0.55 %
— %
0.27 %
(0.14)%
0.08 %
8.83 %
— %
— %
— %
— %
— %
11.31 %
— %
0.01 %
(0.09)%
F-36
Table of Contents
Deferred income taxes arise from temporary differences in the recognition of certain items for income tax and financial
reporting purposes. The approximate tax effects of significant temporary differences which comprise the deferred tax assets and
liabilities are as follows for the respective periods:
Deferred tax assets:
Net operating loss carry forward
Accrued Rebates
Share-based compensation
Accrued expenses
R&D credits
Interest
Warrant Derivatives
Section 174 Capitalization
Inventory
Lease liability
Other
Total deferred tax assets
Less: valuation allowance
Deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Intangibles
Fixed Assets
ROU asset
Total deferred tax liabilities
Net deferred tax liabilities
Year Ended June 30,
2023
2022
(In thousands)
$
$
114,265
6,994
4,250
758
2,416
4,188
1,504
836
743
492
1,332
137,778
(136,400)
1,378
(845)
(50)
(483)
(1,378)
$
— $
114,443
5,944
2,773
817
2,423
2,975
—
—
1,177
799
1,301
132,652
(128,966)
3,686
(2,717)
(308)
(788)
(3,813)
(127)
In fiscal year 2022, the impairment of goodwill decreased net deferred tax liabilities by $0.1 million resulting in an income tax
benefit of $0.1 million. As of June 30, 2022, the Company had $0.1 million deferred tax liabilities included in other long-term
liabilities in the consolidated balance sheet. The Company had federal net operating losses of approximately $503.2 million as of June
30, 2022, subject to Section 382 limitation.
The Company has recorded a valuation allowance of $136.4 million and $129.0 million at June 30, 2023 and 2022,
respectively, to reserve its net deferred tax assets. In assessing the realizability of deferred tax assets, management considers whether it
is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, carry back
opportunities and tax planning strategies in making the assessment. The Company believes it is more likely than not, that it will realize
the benefits of these deductible differences, net of the valuation allowance provided.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. The Company has no
accrued interest related to its uncertain tax positions as they all relate to timing differences that would adjust the Company’s net
operating loss carryforward, interest expense carryover or research and development credit carryover and therefore do not require
recognition. As a result of these timing differences, at June 30, 2023 and 2022, the Company had gross unrecognized tax benefits
related to uncertain tax positions of $2.9 million and $2.8 million, respectively. Changes in unrecognized benefits in any given year are
recorded as a component of deferred tax expense.
F-37
Table of Contents
A tabular roll-forward of the Company’s gross unrecognized tax benefits is below.
Beginning balance
Increase resulting from prior period tax positions
Increase resulting from current period tax positions
Decrease resulting from current period tax positions
Ending balance
$
$
June 30,
2023
2022
(In thousands)
2,822
$
—
246
(120)
2,948
$
3,435
—
34
(647)
2,822
The change in the Company’s gross unrecognized tax benefits relates to the acquisition of Neos, whereby historic tax
positions of Neos were inherited in the acquisition.
Additionally, Neos pre-acquisition tax years are subject to the same general statute of limitations, resulting in its tax years
back to 2004 being subject to examination.
14. Stockholders’ Equity
The Company has 200.0 million shares of common stock authorized with a par value of $0.0001 per share and 50.0 million
shares of preferred stock authorized with a par value of $0.0001 per share. As of June 30, 2023 and 2022, the Company had 5,517,174
and 1,928,941 common shares issued and outstanding, respectively, and no preferred shares issued and outstanding.
Included in the common stock outstanding are 40,996 shares of unvested restricted stock issued to executives, directors, and
employees.
On June 8, 2020, the Company filed a shelf registration statement (the “2020 Shelf”), which was declared effective by the
SEC on June 17, 2020, covering up to $100.0 million of its common stock, preferred stock, debt securities, warrants, rights, and units.
On June 4, 2021, the Company entered into an agreement with an agent for the sale of up to $30.0 million of its common stock from
time to time in “at-the-market” offerings under the 2020 Shelf (the “ATM Sales Agreement”). During the year ended June 30, 2023, the
Company issued 699,929 shares of common stock under the ATM Sales Agreement, with total gross proceeds of approximately $3.0
million before deducting underwriting discounts, commissions, and other offering expenses of $0.1 million. The 2020 Shelf expired in
June 2023.
On September 28, 2021, the Company filed a shelf registration statement (the “2021 Shelf”), which was declared effective by
the SEC on October 7, 2021, covering up to $100.0 million of its common stock, preferred stock, debt securities, warrants, rights, and
units. As of June 30, 2023, approximately $82.4 million remain available under the 2021 Shelf. This availability is subject to SEC
1.B.6 limitation to the Form S-3. The 2021 Shelf expires in October 2024.
On March 7, 2022, the Company closed on an underwritten public offering utilizing the 2021 Shelf, pursuant to which, the
Company sold, (i) 151,500 shares of the Company’s common stock, (ii) pre-funded warrants to purchase up to 151,500 shares of
common stock, and (iii) common stock purchase warrants to purchase up to 333,300 shares of common stock (the “March 2022
Offering”). The shares of common stock and the pre-funded warrants were each sold in combination with corresponding common
warrants, with one common warrant to purchase 1.1 shares of common stock for each share of common stock or each pre-funded
warrant sold. The pre-funded warrants have an exercise price of $0.002 per share of common stock and were exercised in full in April
2022. The common warrants have an exercise price of $26.00 per share of common stock and are exercisable six months after the date
of issuance and have a term of five years from the date of exercisability. The Company raised gross proceeds of $7.6 million through
the March 2022 Offering before commission and other costs of $0.8 million. The pre-funded and common warrants have a combined
fair value of approximately $2.8 million at issuance, and are classified as a derivative warrant liabilities with the offset in additional
paid in capital in stockholders’ equity in the Company’s consolidated financial statements (see Note 16 - Warrants).
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On August 11, 2022, the Company closed on an underwritten public offering (the “August 2022 Offering”) utilizing the 2021
Shelf, pursuant to which it sold an aggregate of (i) 1,075,290 shares of its common stock, (ii) and, in lieu of common stock to certain
investors that so chose, pre-funded warrants to purchase 87,500 shares of its common stock, and (iii) accompanying warrants to
purchase 1,265,547 shares of its common stock. The shares of common stock and the pre-funded warrants were each sold in
combination with corresponding common warrants, with one common warrant to purchase one share of common stock for each share
of common stock or each pre-funded warrant sold. The combined public offering price for each share of common stock and
accompanying common warrant was $8.60, and the combined offering price for each pre-funded warrant and accompanying common
warrant was $8.58, which equated to the public offering price per share of the common stock and accompanying common warrant, less
the $0.001 per share exercise price of each pre-funded warrant. The pre-funded warrants were exercised in full in August 2022. The
common warrants have an exercise price of $8.60 per share of common stock and are exercisable for a period of five years from
issuance. The Company raised $10.0 million in gross proceeds through the August 2022 Offering before underwriting fees and other
expenses of $0.9 million. The pre-funded and common warrants have a combined fair value of approximately $6.0 million at issuance,
and are classified as derivative warrant liabilities with the offset in additional paid in capital in stockholders’ equity in the Company’s
consolidated financial statements (See Note 16 – Warrants).
On June 8, 2023, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) pursuant
to which the Company agreed to issue and sell an aggregate of (i) 1,743,695 shares of the Company’s common stock, (ii) pre-funded
warrants in lieu of shares to purchase 430,217 shares of common stock (the “Pre-Funded Warrants”), (iii) accompanying Tranche A
Warrants to purchase 2,173,912 shares of common stock, (iv) and accompanying Tranche B Warrants to purchase 2,173,912 shares of
common stock in a best-efforts offering (the Tranche B Warrants together with the Tranche A Warrants, the “Common Warrants”). The
Common Warrants may be exercised for either shares of common stock or pre-funded warrants to purchase common stock at a future
exercise price of $0.0001 per share in the same form as the Pre-Funded Warrant (the “Exchange Warrants”). Each Pre-Funded Warrant
will be exercisable for one share of common stock at an exercise price of $0.0001 per share. The Pre-Funded Warrants will be
immediately exercisable and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. The Common
Warrants will be immediately exercisable at a price of $1.59 per share (or $1.5899 per Exchange Warrant). The Tranche A Warrants
will expire upon the earlier of (i) five years after the date of issuance, and (ii) 30 days following the closing price of the Company’s
common stock equaling 200% of the exercise price for at least 40 consecutive trading days. The Tranche B Warrants will expire upon
the earlier of (x) five years after the date of issuance, and (y) 30 days following the Company’s achievement of consolidated trailing
twelve-month adjusted EBITDA (as defined in the Securities Purchase Agreement) of $12 million. The Company raised $4.0 million in
gross proceeds and net proceeds were approximately $3.4 million after deducting offering expenses. The warrants have a combined fair
value of approximately $5.0 million at issuance and are classified as derivative warrant liabilities. The resulting offset is recorded in
other expense along with the issuance costs of $0.6 million in the consolidated financial statement of operations (See Note 16 –
Warrants).
15. Equity Incentive Plans
2023 Equity Incentive Plan. On May 18, 2023, the Company’s stockholders approved the Aytu BioPharma, Inc. 2023 Equity
Incentive Plan (the “2023 Equity Incentive Plan”). Prior to the Company’s adoption of the 2023 Equity Incentive Plan, the Company
awarded equity incentive grants to its directors and employees under the Aytu BioScience, Inc. 2015 Stock Option and Incentive Plan
(“Aytu 2015 Plan”) and the Neos Therapeutics, Inc. 2015 Stock Options and Incentive Plan (“the Neos 2015 Plan”) (collectively the
“2015 Plans”). For the 2023 Equity Incentive Plan, the stockholders approved (a) 200,000 new shares, (b) 87,155 shares available for
grant under the 2015 Plans be “rolled over” to the 2023 Equity Incentive Plan and (c) any shares that are returned to the company under
the 2015 Plans be added to the 2023 Equity Incentive Plan. With the approval of the 2023 Equity Incentive Plan, no additional awards
will be granted under the 2015 Plans. All outstanding awards previously granted under previous stock incentive plans will remain
outstanding and subject to the terms of the plans. As of June 30, 2023 the Company had 287,155 shares that are available for grant
under the 2023 Equity Incentive Plan.
Aytu 2015 Plan. On June 1, 2015, the Company’s stockholders approved the Aytu 2015 Plan, which, as amended in July 2017,
provides for the award of stock options, stock appreciation rights, restricted stock, and other
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equity awards. On February 13, 2020, the Company’s stockholders approved an increase to 250,000 total shares of common stock in
the Aytu 2015 Plan. The shares of common stock underlying any awards that are forfeited, canceled, reacquired by Aytu prior to
vesting, satisfied without any issuance of stock, expire or are otherwise terminated (other than by exercise) under the Aytu 2015 Plan
will be added back to the shares of common stock available for issuance under the 2023 Equity Incentive Plan. Stock options granted
under this plan have contractual terms of 10 years from the grant date and a vesting period ranging from 3 to 4 years. The restricted
stock awards have a vesting period ranging from 4 to 10 years, and the restricted stock units have a vesting period of 4 years.
Neos 2015 Plan. Pursuant to the Neos Acquisition, the Company assumed 3,486 stock options and 1,786 restricted stock units
(RSUs) previously granted under Neos plan. Accordingly, on April 19, 2021, the Company registered 5,272 shares of its common stock
under the Neos 2015 Plan with the SEC. The terms and conditions of the assumed equity securities will stay the same as they were
under the previous Neos plan. The Company allocated costs of the replacement awards attributable to pre- and post-combination
service periods. The pre-combination service costs were included in the considerations transferred. The remaining costs attributable to
the post-combination service period are being recognized as stock-based compensation expense over the remaining terms of the
replacement awards. Stock options granted under this plan have contractual terms of 10 years from the grant date and a vesting period
ranging from 1 to 4 years.
Stock Options
During the fiscal year ended June 30, 2023, 49,212 stock options were granted. The weighted-average grant date fair value of
options granted during the year ended June 30, 2023 was $4.00. As of June 30, 2023, there was $0.1 million of total unrecognized
compensation cost adjusted for estimated forfeitures, related to non-vested stock options granted under the Company’s equity incentive
plan. The unrecognized compensation cost is expected to be recognized over a weighted average period of 2.2 years. No options were
granted during the fiscal year 2022.
Stock option activity is as follows:
Outstanding June 30, 2022
Granted
Forfeited/Cancelled
Expired
Outstanding at June 30, 2023
Exercisable at June 30, 2023
Number of
Options
3,899
49,212
(172)
(177)
52,762
3,022
The following table details the options outstanding at June 30, 2023 by range of exercise prices:
Range of
Exercise
Prices
$
$
4.00
123.16 - 290.00
Weighted
Average
Remaining
Contractual
Life of
Options
Outstanding
Weighted
Average
Exercise
Price
$
$
$
4.00
217.52
18.37
9.26
6.26
9.06
Number of
Options
Outstanding
49,212
3,550
52,762
F-40
$
$
Weighted
Average
Remaining
Contractual
Life in Years
7.77
9.06
6.17
Weighted
Average
Exercise Price
$
209.70
4.00
128.99
131.39
18.37
225.74
Number of
Options
Exercisable
Weighted
Average
Exercise Price
—
225.74
225.74
— $
$
$
3,022
3,022
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Restricted Stock
During the year ended June 30, 2023, as a result of the change in members of the Company’s board, the Company accelerated
unvested shares for two former members and recorded $1.5 million of non-cash equity compensation expense.
On December 19, 2022, the Company entered into a Stipulation of Compromise and Settlement (the “Stipulation”). As a part
of the terms of the Stipulation, the Company agreed to rescind 25% of the aggregate 2021 grants to board members. As a result of the
recission of the shares, the Company recorded $0.6 million in non-cash compensation during the year ended June 30, 2023.
During the year ended June 30, 2023, the Company granted a total of 6,825 shares of restricted stock, with certain accelerated
vesting conditions, to members of its management team pursuant to the Aytu 2015 Plan, of which 1/3 vest on the grant date and 1/12 on
the first day of each quarter thereafter, subject to continuing employment with the Company through each vesting date. These restricted
stock grants have a grant date fair value ranging from $3.31 per-share to $13.4 per-share.
Restricted stock activity under the Aytu 2015 Plan is as follows:
Unvested at June 30, 2022
Granted
Vested
Forfeited/Cancelled
Unvested at June 30, 2023
Number of
Shares
Weighted
Average Grant
Date Fair
Value
80,373
6,825
(42,434)
(6,689)
38,075
$
$
148.91
3.79
126.98
135.66
142.20
As of June 30, 2023, there was $3.6 million of total unrecognized compensation costs adjusted for estimated forfeitures,
related to non-vested restricted stock granted under the Company’s equity incentive plan. The unrecognized compensation cost is
expected to be recognized over a weighted average period of 2.0 years. The total fair value of restricted stock vested during the year
ended June 30, 2023 was $0.2 million.
The Company previously issued 4 shares of restricted stock outside of the Aytu 2015 Plan, which vest in July 2026. On
January 17, 2022, the Company granted 5,000 shares of restricted stock to a member of its management team outside of the Aytu 2015
Plan, of which 1/3 vest on January 17, 2023 and 1/12 each quarter thereafter, subject to continuing employment with the Company
through each vesting date until January 17, 2025. This restricted stock grant has a grant date fair value of $27.00 per-share. As of June
30, 2023, there was $0.4 million total unrecognized costs adjusted for estimated forfeitures, related to non-vested restricted stock
outside of the Company’s equity incentive plan. The unrecognized compensation cost is expected to be recognized over a weighted
average period of 1.56 years.
Restricted Stock Units
For the year ended June 30, 2023, the Company did not grant restricted stock units (“RSU”). RSU activity is as follows:
Unvested at June 30, 2022
Vested
Unvested at June 30, 2023
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Number of
Shares
Weighted
Average Grant
Date Fair
Value
8,500
(3,537)
4,963
$
$
25.88
26.26
25.62
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As of June 30, 2023, there was $0.1 million of total unrecognized compensation costs adjusted for estimated forfeitures,
related to non-vested RSUs granted under the Company’s equity incentive plans. The unrecognized compensation cost is expected to
be recognized over a weighted average period of 1.6 years. The total fair value of RSUs vested during the year ended June 30, 2023
was immaterial.
Stock-based compensation expense related to the fair value of stock options, restricted stock and RSUs was included in the
consolidated statements of operations as set forth in the below table:
Cost of sales
Research and development
Selling and marketing
General and Administrative
Total stock-based compensation expense
16. Warrants
Liability Classified Warrants
Year Ended
June 30,
2023
2022
(In thousands)
$
$
28
30
23
5,965
6,046
$
$
31
536
24
4,657
5,248
The Company accounts for liability classified warrants by recording the fair value of each instrument in its entirety and
recording the fair value of the warrant derivative liability. The fair value of liability classified derivative financial instruments was
calculated using either the Black-Scholes option pricing model or the Monte Carlo simulation valuation model, and is revalued every
quarter. Changes in the fair value of liability classified derivative financial instruments in subsequent periods are recorded as unrealized
derivative gain or loss in the consolidated statements of operations.
On June 8, 2023, the Company entered into a securities purchase agreement (the “Security Purchase Agreement”) pursuant to
which the Company agreed to issue and sell an aggregate of (i) 1,743,695 shares of the Company’s common stock, (ii) pre-funded
warrants in lieu of shares to purchase 430,217 shares of common stock (the “Pre-Funded Warrants”), (iii) accompanying Tranche A
Warrants to purchase 2,173,912 shares of common stock, (iv) and accompanying Tranche B Warrants to purchase 2,173,912 shares of
common stock in a best-efforts offering (the Tranche B Warrants together with the Tranche A Warrants, the “Common Warrants”). The
Common Warrants may be exercised for either shares of common stock or pre-funded warrants to purchase common stock at a future
exercise price of $0.0001 per share in the same form as the Pre-Funded Warrant (the “Exchange Warrants”). Each Pre-Funded Warrant
will be exercisable for one share of common stock at an exercise price of $0.0001 per share. The Pre-Funded Warrants will be
immediately exercisable and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. The Common
Warrants will be immediately exercisable at a price of $1.59 per share (or $1.5899 per Exchange Warrant). The Tranche A Warrants
will expire upon the earlier of (i) five years after the date of issuance, and (ii) 30 days following the closing price of the Company’s
common stock equaling 200% of the exercise price for at least 40 consecutive trading days. The Tranche B Warrants will expire upon
the earlier of (x) five years after the date of issuance, and (y) 30 days following the Company’s achievement of consolidated trailing
twelve-month adjusted EBITDA (as defined in the Security Purchase Agreement) of $12 million (see Note 14 – Stockholders’ Equity).
On August 11, 2022, the Company closed on the August 2022 Offering, pursuant to which, the Company issued pre-funded
warrants to purchase 87,500 shares of its common stock and common warrants to purchase 1,265,547 shares of its common stock. The
shares of common stock and the pre-funded warrants were each sold in combination with corresponding common warrants, which one
common warrant to purchase one share of common stock for each share of common stock or each pre-funded warrant sold. The pre-
funded warrants had an exercise price of $0.02 per share of common stock and were exercised in full in August 2022. The common
warrants have an exercise price of $8.60 per share of common stock and are exercisable for a period of five years from issuance. The
common warrants provide that
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if there occurs any a stock split, stock dividend stock recapitalization, or similar event (a “Stock Combination Event”), then the warrant
exercise price will be adjusted to the greater of the quotient determined by dividing (x) the sum of the VWAP of the common stock for
each of the five lowest trading days during the 20 consecutive trading day period ending immediately preceding the 16th trading day
after such Stock Combination Event, divided by (y) five; or $2.32 and the number of shares of common stock to be issued would be
adjusted proportionately as set forth in the agreement limited to a maximum of 2,325,581 shares. The common warrants also provide
that in the event the Company were to engage in an equity offering at a common stock price lower than the warrant exercise price prior
to the second anniversary of a Stock Combination Event, the exercise price would be adjusted to the greater of the effective price of
such equity offering or $2.32 (see Note 14 – Stockholders’ Equity).
In November 2022 and throughout the quarter ended December 31, 2022, the Company sold shares through its ATM Sales
Agreement. Per the warrant agreement in the August 2022 Offering, these sales qualified as an equity offering and the sales price was
less than the current exercise price of $8.60. As a result, the associated common warrants exercise price was adjusted to $3.30. On
January 6, 2023, the Company consummated a 20 to 1 reverse stock split. Pursuant to the aforementioned warrant agreement, the
Company triggered a Stock Combination Event and the warrant exercise price and number to be issued was adjusted based on the
average of each of the lowest five trading days during the twenty-day consecutive trading day period beginning on December 30, 2022.
Subsequently, as a result of the Securities Purchase Agreement in June 2023, the common warrants from the August 2022 Offering had
an adjusted exercise price of $2.32.
On March 7, 2022, the Company closed on an underwriting agreement, pursuant to which, the Company sold, (i) 151,500
shares of the Company’s common stock, (ii) pre-funded warrants to purchase up to 151,500 shares of common stock, and (iii) common
warrants to purchase up to 333,300 shares of common stock. The shares of common stock and the pre-funded warrants were each sold
in combination with corresponding common warrants, with one common warrant to purchase 1.1 shares of common stock for each
share of common stock or each pre-funded warrant sold. The pre-funded warrants have an exercise price of $0.002 per share of
common stock and were exercised in full in April 2022. The common warrants have an exercise price of $26.00 per share of common
stock and are exercisable six months after the date of issuance and have a term of five years from the date of exercisability (see Note 14
– Stockholders’ Equity).
On January 26, 2022, as consideration for entering into the Avenue Capital Agreement as described in Note 11 – Long-term
Debt, the Company issued warrants to the Avenue Capital Lenders to purchase shares of common stock at an exercise price equal to
$24.20 per share (the “Avenue Capital Warrants”). The Avenue Capital Warrants provided that in the event the Company were to
engage in an equity offering at a price lower than $24.20 prior to June 30, 2022, the exercise price would be adjusted to the effective
price of such equity offering and the number of shares of common stock to be issued under the Avenue Capital Warrants would be
adjusted as set forth in the agreement. The Avenue Capital Warrants were immediately exercisable and expire on January 31, 2027. At
inception, the Company accounted for the Avenue Capital Warrants as a derivative warrant liability as the number of warrants was not
fixed at the issuance (see Note 11 – Long-term Debt for further details).
Outstanding warrants are classified as derivative warrant liabilities in the consolidated balance sheets and are marked to
market at each reporting period (see Note 12 – Fair Value Considerations).
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A summary of warrants is as follows:
Outstanding June 30, 2022
Warrants issued
Warrants exercised
Warrant adjusted
Warrants expired
Outstanding June 30, 2023
17. Employee Benefit Plan
Number of
Warrants
434,328
6,028,331
(87,500)
181,461
(18,568)
6,538,052
Weighted
Average
Exercise Price
92.60
$
1.61
0.02
5.04
2,011.56
4.42
$
Weighted
Average
Remaining
Contractual
Life in Years
4.8
5.0
5.0
3.9
—
4.71
Subsequent to the merger with Neos, Aytu had two 401(k) plans the (“Neos Plan”) and the (“Aytu Plan’) both plans allow
participants to contribute a portion of their salary, subject to eligibility requirements and annual IRS limits. The Neos Plan matched
100% of the first 3% contributed by employees and matched 50% on the next 4% and 5% contributed by the employees. The
Company’s match for the Neos Plan was approximately $0.4 million for the year ended June 30, 2022. The Aytu Plan matched 50% of
the first 6% contributed to the plan by employees. The Company’s match for the Aytu Plan was approximately $0.2 million for both
years ended June 30, 2023 and 2022. In July 2022, the Company transferred the Neos Plan into the Aytu BioPharma Employee
Retirement Plan and in February 2023 the Company transferred the Aytu Plan into the Aytu BioPharma Employee Retirement Plan.
The Aytu BioPharma Employee Retirement Plan matches 100% of the first 3% contributed by employees and matches 50% of the next
4% and 5% contributed by the employees. The Company’s match for the Aytu BioPharma Employee Retirement Plan was
approximately $0.7 million during the year ended June 30, 2023.
18. Commitments and Contingencies
Pediatric Portfolio Fixed Payments and Product Milestone
The Company assumed two fixed, periodic payment obligations to an investor (the “Fixed Obligation”). Under the first fixed
obligation, the Company was to pay monthly payment of $0.1 million beginning November 1, 2019 through January 2021, with a
balloon payment of $15.0 million that was to be due in January 2021 (“Balloon Payment Obligation”). A second fixed obligation
requires the Company pay a minimum of $0.1 million monthly through February 2026, except for $0.2 million paid in January 2020.
On May 29, 2020, the Company entered into an Early Payment Agreement and Escrow Instruction (the “Early Payment
Agreement”) pursuant to which the Company agreed to pay $15.0 million to the investor in satisfaction of the Balloon Payment
Obligation. The parties to the Early Payment Agreement acknowledged and agreed that the remaining fixed payments other than the
Balloon Payment Obligation remained due and payable pursuant to the terms of the Agreement, and that nothing in the Early Payment
Agreement alters, amends, or waives any provisions or obligations in the Waiver or the Investor agreement other than as expressly set
forth therein. The first fixed obligation was fully paid as of January 2021.
On June 21, 2021, the Company entered into a Waiver, Release and Consent pursuant to which the Company paid $2.8 million
to the investor in satisfaction of the second fixed obligation. The company agreed to pay the remaining fixed obligation of $3.0 million
in six equal quarterly payments of $0.5 million over the next six quarters commencing September 30, 2021. The Company accounted
for the Waiver, Release and Consent as a debt and remeasured the related liabilities using a discounted cash flow model. This fixed
payment arrangement was paid in full by January 2023.
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The Company acquired a Supply and Distribution Agreement with Tris (the “Tris Karbinal Agreement”), under which the
Company is granted the exclusive right to distribute and sell the product in the United States. The initial term of the Tris Karbinal
Agreement was 20 years. The Company will pay Tris a royalty equal to 23.5% of net sales.
The Tris Karbinal Agreement also contains minimum unit sales commitments, which is based on a commercial year that spans
from August 1 through July 31, of 70,000 units annually through 2025. The Company is required to pay Tris a royalty make whole
payment of $30 for each unit under the 70,000-unit annual minimum sales commitment through 2025. The Karbinal Agreement make-
whole payment is capped at $2.1 million each year. The annual payment is due in August of each year. The Karbinal Agreement also
has multiple commercial milestone obligations that aggregate up to $3.0 million based on cumulative net sales, the first of which is
triggered at $40.0 million of net revenues.
Prior to June 30, 2022, the Company’s contingent consideration liabilities included obligations under licensing arrangements
for Tuzistra XR. The royalty and make-whole milestone payments related to licensing agreements with TRIS Pharma, Inc. (“Tris”) for
Tuzistra XR were being accounted for as contingent consideration and revalued at each reporting period. As a result of the
discontinuation of commercializing Tuzistra (see Note 3 – Revenue from Contracts with Customers) and a settlement agreement with
Tris, the Company concluded that the product milestone payments underlying the contingent consideration liability ceased to exist. The
Company reversed the remaining contingent consideration liabilities of $8.5 million and recorded a liability of $7.6 million related to
the settlement payments payable to Tris for termination of the Tuzistra licensing agreement. The settlement payments are included in
fixed payment arrangements at their present value using the Company’s estimated borrowing rate. The Company recognized $0.9
million gain on settlement of the Tris contingent consideration liabilities in the consolidated statements of operations for the year ended
June 30, 2022.
Product Contingent Liability
In February 2015, Innovus acquired Novalere, which included the rights associated with distributing FlutiCare. As part of the
Merger, Innovus is obligated to make five additional payments of $0.5 million when certain levels of FlutiCare sales are achieved. In
fiscal year 2023, the manufacturer associated with this contingent liability filed for bankruptcy. There were no payments required in
fiscal 2023.
Rumpus Earn Out Payments
On April 12, 2021, the Company acquired substantially all of the assets of Rumpus, pursuant to which the Company acquired
certain rights and other assets, including key commercial global licenses with Denovo Biopharma LLC (“Denovo”) and Johns Hopkins
University (“JHU”), relating to AR101. Upon the achievement of certain regulatory and commercial milestones, up to $67.5 million in
earn-out payments, which are payable in cash or shares of common stock, generally at the Company’s option, are payable to Rumpus.
Under the license agreement with Denovo, the Company assumed the responsibility for paying annual maintenance fees of $25,000, a
license option fee of $0.6 million payable in April 2022, and upon the achievement of certain regulatory and commercial milestones,
up to $101.7 million, and escalating royalties based on net product sales ranging in percentage from the low teens to the high teens.
Finally, under the license agreement with Johns Hopkins, the Company assumed the responsibility for paying minimum annual
royalties escalating from $5,000 to $20,000 beginning in calendar year 2022, royalties of 3.0% of net product sales, and upon the
achievement of certain regulatory and commercial milestones, up to $1.6 million.
During the year ended June 30, 2022, AR101 received Orphan Drug Designation (“ODD”) and Fast Track designation from
the FDA, resulting in total milestone payments of $4.0 million, which were paid in 109,447 shares of common stock and $2.6 million
in cash.
Operating Lease
In May 2023, the Company entered into an operating lease agreement to relocate its principal office within Denver, Colorado.
The lease has a commencement date of October 1, 2023 with an initial term of five and a half years. Undiscounted minimum monthly
rent payments average approximately $15,500 over the initial term of the lease.
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Variable lease payments will be expensed as incurred. Under the lease agreement, the Company has one five-year renewal option
through March 2034.
Legal Matters
Witmer Class-Action Securities Litigation. A shareholder derivative suit was filed on September12, 2022 in the Delaware
Chancery Court by Paul Witmer, derivatively and on behalf of all Aytu stockholders, against Armistice Capital, LLC, Armistice Capital
Master Fund, Ltd., Steve Boyd (Armistice’s Chief Investment Officer and Managing Partner, and a former director of Aytu), and
certain other current and former directors of Aytu, Joshua Disbrow, Gary Cantrell, John Donofrio, Jr., Michael Macaluso, Carl Dockery
and Ketan B. Mehta. Plaintiff amended the complaint on April 5, 2023. The Amended Complaint drops Mr. Macaluso as a defendant
and alleges that (i) Armistice facilitated the sale of assets of Cerecor in 2019 and Innovus in 2020 to Aytu in exchange for convertible
securities which it subsequently converted and sold at a profit on the open market; (ii) the Armistice defendants breached their
fiduciary duties, were unjustly enrichment and wasted corporate assets in connection with these acquisitions; (iii) the Armistice
defendants breached their fiduciary duties by engaging in as insider trading; and (iv) the other directors breached their fiduciary duties,
and aided and abetted the Armistice defendants breaches of fiduciary duties, in connection with these acquisitions. The Amended
Complaint seeks unspecified damages, equitable relief, restitution, disgorgement of profits, enhanced governance and internal
procedures, and attorneys’ fees. While we believe that this lawsuit is without merit and have vigorously defended against it, we have
agreed to settle the matter for various corporate governance modifications and the payment of plaintiff’s attorneys’ fees.
Sabby Litigation. A complaint was filed on February 22, 2023 in the Supreme Court of the State of New York by Sabby
Volatility Warrant Master Fund LTD (“Sabby”) and Walleye Opportunities Master Fund Ltd (“Walleye”), holders of certain warrants to
purchase common stock, against the Company. The complaint alleges that the Company improperly adjusted the exercise price of the
warrants and miscalculated the number of shares the warrantholders may receive, and that the Company failed to provide prompt notice
to the warrantholders of such adjustment. The complaint seeks a declaratory judgment of the warrant share calculation, that 575,000
warrant shares be due to Sabby on exercise of its warrants rather than 312,908 shares, and that 100,000 warrant shares be due to
Walleye on exercise of its warrants rather than 54,146 shares. While we believe that this lawsuit is without merit and we intend to
vigorously defend against it, we are not able to predict at this time whether this proceeding will have a material impact on our financial
condition or results of operations.
Stein Litigation. Cielo Stein (“Stein”), a former sales specialist, filed a complaint on February 1, 2023 in Jefferson County
Circuit Court in Kentucky against the Company and its wholly-owned subsidiary Neos Therapeutics. The complaint alleges that Aytu
retaliated against Stein in violation of the Kentucky Civil Rights Act after she opposed what she contends was unwelcome behavior by
her supervisor. The complaint also alleges that the Company’s response to Stein’s subsequent complaint to human resources was
inadequate. The complaint seeks an award of unspecified compensatory damages, emotional-distress damages, and attorneys’ fees and
costs. The Company removed the lawsuit to the United States District Court for the Western District of Kentucky and filed a motion to
dismiss the complaint, which is pending. Due to the early stage of litigation, we are not able to predict at this time whether this
proceeding will have a material impact on our financial condition or results of operations, and intend to vigorously defend this case in
the event it is not dismissed.
19. License Agreements
Healight
In April 2020, the Company entered into a licensing agreement with Cedars-Sinai Medical Center to secure worldwide rights
to various potential esophageal and nasopharyngeal uses of Healight, an investigational medical device platform technology. The
agreement with Cedars-Sinai grants the Company a license to all patent and development related technology rights for the intra-
corporeal therapeutic use of ultraviolet light in the field of endotracheal and nasopharyngeal applications. The term of the agreement is
on a country-by-country basis and will expire on the latest of the date upon which the last to expire valid claim shall expire, ten years
after the first bona fide commercial sale of such licensed product in a country, or the expiration of any market exclusivity period
granted by a regulatory agency.
F-46
Table of Contents
Pursuant to the terms of the agreement, the Company paid an initial $0.3 million license fee and approximately $0.1 million in earlier
patent prosecution fees.
As a result of the Company’s focus on the revenue growth of its commercial business, the Company had terminated the
licensing agreement with Cedars-Sinai Medical Center, effective May 9, 2023.
NeuRx
In October 2018, Neos entered into an Exclusive License Agreement (“NeuRx License”) with NeuRx Pharmaceuticals LLC
(“NeuRx”), pursuant to which NeuRx granted Neos an exclusive, worldwide, royalty-bearing license to research, develop,
manufacture, and commercialize certain pharmaceutical products containing NeuRx’s proprietary compound designated as NRX-101,
referred to by Neos as NT0502. NT0502 is a new chemical entity that is being developed by Neos for the treatment of sialorrhea,
which is excessive salivation or drooling. The Company may be required to make certain development and milestone payments and
royalties based on annual net sales, as defined in the NeuRx License. Royalties are to be paid on a country-by-country and licensed
product-by-licensed product basis, during the period of time beginning on the first commercial sale of such licensed product in such
country and continuing until the later of: (i) the expiration of the last-to-expire valid claim in any licensed patent in such country that
covers such licensed product in such country; and/or (ii) expiration of regulatory exclusivity of such licensed product in such country.
In April 2023, the Company returned the NT0502 rights to NeuRx in exchange for, and to receive a royalty and potential
milestone payments on amounts received for future revenue generated by NeuRx (or a future licensee) on NT0502.
Teva
On December 21, 2018, Neos and Teva Pharmaceuticals USA, Inc. (“Teva”) entered into an agreement granting Teva a non-
exclusive license to certain patents owned by Neos by which Teva has the right to manufacture and market its generic version of
Cotempla XR-ODT under an Abbreviated New Drug Application (“ANDA”) filed by Teva beginning on July 1, 2026, or earlier under
certain circumstances.
Actavis
On October 17, 2017, Neos entered into an agreement granting Actavis a non-exclusive license to certain patents owned by
Neos by which Actavis has the right to manufacture and market its generic version of Adzenys XR-ODT under its ANDA beginning on
September 1, 2025, or earlier under certain circumstances.
Shire
In July 2014, Neos entered into a Settlement Agreement and an associated License Agreement (the “2014 License
Agreement”) with Shire LLC (“Shire”) for a non-exclusive license to certain patents for certain activities with respect to Neos’ New
Drug Application (the “NDA”) No. 204326 for an extended-release orally disintegrating amphetamine polistirex tablet. In accordance
with the terms of the 2014 License Agreement, following the receipt of the approval from the FDA for Adzenys XR-ODT, Neos paid a
lump sum, non-refundable license fee of an amount less than $1.0 million in February 2016. Neos is paying a single digit royalty on net
sales of Adzenys XR-ODT during the life of the patents. The settlement agreement expires May of 2023.
In March 2017, Neos entered into a License Agreement (the “2017 License Agreement”) with Shire, pursuant to which Shire
granted Neos a non-exclusive license to certain patents owned by Shire for certain activities with respect to Neos’ NDA No. 204325 for
an extended-release amphetamine oral suspension. In accordance with the terms of the 2017 License Agreement, following the receipt
of the approval from the FDA for Adzenys ER, Neos paid an up-front, non-refundable license fee of an amount less than $1.0 million
in October 2017. Neos is paying a single digit royalty on net sales of Adzenys ER during the life of the patents. Adzenys ER was
discontinued as of September 30, 2021.
F-47
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The royalties are recorded as cost of sales in the same period as the net sales upon which they are calculated.
Additionally, each of the 2014 and 2017 License Agreements contains a covenant from Shire not to file a patent infringement
suit against Neos alleging that Adzenys XR-ODT or Adzenys ER, respectively, infringes the Shire patents.
20. Segment Information
The Company’s chief operating decision maker (“CODM”), who is the Company’s Chief Executive Officer, allocates
resources and assesses performance based on financial information of the Company. The CODM reviews financial information
presented for each reportable segment for purposes of making operating decisions and assessing financial performance.
The Company manages and aggregates its operational and financial information in accordance with two reportable segments:
Rx and Consumer Health. The Rx Segment consists of the Company’s prescription products. The Consumer Health Segment contains
the Company’s consumer healthcare products. For purposes of determining operating income or loss by segment, the Company
allocates common expenses such as corporate administration, executive and board compensation, insurance, and fees associated with
being a publicly traded entity, among others, to the Rx Segment. The Rx Segment also includes pipeline research and development.
The CODM does not regularly review asset information by segment, accordingly, asset information is not provided by segment.
During the year ended June 30, 2023, the Rx Segment recognized an impairment loss of $2.6 million due to ceasing active
development of the NT0502 product candidate as a result of the Company’s increased focus on commercial efforts. The Consumer
Health Segment recognized an impairment loss of $3.0 million from intangible assets (see Note 7 — Goodwill and Other Intangible
Assets) and an inventory write-off of $2.1 million due to the discontinuance of its products.
During the year ended June 30, 2022, the Rx Segment recognized a total impairment loss of $64.6 million related to
impairment of goodwill and write-down of assets due to the discontinuance of five non-core products, the Consumer Health Segment
recognized $10.8 million of goodwill and intangible assets write downs (see Note 7 — Goodwill and Other Intangible Assets).
Select financial information for these segments is as follows:
(In thousands)
Year Ended June 30, 2023:
Product revenue, net
Loss from operations
Depreciation and amortization
Impairment and write-off expense
Stock based compensation
Year Ended June 30, 2022:
Product revenue, net
Loss from operations
Depreciation and amortization
Impairment expense
Stock based compensation
Rx
Consumer Health
Consolidated
73,799
(7,358)
6,271
2,730
5,722
61,121
(92,441)
7,821
64,649
5,190
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
F-48
33,600
(9,707)
1,116
5,094
324
35,548
(17,465)
1,557
10,809
58
$
$
$
$
$
$
$
$
$
$
107,399
(17,065)
7,387
7,824
6,046
96,669
(109,906)
9,378
75,458
5,248
Table of Contents
21. Subsequent Events
Distribution and Supply Agreement
In July 2023, the Company entered into an exclusive collaboration, distribution and supply agreement with a privately-owned
pharmaceutical company for Adzenys XR-ODT and Cotempla XR-ODT product lines. The pharmaceutical company will seek local
regulatory approvals and marketing authorizations for both Adzenys XR-ODT and Cotempla XR-ODT; and will focus on distributing
and selling these products for patients in Israel and the Palestinian Authority. The Company will commit to product supply based on
forecasts and provide product training. Due to the nascency of the collaboration, estimates of its financial effect cannot be made. This
agreement represents the Company’s first international commercial agreement for Adzenys and Cotempla.
F-49
Exhibit 10.45
AMENDED AND RE-STATED EMPLOYMENT AGREEMENT
This Amended and Re-Stated Employment Agreement (the "Agreement"), is effective as of February 13, 2023 (the
“Effective Date”), between Aytu BioPharma, Inc., a Delaware corporation headquartered at 373 Inverness Parkway, Suite
206, Englewood, CO 80112 USA, hereinafter referred to as the "Company"), and Joshua R. Disbrow (“Employee").
RECITALS
WHEREAS, the Company is a duly organized Delaware corporation, with its principal place of business within the
State of Colorado, and is in the business of developing and marketing pharmaceutical products; and
WHEREAS, the Company and Employee originally entered into an Employment Agreement on April 16, 2019, which
was amended on July 1, 2020, and again on April 7, 2021; and
WHEREAS, the Company and Employee desire to amend and re-state the Employment Agreement; and
WHEREAS, the Company desires assurance of the continued association and services of the Employee in order to
continue to retain the Employee’s experience, skills, abilities, background and knowledge, and is willing to continue to
engage the Employee’s services on the terms and conditions set forth in this Agreement; and
WHEREAS, Employee desires to be in the continued employ of the Company, and is willing to accept such continued
employment on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, the parties hereto agree to the terms and conditions of this Agreement as follows:
1. Employment Term. The Company hereby agrees to continue to employ Employee and Employee hereby accepts such
continued employment with the Company for a period of 12 months beginning on the Effective Date (the “Continued Term”).
Upon the expiration of the Continued Term, the Agreement shall automatically renew for successive terms of 12 months
each (with each such successive term constituting a “Renewal Term,” together with the Continued Term, the “Term”), unless
terminated in accordance with the provisions of the Agreement. The termination of Employee's employment under the
Agreement shall end the Term but shall not terminate Employee’s or the Company’s other obligations that are intended to
survive the termination of this Agreement (including without limitation, the payments under Section 7 and 8 and Employee’s
obligations under Section 9).
2. Position and Duties. During the Term, Employee shall serve as Chairman of the Board (Chairman) and Chief Executive
Officer (CEO) of the Company, and perform such duties as are consistent with this position. The Employee shall report to
the Board of Directors of the Company. During the Term, Employee shall also hold such additional positions and titles as
the Board of Directors of the Company (the "Board") may determine from time to time. During the Term, Employee shall
devote as much time as is necessary to satisfactorily perform his duties as CEO of the Company. Employee may engage in
any civic and not-for-profit activities so long as such activities do not materially interfere with the performance of his duties
hereunder or present a conflict of interest with the Company During the Term of this Agreement, Employee agrees not to
acquire, assume or participate in, directly or indirectly, any position, investment or interest known by the Employee to be
adverse or antagonistic to the Company, its business or prospects, its financial position, or otherwise or in any company,
person or entity that is, directly or indirectly, in competition with the business of the Company or any of its affiliates. This
1
provision shall encompass any advisory boards of which Employee is or becomes a member of during the term hereof.
Employee shall provide written disclosure to the Compensation Committee of the Company’s Board of Directors as to all
advisory boards on which Employee sits, and will provide the Company with written notice within 10 business days of
Employee agreeing to sit on any additional advisory boards. On termination of Employee’s employment, regardless of the
reason for such termination, Employee shall immediately (and with contemporaneous effect) resign any directorships,
offices or other positions that Employee may hold in the Company or any affiliate, unless otherwise agreed in writing by the
parties.
3. Compensation.
(a) Base Salary. The Company shall pay Employee a base salary of $590,000 per annum, payable at least
monthly on the Company's regular pay cycle for professional employees (the “Base Salary”). Except as specifically
otherwise provided herein, the Base Salary may be increased only by recommendation of the Compensation Committee of
the Board and ratified by the Compensation Committee or a majority of the independent members of the Board.
(b) Annual Review. The Base Salary shall be reviewed at the end of each fiscal year (the first such review to occur
at the end of fiscal year 2020).
(c) Equity Compensation. Employee acknowledges that, pursuant to his original Employment Agreement dated
April 16, 2019, the First Amendment to the Employment Agreement dated July 1, 2020, and the Second Amendment to the
Employment Agreement dated April 7, 2021, Employee received equity and restricted shares, as well as a one-time cash
payment in lieu of additional equity. Employee continues to participate in the Stock Incentive Plan and his Awards under the
Stock Incentive Plan are governed by the terms thereof.
(d) Other and Additional Compensation. Subsections (a) and (c) above establish Employee’s compensation
during the Term which shall not preclude the Board from awarding Employee a higher salary or any bonuses or stock
options, restricted stock or other forms of additional equity awards in the discretion of the Board during the Term at any time.
The Employee shall be eligible for an annual discretionary bonus (hereinafter referred to as the “Bonus”) with a target
amount of sixty percent (60%) of the Base Salary, subject to standard deductions and withholdings, based on the
Compensation Committee’s determination, in good faith, and based upon the Employee’s individual achievement and
company performance objectives as set by the Board or the Compensation Committee, of whether the Employee has met
such performance milestones as are established for the Employee by the Board or the Compensation Committee, in good
faith, in consultation with the Employee (hereinafter referred to as the “Performance Milestones”). The Performance
Milestones will be based on certain factors including, but not limited to, the Employee’s performance and the Company’s
financial and operational performance. The Employee’s Bonus target will be reviewed annually and may be adjusted by the
Board or the Compensation Committee in its discretion, provided however, that the Bonus target may only be reduced upon
Employee’s written consent. The Employee must be employed on the date the Bonus is awarded to be eligible for the
Bonus, subject to the termination provisions hereof. Bonuses shall be paid during the calendar quarter following the
calendar quarter for which such Bonus was earned when Performance Milestones are met during a calendar quarter. Fourth
quarter Bonuses and Bonuses calculated on the basis of partial Performance Milestone satisfaction shall be paid within 75
days of fiscal year-end.
4. Employee Benefits. During the Term, Employee shall be entitled to participate at the same level as other senior
executive officers of the Company in any group insurance, hospitalization, medical, health
2
and accident, disability, fringe benefit and tax-qualified retirement plans or programs of the Company now existing or
hereafter established to the extent that he is eligible under the general provisions thereof. For the term of this Agreement,
Employee shall be entitled to paid time off at the rate of (5) weeks per annum. In accordance with Company policy, unused
paid time off may not be carried over from year to year.
5. Expenses. The Company shall reimburse Employee for actual, reasonable out-of-pocket expenses incurred by him in
the performance of his services for the Company upon the receipt of appropriate documentation of such expenses which
shall be submitted in such form, and with such supporting documentation, as called for or required by Company policy.
6. Termination.
(a) General. The Term shall end immediately upon Employee's death. Employee’s employment may also be
terminated by the Company with or without Cause or as a result of Employee’s Disability, as defined in Section 7 or by
Employee with or without Good Reason (as such terms are defined below).
(b) Notice of Termination. Either party shall give written notice of termination to the other party.
(c) Notification of New Employer. In the event that Employee leaves the employ of the Company, Employee
grants consent to notification by the Company to Employee’s new employer about his rights and obligations under this
Agreement and the PIA (hereinafter defined).
7. Severance Benefits.
(a) Cause Defined. “Cause” means (i) willful malfeasance or willful misconduct by Employee in connection with his
employment; (ii) Employee’s conviction of, or entry of a plea of guilty to, or entry of a plea of nolo contendere with respect to,
any crime other than a traffic violation or infraction which is a misdemeanor; (iii) Employee’s willful and deliberate violation of
a Company policy, (iv) Employee's unintended but material breach of any written policy applicable to all employees adopted
by the Company which is not cured to the reasonable satisfaction of the Board of Directors within thirty (30) business days
after notice thereof; (v) the Employee’s unauthorized use or disclosure of any proprietary information or trade secrets of the
Company or any other party as to which the Employee owes an obligation of nondisclosure as a result of the Employee’s
relationship with the Company, or (vi) the Employee’s willful and deliberate breach of his obligations under this Agreement..
(b) Disability Defined. "Disability" shall mean (i) Employee's incapacity due to a physical or mental condition and,
if reasonable accommodation is required by law, after any reasonable accommodation, that results in Employee being
substantially unable to perform his duties hereunder for six consecutive months (or for six months out of any nine month
period) or (ii) a qualified independent physician mutually acceptable to the Company and Employee determines that
Employee is incapacitated due to a physical or mental condition and, if reasonable accommodation is required by law, after
any reasonable accommodation so as to be unable to regularly perform the duties of his position and such condition is
expected to be of a permanent or near-permanent duration. Until such time as Employee is terminated for Disability under
this paragraph (b), Employee shall continue to receive his Base Salary hereunder, provided that if the Company provides
Employee with disability insurance coverage, payments of Employee's Base Salary shall be reduced by the amount of any
disability insurance payments received by Employee due to such coverage. The Company shall give Employee written
notice of termination due to Disability which shall take effect sixty (60) days after the
3
date it is sent to Employee unless Employee shall have returned to the performance of his duties hereunder during such
sixty (60) day period (whereupon such notice shall become void). In the event that the Company terminates Employee’s
employment as a result of his Disability, Employee shall be entitled to the same benefits as if his employment had been
terminated by the Company without Cause.
(c) Good Reason Defined. For purposes of this Agreement. “Good Reason” shall mean: : (i) there is a material
reduction of the level of Employee’s compensation (excluding any bonuses) (except where there is a general reduction
applicable to the management team generally, provided, however, that in no case may the Base Salary be reduced below
the amount stated in Section 3(a)), (ii) there is a material reduction in Employee’s overall responsibilities or authority, or
scope of duties (it being understood that the occurrence of a Change in Control shall not, by itself, necessarily constitute a
reduction in Employee’s responsibilities or authority); or (iii) without Employee’s written consent, a material change in the
principal geographic location at which Employee must perform his services (it being understood that the relocation of
Employee to a facility or a location within forty (40) miles of the State Capitol Building in Denver, Colorado shall not be
deemed material for purposes of this Agreement). No event shall be deemed to be “Good Reason” if the Company has
cured the event (if susceptible to cure) within 30 days of receipt of written notice from Employee specifying the event or
events which, absent cure, would constitute “Good Cause.”
(d) Accrued Compensation Defined. Accrued Compensation shall mean an amount which shall include all
amounts earned or accrued by Employee through the date of termination of this Agreement but not paid as of such date,
including (i) Base Salary, (ii) reimbursement for business expenses incurred by the Employee on behalf of the Company,
pursuant to the Company’s expense reimbursement policy in effect at such time, (iii) any expense allowance pursuant to
Company policy, (iv) accrued but unused vacation pay per Company policy, and (v) bonuses and incentive compensation
earned and awarded prior to the date of termination. Accrued Compensation shall be paid on the first regular pay date after
the date of termination (or earlier, if required by applicable law).
(e) Termination.
(i) Cause; Without Good Reason; Death; Disability. If the Company ends the Term for Cause, if Employee
resigns as an employee of the Company for reasons other than an event of Good Reason, the Employee dies or
Disability occurs , then the Company shall pay to Employee the Accrued Compensation but shall have no obligation
to pay Employee any amount, whether for salary, benefits, bonuses, or other compensation or expense
reimbursements of any kind, accruing after the end of the Term, and such rights shall, except as otherwise required
by law or pursuant to the applicable award agreement or plan, be forfeited immediately upon the end of the Term.
For the sake of clarity, any stock options, restricted stock or other equity compensation shall, to the extent vested on
the date of resignation without Good Reason, the date the Company ends the Term for Cause, or the date of
Employee’s death, remain outstanding and exercisable to the extent provided in the applicable award agreement or
plan, by the Employee or his personal representative or executor. For the avoidance of doubt, Employee shall
receive the payments specified in this Section 7(e)(i) and shall not be entitled to any other compensation that would
have been made for the remainder of a Continued Term or Renewal Term or payments under any other severance
plan. For example, if the Employment Period has been automatically renewed for twelve (12) months starting April 7,
2025 and Employee resigns as an employee of the Company for reasons other than an event of Good Reason on
July 7, 2025, Employee shall not be entitled to receive payments for the period of July 7, 2025 through April 7, 2026;
Employee will receive only the payments noted in this Section 7(e)(i). In no case shall Employee be entitled to
payment for any period Employee
4
is not performing services under this Agreement beyond the payments provided for under this Section 7(e)(i).
(ii) Without Cause; Good Reason. In the event that the Company terminates Employee’s employment
hereunder without Cause, or the Employee terminates his employment with Good Reason, he shall be entitled to the
Accrued Compensation and, subject to Section 21 and 22 below,
(A) A lump sum payment equal to two and one half (2.5) times his Base Salary in effect at the date of
termination, less applicable withholding.
(B) Continued participation (via state or federal insurance continuation laws such as COBRA, to the extent
available) in the health and welfare plans (or comparable plans, if continued participation in the Company’s
plans is not available) provided by the Company to Employee at the time of termination for a period of two
years from the date of termination or, if earlier, until he is eligible for comparable coverage with a subsequent
employer. The Company agrees to reimburse the payments Employee makes for such coverage, whether
via continuation or separate comparable policy. Premium reimbursements shall be made by the Company to
Employee consistent with the Company’s normal expense reimbursement policy, provided that Employee
submits documentation to the Company substantiating his payments for insurance coverage. Employee shall
give the Company prompt notice of his eligibility for comparable coverage.
(C) Any severance payments and/or other separation benefits contemplated by this Agreement are
conditional on Employee: (i) continuing to comply with the terms of this Agreement and the PIA (as defined
herein); (ii) delivering prior to or contemporaneously with any such severance payments, and not revoking, (x)
a customary general release of claims relating to Employee’s employment and/or this Agreement against the
Company or its successor, its subsidiaries and their respective directors, officers and stockholders and (y) a
customary affirmation of Employee’s continuing obligations hereunder and under the PIA.
(D) In the event of a termination Without Cause or Change in Control, Employee shall be paid a pro-rata
amount of the target bonus determined by the percentage of time Employee was employed during the fiscal
year.
(E) For the avoidance of doubt, Employee shall receive the payments specified in this Section 7(e)(ii) and
shall not be entitled to any other compensation that would have been made for the remainder of a Continued
Term or Renewal Term or payments under any other severance plan. For example, if the Employment Period
has been automatically renewed for twelve (12) months starting April 7, 2025 and Employee resigns as an
employee of the Company for an event of Good Reason on July 7, 2025, Employee shall not be entitled to
receive payments for the period of July 7, 2025 through April 7, 2026; Employee will receive only the
payments noted in this Section 7(e)(ii). In no case shall Employee be entitled to payment for any period
Employee is not performing services under this Agreement beyond the payments provided for under this
Section 7(e)(ii).
Unless otherwise required by law, no severance payments and/or benefits under this Agreement will be paid and/or
provided until after the expiration of any relevant revocation period. Subject to the
5
effectiveness of the release, the severance payments shall be paid on the first payroll date that begins 30 days after
Employee’s termination of employment.
8. Change in Control Payments. The provisions of this paragraph 8 set forth the terms of an agreement reached between
Employee and the Company regarding Employee's rights and obligations upon the occurrence of a "Change in Control" (as
hereinafter defined) of the Company during the Term. These provisions are intended to assure and encourage in advance
Employee's continued attention and dedication to his assigned duties and his objectivity during the pendency and after the
occurrence of any such Change in Control. The following provisions shall apply in the event of a Change in Control, in
addition to any payment or benefit that may be required pursuant to Section 7.
(a) Equity. If within 12 months after a Change in Control, Employee’s employment is terminated by the Company
without Cause or by the Employee for Good Reason, all stock options, restricted stock and other stock-based grants to
Employee by the Company or that may be granted in the future shall, irrespective of any provisions of his award
agreements, immediately and irrevocably vest and become exercisable and any restrictions thereon shall lapse. All stock
options shall remain exercisable from the date of such employment termination until the expiration of the term of such stock
options.
(b) Definitions. For purposes of this paragraph 8, the following terms shall have the following meanings:
“Change in Control,” also referred to as a “Sale Event” in the Company’s Restricted Stock Award Agreement, shall
mean any of the following:
(i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or
entity; or
(ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting
power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting
power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if
applicable) immediately upon completion of such transaction; or
(iii) the sale of all of the Stock of the Company to an unrelated person, entity or group thereof acting in concert; or
(iv) any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such
transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity
immediately upon completion of the transaction other than as a result of a the acquisition of securities directly from
the Company.
9. Proprietary Information and Inventions Agreement. As a condition of Employee’s employment with the Company,
Employee agrees to sign the Company’s standard form of Proprietary Information and Inventions Agreement (“PIA”).
10. Successors and Assigns.
(a) Employee. This Agreement is a personal contract, and the rights and interests that the Agreement accords to
Employee may not be sold, transferred, assigned, pledged, encumbered, or hypothecated by him. All rights and benefits of
Employee shall be for the sole personal benefit of
6
Employee, and no other person shall acquire any right, title or interest under this Agreement by reason of any sale,
assignment, transfer, claim or judgment or bankruptcy proceedings against Employee. Except as so provided, this
Agreement shall inure to the benefit of and be binding upon Employee and his personal representatives, distributees and
legatees.
(b) The Company. This Agreement shall be binding upon the Company and inure to the benefit of the Company
and of its successors and assigns, including (but not limited to) any Company that may acquire all or substantially all of the
Company's assets or business or into or with which the Company may be consolidated or merged. Any such successor of
the Company will be deemed substituted for the Company under the terms of this Agreement for all purposes. For this
purpose, “successor” means any person, firm, corporation or other business entity which at any time, whether by purchase,
merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company.
11. Entire Agreement. This Agreement (together with the equity award agreements referred to herein) represents the
entire agreement between the parties concerning Employee's employment with the Company and supersedes all prior
negotiations, discussions, understanding and agreements, whether written or oral, between Employee and the Company
relating to the subject matter of this Agreement.
12. Amendment or Modification, Waiver. No provision of this Agreement may be amended or waived unless such
amendment or waiver is agreed to in writing signed by Employee and by a duly authorized officer of the Company. No
waiver by any party to this Agreement or any breach by another party of any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time,
any prior time or any subsequent time.
13. Notices. Any notice to be given under this Agreement shall be in writing and delivered personally or sent by overnight
courier or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the
address indicated below, or to such other address of which such party subsequently may give notice in writing:
If to Employee: 3631 East 7th Avenue Parkway
Denver, CO 80206
If to the Company:
Aytu BioPharma, Inc.
373 Inverness Parkway
Suite 206
Englewood, Colorado 80112
Any notice delivered personally or by overnight courier shall be deemed given on the date delivered and any notice sent by
registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date mailed.
14. Severability. If any provision of this Agreement or the application of any such provision to any party or circumstances
shall be determined by any court of competent jurisdiction or arbitrator acting pursuant to Section 19 below to be invalid and
unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or
circumstances other than those to which it is so determined to be invalid and unenforceable shall not be affected, and each
provision of
7
this Agreement shall be validated and shall be enforced to the fullest extent permitted by law. If for any reason any
provision of this Agreement containing restrictions is held to cover an area or to be for a length of time that is unreasonable
or in any other way is construed to be too broad or to any extent invalid, such provision shall not be determined to be
entirely null, void and of no effect; instead, it is the intention and desire of both the Company and Employee that, to the
extent that the provision is or would be valid or enforceable under applicable law, any court of competent jurisdiction or
arbitrator acting pursuant to Section 19 below shall construe and interpret or reform this Agreement to provide for a
restriction having the maximum enforceable area, time period and such other constraints or conditions (although not greater
than those contained currently contained in this Agreement) as shall be valid and enforceable under the applicable law.
15. Survivorship. The respective rights and obligations of the parties hereunder shall survive any termination of this
Agreement to the extent necessary to the intended preservation of such rights and obligations.
16. Headings. All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience
of reference, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph.
17. Withholding Taxes. All salary, benefits, reimbursements and any other payments to Employee under this Agreement
shall be subject to all applicable payroll and withholding taxes and deductions required by any law, rule or regulation of and
federal, state or local authority.
18. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an
original but all of which together constitute one and same instrument. The parties agree that facsimile signatures shall have
the same force and effect as original signatures.
19. Applicable Law; Arbitration. The validity, interpretation and enforcement of this Agreement and any amendments or
modifications hereto shall be governed by the laws of the State of Colorado, as applied to a contract executed within and to
be performed in such State. The parties agree that any disputes shall be definitively resolved by binding arbitration before
the American Arbitration Association in Denver, Colorado in accordance with its rules of arbitration procedure then in effect.
The parties consent to the jurisdiction to the federal courts of the District of Colorado or, if there shall be no jurisdiction, to
the state courts located in Arapahoe County, Colorado, to enforce any arbitration award rendered with respect thereto.
Each party shall choose one arbitrator and the two arbitrators shall choose a third arbitrator. All costs and fees related to
such arbitration (and judicial enforcement proceedings, if any) shall be borne by the Company unless Employee’s claim is
deemed to be frivolous by the arbitrator(s) or judge.
20. Legal Fees. The Company shall pay the reasonable expenses of Employee’s counsel in negotiating this Agreement.
21. Section 409A.
(a) Anything in this Agreement to the contrary notwithstanding, if at the time of Employee’s separation from service
within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), the Company
determines that Employee is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, then to the
extent any payment or benefit that Employee becomes entitled to under this Agreement on account of Employee’s
separation from service would be considered deferred compensation otherwise subject to the 20 percent additional tax
imposed pursuant to Section 409A(a) of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the
8
Code, such payment shall not be payable and such benefit shall not be provided until the date that is the earlier of (A) six
months and one day after Employee’s separation from service, or (B) Employee’s death. If any such delayed cash payment
is otherwise payable on an installment basis, the first payment shall include a catch-up payment covering amounts that
would otherwise have been paid during the six-month period but for the application of this provision, and the balance of the
installments shall be payable in accordance with their original schedule.
(b) All in-kind benefits provided and expenses eligible for reimbursement under this Agreement shall be provided by
the Company or incurred by Employee during the time periods set forth in this Agreement. All reimbursements shall be paid
as soon as administratively practicable, but in no event shall any reimbursement be paid after the last day of the taxable
year following the taxable year in which the expense was incurred. The amount of in-kind benefits provided or reimbursable
expenses incurred in one taxable year shall not affect the in-kind benefits to be provided or the expenses eligible for
reimbursement in any other taxable year (except for any lifetime or other aggregate limitation applicable to medical
expenses). Such right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.
(c) To the extent that any payment or benefit described in this Agreement constitutes “non-qualified deferred
compensation” under Section 409A of the Code, and to the extent that such payment or benefit is payable upon Employee’s
termination of employment, then such payments or benefits shall be payable only upon Employee’s “separation from
service.” The determination of whether and when a separation from service has occurred shall be made in accordance with
the presumptions set forth in Treasury Regulation Section 1.409A 1(h).
(d) The parties intend that this Agreement will be administered in accordance with Section 409A of the Code. To the
extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code, the provision
shall be read in such a manner so that all payments hereunder comply with Section 409A of the Code. Each payment
pursuant to this Agreement is intended to constitute a separate payment for purposes of Treasury Regulation Section
1.409A 2(b)(2). The parties agree that this Agreement may be amended, as reasonably requested by either party, and as
may be necessary to fully comply with Section 409A of the Code and all related rules and regulations in order to preserve
the payments and benefits provided hereunder without additional cost to either party.
22. Application of Internal Revenue Code Section 280G. If any payment or benefit Employee would receive pursuant to
a Change in Control from the Company or otherwise (“Payment”) would (i) constitute a “parachute payment” within the
meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of
the Code (the “Excise Tax”), then such Payment shall be equal to the Reduced Amount. The “Reduced Amount” shall be
either (x) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax or
(y) the largest portion, up to and including the total, of the Payment, whichever amount, after taking into account all
applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest
applicable marginal rate), results in Employee’s receipt, on an after-tax basis, of the greater economic benefit
notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or
benefits constituting “parachute payments” is necessary so that the Payment equals the Reduced Amount, reduction shall
occur in the manner that results in the greatest economic benefit for Employee. If more than one method of reduction will
result in the same economic benefit, the items so reduced will be reduced pro rata.
In the event it is subsequently determined by the Internal Revenue Service that some portion of the Reduced Amount as
determined pursuant to clause (x) in the preceding paragraph is subject to the
9
Excise Tax, Employee agrees to promptly return to the Company a sufficient amount of the Payment so that no portion of
the Reduced Amount is subject to the Excise Tax. For the avoidance of doubt, if the Reduced Amount is determined
pursuant to clause (y) in the preceding paragraph, Employee will have no obligation to return any portion of the Payment
pursuant to the preceding sentence.
Unless Employee and the Company agree on an alternative accounting firm, the accounting firm engaged by the Company
for general tax compliance purposes as of the day prior to the effective date of the Change in Control shall perform the
foregoing calculations. If the accounting firm so engaged by the Company is serving as accountant or auditor for the
individual, entity or group effecting the Change in Control, the Company shall appoint a nationally recognized accounting
firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the
determinations by such accounting firm required to be made hereunder.
The Company shall use commercially reasonable efforts to cause the accounting firm engaged to make the determinations
hereunder to provide its calculations, together with detailed supporting documentation, to the Employee and the Company
within fifteen (15) calendar days after the date on which Employee’s right to a Payment is triggered (if requested at that time
by the Employee or the Company) or such other time as requested by Employee or the Company.
23.
a mutually acceptable indemnification agreement.
Indemnification. As a condition to the effectiveness of this Agreement, the Company and Employee shall enter into
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
AYTU BIOPHARMA, INC.
EMPLOYEE
By: __________________________ ______________________________
Name: VIVIAN LIU
Name: JOSHUA R. DISBROW
Chairwoman of the Compensation Committee
Board of Directors
Chairman and Chief Executive Officer
10
AMENDED AND RE-STATED EMPLOYMENT AGREEMENT
Exhibit 10.46
This Amended and Re-stated Employment Agreement (the "Agreement"), is effective as of February 13, 2023 (the
“Effective Date”), between Aytu BioPharma, Inc., a Delaware corporation headquartered at 373 Inverness Parkway, Suite
206, Englewood, CO 80112 USA, hereinafter referred to as the "Company"), and Mark Oki (“Executive").
RECITALS
WHEREAS, the Company is a duly organized Delaware corporation, with its principal place of business within the
State of Colorado, and is in the business of developing and marketing pharmaceuticals, medical devices, and other
healthcare products; and
WHEREAS, the Company desires Executive’s continued experience, skills, abilities, background and knowledge, and
is willing to engage Executive’s services on the terms and conditions set forth in this Agreement; and
WHEREAS, Executive desires to continue to be in the employ of the Company, and is willing to accept such
employment on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and
valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
1.
Employment.
(a)
Term. The term of this Agreement shall commence on the Effective Date and continue until
terminated in accordance with the provisions hereof (the “Term”).
(b)
Position and Duties. During the Term, the Executive shall serve as the Chief Financial Officer of the
Company, and shall have supervision and control over and responsibility for the day-to-day business and affairs of the
Company and shall have such other powers and duties as may from time to time be prescribed by the Chief Executive
Officer (“CEO”) of the Company, provided that such duties are consistent with the Executive’s position or other positions that
he may hold from time to time. The Executive shall devote his full working time and efforts to the business and affairs of the
Company. Notwithstanding the foregoing, the Executive may serve on other boards of directors, with the approval of the
CEO, or engage in religious, charitable or other community activities as long as such services and activities are disclosed to
the Board and do not interfere with the Executive’s performance of his duties to the Company as provided in this Agreement.
During the Term, Executive agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or
interest known by the Executive to be adverse or antagonistic to the Company, its business or prospects, its financial
position, or otherwise or in any company, person or entity that is, directly or indirectly, in competition with the business of the
Company or any of its affiliates. This provision shall encompass any advisory boards of which Executive is or becomes a
member of during the term hereof. Executive shall provide written disclosure to the Compensation Committee
(“Compensation Committee”) of the Company’s Board of Directors (the “Board”) as to all advisory boards on which
Executive sits, and will provide the Company with written notice within 10 business days of Executive agreeing to sit on any
additional advisory boards. On termination of Executive’s employment, regardless of the reason for
1
such termination, Executive shall immediately (and with contemporaneous effect) resign any directorships, offices or other
positions that Executive may hold in the Company or any affiliate, unless otherwise agreed in writing by the parties.
2.
Compensation and Related Matters.
(a)
Base Salary. During the Term, the Executive’s initial annual base salary shall be four hundred fifteen
thousand dollars ($415,000.00), less applicable deductions and withholdings. The Executive’s base salary shall be
reviewed at least annually by the Compensation Committee or a majority of the independent members of the Board, and the
base salary may be increased only by the Compensation Committee or a majority of the independent members of the
Board. The base salary in effect at any given time is referred to herein as “Base Salary.” The Base Salary shall be payable
in a manner that is consistent with the Company’s usual payroll practices for senior executives.
(b)
Bonus Compensation. The Executive shall be eligible for an annual discretionary bonus (hereinafter
referred to as the “Bonus”) with a target amount of forty percent (40%) of the Base Salary, subject to standard deductions
and withholdings, based on the Compensation Committee’s determination, in good faith, and based upon the Executive’s
individual achievement and company performance objectives as set by the Board or the Compensation Committee, of
whether the Executive has met such performance milestones as are established for the Executive by the Board or the
Compensation Committee, in good faith, in consultation with the Executive (hereinafter referred to as the “Performance
Milestones”). The Performance Milestones will be based on certain factors including, but not limited to, the Executive’s
performance and the Company’s financial and operational performance. The Executive’s Bonus target will be reviewed
annually and may be adjusted by the Board or the Compensation Committee in its discretion, provided however, that the
Bonus target may only be reduced upon Executive’s written consent. The Executive must be employed on the date the
Bonus is awarded to be eligible for the Bonus, subject to the termination provisions hereof. Bonuses shall be paid during the
calendar quarter following the calendar quarter for which such Bonus was earned when Performance Milestones are met
during a calendar quarter. Fourth quarter Bonuses and Bonuses calculated on the basis of partial Performance Milestone
satisfaction shall be paid within 75 days of fiscal year-end.
(c)
Signing Bonus. The Executive shall receive a bonus upon signing this agreement in the amount of
fifty thousand dollars and zero cents ($50,000.00) less applicable deductions and withholdings (hereinafter referred to as the
“Signing Bonus”).
(d)
Stock Grant. The Company shall grant to Executive a stock grant of 100,000 shares, which will vest
over a (3) year period of employment with the Company beginning with one third (1/3) of the stock vesting on the one-year
anniversary of the Effective Date of this Agreement, and the remaining stock vesting in equal quarterly tranches for two
years.
(e)
Expenses. The Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by him during the Term in performing services hereunder, in accordance with the policies and procedures
then in effect and established by the Company for its senior executive officers.
(f)
Relocation Expenses. The Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses associated with relocating to the Denver, Colorado area inclusive of travel, hotel and other lodging,
expenses associated with travel to and from Denver for home searches and moving and packing of household items.
2
(g)
Other Benefits. During the Term, the Executive shall be eligible to participate in or receive benefits
under the Company’s employee benefit plans in effect from time to time, subject to the terms of such plans.
(h)
Vacations. For the term of this Agreement, Executive shall be entitled to paid time off at the rate of
twenty-one (21) days per annum. In accordance with Company policy, unused paid time off may not be carried over from
year to year. The Executive shall also be entitled to all paid holidays given by the Company to its executives.
3.
Termination. During the Term, the Executive’s employment hereunder may be terminated without any breach
of this Agreement under the following circumstances:
(a)
(b)
Death. The Executive’s employment hereunder shall terminate upon his death.
Disability. The Company may terminate the Executive’s employment if he is disabled and unable to
perform the essential functions of the Executive’s then existing position or positions under this Agreement with or without
reasonable accommodation for a period of 180 days (which need not be consecutive) in any 12-month period. If any
question shall arise as to whether during any period the Executive is disabled so as to be unable to perform the essential
functions of the Executive’s then existing position or positions with or without reasonable accommodation, the Executive
may, and at the request of the Company shall, submit to the Company a certification in reasonable detail by a physician
selected by the Company to whom the Executive or the Executive’s guardian has no reasonable objection as to whether the
Executive is so disabled or how long such disability is expected to continue, and such certification shall for the purposes of
this Agreement be conclusive of the issue. The Executive shall cooperate with any reasonable request of the physician in
connection with such certification. If such question shall arise and the Executive shall fail to submit such certification, the
Company’s determination of such issue shall be binding on the Executive. Nothing in this Section 3(b) shall be construed to
waive the Executive’s rights, if any, under existing law including, without limitation, the Family and Medical Leave Act of
1993, 29 U.S.C. §2601 et seq. and the Americans with Disabilities Act, 42 U.S.C. §12101 et seq.
(c)
Termination by Company for Cause(d)
. The Company may terminate the Executive’s
employment hereunder for Cause. For purposes of this Agreement, “Cause” shall mean any of the following: (i) the
Executive’s willful and deliberate breach of any agreement with the Company, including the Confidentiality and Intellectual
Property Agreement, dated November 28, 2021 (the “Confidentiality Agreement”), the provisions of Section 8 of this
Agreement, the Code of Conduct or any other material policy that may result in material injury to the Company, including
Executive’s unauthorized use or disclosure of any proprietary information or trade secrets of the Company or any other party
as to which the Employee owes an obligation of nondisclosure as a result of the Employee’s relationship with the Company;
(ii) the Executive’s conviction of, or entry of a plea of guilty to, or entry of a plea of nolo contendre with respect to, any crime
other than a traffic violation or infraction which is a misdemeanor; (iii) the Executive’s act of fraud or intentional
misrepresentation in connection with the Executive’s duties or otherwise in connection with the business of the Company,
that may result in material injury to the Company; (iv) the Executive’s unintended but material breach in the performance of
duties under this Agreement, including insubordination or failure to implement or follow a lawful policy or directive of the
Company, provided that if such failure is curable, it is not cured within 30 days following written notice thereof from the
Board; or (v) the Executive’s willful malfeasance or willful misconduct in the performance of the Executive’s employment.
(d)
Termination Without Cause. The Company may terminate the Executive’s employment hereunder at
any time without Cause. Any termination by the Company of the Executive’s
3
employment under this Agreement which does not constitute a termination for Cause under Section 3(c) and does not result
from the death or disability of the Executive under Section 3(a) or (b) shall be deemed a termination without Cause.
(e)
Termination by the Executive(q)
. The Executive may terminate his employment hereunder at
any time for any reason, including but not limited to Good Reason. For purposes of this Agreement, “Good Reason” shall
mean, without the Executive’s consent, the occurrence of any of the following: (i) the Company materially breaches any
term of this Agreement, and such breach causes or is likely to cause material harm to the Executive; (ii) there is a change in
the Executive’s responsibilities that represents a material and adverse change from the Executive’s overall responsibilities,
taken as a whole; (iii) there is a Change in Control that results in a change in the Executive’s responsibilities that represents
a material and adverse change from the Executive’s overall responsibilities, taken as a whole; (iv) the Executive’s Base
Salary is substantially reduced or diminished; or (v) the Executive’s place of employment is relocated by the Company more
than a 50-mile radius from Englewood, CO (it being understood and agreed that the Executive may be required to travel in
connection with Company business and none of such travel shall constitute or give rise to “Good Reason”). The Executive’s
voluntary termination shall be deemed to have occurred for Good Reason for purposes of this Agreement only if (x) the
Executive provides written notice to the Company within 30 days after the Executive becomes aware of circumstances
giving rise to Good Reason, (y) the Company fails to correct the circumstances giving rise to Good Reason within 30 days
following the receipt of such notice (the “Cure Period”) and (z) the Executive resigns within 30 days following the end of the
Cure Period. If the Company cures the Good Reason condition during the Cure Period, Good Reason shall be deemed not
to have occurred.
(r)
Notice of Termination. Except for termination as specified in Section 3(a), any termination of the
Executive’s employment by the Company or any such termination by the Executive shall be communicated by written Notice
of Termination to the other party hereto. For purposes of this Agreement, a “Notice of Termination” shall mean a notice
which shall indicate the specific termination provision in this Agreement relied upon.
(s)
Date of Termination. “Date of Termination” shall mean: (i) if the Executive’s employment is
terminated by his death, the date of his death; (ii) if the Executive’s employment is terminated on account of disability under
Section 3(b) or by the Company for Cause under Section 3(c), the date on which Notice of Termination is given; (iii) if the
Executive’s employment is terminated by the Company under Section 3(d), the date on which a Notice of Termination is
given; (iv) if the Executive’s employment is terminated by the Executive under Section 3(e) without Good Reason, 30 days
after the date on which a Notice of Termination is given, (v) if the Executive’s employment is terminated by the Executive
under Section 3(e) with Good Reason, the date on which a Notice of Termination is given after the end of the Cure Period,
and (vi) if the Executive’s employment is terminated by Executive for a Bona Fide Retirement, 30 days after the date on
which a Notice of Termination is given. Notwithstanding the foregoing, in the event that the Executive gives a Notice of
Termination to the Company, the Company may unilaterally accelerate the Date of Termination and such acceleration shall
not result in a termination by the Company for purposes of this Agreement.
4.
Compensation Upon Termination.
(a)
Termination Generally. If the Executive’s employment with the Company is terminated for any reason,
the Company shall pay or provide to the Executive (or to his authorized representative or estate) (i) any Base Salary earned
through the Date of Termination, unpaid expense reimbursements (subject to, and in accordance with, Section 2(c) of this
Agreement) and unused vacation that accrued through the Date of Termination on or before the time required by law but in
no
4
event more than 30 days after the Executive’s Date of Termination; and (ii) any vested benefits the Executive may have
under any employee benefit plan of the Company through the Date of Termination, which vested benefits shall be paid
and/or provided in accordance with the terms of such employee benefit plans (collectively, the “Accrued Benefit”).
(b)
Termination by the Company Without Cause, by the Executive with Good Reason. During the Term, if
the Executive’s employment is terminated by the Company without Cause as provided in Section 3(d), or the Executive
terminates his employment for Good Reason as provided in Section 3(e), then the Company shall pay the Executive his
Accrued Benefit. In addition, subject to the Executive signing a separation agreement containing, among other provisions, a
general release of claims in favor of the Company and related persons and entities, confidentiality, return of property and
non-disparagement, in a form and manner satisfactory to the Company (the “Separation Agreement and Release”) and the
Separation Agreement and Release becoming fully effective, all within the time frame set forth in the Separation Agreement
and Release:
(i)
the Company shall pay the Executive an amount equal to the Executive’s annual Base Salary
plus any pro-rated incentive compensation earned (as determined by the Board or the Compensation Committee)
but unpaid as of the Date of Termination (the “Severance Amount”). Notwithstanding the foregoing, if the Executive
breaches any of the provisions of the Confidentiality Agreement, or Section 8 of this Agreement, all payments of the
Severance Amount shall immediately cease; and
(ii)
Notwithstanding anything to the contrary in the applicable stock-based award agreement, the
underlying shares of the stock-based award will immediately vest following the expiration of the revocation period as
set forth in Separation Agreement and Release; and
(iii)
if the Executive was participating in the Company’s group health plan immediately prior to the
Date of Termination and elects COBRA health continuation, then the Company shall pay to the Executive a monthly
cash payment for 12 months or the Executive’s COBRA health continuation period, whichever ends earlier, in an
amount equal to the monthly employer contribution that the Company would have made to provide health insurance
to the Executive if the Executive had remained employed by the Company; and
(iv)
the amounts payable under this Section 4(b) shall be paid out in substantially equal
installments in accordance with the Company’s payroll practice over 12 months commencing within 60 days after the
Date of Termination; provided, however, that if the 60-day period begins in one calendar year and ends in a second
calendar year, the Severance Amount shall begin to be paid in the second calendar year by the last day of such 60-
day period; provided, further, that the initial payment shall include a catch-up payment to cover amounts retroactive
to the day immediately following the Date of Termination. Each payment pursuant to this Agreement is intended to
constitute a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2); and
5.
Change in Control Payment. The provisions of this Section 5 set forth certain terms of an agreement reached
between the Executive and the Company regarding the Executive’s rights and obligations upon the occurrence of a Change
in Control of the Company. These provisions are intended to assure and encourage in advance the Executive’s continued
attention and dedication to his assigned duties and his objectivity during the pendency and after the occurrence of any such
event. These provisions shall apply in lieu of, and expressly supersede, the provisions of Section 4(b) regarding severance
pay and benefits upon a termination of employment, if such termination of
5
employment occurs within 12 months after the occurrence of the first event constituting a Change in Control. These
provisions shall terminate and be of no further force or effect beginning 12 months after the occurrence of a Change in
Control.
(a)
Change in Control. During the Term, if within 12 months after a Change in Control, the Executive’s
employment is terminated by the Company without Cause as provided in Section 3(d) or the Executive terminates his
employment for Good Reason as provided in Section 3(e), then, subject to the signing of the Separation Agreement and
Release by the Executive and the Separation Agreement and Release effective all within the time frame set forth in the
Separation Agreement and Release,
(i)
the Company shall pay the Executive a lump sum in cash in an amount equal to one times the
sum of (A) the Executive’s then current Base Salary (or the Executive’s Base Salary in effect immediately prior to the
Change in Control, if higher) plus (B) the Executive’s target annual incentive compensation for the then- current year;
and
(ii)
notwithstanding anything to the contrary in any applicable option agreement or stock-based
award agreement, all stock options, restricted stock and other stock-based grants to Executive by the Company or
that may be granted in the future shall, irrespective of any provisions of his award agreements, immediately and
irrevocably vest and become exercisable and any restrictions thereon shall lapse. All stock options shall remain
exercisable from the date of such employment termination until the expiration of the term of such stock options; and
(iii)
if the Executive was participating in the Company’s group health plan immediately prior to the
Date of Termination and elects COBRA health continuation, then the Company shall pay to the Executive a monthly
cash payment for 12 months or the Executive’s COBRA health continuation period, whichever ends earlier, in an
amount equal to the monthly employer contribution that the Company would have made to provide health insurance
to the Executive if the Executive had remained employed by the Company; and
(iv)
The amounts payable under this Section 5(a) shall be paid or commence to be paid within
60 days after the Date of Termination; provided, however, that if the 60-day period begins in one calendar year and
ends in a second calendar year, such payment shall be paid or commence to be paid in the second calendar year by
the last day of such 60-day period.
For the avoidance of doubt, all stock options and other stock-based awards held by the Executive as of the Effective
Date shall be treated as indicated in the applicable award agreements.
(b)
Additional Limitation.
(i)
Anything in this Agreement to the contrary notwithstanding, in the event that the amount of any
compensation, payment or distribution by the Company to or for the benefit of the Executive, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, calculated in a manner
consistent with Section 280G of the Code and the applicable regulations thereunder (the “Aggregate Payments”),
would be subject to the excise tax imposed by Section 4999 of the Code, then the Aggregate Payments shall be
reduced (but not below zero) so that the sum of all of the Aggregate Payments shall be $1.00 less than the amount
at which the Executive becomes subject to the excise tax imposed by Section 4999 of the Code; provided that such
reduction shall only occur if it would result in the Executive receiving a higher After Tax Amount (as defined below)
than the Executive would
6
receive if the Aggregate Payments were not subject to such reduction. In such event, the Aggregate Payments shall
be reduced in the following order, in each case, in reverse chronological order beginning with the Aggregate
Payments that are to be paid the furthest in time from consummation of the transaction that is subject to
Section 280G of the Code: (1) cash payments not subject to Section 409A of the Code; (2) cash payments subject
to Section 409A of the Code; (3) equity-based payments and acceleration; and (4) non-cash forms of benefits;
provided that in the case of all the foregoing Aggregate Payments all amounts or payments that are not subject to
calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c) shall be reduced before any amounts that are subject to
calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c).
(ii)
For purposes of this Section 5(b), the “After Tax Amount” means the amount of the Aggregate
Payments less all federal, state, and local income, excise and employment taxes imposed on the Executive as a
result of the Executive’s receipt of the Aggregate Payments. For purposes of determining the After Tax Amount, the
Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation
applicable to individuals for the calendar year in which the determination is to be made, and state and local income
taxes at the highest marginal rates of individual taxation in each applicable state and locality, net of the maximum
reduction in federal income taxes which could be obtained from deduction of such state and local taxes.
(iii)
The determination as to whether a reduction in the Aggregate Payments shall be made
pursuant to Section 5(b)(i) shall be made by a nationally recognized accounting firm selected by the Company (the
“Accounting Firm”), which shall provide detailed supporting calculations both to the Company and the Executive
within 15 business days of the Date of Termination, if applicable, or at such earlier time as is reasonably requested
by the Company or the Executive. Any determination by the Accounting Firm shall be binding upon the Company
and the Executive.
(c)
Definitions. For purposes of this Section 5, the following terms shall have the following meanings:
“Change in Control” shall mean the consummation of any of the following:
(i)
A sale of all or substantially all of the assets of the Company on a consolidated basis to an
unrelated person or entity; or
(ii)
A merger, reorganization or consolidation in which the outstanding shares of common stock of
the Company are converted into or exchanged for shares of the successor entity and the holders of the Company’s
outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding
voting power of the surviving entity immediately upon the completion of such transaction; or
entity; or
(iii)
(iv)
The sale of all or a majority of the common stock of the Company to an unrelated person or
Any other transaction in which the holders of the Company’s outstanding voting power
immediately prior to such transaction do not own at least a majority of the outstanding voting power of the surviving
entity in the transaction immediately upon the completion of such transaction.
7
6.
Section 409A.
(a)
Anything in this Agreement to the contrary notwithstanding, if at the time of the Executive’s separation
from service within the meaning of Section 409A of the Code, the Company determines that the Executive is a “specified
employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, then to the extent any payment or benefit that the
Executive becomes entitled to under this Agreement on account of the Executive’s separation from service would be
considered deferred compensation otherwise subject to the 20 percent additional tax imposed pursuant to Section 409A(a)
of the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, such payment shall not be payable and
such benefit shall not be provided until the date that is the earlier of (A) six months and one day after the Executive’s
separation from service, or (B) the Executive’s death. If any such delayed cash payment is otherwise payable on an
installment basis, the first payment shall include a catch-up payment covering amounts that would otherwise have been paid
during the six-month period but for the application of this provision, and the balance of the installments shall be payable in
accordance with their original schedule.
(b)
All in-kind benefits provided and expenses eligible for reimbursement under this Agreement shall be
provided by the Company or incurred by the Executive during the time periods set forth in this Agreement. All
reimbursements shall be paid as soon as administratively practicable, but in no event shall any reimbursement be paid after
the last day of the taxable year following the taxable year in which the expense was incurred. The amount of in-kind
benefits provided or reimbursable expenses incurred in one taxable year shall not affect the in-kind benefits to be provided
or the expenses eligible for reimbursement in any other taxable year (except for any lifetime or other aggregate limitation
applicable to medical expenses). Such right to reimbursement or in-kind benefits is not subject to liquidation or exchange
for another benefit.
(c)
To the extent that any payment or benefit described in this Agreement constitutes “non-qualified
deferred compensation” under Section 409A of the Code, and to the extent that such payment or benefit is payable upon the
Executive’s termination of employment, then such payments or benefits shall be payable only upon the Executive’s
“separation from service.” The determination of whether and when a separation from service has occurred shall be made in
accordance with the presumptions set forth in Treasury Regulation Section 1.409A-1(h).
(d)
The parties intend that this Agreement will be administered in accordance with Section 409A of the
Code. To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code,
the provision shall be read in such a manner so that all payments hereunder comply with Section 409A of the Code. Each
payment pursuant to this Agreement is intended to constitute a separate payment for purposes of Treasury Regulation
Section 1.409A-2(b)(2). The parties agree that this Agreement may be amended, as reasonably requested by either party,
and as may be necessary to fully comply with Section 409A of the Code and all related rules and regulations in order to
preserve the payments and benefits provided hereunder without additional cost to either party.
(e)
The Company makes no representation or warranty and shall have no liability to the Executive or any
other person if any provisions of this Agreement are determined to constitute deferred compensation subject to
Section 409A of the Code but do not satisfy an exemption from, or the conditions of, such Section.
7.
Intellectual Property. The Executive acknowledges that all discoveries, concepts, ideas, inventions,
innovations, improvements, developments, methods, designs, analyses, drawings, reports, patent applications,
copyrightable work and mask work (whether or not including any confidential
8
information) and all registrations or applications related thereto, all other proprietary information and all similar or related
information (whether or not patentable) which relate to the Company’s or any of its affiliates’ actual or anticipated business,
research and development or existing or future products or services and which are conceived, developed or made by the
Executive (whether alone or jointly with others) while employed by the Company and its affiliates, whether before or after the
date of this Agreement (collectively referred to as “Work Product”), are the property of the Company or such affiliated
companies. The Executive shall promptly disclose such Work Product to the Board and, at the Company’s expense,
perform all actions reasonably requested by the Board (whether during or after the period of employment) to establish and
confirm such ownership (including, without limitation, executing and delivering assignments, consents, powers of attorney
and other instruments). The Executive acknowledges that all Work Product shall be deemed to constitute “works made for
hire” under the U.S. Copyright Act of 1976, as amended.
8.
Confidential Information, Noncompetition and Cooperation. The Executive agrees that he continues to be
bound by the terms of the Confidentiality Agreement.
(a)
The Executive agrees that all property (including, without limitation, all equipment, tangible proprietary
information, documents, records, notes, contracts and computer- generated materials) furnished to or created or prepared
by the Executive incident to the Executive’s employment belongs to the Company and shall be promptly returned to the
Company upon termination of the Executive’s employment.
(b)
Upon termination of the Executive’s employment, the Executive shall be deemed to have resigned
from any and all offices and directorships then held with the Company and its affiliates. Following any termination of
employment, the Executive shall reasonably cooperate with the Company (i) in the winding up of pending work on behalf of
the Company and the orderly transfer of work to other employees, and (ii) in the defense of any action brought by any third
party against the Company that relates to the Executive’s employment by the Company; provided, that in each case the
Company shall reimburse the Executive for any reasonable and documented out-of-pocket fees and expenses incurred by
the Executive in connection with such cooperation.
(c)
The Executive acknowledges that in the course of the Executive’s employment with the Company, the
Executive will become familiar with the Company’s and its affiliates’ trade secrets and with other confidential and proprietary
information and that the Executive’s services will be of special, unique and extraordinary value to the Company and its
affiliates. Therefore, the Executive agrees that the Executive shall not, during the Term and for a period of one (1) year
thereafter, directly or indirectly, either for himself or for any other person or entity or otherwise, (i) participate in any business
or enterprise (including, without limitation, any division, group or franchise of a larger organization), engaged, anywhere
within North America at the time of termination (the “Restricted Territory”), in the business of developing or commercializing
controlled release, ion exchange resin based pharmaceutical products or any therapeutic agent being studied for or
approved for the treatment of vascular Ehlers-Danlos Syndrome (VEDS) or an associated connective tissue disorder, or any
other business in which the Executive would be required to employ, reveal or otherwise utilize trade secrets of the Company
and its affiliates used prior to termination that may result in a material injury to the Company (with it being understood that
the term “participate in” shall include, without limitation, having any direct or indirect interest in any person or entity, whether
as a sole proprietor, owner, stockholder, partner, joint venturer, creditor or otherwise, or rendering any direct or indirect
service or assistance to any person or entity -whether as a director, officer, manager, supervisor, employee, agent,
consultant, advisor or otherwise); provided that, nothing herein shall prohibit the Executive from being a passive owner of
not more than two percent (2%) of the outstanding stock of any class of an entity which is publicly traded so long as the
Executive has no active participation in the business of
9
such corporation; (ii) induce or attempt to induce any customer, supplier, licensee or other business relation of the Company
or any of its subsidiaries to cease doing business with the Company or any such subsidiary or in any way interfere with the
relationship between any such customer, supplier, licensee or business relation and the Company and any such subsidiary;
or (iii) induce or attempt to induce any employee of the Company or its affiliates to leave the employ of the Company or any
such affiliated company, or in any way interfere with the relationship between the Company and any of its affiliates and any
employee thereof, or hire or otherwise engage any person who was an employee of the Company or any of its affiliated
companies within one year before any such hiring would take place.
(d)
The Executive agrees that he will not directly or indirectly, individually or in concert with others, make
any statement calculated or likely to have the effect of undermining or disparaging the business or the business reputation of
the Company or its affiliates or their respective employees, officers, directors, customers, suppliers, successors and
assigns, including, without limitation, negative comments about any such person or company, its management methods,
policies and/or practices. Notwithstanding the foregoing, nothing herein shall prohibit the Executive from responding
accurately and fully to any question, inquiry or request made in connection with any governmental inquiry, investigation,
review, audit or proceeding, any legal proceeding or claim (whether in court, arbitration or otherwise) of any nature, or as
otherwise required by law.
(e)
If, at the time of enforcement of this Section 8, a court holds that the restrictions stated herein are
unreasonable under circumstances then existing, the parties hereto agree that the maximum duration, scope or
geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area and that
the court shall be allowed to revise the restrictions contained herein to cover the maximum duration, scope and area
permitted by law. Because the Executive’s services are unique and because the Executive has access to confidential and
proprietary information of the Company and its business, the parties hereto agree that money damages would not be an
adequate remedy for any breach of Section 8 of this Agreement. Therefore, in the event of a breach or threatened breach
of Section 8 of this Agreement, the Company or its successors or assigns may, in addition to other rights and remedies
existing in their favor and notwithstanding anything herein to the contrary, apply to any court of competent jurisdiction for
specific performance and/or injunctive or other equitable relief in order to enforce or prevent any violations of, the provisions
hereof (without posting a bond or other security).
(f)
The Executive acknowledges that the provisions of this Section 8 are in consideration of the
Executive’s employment with the Company and additional good and valuable consideration as set forth in this Agreement.
The Executive agrees and acknowledges that the restrictions contained in Section 8 do not preclude the Executive from
earning a livelihood, nor do they unreasonably impose limitations on the Executive’s ability to earn a living. The Executive
acknowledges (i) that the business of the Company and its affiliates will be conducted throughout the Restricted Territory,
(ii) notwithstanding the state of formation or principal office of the Company and its affiliates, or any of their respective
executives or employees (including the Executive), it is expected that the Company will have business activities and have
valuable business relationships within its industry throughout the Restricted Territory, and (iii) as part of the Executive’s
responsibilities, the Executive may be traveling throughout the Restricted Territory in furtherance of the Company’s and its
affiliates’ business and its relationships. The Executive acknowledges that the potential harm to the Company of the non-
enforcement of Section 8 outweighs any potential harm to the Executive of its enforcement by injunction or otherwise. The
Executive acknowledges that the Executive has carefully read this Agreement and has given careful consideration to the
restraints imposed upon the Executive by this Agreement and is in full accord as to their necessity for the reasonable and
proper protection of confidential and proprietary information of the Company and its subsidiaries now existing or to be
10
developed in the future. The Executive acknowledges that each and every restraint imposed by this Agreement is
reasonable with respect to scope, duration, and geographical area.
9.
Arbitration of Disputes. Any controversy or claim arising out of or relating to this Agreement or the breach
thereof or otherwise arising out of the Executive’s employment or the termination of that employment (including, without
limitation, any claims of unlawful employment discrimination whether based on age or otherwise) shall, to the fullest extent
permitted by law, be settled by arbitration in any forum and form agreed upon by the parties or, in the absence of such an
agreement, under the auspices of the American Arbitration Association (“AAA”) in accordance with the Employment Dispute
Resolution Rules of the AAA, including, but not limited to, the rules and procedures applicable to the selection of arbitrators.
In the event that any person or entity other than the Executive or the Company may be a party with regard to any such
controversy or claim, such controversy or claim shall be submitted to arbitration subject to such other person or entity’s
agreement. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.
This Section 8 shall be specifically enforceable. Notwithstanding the foregoing, this Section 8 shall not preclude either party
from pursuing a court action for the sole purpose of obtaining a temporary restraining order or a preliminary injunction in
circumstances in which such relief is appropriate; provided that any other relief shall be pursued through an arbitration
proceeding pursuant to this Section 9.
10.
Consent to Jurisdiction. To the extent that any court action is permitted consistent with or to enforce
Section 9 of this Agreement, the parties hereby consent to the jurisdiction of the District Court of Douglas County, Colorado
and the United States District Court for the District of Colorado. Accordingly, with respect to any such court action, the
Executive (a) submits to the personal jurisdiction of such courts; (b) consents to service of process; and (c) waives any other
requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction or service of
process.
11.
Integration. This Agreement constitutes the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior agreements between the parties concerning such subject matter, provided that the
Confidentiality Agreement remains in full force and effect.
12. Withholding. All payments made by the Company to the Executive under this Agreement shall be net of any
tax or other amounts required to be withheld by the Company under applicable law.
13.
Successor to the Executive. This Agreement shall inure to the benefit of and be enforceable by the
Executive’s personal representatives, executors, administrators, heirs, distributees, devisees and legatees. In the event of
the Executive’s death after his termination of employment but prior to the completion by the Company of all payments due
him under this Agreement, the Company shall continue such payments to the Executive’s beneficiary designated in writing
to the Company prior to his death (or to his estate, if the Executive fails to make such designation).
14.
Enforceability. If any portion or provision of this Agreement (including, without limitation, any portion or
provision of any section of this Agreement) shall to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than
those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of
this Agreement shall be valid and enforceable to the fullest extent permitted by law.
11
15.
Survival. The provisions of this Agreement shall survive the termination of this Agreement and/or the
termination of the Executive’s employment to the extent necessary to effectuate the terms contained herein.
16. Waiver. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving
party. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by any
party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be
deemed a waiver of any subsequent breach.
17.
Notices. Any notice to be given under this Agreement shall be in writing and delivered personally or sent by
overnight courier or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned
at the address indicated below, or to such other address of which such party subsequently may give notice in writing:
If to Executive:
To the address specified in the payroll records of the Company.
If to the Company:
Aytu BioPharma, Inc., 373 Inverness Parkway, Suite 206, Englewood, Colorado 80112
Any notice delivered personally or by overnight courier shall be deemed given on the date delivered and any notice sent by
registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date mailed.
18.
Amendment. This Agreement may be amended or modified only by a written instrument signed by the
Executive and by a duly authorized representative of the Company.
19.
Governing Law. This is a Colorado contract and shall be construed under and be governed in all respects by
the laws of the State of Colorado, without giving effect to the conflict of laws principles of such State. With respect to any
disputes concerning federal law, such disputes shall be determined in accordance with the law as it would be interpreted
and applied by the United States Court of Appeals for the District of Colorado.
20.
Counterparts. This Agreement may be executed in any number of counterparts, each of which when so
executed and delivered shall be taken to be an original; but such counterparts shall together constitute one and the same
document.
21.
Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume
and agree to perform this Agreement to the same extent that the Company would be required to perform it if no succession
had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any
succession shall be a material breach of this Agreement.
12
22.
Gender Neutral. Wherever used herein, a pronoun in the masculine gender shall be considered as including
the feminine gender unless the context clearly indicates otherwise.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
AYTU BIOPHARMA, INC.
EXECUTIVE
By: __________________________ ______________________________
Name: VIVIAN LIU
Name: MARK OKI
Chairwoman of the Compensation Committee
Board of Directors
Chairman and Chief Executive Officer
13
SUBLEASE
Exhibit 10.47
THIS SUBLEASE (this “Sublease”) is dated for reference purposes as of May 15, 2023, and is made by and between Neos
Therapeutics, LP, a Texas limited partnership (“Sublessor”), and AMT Manufacturing Solutions, LLC, a Delaware limited liability
company (“Sublessee”). Sublessor and Sublessee hereby agree as follows:
1.
Recitals: This Sublease is made with reference to the fact that Riverside Business Green, LP, a Delaware limited
partnership, as Landlord, as successor-in-interest to Walstib, L.P. (“Master Lessor”), and Sublessor, as successor-in-interest to
PharmaFab, Inc., as tenant, entered into that certain Commercial Lease Agreement, dated as of June 29, 1999, as amended by that certain
First Amendment to Lease dated as of September 1, 2002 (the “First Amendment”), that certain Interim Amendment to Lease dated as of
September 4, 2003 (the “Second Amendment”), that certain Third Amendment to Lease dated as of October 1, 2003 (the “Third
Amendment”), that certain Fourth Amendment to Lease effective as of May 1, 2009 (the “Fourth Amendment”), that certain Fifth
Amendment to Lease dated as of April 5, 2010 (the “Fifth Amendment”), and that certain Sixth Amendment to Lease dated as of August
14, 2013 (the “Sixth Amendment”; together with the Original Lease, First Amendment, Second Amendment, Third Amendment, Fourth
Amendment, and Fifth Amendment, the “Master Lease”), with respect to premises consisting of approximately 97,282 rentable square
feet of space, located at 2490 N. Highway 360, Grand Prairie, Texas (the “Premises”) consisting of approximately 77,112 rentable square
feet in Suites 100 and 200 (the “Suites 100 and 200 Premises”) and approximately 20,170 rentable square feet located in Suite 400). A
copy of the Master Lease is attached hereto as Exhibit A.
2.
Premises:
A.
Commencing on the Commencement Date, Sublessor hereby subleases to Sublessee, and Sublessee hereby
subleases from Sublessor, a portion of the Premises consisting of approximately 22,909 rentable square feet of space located in Suite 200
of the Premises (hereinafter, the “Subleased Premises”). The Subleased Premises are more particularly described as the area outlined in
red on Exhibit B attached hereto. Commencing as early as April 1, 2024 but no later than December 31, 2024, which date shall be
designated by Sublessor by written notice to Sublessee not less than thirty (30) days prior to the date of expansion (such date, the
“Expansion Date”), the Subleased Premises shall be expanded to include the remainder of the Suites 100 and 200 Premises (other than
Sublessor’s server room therein) outlined in green on Exhibit B attached hereto (the “Expansion Space”). If Sublessee needs additional
space during the period of time preceding the Expansion Date, Sublessor and Sublessee shall work in good faith to accommodate such
request.
B.
Notwithstanding the foregoing, within thirty (30) days of the Commencement Date, subject to receipt of Master
Lessor’s consent, Sublessee, at its sole cost and expense, shall construct a wall or fence as reasonably determined by Sublessor in the
location shown in yellow-green dividing the initial Subleased Premises from the Expansion Space on Exhibit B attached hereto in
accordance with the terms of Paragraph 13 below and the terms of the Master Lease. Sublessee shall only be entitled to access the office
area within the Subleased Premises until the date upon which the wall or fence is fully constructed.
C.
Sublessor shall have the exclusive right to use, and Sublessor’s security and information technology personnel
may enter the Subleased Premises at any time to access the server room which is accessible from within the Subleased Premises.
Sublessor shall make commercially reasonable effort to notify Sublessee of such access.
3.
Term: The term (the “Term”) of this Sublease shall be for the period commencing on the date which is one (1) business
day after the date by which Sublessor has received consent of the Sublease from both Master Lessor and Sublessor’s lender (the
“Lender”) in a form acceptable to Sublessor (the “Commencement Date”) and ending on December 31, 2024 (the “Expiration Date”),
unless this Sublease is sooner terminated pursuant to its terms or the Master Lease sooner expires pursuant to its terms. For the
avoidance of doubt, the Subleased Premises shall be deemed delivered when Sublessor vacates the Subleased Premises and provides
Sublessee keys or other means of access thereto.
4.
Rent:
A.
Base Rent. Sublessee shall pay to Sublessor base rent for the Subleased Premises for each month during the
period commencing on the Commencement Date and expiring on December 31, 2023 the amount of Twenty Thousand Forty-Five
Dollars ($20,045) per month, and during the period commencing on January 1, 2024 until the day preceding the Expansion Date the
amount of Twenty-One Thousand Dollars ($21,000) per month and during the period commencing on the Expansion Date until the
Expiration Date the amount of Seventy Thousand Six Hundred Eighty-Six Dollars ($70,686) per month (“Base Rent”). Base Rent and
Additional Rent, as defined in Paragraph 4.B below, shall be paid on or before the first (1st) day of each month. Base Rent and
Additional Rent for any period during the Term hereof which is for less than one (1) month of the Term shall be a pro rata portion of the
monthly installment based on a thirty (30) day month. Base Rent and Additional Rent shall be payable without notice or demand and
without any deduction, offset, or abatement, in lawful money of the United States of America. Base Rent and Additional Rent shall be
paid directly to Sublessor by ACH pursuant to instructions provided by Sublessor, or by such other means as may be designated in
writing by Sublessor.
B.
Additional Rent. All monies other than Base Rent required to be paid by Sublessor under the Master Lease as to
the Subleased Premises, including, without limitation, any amounts payable by Sublessor to Master Lessor as “Operating Expenses” (as
defined in Section 4.2 of the Master Lease), shall be paid by Sublessee hereunder as and when such amounts are due under the Master
Lease, as incorporated herein. Sublessee shall also pay to Sublessor (i) any gross receipts or rent tax payable with respect to this
Sublease, (ii) all costs directly incurred by or at the request of Sublessee with respect to its use of the Subleased Premises and (iii) the
share allocable to the Subleased Premises as reasonably determined by Sublessor of the actual, reasonable costs incurred by Sublessor
with respect to the Premises, including to perform its obligations under the Master Lease, including with respect to utilities and roof and
Building system maintenance, or to provide the services, including security, described herein to the extent not included in Operating
Expenses. Sublessee shall pay to Sublessor all such amounts within thirty (30) days of invoice therefor. All such amounts shall be
deemed additional rent (“Additional Rent”). Base Rent and Additional Rent hereinafter collectively shall be referred to as “Rent”.
Sublessee and Sublessor agree, as a material part of the consideration given by Sublessee to Sublessor for this Sublease, that Sublessee
shall pay all costs, expenses, taxes, insurance, maintenance and other charges of every kind and nature arising in connection with this
Sublease, the Master Lease as to the Subleased Premises or the Subleased Premises, such that Sublessor shall receive, as a net
consideration for this Sublease, the Base Rent payable under Paragraph 4.A hereof.
5.
Security Deposit: Upon execution hereof by Sublessee, Sublessee shall deposit with Sublessor the sum of Ninety
Thousand Seven Hundred Thirty-One Dollars ($90,731) (the “Security Deposit”), in cash, as security for the performance by Sublessee
of the terms and conditions of this Sublease. Upon the full execution and delivery by Sublessee and Master Lessor of a lease of all of
Suites 100 and 200 of the Building commencing upon the termination of this Sublease and Master Lessor’s agreement that the Premises
does not need to be restored by Sublessor, and Sublessee’s delivery of a copy thereof to Sublessor, if Sublessee is not then in default
under this Sublease, Sublessor shall apply (a) an amount equal to $20,045 to Base Rent next coming due under this Sublease and (b) the
remainder of the Security Deposit to Base Rent due in December 2024.
-2-
6.
Holdover: The parties hereby acknowledge that the expiration date of the Master Lease is December 31, 2024 and that it
is therefore critical that Sublessee surrender the Subleased Premises to Sublessor no later than the Expiration Date in accordance with the
terms of this Sublease. In the event that Sublessee does not surrender the Subleased Premises by the Expiration Date in accordance with
the terms of this Sublease, Sublessee shall indemnify, defend, protect and hold harmless Sublessor from and against all loss and liability
resulting from Sublessee’s delay in surrendering the Subleased Premises and pay Sublessor holdover rent as provided in Section 16.9 of
the Master Lease.
7.
Repairs: The parties acknowledge and agree that Sublessee is subleasing the Subleased Premises on an “as is” basis,
and that Sublessor has made no representations or warranties with respect to the condition of the Subleased Premises. Sublessor shall
have no obligation whatsoever to make or pay the cost of any alterations, improvements or repairs to the Subleased Premises, including,
without limitation, any improvement or repair required to comply with any law; provided, however, subject to reimbursement by
Sublessee under Paragraph 4.B, Sublessor shall maintain the roof and certain systems serving the Subleased Premises. Master Lessor
shall be solely responsible for performance of any repairs required to be performed by Master Lessor under the terms of the Master
Lease.
8.
Right to Cure Defaults: If Sublessee fails to pay any sum of money under this Sublease, or fails to perform any other act
on its part to be performed hereunder, then Sublessor may, but shall not be obligated to, after passage of any applicable notice and cure
periods, make such payment or perform such act. All such sums paid, and all reasonable costs and expenses of performing any such act,
shall be deemed Additional Rent payable by Sublessee to Sublessor upon demand, together with interest thereon at the interest rate set
forth in Section 16.2 of the Master Lease (the “Interest Rate”) from the date of the expenditure until repaid.
9.
Assignment and Subletting: Sublessee may not assign this Sublease, sublet the Subleased Premises, transfer any interest
of Sublessee therein or permit any use of the Subleased Premises by another party (collectively, “Transfer”), without the prior written
consent of Sublessor and Master Lessor. Sublessee acknowledges that the Master Lease contains a “recapture” right in Section 12.2, and
that Sublessor may withhold consent to a proposed Transfer in its sole discretion unless Master Lessor confirms in writing that the
recapture right does not apply to the Subleased Premises or otherwise waives such right. A consent to one Transfer shall not be deemed
to be a consent to any subsequent Transfer. Any Transfer without such consent shall be void and, at the option of Sublessor, shall
terminate this Sublease. Sublessor’s waiver or consent to any assignment or subletting shall be ineffective unless set forth in writing.
Any Transfer shall be subject to the terms of Section 12 of the Master Lease.
10.
Use:
A.
Sublessee may use the Subleased Premises only for the uses identified in Section 1.8 of the Master Lease, as
modified by Section 7 of the Fifth Amendment. All use of the Subleased Premises by Sublessee shall comply with all applicable laws
and regulations and shall not violate any laws administered by the U.S. Drug Enforcement Administration or the U.S. Food and Drug
Administration.
B.
Sublessee shall not do or permit anything to be done in or about the Subleased Premises that would (i) injure the
Subleased Premises; or (ii) vibrate, shake, overload, or impair the efficient operation of the Subleased Premises or the sprinkler systems,
heating, ventilating or air conditioning equipment, or utilities systems located therein. Sublessee shall not store any materials, supplies,
finished or unfinished products or articles of any nature outside of the Subleased Premises. For purposes of this Sublease and Sections
2.4 and 16.20 of the Master Lease, Sublessee shall comply with all reasonable rules and regulations promulgated from time to time by
Sublessor and Master Lessor, including with respect to security measures imposed by Sublessor.
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11.
Effect of Conveyance: As used in this Sublease, the term “Sublessor” means the holder of the tenant’s interest under the
Master Lease. In the event of any assignment, transfer or termination of the tenant’s interest under the Master Lease, which assignment,
transfer or termination may occur at any time during the Term hereof in Sublessor’s sole discretion, Sublessor shall be and hereby is
entirely relieved of all covenants and obligations of Sublessor hereunder, and it shall be deemed and construed, without further
agreement between the parties, that any transferee has assumed and shall carry out all covenants and obligations thereafter to be
performed by Sublessor hereunder. Sublessor may transfer and deliver any security of Sublessee to the transferee of the tenant’s interest
under the Master Lease, and thereupon Sublessor shall be discharged from any further liability with respect thereto.
12.
Delivery and Acceptance: If Sublessor fails to deliver possession of the Subleased Premises to Sublessee on or before
the Commencement Date for any reason whatsoever, then this Sublease shall not be void or voidable; provided, however, that in such
event, Rent shall abate until Sublessor delivers possession of the Subleased Premises to Sublessee. By taking possession of the
Subleased Premises, Sublessee conclusively shall be deemed to have accepted the Subleased Premises in their as-is, then-existing
condition, without any warranty whatsoever of Sublessor with respect thereto.
13.
Improvements: No alteration or improvements shall be made to the Subleased Premises, except in accordance with the
Master Lease, and with the prior written consent of both Master Lessor and Sublessor, provided Sublessor has conceptually approved of
the alterations described under Paragraph 2.B. above, subject to Master Lessor’s consent and its review of more detailed plans therefor,
including the design and materials for such alterations.
14.
Insurance: Sublessee shall obtain and keep in full force and effect, at Sublessee’s sole cost and expense, during the Term
the insurance required under Section 8.2 of the Master Lease. Sublessee shall name Master Lessor and Sublessor as additional insureds
under its liability insurance policy. The release and waiver of subrogation set forth in Section 8.4 of the Master Lease, as incorporated
herein, shall be binding on the parties.
15.
Default: Sublessee shall be in default under this Sublease if Sublessee commits any act or omission which constitutes a
default under the Master Lease, which has not been cured after delivery of written notice and passage of the applicable grace period
provided in the Master Lease as modified, if at all, by the provisions of this Sublease. In the event of any default by Sublessee,
Sublessor shall have all remedies provided pursuant to the Landlord’s Remedies Addendum attached to the Master Lease and by
applicable law.
16.
Surrender: Prior to expiration of this Sublease, Sublessee shall remove all of its trade fixtures and shall surrender the
Subleased Premises to Sublessor in the condition required under the Master Lease, provided Sublessor shall remain responsible for the
removal of its signs from the Subleased Premises prior to the expiration of the Master Lease. If the Subleased Premises are not so
surrendered, then Sublessee shall be liable to Sublessor for all liabilities Sublessor incurs as a result thereof, including costs incurred by
Sublessor in returning the Subleased Premises to the required condition, plus interest thereon at Interest Rate.
17.
Broker: Sublessor and Sublessee each represents to the other that it has dealt with no real estate brokers, finders, agents
or salesmen in connection with this transaction. Each party agrees to hold the other party harmless from and against all claims for
brokerage commissions, finder’s fees or other compen sation made by any other agent, broker, salesman or finder as a consequence of
such party’s actions or dealings with such agent, broker, salesman, or finder.
18.
Notices: Unless at least five (5) days’ prior written notice is given in the manner set forth in this paragraph, the address
of each party for all purposes connected with this Sublease shall be that address set forth below its signature at the end of this Sublease.
All notices, demands or communications in connection with this Sublease shall be (a) personally delivered; or (b) properly addressed
and (i) submitted to an overnight
-4-
courier service, charges prepaid, or (ii) deposited in the mail (certified, return receipt requested, and postage prepaid). Notices shall be
deemed delivered upon receipt, if personally delivered, one (1) business day after being submitted to an overnight courier service and
three (3) business days after mailing, if mailed as set forth above. All notices given to Master Lessor under the Master Lease shall be
considered received only when delivered in accordance with the Master Lease.
19.
Miscellaneous: Sublessee and Sublessor each represent and warrant to the other that each person executing this
Sublease on behalf of such party is duly authorized to execute and deliver this Sublease on behalf of that party. Capitalized terms used
but not defined in this Sublease shall have the meanings ascribed to such terms in the Master Lease.
20.
Other Sublease Terms:
A.
Incorporation by Reference. Except as set forth below, the terms and conditions of this Sublease shall include
all of the terms of the Master Lease and such terms are incorporated into this Sublease as if fully set forth herein, except that: (i) each
reference in such incorporated sections to “Lease” shall be deemed a reference to “Sublease”; (ii) each reference to the “Premises” shall
be deemed a reference to the “Subleased Premises”; (iii) each reference to “Landlord” and “Tenant” shall be deemed a reference to
“Sublessor” and “Sublessee”, respectively, except as otherwise expressly set forth herein; (iv) with respect to work, services, repairs,
restoration, insurance, indemnities, representations, warranties or the performance of any other obligation of Master Lessor under the
Master Lease, the sole obligation of Sublessor shall be to request the same in writing from Master Lessor as and when requested to do so
by Sublessee, and to use Sublessor’s reasonable efforts (without requiring Sublessor to spend more than a nominal sum) to obtain Master
Lessor’s performance; (v) with respect to any obligation of Sublessee to be performed under this Sublease, wherever the Master Lease
grants to Sublessor a specified number of days to perform its obligations under the Master Lease, except as otherwise provided herein,
Sublessee shall have three (3) fewer days to perform the obligation, including, without limitation, curing any defaults; (vi) with respect
to any approval required to be obtained from the “Landlord” under the Master Lease, such consent must be obtained from both Master
Lessor and Sublessor, and the approval of Sublessor may be withheld if Master Lessor’s consent is not obtained; (vii) in any case where
the “Landlord” reserves or is granted the right to manage, supervise, control, repair, alter, regulate the use of, enter or use the Premises or
any areas beneath, above or adjacent thereto, perform any actions or cure any failures, such reservation or right shall be deemed to be for
the benefit of both Master Lessor and Sublessor; (viii) in any case where “Tenant” is to indemnify, release or waive claims against
“Landlord”, such indemnity, release or waiver shall be deemed to cover, and run from Sublessee to, both Master Lessor and Sublessor;
(ix) in any case where “Tenant” is to execute and/or deliver certain documents or notices to “Landlord”, such obligation shall be deemed
to run from Sublessee to both Master Lessor and Sublessor; (x) all payments shall be made to Sublessor; (xi) Sublessee shall pay all
consent and review fees set forth in the Master Lease to each of Master Lessor and Sublessor; (xii) Sublessee shall not have the right to
terminate this Sublease due to casualty or condemnation unless Sublessor has such right under the Master Lease; (xiii) Sublessor’s
obligations under Section 4.2 are limited to forwarding statements and refunds provided by Master Lessor, and Sublessee shall have no
right to dispute or audit such statements; and (xiv) “Sublessee’s Share” shall mean, initially, 23.55% of the Premises, 20.17% of the
Building and 10.68% of the Industrial Park, and such amounts shall be increased pro rata based on the increased square footage of the
Subleased Premises on the Expansion Date to 79.27% of the Premises, 67.88% of the Building and 35.93% of the Industrial Park. Under
no circumstances shall rent abate under this Sublease except to the extent that rent correspondingly abates under the Master Lease as to
the Subleased Premises.
Notwithstanding the foregoing, the following provisions of the Master Lease shall not be incorporated herein: Sections
1.1, 1.2 (the first sentence only), 1.3-1.7, 1.10, 1.11, 3.1, 3.2, 4.2(b) (first two sentences), 4.2(d) (the reference to Paragraph 1.6 only),
4.2(e), 4.2(f), 5 (the reference to Paragraph 1.7 only), 6.2 (the third and fourth sentences and the first clause in the fifth sentence only),
6.5, 7.3 (the second sentence only), 11 (reference to paying utilities directly instead of to Sublessor), 12.1(c), 16.6, 16.7, 16.18(c) and
16.27;
-5-
Guaranty of Lease; Tenant Improvements Addendum; Option to Extend Addendum; Additional Security Deposit Addendum; Exhibit A;
First Amendment (except the first sentence of Section 5); Second Amendment; Third Amendment; Fourth Amendment (except Sections
5(b), 6 (except that the reference to “July 1, 2009” in Section 6(b) shall mean the Commencement Date), 7, 8 and 9); Fifth Amendment
(except Section 7); Sixth Amendment (except Section 7). In addition, notwithstanding subpart (iii) above, (a) references in the following
provisions to “Landlord” shall mean Master Lessor only: Sections 2.2-2.5, 4.2(a), 6.4 (the first reference only), 7.1 (the first instance
only), 7.2, 8.1, 8.3, 9.1, 10.1-10.4, 12.1(a) (the penultimate sentence), 14, and 16.20 (the last instance only); Fourth Amendment (Section
5(a) only); (b) references in the following provisions to “Landlord” shall mean Master Lessor and Sublessor: Sections 6.1 and 6.18(a)
and Fourth Amendment (Section 6(c) only); and (c) the terms of the second sentence of Section 10.3 shall also apply to any
improvements currently located in the Subleased Premises.
B.
Assumption of Obligations. This Sublease is and at all times shall be subject and subordinate to the Master
Lease and the rights of Master Lessor thereunder. Sublessee hereby expressly assumes and agrees: (i) to comply with all provisions of
the Master Lease which are incorporated hereunder; and (ii) to perform all the obligations on the part of the “Tenant” to be performed
under the terms of the Master Lease during the Term of this Sublease that are incorporated hereunder. In the event the Master Lease is
terminated for any reason whatsoever, this Sublease shall terminate simultaneously with such termination (unless Master Lessor or a
successor tenant agrees to permit Sublessee to continue to occupy the Subleased Premises on the terms of this Sublease for the remainder
of the Term), without any liability of Sublessor to Sublessee except to the extent such termination is due to the violation by a party of the
terms of this Sublease. In the event of a conflict between the provisions of this Sublease and the Master Lease, as between Sublessor and
Sublessee, the provisions of this Sublease shall control. In the event of a conflict between the express provisions of this Sublease and the
provisions of the Master Lease, as incorporated herein, the express provisions of this Sublease shall prevail.
21. Conditions Precedent: This Sublease and Sublessor’s and Sublessee’s obligations hereunder are conditioned upon the
written consent of Master Lessor and the Lender. Each party shall use commercially reasonable efforts to obtain such consent, including
by promptly signing Master Lessor’s and Lender’s commercially reasonable the consent forms. If Sublessor fails to obtain Master
Lessor’s or Lender’s consent within thirty (30) days after execution of this Sublease by Sublessor, then Sublessor or Sublessee may
terminate this Sublease by giving the other party written notice thereof prior to the date such consent is received, and Sublessor shall
return to Sublessee its payment of the first month’s Rent paid by Sublessee pursuant to Paragraph 4 hereof and the Security Deposit.
22.
Termination; Recapture: Notwithstanding anything to the contrary herein, Sublessee acknowledges that, under the
Master Lease, both Master Lessor and Sublessor have certain termination and recapture rights, including, without limitation, in Sections
9, 12.2 and 14. Nothing herein shall prohibit Master Lessor or Sublessor from exercising any such rights and neither Master Lessor nor
Sublessor shall have any liability to Sublessee as a result thereof. In the event Master Lessor or Sublessor exercise any such termination
or recapture rights as to the Subleased Premises, this Sublease shall terminate without any liability to Master Lessor or Sublessor.
23.
Furniture, Fixtures and Equipment: Upon execution hereof by Sublessee, Sublessee shall pay to Sublessor the sum of
One Hundred Thousand Dollars ($100,000) (the “Purchase Price”). Upon receipt of the Purchase Price, Sublessor shall transfer all of its
right, title and interest in those assets identified on Exhibit C attached hereto (the “FF&E”), and Sublessee shall accept the FF&E in their
“AS IS, WHERE IS” condition, without representation or warranty whatsoever, pursuant to and in accordance with the form bill of sale
attached hereto as Exhibit D. Sublessee shall be responsible for payment of all sales tax for the FF&E.
-6-
IN WITNESS WHEREOF, the parties have executed this Sublease as of the day and year first above written.
SUBLESSOR:
SUBLESSEE:
NEOS THERAPEUTICS, LP,
a Texas limited partnership
f/k/a PFAB LP
AMT MANUFACTURING SOLUTIONS, LLC,
a Delaware limited liability company
By: ___________________________
By: ___________________________
Name:_________________________
Name: _________________________
Its: ___________________________
Its: ____________________________
Address: c/o Aytu BioPharma, Inc.
373 Inverness Parkway, Suite 206
Englewood, CO 80112
Attn: Chief Financial Officer
Email: CFO@aytubio.com
Address: 2490 N. Highway 360, Suite 200
Grand Prairie, TX 75052
-7-
EXHIBIT A
MASTER LEASE
Exhibit A
EXHIBIT B
SUBLEASED PREMISES, EXPANSION SPACE
AND LOCATION OF DEMISING WALL
Exhibit B
Major Type
Fixed asset group
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
PkgEquip
PkgEquip
MfgEquip
MfgEquip
PkgEquip
PkgEquip
PkgEquip
PkgEquip
PkgEquip
PkgEquip
PkgEquip
PkgEquip
PkgEquip
PkgEquip
PkgEquip
PkgEquip
PkgEquip
WhseEquip
OfficeEquip
OfficeEquip
OfficeEquip
OfficeEquip
PkgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_7Yr
ME_COG_7Yr
ME_COG_7Yr
ME_COG_7Yr
ME_COG_7Yr
ME_COG_7Yr
ME_COG_7Yr
ME_COG_7Yr
PE_COG_42M
PE_COG_42M
PE_COG_42M
PE_COG_42M
PE_COG_42M
PE_COG_42M
PE_COG_7Yr
PE_COG_7Yr
PE_COG_7Yr
PE_COG_7Yr
PE_COG_7Yr
PE_COG_5Yr
PE_COG_5Yr
WE_COG_42M
WE_COG_42M
WE_COG_42M
WE_COG_42M
WE_COG_42M
PE_COG_5Yr
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
Fixed asset
number
1923
1982
55042
55046
55047
55048
55049
55060
55145
55154
55126
55204
55213
55215
1640
7008
55223
55283
55447
55448
55526
55540
55206
55211
55417-1
55210
1639
55040
55408
55409
55441
55513
55542
55417
55493
C06H07318
N/A
N/A
N/A
N/A
55407
55123
55124
1652
1653
1840
55196-1
EXHIBIT C
Furniture, Fixtures and Equipment Listing
Name
Sanimatic (Liquids CIP SYSTEM)
Type (316) Air-Powe (diaphragm pump)
Purified Water Syst
Kugler Linofill Mac
Kugler Reservoir - 100 Liter Hopper
Level Regulation Sy - part of the kugler
Addl Rotory Piston - Kugler Pumps
McBrady- Orbit Bottle Rinser
Kaps All Surge Tabl
Load cells - for Tank 55213
SP 500 VFD
Joni Electric Tilting Kettle
Atmos Open Top Tank 2000L
Brawn Mixer BGMF300 - installed on Tank
55213
Heavy Duty floor scale
Heavy Duty floor scale
B-Tek Heavy Duty floor scale
Diaphragm pump
Kugler Pump Svc Cart
Kugler Pump Svc Cart
Positive Displacement Pump
Handheld Oxygen Analyzer
Bottle turntable
Surge table
Upack Conveyor
Pack Off Table
Liquid packoff table & conveyor
12' Conveyor - new
Sneeze Guards for Kugler
Sliding Cover for Kugler
BellatRx Chuck Capper
NJM Labeler Trotter W127
Nitrogen Purge System
Liquid Line U-Pack
Liquid Line U-Track
ACH-1 10-60 ton trane Chiller
Warehouse racking (S/R and R1 - R4)
Conference Table
Office desk sets (5 total)
Cubicles (13 Total)
Conveyor
SP500 VFD
VFD
Diaphragm pump
Load cells - for Tank 1840
500 Gallon tank
Dayton Mixer on tank 1840
Exhibit C
Area
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
WhseEquip
WhseEquip
WhseEquip
WhseEquip
WhseEquip
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Locaton/Comments
49
48
47
56
56
56
56
56
56
48
48
48
48
48
54
54
54
48
56
56
48
54
56
56
56
54
54
56
56
56
56
56
56
56
56
outside
200 warehouse
office area
office area
office area
50
49
49
54
49
49
49
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
MfgEquip
PkgEquip
PkgEquip
PkgEquip
LAB
LAB
LAB
LAB
PkgEquip
PkgEquip
WhseEquip
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_42M
ME_COG_7Yr
ME_COG_7Yr
ME_COG_7Yr
2018
7006
55036
55541
55261
55043
55144
55146
55154
55180
55127
55198
55128
55182
55186
55189
55190
55200
55060-02
55226-01
55243
Diaphram Pump (Liquids)
Diaphragm Pump - 1/2" PTFE
Diaphragm Pump - 1/2" PTFE
Drum Pump - Finish Thompson STTS440
100L mixing tank and SPX Air mixer
Drum Heating Oven
Moyno Cavity Pump
MPS Pack-Off Table and Conveyor
Lynx Batch - old Controller for load cells
SP 500 VFD
SP 500 VFD
SP 500 VFD
SP 500 VFD
Portable Mixer 2hp
30G Stainless Steel
Portable Mixer 1/2 HP
Portable Mixer 1/2 HP
Moyno Cavity Pump
Chg Prts 125ML&90ML
AC Tech Inverter - LenzeVFD
Brawn Mixer BGMF150
ME_COG_7Yr
55243.02
17 AF# Impeller
ME_COG_7Yr
55243.03
15# A35 Impeller
ME_COG_7Yr
55243.04
SS Polished Shaft
ME_COG_7Yr
ME_COG_7Yr
PE_COG_42M
PE_COG_42M
LAB
LAB
LAB
LAB
PE_COG_42M
PE_COG_42M
WE_COG_42M
55266
N/A
N/A
55224
2473
2474
2475
2308
N/A
55026
QA Label
/Rejection
"2"" Diaphragm Pump" NT Mfg
Presuure Tank PC-37
Stainless Steel Lidding & Foil Racks
Eastey - Tape Machine
Stability Chamber
Stability Chamber
Stability Chamber
Incubator
Scate Conveyors (3 Total)
VideoJet Data Flex Controller
Cage Material
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
Suite200
WhseEquip
54 - In blue cabinet
54
54
55
54
Shipping warehouse
55
54
54
49
49
49
49
Sold with Groen
Kettle - June 22
54
54
54
54
55
49
On a shelf in
shipping dock.
On a shelf in
shipping dock.
On a shelf in
shipping dock.
On a shelf in
shipping dock.
54 - in blue cabinet
54
54
54
54
54
54
54
55
54
200 warehouse
Exhibit C
EXHIBIT D
FORM BILL OF SALE
BILL OF SALE
FOR VALUE RECEIVED, the sufficiency of which is hereby acknowledged, Neos Therapeutics, LP, a Texas limited partnership
(“Seller”), does hereby transfer, assign, sell and convey to AMT Manufacturing Solutions, LLC, a Delaware limited liability company
(“Purchaser”), all of the furniture, equipment and other personal property described on Exhibit C attached hereto (the “Assets”), which
are currently located a portion of Suite 200 of in those certain premises at 2490 N. Highway 360, Grand Prairie, Texas.
Seller warrants and represents that it currently holds title to the Assets free and clear of any liens or encumbrances. EXCEPT
AS STATED IN THE PRECEDING SENTENCE, SELLER MAKES NO WARRANTY OR REPRESENTATION WHATSOEVER
REGARDING THE ASSETS AND EXPRESSLY EXCLUDES ANY SUCH WARRANTY OR REPRESENTATION, EITHER
EXPRESS OR IMPLIED, AS TO THE MANUFACTURE, FITNESS, MERCHANTABILITY, QUALITY, CONDITION, CAPACITY,
SUITABILITY, OR FITNESS FOR A PARTICULAR PURPOSE OF THE ASSETS. THE ASSETS ARE SOLD TO PURCHASER AS
IS, WHERE IS, AND WITH ALL FAULTS AND DEFECTS.
WHEREFORE, Seller has executed this Bill of Sale as of the ___ day of ________, 2023.
NEOS THERAPEUTICS, LP,
a Texas limited partnership
By:
Print Name:
Title:
Exhibit C
Exhibit 10.48
TRAMMELL CROW COMPANY
COMMERCIAL LEASE AGREEMENT
WALSTIB, L.P., A DELAWARE LIMITED PARTNERSHIP
Landlord
AND
PHARMAFAB, INC.
Tenant
TABLE OF CONTENTS
1. BASIC PROVISIONS
1.1.Parties
1.2.Premises
1.3.Term
1.4.Base Rent
1.5.Tenant’s Share of Operating Expenses
1.6.Tenant’s Estimated Monthly Rent Payment
1.7.Security Deposit
1.8.Permitted Use
1.9.Guarantor
1.10.Addenda and Exhibits
1.11.Address for Rent Payments
2. PREMISES, PARKING AND COMMON AREAS
2.1.Letting
2.2.Common Areas - Definition
2.3.Common Areas - Tenant’s Rights
2.4.Common Areas - Rules and Regulations
2.5.Common Area Changes
3. TERM
3.1.Term
3.2.Delay in Possession
3.3.Commencement Date Certificate
4. RENT
4.1.Base Rent
4.2.Operating Expenses
5. SECURITY DEPOSIT
6. USE
6.1.Permitted Use
6.2.Hazardous Substances
6.3.Tenant’s Compliance with Requirements
6.4.Inspection; Compliance with Law
6.5.Existing Environmental Conditions
7. MAINTENANCE, REPAIRS, TRADE FIXTURES AND ALTERATIONS
7.1.Tenant’s Obligations
7.2.Landlord’s Obligations
7.3.Alterations
7.4.Surrender/Restoration
i
Page
1
1
1
1
1
1
1
2
2
2
2
2
2
2
2
3
3
3
3
3
3
4
4
4
5
7
7
7
7
8
9
9
9
9
10
10
10
8. INSURANCE; INDEMNITY
8.1.Payment of Premiums
8.2.Tenant’s Insurance
8.3.Landlord’s Insurance
8.4.Waiver of Subrogation
8.5.Indemnity
8.6.Exemption of Landlord from Liability
8.7.Breach of Lease by Landlord
9. DAMAGE OR DESTRUCTION
9.1.Termination Right
9.2.Damage Caused by Tenant
10. REAL PROPERTY TAXES
10.1.Payment of Real Property Taxes
10.2.Real Property Tax Definition
10.3.Additional Improvements
10.4.Joint Assessment
10.5.Tenant’s Property Taxes
11. UTILITIES
12. ASSIGNMENT AND SUBLETTING
12.1.Landlord’s Consent Required
12.2.Rent Adjustment
13. DEFAULT; REMEDIES
13.1.Default
13.2.Remedies
13.3.Late Charges
14. CONDEMNATION
15. ESTOPPEL CERTIFICATE AND FINANCIAL STATEMENTS
15.1.Estoppel Certificate
15.2.Financial Statement
16. ADDITIONAL COVENANTS AND PROVISIONS
16.1.Severability
16.2.Interest on Past-Due Obligations
16.3.Time of Essence
16.4.Landlord Liability
16.5.No Prior or Other Agreements
16.6.Notice Requirements
16.7.Date of Notice
16.8.Waivers
16.9.Holdover
16.10.Cumulative Remedies
ii
10
10
10
11
11
11
12
12
12
12
13
13
13
13
13
13
14
14
14
14
15
15
15
16
16
16
16
16
17
17
17
17
17
17
17
17
18
18
18
18
16.11.Binding Effect; Choice of Law
16.12.Landlord
16.13.Attorneys’ Fees and Other Costs
16.14.Landlord’s Access; Showing Premises; Repairs
16.15.Signs
16.16.Termination; Merger
16.17.Quiet Possession
16.18.Subordination; Attornment; Non-Disturbance
16.19.Financing by Tenant
16.20.Rules and Regulations
16.21.Security Measures
16.22.Reservations
16.23.Conflict
16.24.Offer
16.25.Amendments
16.26.Multiple Parties
16.27.Authority
SIGNATURES
EXHIBIT A
EXHIBIT B
EXHIBIT C
EXHIBIT D
iii
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18
19
19
19
19
19
20
20
21
21
21
21
21
21
21
21
22
The following terms in the Lease are defined in the paragraphs opposite the terms.
GLOSSARY
TERM
Additional Rent
Applicable Requirements
Assign
Base Rent
Basic Provisions
Building
Building Operating Expenses
Code
Commencement Date
Commencement Date Certified
Common Areas
Common Area Operating Expenses
Condemnation
Default
Expiration Date
HVAC
Hazardous Substance
Indemnity
Industrial Center
Landlord
Landlord Entities
Lease
Lenders
Mortgage
Operating Expenses
Party/Parties
Permitted Use
Premises
Prevailing Party
Real Property Taxes
Rent
Reportable Use
Requesting Party
Responding Party
Rules and Regulations
Security Deposit
Taxes
Tenant
Tenant Acts
Tenant’s Share
Term
Use
iv
DEFINED IN PARAGRAPH
4.1
6.3
12.1
1.4
1.1
1.2
4.2(b)
12.1
1.3
3.3
2.2
4.2(b)
14
13.1
1.3
4.2(a)
6.2
8.5
1.2
1.1
6.2(c)
1.1
6.4
16.18
4.2
1.1
1.8
1.2
16.13
10.2
4.1
6.2
15
15
2.4
1.7
10.2
1.1
9.2
1.5
1.3
6.1
WALSTIB, L.P.,
A DELAWARE LIMITED PARTNERSHIP
INDUSTRIAL MULTI-TENANT LEASE
1.
Basic Provisions (“Basic Provisions”).
1.1.
Parties: This Lease (“Lease”) dated June ____, 1999, is made by and between WALSTIB, L.P., a Delaware limited
partnership (“Landlord”) and PHARMAFAB, INC., a Texas corporation (“Tenant”) (collectively the “Parties,” or individually a
“Party”).
1.2.
Premises: A portion, outlined on Exhibit A attached hereto (“Premises”), of the building (“Building”) located at 360
Riverside Business Center (Building B) in the City of Grand Prairie, State of Texas. The Building is located in the industrial center
commonly known as 360 Riverside Business Center (the “Industrial Center”). Tenant shall have non-exclusive rights to the Common
Areas (as defined in Paragraph 2.3 below), but shall not have any rights to the roof exterior walls or utility raceways of the Building or
to any other buildings in the Industrial Center. The Premises, the Building, the Common Areas, the land upon which they are located
and all other buildings and improvements thereon are herein collectively referred to as the “Industrial Center.”
1.3.
Term: The period (“Term”) commencing on July 15, 1999, subject to the provisions of Section 3.2 below
(“Commencement Date”), and ending July 31, 2006 (“Expiration Date”).
1.4.
Base Rent: Initially, the sum of $28,930.00 per month, subject to adjustment as set forth below (“Base Rent”). The
first installment of Base Rent in the amount of $28,930.00 shall be payable on execution of this Lease. The Base Rent shall be as
follows:
Months
1-12
13-60
61-72
73-84
Net PSF
$7.89
$8.70
$9.58
$9.98
Monthly
$28,930.00
$31,900.00
$35,126.67
$36,593.33
1.5.
Tenant’s Share of Operating Expenses (“Tenant’s Share”):
(a)
(b)
Industrial Park
Building
20.5 %
38.7 %
1.6.
Tenant’s Estimated Monthly Rent Payment: Following is the estimated monthly Rent payment to Landlord pursuant
to the provisions of this Lease. This estimate is made at the inception of the Lease and is subject to adjustment pursuant to the
provisions of this Lease:
(a)
(b)
(c)
Base Rent (Paragraph 4.1)
Operating Expenses (Paragraph 4.2;
excluding Real Property Taxes and
Landlord Insurance)
Landlord Insurance (Paragraph 8.3)
$
$
$
28,930.00
1,283.33
183.33
1
(d)
Real Property Taxes (Paragraph 10)
Estimated Monthly Payment
$
$
3,300.00
33,696.66
Security Deposit: $38,000.00 (“Security Deposit”).
Permitted Use: Manufacturing, storage and distribution of pharmaceutical products (“Permitted Use”).
Guarantor: Bruce K. Montgomery and Darlene Ryan.
1.7.
1.8.
1.9.
1.10.
Addenda and Exhibits: Attached hereto are the following Addenda and Exhibits, all of which constitute a part of this
Lease:
(a)
Addenda:
(b)
Exhibits:
Remedies Addendum
Tenant Improvements Addendum
Option To Extend Addendum
Additional Security Deposit Addendum
Exhibit A:
Exhibit B:
Exhibit C:
Exhibit D:
Diagram of Premises.
Commencement Date Certificate.
Signage Criteria
Subordination Agreement
1.11.
Address for Rent Payments: All amounts payable by Tenant to Landlord shall until further notice from Landlord be
paid to WALSTIB, L.P., a Delaware limited partnership at the following address:
c/o Trammell Crow Dallas/Fort Worth
801 Avenue H East, Suite 101
Arlington, Texas 76011
2.
Premises, Parking and Common Areas.
2.1.
Letting. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises upon all of the
terms, covenants and conditions set forth in this Lease. Any statement of square footage set forth in this Lease or that may have been
used in calculating Base Rent and/or Operating Expenses is an approximation which Landlord and Tenant agree is reasonable and the
Base Rent and Tenant’s Share based thereon is not subject to revision whether or not the actual square footage is more or less.
2.2.
Common Areas - Definition. “Common Areas” are all areas and facilities outside the Premises and within the
exterior boundary line of the Industrial Center and interior utility raceways within the Premises that are provided and designated by the
Landlord from time to time for the general non-exclusive use of Landlord, Tenant and other tenants of the Industrial Center and their
respective employees, suppliers, shippers, tenants, contractors and invitees.
2
2.3.
Common Areas - Tenant’s Rights. Landlord hereby grants to Tenant, for the benefit of Tenant and its employees,
suppliers, shippers, contractors, customers and invitees, during the Term of this Lease, the non-exclusive right to use, in common with
others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by
Landlord under the terms hereof or under the terms of any rules and regulations or covenants, conditions and restrictions governing the
use of the Industrial Center.
2.4.
Common Areas - Rules and Regulations. Landlord shall have the exclusive control and management of the Common
Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable Rules and Regulations with
respect thereto in accordance with Paragraph 16.19.
2.5.
Common Area Changes. Landlord shall have the right, in Landlord’s sole discretion, from time to time:
(a)
To make such changes to the Common Areas as Landlord, in the exercise of sound business judgment, may
deem to be appropriate, including, without limitation, changes in the locations, size, shape and number of driveways, entrances,
parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas, walkways and utility
raceways; provided, however, that no such changes shall result in access to the Premises or the parking areas or loading areas adjacent
to the Premises being denied to Tenant, and in any event Landlord shall use reasonable efforts to minimize the extent to which any such
changes in the Common Areas will impede or interfere with access to the Premises, including the use of parking spaces and loading
areas adjacent to the Premises and the use of driveways providing ingress and egress to and from the Premises.
the Premises remains available;
(b)
To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to
(c)
(d)
(e)
To designate other land outside the boundaries of the Industrial Center to be a part of the Common Areas;
To add additional buildings and improvements to the Common Areas;
To use the Common Areas while engaged in making additional improvements, repairs or alterations to the
Industrial Center, or any portion thereof; and
and Industrial Center as Landlord may, in the exercise of sound business judgment, deem to be appropriate.
(f)
To do and perform such other acts and make such other changes in, to or with respect to the Common Areas
3.
Term.
3.1.
3.2.
Term. The Commencement Date, Expiration Date and Term of this Lease are as specified in Paragraph 1.3.
Delay in Possession. If for any reason Landlord cannot deliver possession of the Premises to Tenant by the
Commencement Date, Landlord shall not be subject to any liability
3
therefor, nor shall such failure affect the validity of this Lease or the obligations of Tenant hereunder. In such case, Tenant shall not,
except as otherwise provided herein, be obligated to pay Rent or perform any other obligation of Tenant under the terms of this Lease
until Landlord delivers possession of the Premises to Tenant. The term of the Lease shall commence on the earlier of (a) the date upon
which Tenant takes possession of the Premises, or (b) ten (10) days following notice to Tenant that the Leasehold Improvements (as
defined in the Tenant Improvements Addendum) are substantially complete (as such term is defined in the Tenant Improvements
Addendum) and Landlord is prepared to tender possession of the Premises to Tenant. If possession of the Premises is not delivered to
Tenant within sixty (60) days after the receipt of a building permit in respect of the Premises from the City of Grand Prairie and such
delay is not due to Tenant’s acts, failure to act or omissions, then Tenant shall be entitled, as its sole remedy, to receive one (1) day’s
rental abatement (effective as of the Commencement Date) for each day of delay beyond such sixty (60) day period. If possession of
the Premises is not delivered to Tenant within ninety (90) days after the receipt of a building permit in respect of the Premises from the
City of Grand Prairie and such delay is not due to Tenant’s acts, failure to act or omissions, then Tenant shall be entitled, as its sole
remedy, to receive two (2) days’ rental abatement (effective as of the Commencement Date) for each day of delay beyond such ninety
(90) day period. If possession of the Premises is not delivered to Tenant within one hundred twenty (120) days after the receipt of a
building permit in respect of the Premises from the City of Grand Prairie and such delay is not due to Tenant’s acts, failure to act or
omissions, then Tenant may, as its sole remedy, cancel this Lease by notice in writing to Landlord within ten (10) days after the end of
said one hundred twenty (120) day period, and in such event the parties shall be discharged from all obligations hereunder. If such
written notice from Tenant is not received by Landlord within said ten (10) day period, Tenant’s right to cancel this Lease shall
terminate. If the Commencement Date is after August 1, 1999, and is not the first day in a calendar month, then the Term shall end,
and the Expiration Date shall be, the last day of the eighty-four (84) month period that begins on the first day of the first full calendar
month of the Term.
3.3.
Commencement Date Certificate. At the request of Landlord, Tenant shall execute and deliver to Landlord a
completed certificate (“Commencement Date Certificate”) in the form attached hereto as Exhibit B.
4.
Rent.
4.1.
Base Rent. Tenant shall pay to Landlord Base Rent and other monetary obligations of Tenant to Landlord under the
terms of this Lease (such other monetary obligations are herein referred to as “Additional Rent”) in lawful money of the United States,
without offset or deduction, in advance on or before the first day of each month. Base Rent and Additional Rent for any period during
the term hereof which is for less than one full month shall be prorated based upon the actual number of days of the month involved.
Payment of Base Rent and Additional Rent shall be made to Landlord at its address stated herein or to such other persons or at such
other addresses as Landlord may from time to time designate in writing to Tenant. Base Rent and Additional Rent are collectively
referred to as “Rent”. All monetary obligations of Tenant to Landlord under the terms of this Lease are deemed to be rent.
4
4.2.
Operating Expenses. Tenant shall pay to Landlord on the first day of each month during the term hereof, in addition
to the Base Rent, Tenant’s Share of all Operating Expenses in accordance with the following provisions:
Industrial Center, Building and Premises including, but not limited to, the following:
(a)
“Operating Expenses” are all costs incurred by Landlord relating to the ownership and operation of the
The operation, repair, maintenance and replacement in neat, clean, good order and condition of the
Common Areas, including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, drainage systems, lighting facilities, fences and gates, exterior signs
and tenant directories.
(i)
(ii)
Water, gas, electricity, telephone and other utilities servicing the Common Areas.
(iii)
Trash disposal, janitorial services, snow removal, property management and security services.
(iv)
Reasonable reserves set aside for maintenance, repair and replacement of the Common Areas and
Building.
(v)
Real Property Taxes.
(vi)
Premiums for the insurance policies maintained by Landlord under Paragraph 8 hereof.
(vii)
Environmental monitoring and insurance programs.
(viii) Monthly amortization of capital improvements to the Common Areas and the Building, it being
agreed that the monthly amortization of any given capital improvement shall be equal to the quotient obtained by dividing the cost of
the capital improvement by Landlord’s estimate of the number of months of useful life of such improvement.
Maintenance of the Building including, but not limited to, painting, caulking and repair and
replacement of Building components, including, but not limited to, roof, elevators, mechanical, systems, and fire detection and
sprinkler systems.
(ix)
(x)
If Tenant fails to maintain the Premises, any expense incurred by Landlord for such maintenance.
(b)
Tenant’s Share of Operating Expenses that are not specifically attributed to the Premises or Building
(“Common Area Operating Expenses”) shall be that percentage shown in Paragraph 1.5(a). Tenant’s Share of Operating Expenses that
are attributable to the Building (“Building Operating Expenses”) shall be that percentage shown in Paragraph 1.5(b). Landlord in its
reasonable discretion shall determine which Operating Expenses are Common Area Operating Expenses, Building Operating Expenses
or expenses to be entirely borne by Tenant.
5
deemed to impose any obligation upon Landlord to either have said improvements or facilities or to provide those services.
(c)
The inclusion of the improvements, facilities and services set forth in Subparagraph 4.2(a) shall not be
(d)
Tenant shall pay monthly in advance on the same day as the Base Rent is due Tenant’s Share of estimated
Operating Expenses in the amount set forth in Paragraph 1.6. Landlord shall deliver to Tenant within ninety (90) days after the
expiration of each calendar year a reasonably detailed statement showing Tenant’s Share of the actual Operating Expenses incurred
during the preceding year. If Tenant’s estimated payments under this Paragraph 4(d) during the preceding year exceed Tenant’s Share
as indicated on said statement, Tenant shall be credited the amount of such overpayment against Tenant’s Share of Operating Expenses
next becoming due. If Tenant’s estimated payments under this Paragraph 4.2(d) during said preceding year were less than Tenant’s
Share as indicated on said statement, Tenant shall pay to Landlord the amount of the deficiency within ten (10) days after delivery by
Landlord to tenant of said statement. At any time Landlord may adjust the amount of the estimated Tenant’s Share of Operating
Expenses to reflect Landlord’s estimate of such expenses for the year.
(e)
Notwithstanding anything contained herein to the contrary, the Controllable Operating Expenses (as
hereinafter defined) payable by Tenant for each calendar year after 2000 shall not be more than the sum of (i) the aggregate amount of
Controllable Operating Expenses for the year 2000 and (ii) the product obtained by multiplying (A) .15, times (B) the number of
complete calendar years that have elapsed between January 1 of the year 2000 and January 1 of the year for which such calculation is
being made, times (C) the aggregate amount of Controllable Operating Expenses for the year 2000. For purposes of this Lease, the
term “Controllable Operating Expenses” shall mean all items of Operating Expenses which are within the reasonable control of
Landlord; thus, excluding Real Property Taxes, insurance, utilities, and other costs beyond the reasonable control of Landlord. The
limit on the increases in Controllable Operating Expenses shall continue during any renewal or extended Term, using the year 2000 as
the base year to calculate the applicable limit.
(f)
After giving Landlord thirty (30) days’ prior written notice thereof, Tenant may inspect or audit Landlord’s
records relating to Operating Expenses for any periods of time within one year before the audit or inspection; however, no audit or
inspection shall extend to periods of time before the Commencement Date. If Tenant fails to object to the calculation of Operating
Expenses on an annual Operating Expense statement within thirty (30) days after the statement has been delivered to Tenant, then
Tenant shall have waived its right to object to the calculation of Operating Expenses for the year in question and the calculation of
Operating Expenses set forth on such statement shall be final. Tenant’s audit or inspection shall be conducted only during business
hours reasonably designated by Landlord. Tenant shall pay the cost of such audit or inspection, including $100 per hour of Landlord’s
or the building manager’s employee time devoted to such inspection or audit, to reimburse Landlord for its overhead costs allocable to
the inspection or audit, unless the total Operating Expenses charged to Tenant for the time period in question is determined to be in
error by more than five percent (5 %) in the aggregate, in which case Landlord shall pay the audit cost. Tenant may not conduct an
inspection or have an audit performed more than once during any calendar year. If such inspection or audit reveals that an error was
made in the Operating Expenses previously charged to Tenant, then Landlord shall refund to Tenant any overpayment of any such
costs, or Tenant shall pay to Landlord any
6
underpayment of any such costs, as the case may be, within thirty (30) days after notification thereof. Tenant shall maintain the results
of each such audit or inspection confidential and shall not be permitted to use any third party to perform such audit or inspection, other
than an independent firm of certified public accountants reasonably acceptable to Landlord which agrees with Landlord in writing to
maintain the results of such audit or inspection confidential.
5.
Security Deposit. Tenant shall deposit with Landlord upon Tenant’s execution hereof the Security Deposit set forth in
Paragraph 1.7 as security for Tenant’s faithful performance of Tenants obligations under this Lease. If Tenant fails to pay Base Rent or
Additional Rent or otherwise defaults under this Lease (as defined in Paragraph 13.1), Landlord may use the Security Deposit for the
payment of any amount due Landlord or to reimburse or compensate Landlord for any liability, cost, expense, loss or damage
(including attorney’s fees) which Landlord may suffer or incur by reason thereof. Tenant shall on demand pay Landlord the amount so
used or applied so as to restore the Security Deposit to the amount set forth in Paragraph 1.7. Landlord shall not be required to keep all
or any part of the Security Deposit separate from its general accounts. Landlord shall, at the expiration or earlier termination of the
term hereof and after Tenant has vacated the Premises, return to Tenant that portion of the Security Deposit not used or applied by
Landlord. No part of the Security Deposit shall be considered to be held in trust, to bear interest, or to be prepayment for any monies
to be paid by Tenant under this Lease.
6.
Use.
6.1.
Permitted Use. Tenant shall use and occupy the Premises only for the Permitted Use set forth in Paragraph 1.8.
Tenant shall not commit any nuisance, permit the emission of any objectionable noise or odor, suffer any waste, or make any use of the
Premises which is contrary to any law or ordinance, or which would invalidate any of Landlord’s insurance, or which would increase
the premiums for any insurance carried by Landlord which is typically carried by landlords of properties comparable to the Industrial
Center. Tenant shall not service, maintain or repair vehicles on the Premises, Building or Common Areas. Tenant shall not store foods,
pallets, drums or any other materials outside the Premises.
6.2.
Hazardous Substances.
(a)
Reportable Uses Require Consent. The term “Hazardous Substance” as used in this Lease shall mean any
product, substance, chemical, material or waste whose presence, nature, quantity and/or intensity of existence, use, manufacture,
disposal, transportation, spill, release or effect, either by itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the environment, or the Premises; (ii) regulated or monitored by
any governmental authority; or (iii) a basis for potential liability of Landlord to any governmental agency or third party under any
applicable statute or common law theory. Hazardous Substance shall include, but not be limited to, hydrocarbons, petroleum, gasoline,
crude oil or any products or by-products thereof. Landlord acknowledges and agrees that Tenant will be using the Premises for the
manufacture, storing and distribution of pharmaceutical and related materials (some of which may contain Hazardous Substances) in
the ordinary course of Tenant’s business (collectively, “Tenant’s Products”). Nothing contained in this Lease shall be construed to
prohibit Tenant from bringing Tenant’s Products upon the Premises; provided, however, that Tenant must comply with all Applicable
7
Requirements in respect of Tenant’s Products. With the exception of Tenant’s Products, Tenant shall not, without the prior written
consent of Landlord, generate, possess, store, use, transport, or dispose of a Hazardous Substance (i) that requires a permit from, or
with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, or (ii) with
respect to which any Applicable Requirements require that a notice be given to persons entering or occupying the Premises or
neighboring properties. Furthermore, Tenant shall not install or use any above or below ground storage tank in the Industrial Center.
(b)
Duty to Inform Landlord. If Tenant knows that a Hazardous Substance is located in, under or about the
Premises or the Building in violation of Applicable Requirements, Tenant shall immediately give Landlord written notice thereof,
together with a copy of any statement, report, notice, registration, application, permit, business plan, license, claim, action, or
proceeding given to, or received from, any governmental authority or private party concerning the presence, spill, release, discharge of,
or exposure to, such Hazardous Substance. Tenant shall not cause or permit any Hazardous Substance to be spilled or released in, on,
under or about the Premises (including, without limitation, through the plumbing or sanitary sewer system) in violation of Applicable
Requirements.
(c)
Indemnification. Tenant shall indemnify, protect, defend and hold Landlord, Landlord’s affiliates, Lenders,
and the officers, directors, shareholders, partners, employees, managers, independent contractors, attorneys and agents of the foregoing
(“Landlord Entities”) and the Premises, harmless from and against any and all damages, liabilities, judgments, costs, claims, liens,
expenses, penalties, loss of permits and attorneys’ and consultants’ fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Tenant or by any of Tenant’s employees, agents, contractors or invitees. Tenant’s obligations under this
Paragraph 6.2(c) shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment
created or suffered by Tenant, and the cost of investigation (including consultants’ and attorneys’ fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination therein involved. Tenant’s obligations under this
Paragraph 6.2(c) shall survive the expiration or earlier termination of this Lease.
6.3.
Tenant’s Compliance with Requirements. Tenant shall, at Tenant’s sole cost and expense, fully, diligently and in a
timely manner, comply with all “Applicable Requirements,” which term is used in this Lease to mean all laws, rules, regulations,
ordinances, directives, covenants, easements and restrictions of record, permits, the requirements of any applicable fire insurance
underwriter or rating bureau, and the recommendations of Landlord’s engineers and/or consultants, relating in any manner to the
Premises (including but not limited to matters pertaining to (i) industrial hygiene, (ii) environmental conditions on, in, under or about
the Premises, including soil and groundwater conditions, and (iii) the use, generation, manufacture, production, installation,
maintenance, removal, transportation, storage, spill or release of any Hazardous Substance), now in effect or which may hereafter come
into effect. Tenant shall, within five (5) days after receipt of Landlord’s written request, provide Landlord with copies of all documents
and information evidencing Tenant’s compliance with any Applicable Requirements and shall immediately upon receipt, notify
Landlord in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or
report pertaining to or involving failure by Tenant or the Premises to comply with any Applicable Requirements.
8
6.4.
Inspection; Compliance with Law. In addition to Landlord’s environmental monitoring and insurance program, the
cost of which is included in Operating Expenses, Landlord and the holders of any mortgages, deeds of trust or ground leases on the
Premises (“Lenders”) shall have the right to enter the Premises at any time in the case of an emergency, and otherwise at reasonable
times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Tenant with this Lease and all
Applicable Requirements. Landlord shall be entitled to employ experts and/or consultants in connection therewith to advise Landlord
with respect to Tenant’s installation, operation, use, monitoring, maintenance, or removal of any Hazardous Substance on or from the
Premises. Any inspection of the Premises conducted by Landlord or Lenders (other than in the event of an emergency) shall be done in
compliance with any applicable requirements of the federal Food and Drug Administration (the “FDA”) or any requirements imposed
by Tenant in order to comply with requirements of the FDA. The cost and expenses of any such inspections shall be paid by the party
requesting same unless a violation of Applicable Requirements exists or is imminent or the inspection is requested or ordered by a
governmental authority. In such case, Tenant shall upon request reimburse Landlord or Landlord’s Lender, as the case may be, for the
costs and expenses of such inspections.
6.5.
Existing Environmental Conditions. Prior to the execution of this Lease, Landlord has delivered to Tenant an
environmental report (the “Environmental Report”) in respect of the Building commissioned by Landlord. Landlord represents to
Tenant that as of the date hereof Landlord has no actual knowledge of any environmental matters affecting the Property other than
those disclosed in the Environmental Report.
7.
Maintenance, Repairs, Trade Fixtures and Alterations.
7.1.
Tenant’s Obligations. Subject to the provisions of Paragraph 7.2 (Landlord’s Obligations), Paragraph 9 (Damage or
Destruction) and Paragraph 14 (Condemnation), Tenant shall, at Tenant’s sole cost and expense and at all times, keep the Premises and
every part thereof in good order, condition and repair (whether or not such portion of the Premises requiring repair, or the means of
repairing the same, are reasonable or readily accessible to Tenant and whether or not the need for such repairs occurs as a result of
Tenant’s use, the elements or the age of such portion of the Premises) including, without limiting the generality of the foregoing, all
equipment or facilities specifically serving the Premises, such as heating, ventilating and air conditioning (“HVAC”), plumbing,
electrical, lighting facilities, boilers, fired or unfired pressure vessels, fire hose connectors if within the Premises, fixtures, interior
walls, interior surfaces of exterior walls, ceilings, floors, windows, doors, plate glass, and skylights, but excluding any items which are
the responsibility of Landlord pursuant to Paragraph 7.2 below. Heating, ventilation and air conditioning systems serving the Premises
shall be operated at Tenant’s sole expense and shall be maintained, at Tenant’s sole expense, pursuant to maintenance service contracts
entered into by Tenant; provided, however, that the scope of services and contractors under such maintenance contracts shall be
reasonably approved by Landlord. Tenant shall be responsible for removal of snow and ice from the sidewalks adjacent to the
Premises. Tenant’s obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of repair. Landlord shall grant Tenant the benefit of any
assignable warranty covering the equipment serving the Premises for which Tenant is responsible hereunder.
9
7.2.
Landlord’s Obligations. Subject to the provisions of Paragraph 6 (Use), Paragraph 7.1 (Tenant’s Obligations),
Paragraph 9 (Damage or Destruction) and Paragraph 14 (Condemnation), Landlord at its expense and not subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the foundations and exterior walls of the Building and utility
systems outside the Building. Landlord, subject to reimbursement pursuant to Paragraph 4.2, shall keep in good order, condition and
repair the Common Areas and the roof of the Building. Landlord’s obligation to keep the Common Areas in good order, condition and
repair shall include, without limitation, the obligation to keep the driveways and parking areas included in the Common Areas
adequately paved, to keep such parking areas adequately striped, and to provide adequate drainage to the Common Areas.
7.3.
Alterations. Tenant shall not make nor cause to be made any alterations or installations in, on, under or about the
Premises without the prior written consent of Landlord, which consent shall not be unreasonably withheld. Notwithstanding the
foregoing, Tenant shall not be required to obtain Landlord’s consent for alterations totaling less than $20,000 in any single instance or
series of related alterations performed within a six (6) month period, provided that such alterations do not (a) involve penetration of the
roof of the Building or any load-bearing walls or exterior glass panes in the Building, (b) affect any structural elements of the Building,
(c) affect the configuration or location of any exterior or load-bearing interior walls of the Building, or (d) affect any mechanical
systems in the Building (including, without limitation, the electrical and plumbing systems in the Building).
7.4.
Surrender/Restoration. Tenant shall surrender the Premises by the end of the last day of the Lease term or any earlier
termination date, clean and free of debris and in good operating order, condition and state of repair ordinary wear and tear excepted.
Without limiting the generality of the above, Tenant shall remove all personal property, trade fixtures and floor bolts, patch all floors
and cause all lights to be in good operating condition.
8.
Insurance; Indemnity.
8.1.
Payment of Premiums. The cost of the premiums for the insurance policies maintained by Landlord under this
Paragraph 8 shall be a Common Area Operating Expense pursuant to Paragraph 4.2 hereof. Premiums for policy periods commencing
prior to, or extending beyond, the term of this Lease shall be prorated to coincide with the corresponding Commencement Date or
Expiration Date.
8.2.
Tenant’s Insurance.
At its sole cost and expense, Tenant shall maintain in full force and effect during the Term of the lease the
following insurance coverages insuring against claims which may arise from or in connection with the Tenant’s operation and use of
the leased premises.
(a)
Commercial General Liability with minimum limits of $1,000,000 per occurrence; $2,000,000
general aggregate for bodily injury, personal injury and property damage. If required by Landlord, liquor liability coverage will be
included.
(i)
per accident limit for bodily injury or disease.
(ii)
Workers’ Compensation insurance with statutory limits and Employers Liability with a $1,000,000
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accident limit for bodily injury and property damage.
(iii)
Automobile Liability covering all owned, non-owned and hired vehicles with a $1,000,000 per
Property insurance against all risks of loss to any tenant improvements or betterments and business
personal property on a full replacement cost basis with no coinsurance penalty provision; and Business Interruption Insurance with a
limit of liability representing loss of at least approximately six (6) months of income.
(iv)
to initial occupancy; and annually thereafter.
(b)
Tenant shall deliver to Landlord certificates of all insurance reflecting evidence of required coverages prior
(c)
All insurance required under this Paragraph 8.2: (i) shall be primary and non-contributory, (ii) shall provide
for severability of interests, (iii) shall be issued by insurers licensed to do business in the state in which the Premises are located and
rated A:VII or better by Best’s Key Rating Guide, (iv) shall be endorsed to include Landlord and such other persons or entities as
Landlord may from time to time designate, as additional insureds (Commercial General Liability only), and (v) shall be endorsed to
provide at least thirty (30)days prior notification of cancellation or material change in coverage to said additional insureds.
8.3.
Landlord’s Insurance. Landlord may, but shall not be obligated to, maintain all risk, including earthquake and flood,
insurance covering the buildings within the Industrial Center, Commercial General Liability and such other insurance in such amounts
and covering such other liability or hazards as deemed appropriate by Landlord. The amount and scope of coverage of Landlord’s
insurance shall be determined by Landlord from time to time in its sole discretion and shall be subject to such deductible amounts as
Landlord may elect. Landlord shall have the right to reduce or terminate any insurance or coverage. Premiums for any such insurance
shall be a Common Area Operating Expense.
8.4.
Waiver of Subrogation. To the extent permitted by law and without affecting the coverage provided by insurance
required to be maintained hereunder, Landlord and Tenant each waive any right to recover against the other on account of any and all
claims Landlord or Tenant may have against the other with respect to property insurance actually carried, or required to be carried
hereunder, to the extent of the proceeds realized from such insurance coverage.
8.5.
Indemnity. Subject to Section 8.6, Tenant shall indemnify, defend, and hold harmless Landlord, its successors,
assigns, agents, employees, contractors, partners, directors, officers and affiliates (collectively, the “Indemnified Parties) from and
against all fines, suits, losses, costs, liabilities, claims, demands, actions and judgments of every kind or character (a) arising from
Tenant’s failure to perform its covenants hereunder, (b) recovered from or asserted against any of the Indemnified Parties on account of
any Loss (defined below) to the extent that any such Loss is caused by a Tenant Party or any other person entering upon the Premises
under or with a Tenant Party’s express or implied invitation or permission, (c) arising from or out of the occupancy or use by a Tenant
Party or arising from or out of any occurrence in the Premises, or (d) suffered by, recovered from or asserted against any of the
Indemnified Parties by a Tenant Party, regardless of whether Landlord’s negligence caused such loss or damage. However, such
indemnification of the Indemnified Parties by Tenant shall not be applicable if such loss, damage, or injury is caused by the gross
negligence or willful misconduct of Landlord or any of its duly
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authorized agents or employees. The provisions of this Paragraph 8.5 shall survive the termination of this Lease with respect to any
claims or liability accruing prior to such termination.
8.6.
Exemption of Landlord from Liability. Landlord shall not be liable to Tenant or those claiming by, through, or under
Tenant for any injury to or death of any person or persons or the damage to or theft, destruction, loss or loss of use of any property or
inconvenience (a “Loss”) caused by casualty, theft, fire, third parties, or any other matter (including Losses arising through repair or
alteration of any part of the Building, or failure to make repairs, or from any other cause), regardless of whether the negligence (other
than gross negligence) of either party caused such Loss in whole or in part, Landlord and Tenant each waives any claim it might have
against the other for any damage to or theft, destruction, loss, or loss of use of any property, to the extent the same is insured against
under any insurance policy maintained by it that covers the Building, the Premises, Landlord’s or Tenant’s fixtures, personal property,
leasehold improvements, or business, or is required to be insured against by the waiving party under the terms hereof, regardless of
whether the negligence or fault of the other party caused such loss; however, Landlord’s waiver shall not apply to any deductible
amounts maintained by Landlord under its insurance. Each party shall cause its insurance carrier to endorse all applicable policies
waiving the carrier’s rights of recovery under subrogation or otherwise against the other party.
8.7.
Breach of Lease by Landlord. Nothing contained in Section 8.5 or Section 8.6 above shall be construed to limit the
remedies for breach of contract which Tenant may have for breach of this Lease by Landlord (it being agreed, however, that such
remedies shall in all events be subject to other applicable provisions of this Lease, including, without limitation, Section 16.4 hereof).
9.
Damage or Destruction.
9.1.
Termination Right. Tenant shall give Landlord immediate written notice of any damage to the Premises. Thereafter,
Landlord shall send Tenant written notice (the “Estimated Time Notice”) of the estimated period of time, as determined by Landlord’s
architect, that repair of such damage will substantially interfere with the conduct of Tenant’s business at the Premises. Subject to the
provisions of Paragraph 9.2, if the damage to the Premises is such that, in the opinion of Landlord’s architect as set forth in the
Estimated Time Notice, there will be substantial interference with the conduct by Tenant of its business at the Premises for a period
exceeding ninety (90) consecutive days, then Tenant may terminate this Lease by sending Landlord written notice thereof within ten
(10) days after Tenant receives the Estimated Time Notice (time being of the essence), which termination shall be effective thirty (30)
days after delivery of such notice of termination to Landlord. If the Estimated Time Notice states that repair of damage will not
interfere with the conduct of Tenant’s business at the Premises for more than ninety (90) consecutive days, but such repair does in fact
interfere with the conduct of Tenant’s business at the Premises for a period in excess of ninety (90) days (excluding delays caused by
events of force majeure), then Tenant may terminate this Lease by sending Landlord written notice thereof within ten (10) days after
the expiration of such ninety (90) day period (time being of the essence), which termination shall be effective thirty (30) days after
delivery of such notice of termination to Landlord. No such termination shall excuse the performance by Tenant of those covenants
which under the terms hereof survive termination. Rent shall be abated in proportion to the degree of interference during the period
that there is such substantial interference with the conduct of
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Tenant’s business at the Premises. Abatement of rent and Tenant’s right of termination pursuant to this provision shall be Tenant’s only
remedies for failure of Landlord to keep in good order, condition and repair the foundations and exterior walls of the Building,
Building roof, utility systems outside the Building, the Common Areas and HVAC.
9.2.
Damage Caused by Tenant. Tenant’s termination rights under Paragraph 9.1 shall not apply if the damage to the
Premises or Building is the result of any act or omission of Tenant or of any of Tenant’s agents, employees, customers, invitees or
contractors (“Tenant Acts”). Any damage resulting from a Tenant Act shall be promptly repaired by Tenant. Landlord at its option
may at Tenant’s expense repair any damage caused by Tenant Acts. Tenant shall continue to pay all rent and other sums due hereunder
and shall be liable to Landlord for all damages that Landlord may sustain resulting from a Tenant Act.
10.
Real Property Taxes.
10.1.
Payment of Real Property Taxes. Landlord shall pay the Real Property Taxes due and payable during the term of this
Lease and, except as otherwise provided in Paragraph 10.3, any such amounts shall be included in the calculation of Operating
Expenses in accordance with the provisions of Paragraph 4.2. The amount of Real Property Taxes included in Operating Expenses
shall take into account fully any tax abatement in effect with respect to the Industrial Center, such that Tenant derives its proportionate
share of the benefit of any such tax abatement.
10.2.
Real Property Tax Definition. As used herein, the term “Real Property Taxes” is any form of tax or assessment,
general, special, ordinary or extraordinary, imposed or levied by any governmental authority or by any owners’ association upon the
Industrial Center or any interest of Landlord in the Industrial Center. Real Property Taxes include (a) any tax or charge which replaces
or is in addition to any of such above-described “Real Property Taxes,” (b) any charge or assessment imposed upon the Industrial
Center by an owners’ association or similar entity, and (c) any fees, expenses or costs (including attorney’s fees, expert fees and the
like) incurred by Landlord in protesting or contesting any assessments levied or any tax rate. Real Property Taxes for tax years
commencing prior to, or extending beyond, the term of this Lease shall be prorated to coincide with the corresponding Commencement
Date or Expiration Date.
10.3.
Additional Improvements. Operating Expenses shall not include Real Property Taxes attributable to improvements
placed upon the Industrial Center by other tenants or by Landlord for the exclusive enjoyment of such other tenants. Notwithstanding
Paragraph 10.1 hereof, Tenant shall, however, pay to Landlord at the time Operating Expenses are payable under Paragraph 4.2, the
entirety of any increase in Real Property Taxes if assessed by reason of improvements placed upon the Premises by Tenant or at
Tenant’s request.
10.4.
Joint Assessment. If the Building is not separately assessed, Real Property Taxes allocated to the Building shall be
based upon the assessed value of the Building and the land associated with the Building relative to the total assessed value of all of the
land and improvements included within the tax parcel assessed (it being agreed that Tenant shall be responsible for payment of
Tenant’s Share of taxes allocated to the Building, as set forth in Section 1.5(b) of the Basic Provisions). In the absence of manifest
error, Landlord’s allocation of Real Property Taxes to the Building shall be binding upon Landlord and Tenant.
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10.5.
Tenant’s Property Taxes. Tenant shall pay prior to delinquency all taxes assessed against and levied upon Tenant’s
improvements, fixtures, furnishings, equipment and all personal property of Tenant contained in the Premises or stored within the
Industrial Center.
11.
HVAC, telephone, security, gas and cleaning of the Premises, together with any taxes thereon.
Utilities. Tenant shall pay directly for all utilities and services supplied to the Premises, including but not limited to electricity,
12.
Assignment and Subletting.
12.1.
Landlord’s Consent Required.
(a)
Except as otherwise provided in Paragraph 12.1(c) below, Tenant shall not assign, transfer, mortgage or
otherwise transfer or encumber (collectively, “assign”) or sublet all or any part of Tenant’s interest in this Lease or in the Premises
without Landlord’s prior written consent, which consent shall not be unreasonably withheld. Relevant criteria in determining
reasonableness of consent include, but are not limited to, credit history of a proposed assignee or sublessee, references from prior
landlords, any change or intensification of use of the Premises or the Common Areas and any limitations imposed by the Internal
Revenue Code and the Regulations promulgated thereunder relating to Real Estate Investment Trusts. Any assignment or subletting
shall not release Tenant from its obligations hereunder. Tenant shall not (i) sublet or assign or enter into other arrangements such that
the amounts to be paid by the sublessee or assignee thereunder would be based, in whole or in part, on the income or profits derived by
the business activities of the sublessee or assignee; (ii) sublet the Premises or assign this Lease to any person in which Landlord owns
an interest, directly or indirectly (by applying constructive ownership rules set forth in Section 856(d)(5) of the Internal Revenue Code
(the “Code”); or (iii) sublet the Premises or assign this Lease in any other manner which could cause any portion of the amounts
received by Landlord pursuant to this Lease or any sublease to fail to qualify as “rents from real property” within the meaning of
Section 856(d) of the Code, or which could cause any other income received by Landlord to fail to qualify as income described in
Section 856(c)(2) of the Code. The requirements of this Section 12.1 shall apply to any further subleasing by any subtenant.
A change in the control of Tenant shall constitute an assignment requiring Landlord’s consent. The transfer,
on a cumulative basis, of twenty-five percent (25%) or more of the voting or management control of Tenant shall constitute a change in
control for this purpose.
(b)
(c)
Notwithstanding the provisions of Paragraph 12.1(a), Landlord agrees that during the twelve (12) month
period after the Commencement Date, Tenant may assign this Lease, without obtaining the consent of Landlord, to a limited
partnership (to be named PFab LP) in which the partners (general and limited) are entities owned or controlled by PharmaFab, Inc.,
Bruce K. Montgomery or Darlene Ryan (or a combination thereof). However, Tenant shall promptly notify Landlord of such
assignment. No such assignment shall relieve Tenant of its obligations under this Lease or relieve Bruce K. Montgomery or Darlene
Ryan of their obligations as guarantors of the obligations of Tenant under this Lease. Upon the request of Landlord, Tenant shall
(i) cause the assignee to execute an instrument reasonably satisfactory to Landlord evidencing the
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assumption by such assignee of all of Tenant’s obligations under this Lease, and (ii) cause each guarantor of this Lease to execute a
ratification of his or her guaranty.
12.2.
Rent Adjustment. If, as of the effective date of any permitted assignment or subletting the then remaining term of this
Lease is less than three (3) years, Landlord may terminate this Lease as of the date of assignment or subletting subject to the
performance by Tenant of those covenants which under the terms hereof survive termination.
13.
Default; Remedies.
13.1.
Default. The occurrence of any one of the following events shall constitute an event of default on the part of Tenant
(“Default”):
(a)
The abandonment of the Premises by Tenant;
(b)
Failure to pay any installment of Base Rent, Additional Rent or any other monies due and payable hereunder
for a period of three (3) days after Landlord has delivered to Tenant written notice thereof; provided, however, that a Default shall
immediately occur hereunder, without Landlord first having to give Tenant written notice, if Tenant is more than three (3) days
delinquent in paying any Base Rent, Additional Rent or any other monies due under this Lease and Landlord has given Tenant written
notice under this Paragraph 13.1(b) on more than one (1) occasion during the Term.
(c)
A general assignment by Tenant or any guarantor for the benefit of creditors;
The filing of a voluntary petition in bankruptcy by Tenant or any guarantor, the filing of a voluntary petition
for an arrangement, the filing of a petition, voluntary or involuntary, for reorganization, or the filing of an involuntary petition by
Tenant’s creditors or guarantors;
(d)
(e)
Receivership, attachment, of other judicial seizure of the Premises or all or substantially all of Tenant’s
assets on the Premises;
(f)
(g)
Failure of Tenant to maintain insurance as required by Paragraph 8.2;
Any breach by Tenant of its covenants under Paragraph 6.2;
(h)
Failure in the performance of any of Tenant’s covenants, agreements or obligations hereunder (except those
failures specified as events of Default in other Paragraphs of this Paragraph 13.1 which shall be governed by such other Paragraphs),
which failure continues for 10 days after written notice thereof from Landlord to Tenant provided that, if Tenant has exercised
reasonable diligence to cure such failure and such failure cannot be cured within such ten (10) day period despite reasonable diligence,
Tenant shall not be in default under this subparagraph unless Tenant fails thereafter diligently and continuously to prosecute the cure to
completion; and
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attempted repudiation or revocation of any such guaranty.
(i)
The default of any guarantors of Tenant’s obligations hereunder under any guaranty of this Lease, or the
13.2.
Remedies. In the event of any Default by Tenant, Landlord shall have the remedies set forth in the Addendum
attached hereto entitled “Landlord’s Remedies in Event of Tenant Default”.
13.3.
Late Charges. Tenant hereby acknowledges that late payment by Tenant to Landlord of rent and other sums due
hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to
ascertain. Such costs include, but are not limited to, processing and accounting charges. Accordingly, if any installment of rent or
other sum due from Tenant shall not be received by Landlord or Landlord’s designee within 10 days after such amount shall be due,
then, without any requirement for notice to Tenant, Tenant shall pay to Landlord a late charge equal to 5% of such overdue amount.
The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of
late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant’s Default with
respect to such overdue amount, nor prevent Landlord from exercising any of the other rights and remedies granted hereunder.
14.
Condemnation. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat
of exercise of said power (all of which are herein called “condemnation”), this Lease shall terminate as to the part so taken as of the
date the condemning authority takes title or possession, whichever first occurs. If more than ten percent (10%) of the floor area of the
Premises, or more than twenty-five (25%) of the portion of the Common Areas designated for Tenant’s parking, is taken by
condemnation, Tenant may, at Tenant’s option, to be exercised in writing within ten (10) days after Landlord shall have given Tenant
written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes such possession. If Tenant does not terminate this Lease
in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that
the Base Rent shall be reduced in the same proportion as the rentable floor area of the Premises taken bears to the total rentable floor
area of the Premises. No reduction of Base Rent shall occur if the condemnation does not apply to any portion of the Premises. Any
award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the
exercise of such power shall be the property of Landlord, provided, however, that Tenant shall be entitled to any compensation,
separately awarded to Tenant for Tenant’s relocation expenses and/or loss of Tenants trade fixtures. In the event that this Lease is not
terminated by reason of such condemnation, Landlord shall to the extent of its net severance damages in the condemnation matter,
repair any damage to the Premises caused by such condemnation authority. Tenant shall be responsible for the payment of any amount
in excess of such net severance damages required to complete such repair.
15.
Estoppel Certificate and Financial Statements.
15.1.
Estoppel Certificate. Each party (herein referred to as “Responding Party”) shall within 10 days after written notice
from the other Party (the “Requesting Party”) execute, acknowledge and deliver to the Requesting Party, to the extent it can truthfully
do so, an estoppel
16
certificate in the form attached hereto, plus such additional information, confirmation a/or statements as be reasonably requested by the
Requesting Party.
15.2.
Financial Statement. If Landlord desires to finance, refinance, or sell the Building, Industrial Center or any part
thereof, Tenant and all Guarantors shall deliver to any potential lender or purchaser designated by Landlord such financial statements
of Tenant and such Guarantors as may be reasonably required by such lender or purchaser, including but not limited to Tenant’s
financial statements for the past 3 years. All such financial statements shall be received by Landlord and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
16.
Additional Covenants and Provisions.
16.1.
Severability. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall
not affect the validity of any other provision hereof.
16.2.
Interest on Past-Due Obligations. Any monetary payment due Landlord hereunder not received by Landlord within
10 days following the date on which it was due shall bear interest from the date due at twelve percent (12%) per annum, but not
exceeding the maximum rate allowed by law in addition to the late charge provided for in Paragraph 13.3.
16.3.
Time of Essence. Time is of the essence with respect to the performance of all obligations to be performed or
observed by the Parties under this Lease.
16.4.
Landlord Liability. Tenant, its successors and assigns, shall not assert nor seek to enforce any claim for breach of this
Lease against any of Landlord’s assets other than Landlord’s interest in the Industrial Center. Tenant agrees to look solely to such
interest for the satisfaction of any liability or claim against Landlord under this Lease. In no event whatsoever shall Landlord (which
term shall include, without limitation, any general or limited partner, trustees, beneficiaries, officers, directors, or stockholders of
Landlord) ever be personally liable for any such liability.
16.5.
No Prior or Other Agreements. This Lease contains all agreements between the Parties with respect to any matter
mentioned herein, and supersedes all oral, written prior or contemporaneous agreements or understandings.
16.6.
Notice Requirements. All notices required or permitted by this Lease shall be in writing and may be delivered in
person (by hand or by messenger or courier service) or may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission during normal business hours, and shall be deemed sufficiently given
if served in a manner specified in the Paragraph 16.6. The addresses noted adjacent to a Party’s signature on this Lease shall be that
Party’s address for delivery or mailing of notice purposes. Either Party may by written notice to the other specify a different address
for notice purposes, except that upon Tenant’s taking possessing of the Premises, the Premises shall constitute Tenant’s address for the
purpose of mailing or delivering notices to Tenant. A copy of all notices required or permitted to be given to Landlord hereunder shall
be concurrently transmitted to such party or parties at such addresses as Landlord may from time to time hereafter designate by written
notice to Tenant.
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16.7.
Date of Notice. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the
date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail, the notice
shall be deemed given 48 hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by
United States Express Mail or overnight courier that guarantees next day delivery shall be deemed given 24 hours after delivery of the
same to the United States Postal Service or courier. If any notice is transmitted by facsimile transmission or similar means, the same
shall be deemed served or delivered upon telephone or facsimile confirmation of receipt of the transmission thereof, provided a copy is
also delivered via hand or overnight delivery or certified mail. If notice is received on a Saturday or a Sunday or a legal holiday, it
shall be deemed received on the next business day.
16.8. Waivers. No waiver by Landlord or Tenant of a default by the other party shall be deemed a waiver of any subsequent
default by such defaulting party or a waiver of any other term, covenant or condition hereof.
16.9.
Holdover. Tenant has no right to retain possession of the Premises or any part thereof beyond the expiration or earlier
termination of this Lease. If Tenant holds over with the consent of Landlord: (a) the Base Rent payable shall be increased to one
hundred fifty percent (150%) of the Base Rent applicable during the month immediately preceding such expiration or earlier
termination; (b) Tenant’s right to possession shall terminate on thirty (30) days notice from Landlord and (c) all other terms and
conditions of this Lease shall continue to apply. Nothing contained herein shall be construed as a consent by Landlord to any holding
over by Tenant. Tenant shall indemnify, defend and hold Landlord harmless from and against any and all claims, demands, actions,
losses, damages, obligations, costs and expenses, including, without limitation, attorneys’ fees incurred or suffered by Landlord by
reason of Tenant’s failure to surrender the Premises on the expiration or earlier termination of this Lease in accordance with the
provisions of this Lease.
16.10. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be
cumulative with all other remedies in law or in equity.
16.11. Binding Effect; Choice of Law. This Lease shall be binding upon the Parties, their personal representatives,
successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties
hereto concerning this Lease shall be initiated in the county in which the Premises are located.
16.12. Landlord. The covenants and obligations contained in this Lease on the part of Landlord are binding on Landlord, its
successors and assigns, only during and in respect of their respective period of ownership of such interest in the Industrial Center. In
the event of any transfer or transfers of such title to the Industrial Center, Landlord (and in case of any subsequent transfers or
conveyances, the then grantor) shall be concurrently freed and relieved from and after the date of such transfer or conveyance, without
any further instrument or agreement, of all liability with respect to the performance of any covenants or obligations on the part of
Landlord contained in this Lease thereafter to be performed.
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16.13. Attorneys’ Fees and Other Costs. If any Party brings an action or proceeding to enforce the terms hereof or declare
rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding shall be entitled to reasonable attorneys’ fees. The
term “Prevailing Party” shall include, without limitation, a Party who substantially obtains or defeats the relief sought. Landlord shall
be entitled to attorneys’ fees, costs and expenses incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting breach.
Tenant shall reimburse Landlord on demand for all reasonable legal, engineering and other professional services expenses incurred by
Landlord in connection with all requests by Tenant for consent or approval hereunder.
16.14. Landlord’s Access; Showing Premises; Repairs. Landlord and Landlord’s agents shall have the right to enter the
Premises at any time, in the case of an emergency, and otherwise at reasonable times upon reasonable notice for the purpose of
showing the same to prospective purchasers, lenders, or tenants, and making such alterations, repairs, improvements or additions to the
Premises or to the Building, as Landlord may reasonably deem necessary. Any inspection of the Premises conducted by Landlord or
Landlord’s agents (other than in the event of an emergency) shall be done in compliance with any applicable requirements of the FDA
or any requirements imposed by Tenant in order to comply with requirements of the FDA. Landlord may at any time place on or about
the Premises or Building any ordinary “For Sale” signs and Landlord may at any time during the last one hundred eighty (180) days of
the term hereof place on or about the Premises any ordinary “For Lease” signs. All such activities of Landlord shall be without
abatement of rent or liability to Tenant.
16.15. Signs. Tenant shall not place any signs at or upon the exterior of the Premises or the Building, except that Tenant
may, with Landlord’s prior written consent, install (but not on the roof) such signs as are reasonably required to advertise Tenant’s own
business so long as such signs are in a location designated by Landlord and comply with sign ordinances and the sign age criteria
established for the Industrial Center by Landlord. The sign age criteria of Landlord is attached hereto as Exhibit C.
16.16. Termination; Merger. Unless specifically stated otherwise in writing by Landlord, the voluntary or other surrender of
this Lease by Tenant, the mutual termination or cancellation hereof, or a termination hereof by Landlord for Default by Tenant, shall
automatically terminate any sublease or lesser estate in the Premises; provided, however, Landlord shall, in the event of any such
surrender, termination or cancellation, have the option to continue any one or all of any existing subtenancies. Landlord’s failure
within ten (10) days following any such event to make a written election to the contrary by written notice to the holder of any such
lesser interest, shall constitute Landlord’s election to have such event constitute the termination of such interest.
16.17. Quiet Possession. Upon payment by Tenant of the Base Rent and Additional Rent for the Premises and the
performance of all of the covenants, conditions and provisions on Tenant’s part to be observed and performed under this Lease, Tenant
shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease.
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16.18. Subordination; Attornment; Non-Disturbance.
(a)
Subordination. This Lease shall be subject and subordinate to any ground lease, mortgage, deed of trust, or
other hypothecation or mortgage (collectively, “Mortgage”) now or hereafter placed by Landlord upon the real property of which the
Premises are a part, to any and all advances made on the security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. Tenant agrees that any person holding any Mortgage shall have no duty, liability or obligation to
perform any of the obligations of Landlord under this Lease. In the event of Landlord’s default with respect to any such obligation,
Tenant will give any Lender, whose name and address have previously in writing been furnished Tenant, notice of a default by
Landlord. Tenant may not exercise any remedies for default by Landlord unless and until Landlord and the Lender shall have received
written notice of such default and a reasonable time (not less than sixty (60) days) shall thereafter have elapsed without the default
having been cured. If any Lender shall elect to have this Lease superior to the lien of its Mortgage and shall give written notice thereof
to Tenant, this Lease shall be deemed prior to such Mortgage. The provisions of a Mortgage relating to the disposition of
condemnation and insurance proceeds shall prevail over any contrary provisions contained in this Lease.
(b)
Attornment. Subject to the non-disturbance provisions of subparagraph C of this Paragraph 16.18, Tenant
agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Mortgage. In
the event of such foreclosure, such new owner shall not: (i) be liable for any act or omission of any prior landlord or with respect to
events occurring prior to acquisition of ownership, (ii) be subject to any offsets or defenses which Tenant might have against any prior
Landlord, or (iii) be liable for security deposits or be bound by prepayment of more than one month’s rent.
(c)
Non-Disturbance. With respect to Mortgage entered into by Landlord after the execution of this Lease,
Tenant’s subordination of this Lease shall be subject to receiving assurance (a “non-disturbance agreement”) from the Mortgage holder
not disturbing Tenant’s possession of the Premises so long as this Lease is in full force and effect and Tenant is not in default under this
Lease.
(d)
Self-Executing. The agreements contained in this Paragraph 16.18 shall be effective without the execution
of any further documents; provided, however, that upon written request from Landlord or a Lender in connection with a sale, financing
or refinancing of Premises, Tenant and Landlord shall execute such further writings as may be reasonably required to separately
document any such subordination or non-subordination, attornment and/or non-disturbance agreement as is provided for herein.
Landlord is hereby irrevocably vested with full power to subordinate this Lease to a Mortgage.
16.19. Financing by Tenant. Landlord acknowledges and agrees that Tenant may grant a security interest in the personally,
furniture, trade fixtures and inventory owned by Tenant in the Premises to an institutional lender. Upon the grant of such security
interest, Landlord shall, upon the request of Tenant, execute and deliver to Tenant a subordination agreement in the form of Exhibit D
attached hereto.
20
16.20. Rules and Regulations. Tenant agrees that it will abide by, and to cause its employees, suppliers, shippers, customers,
tenants, contractors and invitees to abide by all reasonable rules and regulations (“Rules and Regulations”) which Landlord may make
from time to time for the management, safety, care, and cleanliness of the Common Areas, the parking and unloading of vehicles and
the preservation of good order, as well as for the convenience of other occupants or tenants of the Building and the Industrial Center
and their invitees. Landlord shall not be responsible to Tenant for the non-compliance with said Rules and Regulations by other tenants
of the Industrial Center; provided, however, that Landlord agrees to use reasonable efforts to attempt to enforce the Rules and
Regulations on a uniform basis.
16.21. Security Measures. Tenant acknowledges that the rental payable to Landlord hereunder does not include the cost of
guard service or other security measures. Landlord has no obligations to provide same. Tenant assumes all responsibility for the
protection of the Premises, Tenant, its agents and invitees and their property from the acts of third parties.
16.22. Reservations. Landlord reserves the right to grant such easements that Landlord deems necessary and to cause the
recordation of parcel maps, so long as such easements and maps do not reasonably interfere with the use of the Premises by Tenant.
Tenant agrees to sign any documents reasonably requested by Landlord to effectuate any such easements or maps.
16.23. Conflict. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions
shall be controlled by the typewritten or handwritten provisions.
16.24. Offer. Preparation of this Lease by either Landlord or Tenant or Landlord’s agent or Tenant’s agent and submission of
same to Tenant or Landlord shall not be deemed an offer to lease. This Lease is not intended to be binding until executed and delivered
by all Parties hereto.
16.25. Amendments. This Lease may be modified only in writing, signed by the parties in interest at the time of the
modification.
16.26. Multiple Parties. Except as otherwise expressly provided herein, if more than one person or entity is named herein as
Tenant, the obligations of such persons shall be the joint and several responsibility of all persons or entities named herein as such
Tenant.
16.27. Authority. Each person signing on behalf of Landlord or Tenant warrants and represents that she or is authorized to
execute and deliver this Lease and to make it a binding obligation of Landlord or Tenant.
[Signatures appear on following page]
21
The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.
Landlord:
WALSTIB, L.P.,
a Delaware limited partnership
By:
WALSTIB Venture, L.L.C.,
a Delaware limited liability company
Its sole general partner
By:
TCDFW Development, Ltd.,
a Texas limited partnership
Its Administrative Member
By:
Trammell Crow DFW Development, Inc.,
a Delaware corporation
Its sole general partner
By:
Its:
Telephone:
Facsimile:
Executed at:
on:
Tenant:
PharmaFab, Inc.
By:
Its:
Telephone:
Facsimile:
Executed
at:
on:
22
Landlord’s Remedies Addendum In Event
of Tenant Default
(State of Texas)
(a)
Upon any Default, Landlord may, in addition to all other rights and remedies afforded Landlord hereunder or by
Applicable Requirements, take any of the follow actions:
(i)
Terminate this Lease by giving Tenant written notice thereof, in which event, Tenant shall pay to
Landlord the sum of (A) all unpaid past due rent accrued hereunder through the date of termination, (B) all amounts due under
paragraph (b) below, and (C) an amount equal to (1) the total rent that Tenant would have been required to pay for the
remainder of the Term discounted to a present value at a per annum rate equal to the “Prime Rate” as published on the date
this Lease is terminated by The Wall Street Journal, Southwest Edition, in its listing of “Money Rents”, minus (2) the then
present fair rental value of the Premises for such period, as determined by Landlord in good faith, similarly discounted; or
(ii)
Terminate Tenant’s right to possess the Premises and change the door locks to the Premises without
terminating this Lease, with or without notice thereof to Tenant, and without judicial proceedings, in which event Tenant shall
pay to Landlord (A) all unpaid past due rent and other amounts accrued hereunder to the date of termination of possession, (B)
all amounts due from time to time under paragraph (b) below, and (C) all rent and other sums required hereunder to be paid by
Tenant during the remainder of the Term, diminished by any net sums thereafter received by Landlord through reletting the
Premises during such period. Tenant shall not be entitled to the excess of any consideration obtained by reletting over the rent
due hereunder. Reentry to Landlord in the Premises shall not affect Tenant’s obligations hereunder for the unexpired Term;
rather, Landlord may, from time to time, bring action against Tenant to collect amounts due by Tenant, without the necessity
of Landlord’s waiting until the expiration of the Term. Unless Landlord delivers written notice to Tenant expressly stating that
it has elected to terminate this Lease, all actions taken by Landlord to exclude or dispossess Tenant of the Premises shall be
deemed to be taken under this paragraph (a)(ii). If Landlord elects to proceed under this paragraph (a)(ii), it may at any time
elect to terminate this Lease under paragraph (a)(i) above. Landlord and Tenant hereby confirm that the terms and provisions
of this addendum supersedes Section 93.002 of the Texas Property Code to the extent of any conflict.
(b)
Tenant shall pay to Landlord all reasonable costs and expenses incurred by Landlord (including court costs and
reasonable attorney’s fees and expenses) in (i) obtaining possession of the Premises, (ii) removing and storing Tenant’s or any other
occupant’s property, (iii) renovating, repairing and altering the Premises for a new tenant or tenants, (iv) if Tenant is dispossessed of the
Premises and this Lease is not terminated, reletting all or any part of the Premises (including brokerage commissions, reasonable cost
of tenant finish work, and other costs incidental to such reletting), (v) performing Tenant’s obligations which Tenant failed to perform,
and (vi) enforcing, or advising Landlord of its rights, remedies, and recourses. Landlord’s acceptance of rent following the occurrence
of a Default shall not waive Landlord’s rights regarding such Default. Landlord’s receipt of rent with knowledge of any Default by
Tenant
23
hereunder shall not be a waiver of such Default, and no waiver by Landlord of any provision of this Lease shall be deemed to have
been made unless set forth in writing and signed by Landlord. No waiver by Landlord of any violation or breach of any of the terms
contained herein shall waive Landlord’s rights regarding any future violation of such term or violation of any other term. If Landlord
repossesses the Premises pursuant to the authority herein granted, then Landlord shall have the right to (A) keep in place and use or (B)
remove and store, at Tenant’s expense, all of the furniture, fixtures, equipment or other property, deemed abandoned by Tenant in the
Premises, including that which is owned by or leased to Tenant at all times before any foreclosure thereon by Landlord or repossession
thereof by any lessor thereof or third party having a lien thereon. Landlord may relinquish possession of all or any portion of such
furniture, fixtures, equipment and other property to any person (a “Claimant”) who presents to Landlord a copy of any instrument
represented by Claimant to have been executed by Tenant (or any predecessor of Tenant) granting Claimant the right under various
circumstances to take possession of such furniture, fixtures, equipment or other property, without the necessity on the part of Landlord
to inquire into the authenticity or legality of the instrument. The rights of Landlord herein stated are in addition to any and all other
rights that Landlord has or may hereafter have at law or in equity, and Tenant agrees that the rights herein granted Landlord are
commercially reasonable.
24
WALSTIB, L.P.,
A DELAWARE LIMITED PARTNERSHIP
INDUSTRIAL MULTI-TENANT LEASE
Tenant Improvements Addendum
1.
Landlord shall construct the leasehold improvements in the Premises (the “Leasehold Improvements”) in substantial
accordance with plans and specifications (the “Plans”) which have been mutually approved in writing by Landlord and Tenant.
Landlord and Tenant will endeavor to agree upon the Final Plans not later than June 10, 1999. Tenant shall be responsible for the costs
of preparing the Final Plans and any other architectural and design costs in respect of the Leasehold Improvements (which costs may
be paid from the Tenant Allowance, as hereinafter defined).
2.
After the Plans have been approved by Landlord and Tenant, Landlord shall competitively bid the job to a minimum
of three (3) qualified general contractors reasonably acceptable to Landlord and Tenant. Landlord shall contract with the lowest
qualified bidder, or such other bidder as is agreed upon by Landlord and Tenant (the “Contractor”), to construct the Leasehold
Improvements in the Premises; provided, however, that if the lowest bid (or such other bid agreed upon by Landlord and Tenant) is
more than Nine Hundred Thousand Dollars ($900,000), Landlord and Tenant shall revise the Plans in such a manner that the cost of
constructing the Leasehold Improvements reflected in the Plans, as revised, is not more than Nine Hundred Thousand Dollars
($900,000). Landlord shall cause the Contractor to construct the Leasehold Improvements in substantial accordance with the approved
Plans and in a good and workmanlike manner utilizing all new materials. The contract with the Contractor shall obligate the
Contractor to obtain necessary permits and approvals from local governmental authorities in respect of the construction of the
Leasehold Improvements and to construct the Leasehold Improvements in accordance with all applicable laws, codes and regulations
(it being expressly agreed that it shall be the responsibility of Tenant to cause any requirements of the FDA to be incorporated into the
approved Plans). During the construction period, Tenant shall have access to the Premises during reasonable times to observe the
progress and quality of the work; provided, however, that Tenant shall at all time when visiting the Premises comply with Contractor’s
safety requirements. Any changes which the Tenant may request during the construction of Leasehold Improvements shall be
submitted to the Landlord in written form, and change orders shall be subject to the written approval of both Landlord and Tenant.
Thereupon, Landlord shall prepare a written change order for Tenant’s review and approval, which, when signed by Tenant and
Landlord, shall authorize Landlord to make such change in the Leasehold Improvements.
3.
The Leasehold Improvements shall be deemed to be “substantially complete” and ready for delivery to Tenant at such
time as a certificate of occupancy for the Premises is secured from the City of Grand Prairie. At such time as the Leasehold
Improvements are substantially complete, Landlord, Tenant and Contractor shall walk the Premises for the purpose of preparing a
“punch list” of items needing correction. Thereafter, the architect for construction of the Leasehold Improvements shall issue a
certificate of substantial completion to which the “punch list” shall be attached. Landlord shall cause the Contractor to correct or
complete the items on the “punch list”
25
as soon as reasonably practicable, but in no event later than thirty (30) days after the date upon which the Leasehold Improvements are
substantially complete.
4.
Tenant shall be responsible for the payment of all costs associated with the construction of the Leasehold
Improvements, including, but not limited to, the following: (a) all costs, including professional fees, of the architect and all other
design and planning costs; (b) the costs of labor and material associated with the construction of the Leasehold Improvements; and
(c) a fee to Trammell Crow Dallas Fort Worth equal to four percent (4%) of the sum of all design, planning and construction costs
associated with the construction of the Leasehold Improvements. It is understood and agreed that the Tenant Allowance, as hereinafter
defined, may be used to pay the costs described in clauses (a), (b) and (c) of the preceding sentence.
5.
Notwithstanding anything to the contrary contained herein, Landlord grants to Tenant an allowance (the “Tenant
Allowance”) in the amount of Seven Hundred Ninety-Two Thousand Dollars ($792,000) to be applied to the cost of the Leasehold
Improvements and other costs described in Paragraph 4 above. In the event that the bid for the Leasehold Improvements exceeds the
Tenant Allowance, Tenant shall prepay to Landlord the amount of such excess prior to the time Landlord enters into the construction
contract with Contractor, it being agreed that the Tenant Allowance shall be advanced before such funds deposited by Tenant are used
to pay for construction of the Leasehold Improvements. If the cost of constructing the Leasehold Improvements is less than the Tenant
Allowance, Tenant may, within the twelve (12) month period after the Commencement Date, apply the unused portion of the Tenant
Allowance towards the cost of additional construction in the Premises or an upgrade of the tenant finish work in the Premises. In the
event that any portion of the Tenant Allowance remains unused upon the expiration of the twelve (12) month period after the
Commencement Date, Landlord shall have no obligation to pay such unused portion to Tenant or otherwise allow Tenant the benefit
thereof.
6.
Tenant shall cooperate with the Contractor to promote the efficient and expeditious completion of the Leasehold
Improvements. Tenant agrees that in the event of default in payment hereunder, including, but not limited to, those payments due
under Paragraph 5 above, Landlord, in addition to any and all other remedies at law or in equity, shall have the same rights and
remedies against Tenant as in the event of default in payment of rent under the Lease.
7.
It is understood and agreed that any delay in construction of the Leasehold Improvements caused by Tenant shall not
operate to delay the Commencement Date. Any of the following shall constitute a delay caused by Tenant: (a) Tenant’s failure to have
preliminary plans prepared or Tenant’s failure to approve the plans in a timely manner; (b) any delay resulting from Tenant’s changes in
the Plans; (c) any delay resulting from Tenant’s request for materials, finishes or installations which are not readily available; or (d) any
delay in the construction of the Leasehold Improvements otherwise caused by Tenant.
Landlord:
WALSTIB, L.P.,
a Delaware limited partnership
By: WALSTIB Venture, L.L.C.,
Tenant:
PharmaFab, Inc.
By:
Its:
26
a Delaware limited liability company
Its sole general partner
By:
By:
TCDFW Development, Ltd.,
a Texas limited partnership
Its Administrative Member
Trammell Crow DFW Development, Inc.,
a Delaware corporation
Its sole general partner
Telephone:
Facsimile:
Executed
at:
on:
By:
Its:
Telephone:
Facsimile:
Executed at:
on:
27
WALSTIB, L.P.,
A DELAWARE LIMITED PARTNERSHIP
INDUSTRIAL MULTI-TENANT LEASE
Option To Extend Addendum
This Option To Extend Addendum is a part of the Lease dated __________, 1999 by and between WALSTIB, L.P., a
Delaware limited partnership (“Landlord”) and PharmaFab, Inc., a Texas corporation (“Tenant”) for the premises commonly known as
360 Riverside Business Center (Building B).
1.
Option to Extend. Landlord hereby grants to Tenant the option to extend the term of this Lease for the following
periods (“Option Periods”) commencing when the prior term expires:
Months 85 – 145 “Period One”
Months 145 – 205 “Period Two”
2.
Exercise Dates. For purposes of Paragraph 5 of this Addendum:
(a)
the Earliest Exercise Date is12 months prior to the date that the applicable Option Period would commence;
and
(b)
the Last Exercise Date is 9 months prior to the date that the applicable Option Period would commence.
3.
Monthly Base Rent. The monthly Base Rent for each month of an Option Period shall be the amount calculated in
accordance with the alternative selected below (“Rent Adjustment Alternative”).
[X] Market rent (“Market Rent Adjustment”)
4.
Conditions to Exercise of Option. Tenant’s right to extend is conditioned upon and subject to each of the following:
(a)
In order to exercise an option to extend, Tenant must give written notice of such election to Landlord and
Landlord must receive the same by the Last Exercise Date but not prior to the Earliest Exercise Date. If proper notification of
the exercise of an option is not given and/or received, such option shall automatically expire. Options (if there are more than
one) may only be exercised consecutively. Failure to exercise an option terminates that option and all subsequent options.
Tenant acknowledges that because of the importance to Landlord of knowing no later than the Last Exercise Date whether or
not Tenant will exercise the option, the failure of Tenant to notify Landlord by the Last Exercise Date will conclusively be
presumed an election by Tenant not to exercise the option.
28
(b)
Tenant shall have no right to exercise an option (i) if Tenant is in Default. or (ii) if during the twelve (12)
month period immediately preceding the exercise of the option, three (3) or more Defaults have occurred which were not
cured within any applicable notice or grace period. The period of time within which an option may be exercised shall not be
extended or enlarged by reason of Tenant’s inability to exercise an option because of the provisions of this paragraph.
(c)
All of the terms and conditions of this Lease except where specifically modified by this Addendum shall
apply.
(d)
The options are personal to Tenant, cannot be assigned or exercised by anyone other than Tenant and only
while Tenant is in full possession of the Premises and without the intention of thereafter assigning or subletting. For purposes
of the preceding sentence only, the term “Tenant” shall include any entity to which Tenant assigns the Lease pursuant to
Section 12.1(c) of the Lease.
5.
Calculation of Rent Adjustment
(a)
Market Rent Adjustment. Four months prior to the commencement of each Option Period, if the selected
Rent Adjustment Alternative is the Market Rent Adjustment, the Parties shall negotiate in good faith to determine the Base
Rent for the Option Period. If agreement cannot be reached within 30 days, then Landlord and Tenant shall each, no later then
90 days prior to the commencement of the Option Period, make a reasonable determination of the fair market rental for the
Premises for the Option Period and submit such determination, in writing, to arbitration in accordance with the following
provisions:
(i)
No later than 90 days prior to the commencement of the Option Period, Landlord and Tenant shall
each select an industrial leasing broker to act as an arbitrator. The two arbitrators so appointed shall, no later then 75
days prior to the commencement of the Option Period, select a third mutually acceptable industrial leasing broker to
act as a third arbitrator.
(ii)
The three arbitrators, acting by a majority, shall no later then 75 days prior to the commencement
of the Option Period, determine the actual fair market rental for the Premises for the Option Period. The decision of
a majority of the arbitrators shall be binding on the parties. The fair market rental determination of Landlord or
Tenant which is closest to the fair market rental as determined by the arbitrators shall be the Base Rent for the Option
Period.
(iii)
If either of the parties fails to appoint an arbitrator within the period required by this Addendum,
the arbitrator timely appointed shall determine the Base Rent for the Option Period.
(iv)
not selected.
The entire cost of such arbitration shall be paid by the party whose fair market rental submission is
[Signatures appear on following page]
29
Landlord:
WALSTIB, L.P.
a Delaware limited partnership
By:
WALSTIB Venture, L.L.C.,
a Delaware limited liability company
Its sole general partner
By:
TCDFW Development, Ltd.,
a Texas limited partnership
Its Administrative Member
By:
Trammell Crow DFW Development, Inc.,
a Delaware corporation
Its sole general partner
By:
Its:
Telephone:
Facsimile:
Executed at:
on:
Tenant:
PharmaFab, Inc.
By:
Its:
Telephone:
Facsimile:
Executed
at:
on:
30
WALSTIB, L.P.,
A DELAWARE LIMITED PARTNERSHIP
INDUSTRIAL MULTI-TENANT LEASE
Additional Security Deposit Addendum
This Additional Security Deposit Addendum is a part of the Lease dated ______________, 1999 by and between WALSTIB,
L.P., a Delaware limited partnership (“Landlord”) and PharmaFab, Inc., a Texas corporation (“Tenant”) for the premises commonly
known as 360 Riverside Business Center (Building B).
Tenant agrees to pay Landlord an Additional Security Deposit in the amount of $80,000.00 that can be held in the form of a
Certificate Of Deposit or Letter Of Credit. Such Additional Security Deposit shall be refunded after five (5) years, unless during the
first five (5) years of occupancy there have occurred three (3) or more Defaults which were not cured within any applicable notice or
grace period. If the Additonal Security Deposit is in the form of a Certificate Of Deposit or Letter Of Credit and the Premises are sold,
Tenant shall, at its expense, cause the Certificate Of Deposit or Letter Of Credit, as the case may be, to be reissued in the name of the
purchaser.
Landlord:
WALSTIB, L.P.,
a Delaware limited partnership
By:
WALSTIB Venture, L.L.C.,
a Delaware limited liability company
Its sole general partner
By:
TCDFW Development, Ltd.,
a Texas limited partnership
Its Administrative Member
By:
Trammell Crow DFW Development, Inc.,
a Delaware corporation
Its sole general partner
By:
Its:
Telephone:
Facsimile:
Executed at:
on:
Tenant:
PharmaFab, Inc.
By:
Its:
Telephone:
Facsimile:
Executed
at:
on:
31
GUARANTY OF LEASE
WHEREAS, WALSTIB, L.P., a Delaware limited partnership (“Landlord”), and PharmaFab, Inc., a Texas corporation
(“Tenant”) are about to execute a lease (“Lease”) dated ___________________ 1999, for the premises commonly known as 360
Riverside Business Center (Building B).
WHEREAS, Bruce K. Montgomery and Darlene Ryan (each a “Guarantor”) have a financial interest in Tenant;
WHEREAS, Landlord would not execute the Lease if Guarantor did not execute and deliver to Landlord this Guaranty of
Lease.
NOW THEREFORE, in consideration of the execution of the foregoing Lease by Landlord and as a material inducement to
Landlord to execute the Lease:
1.
Guarantor hereby jointly, severally, unconditionally and irrevocably guarantee the prompt payment by Tenant of all
rents and all other sums payable by Tenant under the Lease and the faithful and prompt performance by Tenant of each and every one
of the terms, conditions and covenants of the Lease to be kept and performed by Tenant.
2.
The terms of the Lease may, without the consent of or notice to Guarantor, be modified by Landlord and Tenant or by
a course of conduct and this Guaranty shall guarantee the performance of said Lease as so modified. The Lease may be assigned by
Landlord or any assignee of Landlord without consent or notice to Guarantor.
3.
This Guaranty shall not be released, modified or affected by the failure or delay on the part of Landlord to enforce
any of the rights or remedies of the Landlord under the Lease, whether pursuant to the terms thereof or at law or in equity.
4.
No notice of default need be given to Guarantor. The guaranty of the undersigned is a continuing guaranty under
which Landlord may proceed immediately against Tenant and/or against any Guarantor (or each Guarantor) following any breach or
default by Tenant or for the enforcement of any rights which Landlord may have against Tenant under the terms of the Lease or at law
or in equity.
5.
Landlord shall have the right to proceed against any Guarantor (or each Guarantor) hereunder following any breach
or default by Tenant without first proceeding against Tenant and without previous notice to or demand upon either Tenant or any
Guarantor.
6.
Each Guarantor hereby waives (a) notice of acceptance of this Guaranty, (b) demand of payment, presentation and
protest, (c) any right to require the Landlord to proceed against the Tenant or any other Guarantor or any other person or entity liable to
Landlord, (d) any right to require Landlord to apply to any default any security deposit or other security it may hold under the Lease,
(e) any right to require Landlord to proceed under any other remedy Landlord may have before proceeding against Guarantor and (f)
any right of subrogation.
32
7.
Each Guarantor does hereby subrogate all existing or future indebtedness of Tenant to such Guarantor to the
obligations owed to Landlord under the Lease and this Guaranty.
8.
If a Guarantor is married, such Guarantor expressly agrees that recourse may be had against his or her separate
property for all of the obligations hereunder. If there is more than one Guarantor, the obligations of each Guarantor hereunder shall be
joint and several.
9.
The obligations of Tenant under the Lease to execute and deliver estoppel certificates and financial statements shall
be deemed to also require each Guarantor hereunder to do and provide the same.
10.
The term “Landlord” refers to and means the Landlord named in the Lease and also Landlord’s successors and
assigns. So long as Landlord’s interest in the Lease, the leased premises or the rents, issues and profits therefrom, are subject to any
mortgage or deed of trust or assignment for security, no acquisition by Guarantor of the Landlord’s interest shall affect the continuing
obligation of Guarantor under this Guaranty which shall nevertheless continue in full force and effect for the benefit of the mortgagee,
beneficiary, trustee or assignee under such mortgage, deed of trust or assignment and their successors and assigns.
11.
The term “Tenant” refers to and means the Tenant named in the Lease and also Tenant’s successors and assigns.
12.
In the event any action be brought by said Landlord against Guarantor hereunder to enforce the obligation of
Guarantor hereunder, the unsuccessful party in such action shall pay to the prevailing party therein a reasonable attorney’s fee which
shall be fixed by the court.
13.
After three (3) years, provided Tenant has not had an uncured Default as described in the Lease, the aggregate
liability of the Guarantors hereunder shall be limited to the sum of $380,000.00 on a joint and several basis (i.e. the liability of Bruce
K. Montgomery hereunder shall be limited to $380,000, and the liablity of Darlene Ryan hereunder shall be limited to $380,000, but
the maximum aggregate amount Landlord can recover from the Guarantors under this Guranty shall be limited to a total of $380,000).
If no uncured Default has occurred under the Lease at the expiration of the fifth (5th) year of Tenant’s occupancy, this Guaranty shall
terminate. It is agreed that if a Default occurs under the Lease which continues beyond the expiration of any applicable grace or cure
period, Landlord may condition its acceptance of any cure of such Default upon keeping this Guaranty in effect.
Executed on the ______ day of June, 1999.
“GUARANTOR”
Bruce K. Montgomery
Executed at:
on:
Address:
33
Darlene Ryan
Executed at:
on:
Address:
34
Exhibit A
Diagram of Premises
35
Exhibit B
COMMENCEMENT DATE MEMORANDUM
LANDLORD:
WALSTIB, L.P., DELAWARE UNITED PARTNERSHIP
TENANT:
PHARMAFAB, INC.
LEASE DATE:
_____________, 1999
PREMISES:
360 Riverside Business Center (Building B)
Grand Prairie, Texas 75050
Tenant hereby accepts the Premises as being in the condition required under the Lease.
The Commencement Date of the Lease is ______________________.
The Expiration Date of the Lease is ______________________.
Landlord:
WALSTIB, L.P.,
a Delaware limited partnership
By:
WALSTIB Venture, L.L.C.,
a Delaware limited liability company
Its sole general partner
By:
TCDFW Development, Ltd.,
a Texas limited partnership
Its Administrative Member
By:
Trammell Crow DFW Development, Inc.,
a Delaware corporation
Its sole general partner
By:
Its:
Telephone:
Facsimile:
Executed at:
on:
Tenant:
PharmaFab, Inc.
By:
Its:
Telephone:
Facsimile:
Executed
at:
on:
36
Exhibit C
Signage Criteria
Per Paragraph 16.15, Tenant can install the sign described hereunder, provided that upon removal of such sign, Tenant shall
make all repairs and maintenance to the building (i.e., repairing holes, texture, paint, etc.).
Sign criteria for the project shall consist of internally illuminated channel letters attached to a single raceway centered on each
building entrance. The raceway will be located on the top facade band directly above the reveal, and the raceway shall be confined to a
40 foot maximum length with an 8 inch height. The copy shall be limited to 30 inches in height with 5 inch painted returns. Raceway
and return colors will be specified by Landlord along with electrical specifications. Tenant shall replace the raceway face to its original
condition upon vacating the Premises.
37
Exhibit D
Subordination Agreement
LANDLORD’S SUBORDINATION AGREEMENT
WHEREAS, WALSTIB, L.P. (hereinafter referred to as “Landlord”) is the owner and/or lessor of the following premises
(hereinafter referred to as “Premises”) which are leased to the following tenant (hereinafter referred to as “Tenant”) pursuant to that
certain lease executed by and between Landlord and Tenant on or about the ___day of _________________, 1999, as same may have
been amended from time to time (hereinafter referred to as the “Lease”);
Premises:
Address:
Tenant:
WHEREAS, Summit National Bank, N.A. (“Lender”) has or is about to loan funds to Tenant, and to secure such loan Tenant
has or will grant a security interest to Lender on personalty, furniture, trade fixtures and inventory owned by Tenant and located in the
Premises, as described on Exhibit “A” attached hereto (the “Property”); and
WHEREAS, all or a portion of the Property may from time to time be located at the Premises or may become wholly or
partially affixed to the Premises.
NOW, THEREFORE, for and in consideration of the covenants contained herein, it is hereby agreed as follows:
1.
Except as limited in this Agreement, Landlord subordinates to the interest of Lender any and all liens, claims or other
rights which Landlord may have in or to the Property now or hereafter located in or on the Premises.
2.
Except if Tenant is a debtor in a proceeding under Title 11 of the United States Code, to the extent of the
subordination provided for herein, Landlord agrees that upon prior written notice to Landlord, Lender, through its authorized
representatives or agents, may enter upon the Premises at any time mutually agreeable to Lender and Landlord after three (3) days
written notice for the purpose of inspecting, repairing, or removing the Property, and Landlord agrees not to hinder or prevent Lender
from taking any such action; provided, however, that nothing herein shall release Lender from, and Lender agrees to be responsible for,
any and all damages resulting to the Premises as a result of any such entry or removal. Lender agrees to indemnify and hold Landlord
harmless from any and all claims arising from or related to the removal of the Property from the Premises.
38
3.
Within ten (10) business days after Landlord notifies Lender that Tenant is in default under the Lease and Landlord
has notified Lender of which remedy Landlord has pursued under the lease between Landlord and Tenant, Lender must notify Landlord
of Lender’s election to:
(a)
(b)
Remove the Property from the Premises within ten (10) business days of such election; or
With Landlord’s approval, retain the Property at the Premises for a period of time to be mutually determined by
Landlord and Lender and pay to Landlord rental for such use of the Premises, as set forth in the Lease.
4.
Any notice pursuant to this Agreement shall be deemed to have been given, whether or not received, when deposited
in the United States mail, postage prepaid, certified mail, return receipt requested, at the following addresses:
Lender:
Landlord:
5.
Landlord and Lender.
This Agreement shall be binding upon and inure to the benefit of the heirs, representatives, successors and assigns of
6.
Governing Law: THIS LANDLORD’S SUBORDINATION AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
[Signatures and acknowledgments appear on following pages]
39
Landlord:
Lender:
SIGNED this ____ day of ________________, 19___.
SUMMIT NATIONAL BANK, N.A.
By:
Its:
Telephone:
Facsimile:
Executed at:
on:
WALSTIB, L.P.,
a Delaware limited partnership
By:
By:
By:
WALSTIB Venture, L.L.C.,
a Delaware limited liability company
Its sole general partner
TCDFW Development, Ltd.,
a Texas limited partnership
Its Administrative Member
Trammell Crow DFW Development, Inc.,
a Delaware corporation
Its sole general partner
By:
Its:
Telephone:
Facsimile:
Executed at:
on:
STATE OF TEXAS
COUNTY OF _____
§
§
ACKNOWLEDGMENTS
This instrument was acknowledged before me on the ______ day of __________, 19___, by ____________________, the
_______________ of _________________________________.
Notary Public
Commission Expires:
Printed Name:
40
FIRST AMENDMENT TO LEASE
Exhibit 10.49
This First Amendment to Lease (this “Amendment”) is made to be effective as of September 1, 2002, by and between WALSTIB, L.P., a
Delaware limited partnership (“Landlord”), and PFAB, LP, a Texas limited partnership (“Tenant”).
RECITALS
A.
Landlord and PharmaFab, Inc., a Texas corporation (“PharmaFab”), entered into that certain Commercial Lease Agreement dated on
or about June 29, 1999, and having a Commencement Date as of October 25, 1999 (as same may have been amended and assigned, the “Lease”)
regarding certain premises (the “Premises”) located at 360 Riverside Business Center in the City of Grand Prairie, Tarrant County, Texas, as more
particularly described in the Lease.
B.
Pursuant to that certain Assignment of Lease dated on or about June 29, 1999, to be effective as of July 1, 1999, PharmaFab
assigned its right, title and interest in the Lease to Tenant.
C.
Pursuant to that certain Guaranty of Lease (the “Original Guaranty”), Bruce K. Montgomery and Darlene M. Ryan guaranteed the
obligations of Tenant under the Lease, subject to certain limitations set forth in said Original Guaranty.
D.
Landlord and Tenant have agreed to amend the Lease as hereinafter set forth, and Darlene M. Ryan has agreed to execute a new
guaranty of Tenant’s obligations under the Lease as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises, Landlord and Tenant agree as follows:
1.
Defined Terms. All capitalized terms not defined herein shall have the meanings set forth for such terms in the Lease.
2.
Expansion of Premises. Landlord and Tenant agree that the Premises shall be expanded to include the space comprised of
approximately 50,000 rentable square feet in Building A of the Industrial Center that is denoted on Exhibit A attached hereto and made a part hereof
(and herein referred to) as the “Expansion Space”. Tenant acknowledges that Tenant has inspected the Expansion Space and agrees to accept the
Expansion Space in “as is” condition.
3.
31, 2006).
Term. Landlord and Tenant agree that the Expiration Date of the term of the Lease shall be November 30, 2010 (rather than October
4.
Base Rent: Landlord and Tenant agree that the Base Rent shall be as follows:
Months
September 1, 2002 —March 31, 2003
April 1, 2003 — April 30, 2003
Monthly
Base Rent
$31,900.60
$45,962.50
May 1, 2003 — October 31, 2004
November 1, 2004 — October 31, 2005
November 1, 2005 — March 31, 2008
April 1, 2008 — November 30, 2010
$49,608.33
$52,835.00
$54,301.66
$56,697.50
5.
Adjustment in Tenant’s Share. As used in the Lease, the term “Building” shall refer to Building A and Building B. Landlord and
Tenant agree that, as a result of adding the Expansion Space to the Premises, Tenant’s Share is as follows:
(a)
(b)
(c)
Industrial Park
Building A
Building B
43.8%
49.5%
38.7%
6.
Refurbishment Allowance. On December 1, 2005, Landlord shall provide to Tenant an allowance (the “Refurbishment Allowance”)
of Two Hundred Fifty Thousand Dollars ($250,000) to be used by Tenant to design and construct improvements in the Premises; provided, however,
that Landlord shall have no obligation to provide the Refurbishment Allowance if at such time (a) Tenant is the subject of a bankruptcy proceeding or
any other insolvency proceeding, or (b) Tenant is in Default, or any circumstance exists which, with the giving of notice or the passage of time, or
both, would constitute a Default. All improvements constructed with the Refurbishment Allowance shall be subject to the provisions of the Lease
governing alterations to the Premises, and, unless waived in writing by Landlord, Trammell Crow Dallas Fort Worth (or its designee) shall serve as the
construction manager for such improvements. The Refurbishment Allowance shall be used only for payment of the following: (i) costs, including
professional fees, of the architect and other design and planning costs in connection with tenant improvements constructed in the Premises; (ii) the
costs of labor and material associated with the construction of the tenant improvements in the Premises; and (iii) a fee equal to four percent (4%) of
the sum of all design, planning and construction costs associated with the construction of the tenant improvements in the Premises, unless Landlord
has waived in writing the requirement that Trammell Crow Dallas Fort Worth (or its designee) serve as construction manager, in which event no fee
shall be owed. Landlord shall have the right to require, as a condition to any disbursement of any portion of the Refurbishment Allowance requested
by Tenant, that Tenant provide Landlord copies of invoices and/or similar evidence that the requested disbursement is for one of the purposes set forth
in the foregoing clauses (i), (ii) or (iii). In no event shall Landlord have any obligation to make any disbursement of the Refurbishment Allowance
requested after May 1, 2006, it being agreed that after such date any unused portion of the Refurbishment Allowance shall be deemed forfeited by
Tenant. Each payment of the Refurbishment Allowance shall be made within thirty (30) days after Landlord has received a request therefor together
with all other documents reasonably required by Landlord.
7.
Right of First Offer. Tenant shall have a right of first offer with respect to the space in Building A shown on Exhibit B attached
hereto and made a part hereof (the “Offered Space”), under the following terms and conditions:
(a)
Subject to the provisions of Section 7(d) below, if at any time during the term of the Lease any lease for any portion of the
Offered Space shall expire and if Landlord intends to market the Offered Space to prospects for lease with third parties (a
First Amendment to Lease – Page 2
“Proposed Tenant”) other than the tenant then occupying such space (or its affiliates), Landlord shall first allow Tenant the right to include
the Offered Space within the Premises.
(b)
Such offer shall be made by Landlord to Tenant in a written notice (hereinafter called the “Offer Notice”) which notice
shall designate the space being offered and shall specify the terms for such Offered Space that Landlord intends to submit to prospective
tenants in an effort to market the Offered Space. Tenant may accept the offer set forth in the Offer Notice by delivering to Landlord an
unconditional acceptance (hereinafter called “Tenant’s Notice”) of such offer within five (5) business days after delivery by Landlord of the
Offer Notice to Tenant. Time shall be of the essence with respect to the giving of Tenant’s Notice. If Tenant does not accept (or fails to
timely accept) an offer made by Landlord pursuant to the provisions hereof with respect to the Offered Space designated in the Offer Notice,
Landlord shall be under no further obligation whatsoever respect to such space. In order to send the Offer Notice, Landlord does not need to
have negotiated a lease with any particular Proposed Tenant but may merely have determined on what basis it will market the Offered Space
to Proposed Tenants. Tenant must make its decision with respect to the Offered Space as long as it has received a description of such material
economic terms.
(c)
Tenant must accept all Offered Space offered by Landlord at any one time if it desires to accept any of such Offered Space
and may not exercise its right with respect to only part of such space. In addition, if Landlord desires to lease more than just the Offered
Space to one tenant. Landlord may offer to Tenant pursuant to the terms hereof all such space which Landlord desires to lease, and Tenant
must exercise its rights hereunder with respect to all such space and may not insist on receiving an offer for just the Offered Space.
(d)
If Tenant at any time declines any Offered Space offered by Landlord, Tenant shall be deemed to have irrevocably waived
all further rights under this Addendum, and Landlord shall be free to lease the Offered Space to any Proposed Tenant including on terms
which may be less favorable to Landlord than those set forth in the Offer Notice.
(e)
Tenant shall not have the benefit of the foregoing right of first offer if Tenant is in Default at the time the Offer Notice is to
be sent, or if at such time any circumstance exists which, with the giving of notice or the passage of time, or both, would constitute a Default.
The period of time Tenant’s right of first offer may be exercised shall not be extended or enlarged by reason of Tenant’s inability to exercise
such right because of the provisions of this paragraph.
8.
Option to Extend. The addendum to the Lease captioned “Option to Extend’ Addendum” is hereby deleted in its entirety. Landlord
hereby grants to Tenant the options to extend the term of this Lease for the periods (the “Option Periods”) (1) from December 1, 2010 to
November 30, 2015, and (2) from December 1, 2015 to November 30, 2020, under the following terms and conditions.
(a)
In order to exercise an option to extend, Tenant must give written notice of such election to Landlord and Landlord must
receive the same by no later than twenty four
First Amendment to Lease – Page 3
(24) months prior to the date (the “Last Exercise Date”) that the applicable Option Period would commence, but not earlier than thirty (30)
months prior to the date that the applicable Option Period would commence. If proper notification of the exercise of an option is not given
and/or received, such option shall automatically expire. The renewal options may only be exercised consecutively. Failure to exercise an
option terminates that option and all subsequent options. Tenant acknowledges that because of the importance to Landlord of knowing no
later than the Last Exercise Date whether or not Tenant will exercise the option, the failure of Tenant to notify Landlord by the Last Exercise
Date will conclusively be presumed an election by Tenant not to exercise the option. Upon the exercise of an option to extend, both parties
shall execute an amendment to the Lease evidencing the renewal thereof and setting forth the new Base Rent (as determined pursuant to
Section 8(c) below) no later than eighteen (18) months prior to the date that the applicable Option Period would commence.
(b)
Tenant shall have no right to exercise an option (i) if Tenant is in Default. or (ii) if during the twelve (12) month period
immediately preceding the exercise of the option, three (3) or more Defaults have occurred which were not cured within any applicable notice
or grace period. The period of time within which an option may be exercised shall not be extended or enlarged by reason of Tenant’s inability
to exercise an option because of the provisions of this paragraph.
(c)
If an option to extend is exercised, all of the terms and conditions of this Lease shall apply, except that (i) Landlord shall
not be required to grant any allowance or perform any tenant improvement work in the Premises, and (ii) for each Option Period, Base Rent
shall be adjusted to equal fair market rent. After an option to renew is exercised, Landlord and Tenant shall negotiate in good faith to
determine the Base Rent for the applicable Option Period. If agreement cannot be reached within thirty (30) days, then Landlord and Tenant
shall each, no later than sixty (60) days after the date of exercise of the option, make a reasonable determination of the fair market rental for
the Premises for the applicable Option Period and submit such determination, in writing, to arbitration in accordance with the following
provisions:
(i)
No later than ninety (90) days after the option to renew is exercised, Landlord and Tenant shall each select an
industrial leasing broker to act as an arbitrator. The two arbitrators so appointed shall, no later then one hundred twenty (120) days
after the option to renew is exercised, select a third mutually acceptable industrial leasing broker to act as a third arbitrator.
(ii)
The three arbitrators, acting by a majority, shall no later then one hundred fifty (150) days after the option to renew
is exercised, determine the actual fair market rental for the Premises for the Option Period. The decision of a majority of the
arbitrators shall be binding on the parties. The fair market rental determination of Landlord or Tenant which is closest to the fair
market rental as determined by the arbitrators shall be the Base Rent for the Option Period.
First Amendment to Lease – Page 4
(iii)
If either of the parties fails to appoint an arbitrator within the period required by this Addendum, the arbitrator
timely appointed shall determine the Base Rent for the Option Period.
(iv)
The entire cost of such arbitration shall be paid by the party whose fair market rental submission is not selected.
(d)
The renewal options set forth herein are personal to Tenant, cannot be assigned or exercised by anyone other than Tenant
and only while Tenant is in full possession of the Premises and without the intention of thereafter assigning or subletting.
9.
Guaranty. Concurrently with the execution hereof, Tenant shall cause Darlene M. Ryan to execute and deliver to Landlord a
guaranty in the form of Exhibit C attached hereto and made a part hereof, which shall supersede the Original Guaranty.
10.
Commission Agreement. Attached hereto as Exhibit D is a copy of the Commission Agreement (herein so called) executed between
Landlord, as “Owner,” and Fobare Commercial, as “Agent,” in connection with the Lease. The Commission Agreement shall remain in full force and
effect, except that in connection with this Amendment (and this Amendment only) the compensation paid to Agent shall be as set forth on Exhibit E
attached hereto. The Commission Agreement, as modified with respect to this Amendment only in the manner described on Exhibit E, shall be
deemed included as a provision of this Lease in compliance with Section 62.022 of the Texas Property Code.
11.
Counterparts. The parties may execute this Amendment in any number of counterparts with the same effect as if all parties to this
Amendment had signed the same document.
12.
13.
Governing Law. The Lease, as amended hereby, shall be governed and construed in accordance with the laws of the State of Texas.
Continued Effect. The Lease, as amended hereby, is ratified and confirmed and shall continue in full force and effect.
First Amendment to Lease – Page 5
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment to be effective as of the day and year first above
written.
Landlord:
WALSTIB, L.P.
a Delaware limited partnership
By: AMB Property, L.P.
a Delaware limited partnership
Its sole general partner
By:
Name: Doug McGregor
Its Vice President
Tenant:
PFAB, L.P.
a Texas limited partnership
By: PharmaFab Texas, LLC,
a Texas limited liability company
Its General Partner
By:
Darlene M. Ryan, Manager
Date of Execution:
Date of Execution:
First Amendment to Lease – Page 6
Exhibit A
Expansion Space
First Amendment to Lease – Page 7
Exhibit B
Offered Space
First Amendment to Lease – Page 8
Exhibit C
GUARANTY OF LEASE
This Guaranty of Lease (this “Guaranty”) is made to be effective as of September 1, 2002, by DARLENE M. RYAN (“Guarantor”) for the
benefit of WALSTIB, L.P., a Delaware limited partnership (“Landlord”).
A.
Landlord and PharmaFab, Inc., a Texas corporation (“PharmaFab”), entered into that certain Commercial Lease Agreement dated on
or about June 29, 1999, and having a Commencement Date as of October 25, 1999 (as same may have been amended and assigned, the “Original
Lease”) regarding certain premises located at 360 Riverside Business Center in the City of Grand Prairie, Tarrant County, Texas, as more particularly
described in the Original Lease.
B.
Pursuant to that certain Assignment of Lease dated on or about June 29, 1999, to be effective as of July 1, 1999, PharmaFab
assigned its right, title and interest in the Original Lease to PFab, LP, a Texas limited partnership (“Tenant”).
C.
Pursuant to that certain Guaranty of Lease (the “Original Guaranty”), Bruce K. Montgomery (“Montgomery”) and Guarantor
guaranteed the obligations of Tenant under the Original Lease, subject to certain limitations set forth in said Original Guaranty.
D.
Guaranty to Landlord.
Landlord would not have executed the Original Lease if Montgomery and Guarantor had not executed and delivered the Original
E.
Landlord and Tenant have entered into that certain First Amendment to Lease of even date herewith (the “First Amendment”)
providing for, among other things, the expansion of the premises demised by Landlord to Tenant (the Original Lease, as amended by the First
Amendment, being herein referred to as the “Lease”).
F.
In connection with the First Amendment, Guarantor (who owns an interest in Tenant) has agreed to execute and deliver to Landlord,
and Landlord has agreed to accept, this Guaranty as a replacement of the Original Guaranty, it being understood that Landlord is not willing to execute
the First Amendment if Guarantor does not execute and deliver this Guaranty to Landlord.
NOW THEREFORE, in consideration of the execution of the First Amendment by Landlord and as a material inducement to Landlord to
execute the First Amendment:
1.
Guarantor hereby unconditionally and irrevocably guarantees the prompt payment by Tenant of all rents and all other sums payable
by Tenant under the Lease and the faithful and prompt performance by Tenant of each and every one of the terms, conditions and covenants of the
Lease to be kept and performed by Tenant.
2.
The terms of the Lease may, without the consent of or notice to Guarantor, be modified by Landlord and Tenant or by a course of
conduct and this Guaranty shall guarantee the performance of said Lease as so modified. The Lease may be assigned by Landlord or any assignee of
Landlord without consent or notice to Guarantor.
First Amendment to Lease – Page 9
3.
This Guaranty shall not be released, modified or affected by the failure or delay on the part of Landlord to enforce any of the rights
or remedies of the Landlord under the Lease, whether pursuant to the terms thereof or at law or in equity.
4.
No notice of default need be given to Guarantor. The guaranty of the undersigned is a continuing guaranty under which Landlord
may proceed immediately against Tenant and/or against Guarantor following any breach or default by Tenant or for the enforcement of any rights
which Landlord may have against Tenant under the terms of the Lease or at law or in equity.
5.
Landlord shall have the right to proceed against Guarantor hereunder following any breach or default by Tenant without first
proceeding against Tenant and without previous notice to or demand upon either Tenant or Guarantor.
6.
Guarantor hereby waives (a) notice of acceptance of this Guaranty, (b) demand of payment, presentation and protest, (c) any right to
require Landlord to proceed against Tenant or any other person or entity liable to Landlord, (d) any right to require Landlord to apply to any default
any security deposit or other security it may hold under the Lease, (e) any right to require Landlord to proceed under any other remedy Landlord may
have before proceeding against Guarantor, and (f) any right of subrogation.
7.
Guarantor does hereby subrogate all existing or future indebtedness of Tenant to such Guarantor to the obligations owed to Landlord
under the Lease and this Guaranty.
8.
obligations hereunder.
If a Guarantor is married, such Guarantor expressly agrees that recourse may be had against his or her separate property for all of the
9.
The obligations of Tenant under the Lease to execute and deliver estoppel certificates and financial statements shall be deemed to
also require Guarantor to do and provide the same.
10.
The term “Landlord” refers to and means the Landlord named in the Lease and also Landlord’s successors and assigns. So long as
Landlord’s interest in the Lease, the leased premises or the rents, issues and profits therefrom, are subject to any mortgage or deed of trust or
assignment for security, no acquisition by Guarantor of the Landlord’s interest shall affect the continuing obligation of Guarantor under this Guaranty
which shall nevertheless continue in full force and effect for the benefit of the mortgagee, beneficiary, trustee or assignee under such mortgage, deed
of trust or assignment and their successors and assigns.
11.
12.
The term “Tenant” refers to and means the Tenant named in the Lease and also Tenant’s successors and assigns.
In the event any action be brought by said Landlord against Guarantor hereunder to enforce the obligation of Guarantor hereunder,
the unsuccessful party in such action shall pay to the prevailing party therein a reasonable attorney’s fee which shall be fixed by the court.
13.
Provided Tenant has not had an uncured Default as described in the Lease, as of October 25, 2002, the liability of Guarantor
hereunder shall be limited to the sum of $760,000.00. If no uncured Default has occurred under the Lease as of October 25, 2004, then this Guaranty
First Amendment to Lease – Page 10
shall terminate. It is agreed that if a Default occurs under the Lease which continues beyond the expiration of any applicable grace or cure period,
Landlord may condition its acceptance of any cure of such Defauit upon keeping this Guaranty in effect.
14.
This Guaranty shall supersede the Original Guaranty in its entirety, it being specifically agreed that Montgomery shall no longer
have any liability as a guarantor of the Lease.
Executed to be effective as of the date and year first above written.
“GUARANTOR”
Darlene M. Ryan
Executed at:
Address:
STATE OF TEXAS
COUNTY OF TARRANT
§
§
§
This instrument was acknowledged before me on August __ 2002, by DARLENE M. RYAN.
[Seal]
First Amendment to Lease – Page 11
Notary Public - State of Texas
My Commission Expires:
Exhibit D
Copy of Commission Agreement
COMMISSION AGREEMENT BETWEEN
WALSTIB, L.P., A DELAWARE LIMITED PARTNERSHIP
AND
FOBARE COMMERCIAL
THIS CONTRACT OF AGREEMENT, entered into by and between Walstib, L.P., a Delaware limited partnership hereinafter referred
to as “Owner,” and Fobare Commercial hereinafter referred to as “Agent.”
W I T N E S S E T H:
Agent has assisted or is assisting Owner in negotiating and consummating a Lease Agreement between Owner and PharmaFab, Inc.,
hereinafter referred to as “Prospect,” covering an approximate 44,000 square foot facility located at (in) 360 Riverside Business Park (Building B)
(the “Project”) for a term of 84 months beginning June 1, 1999 with rentals being due to Owner as therein provided, to which lease reference is
hereby made, and the same is hereby incorporated herein for all purposes; and
Agent and Owner hereby and herein desire to agree upon a commission to which Agent shall be entitled for such services based on rentals
actually received by Owner, as hereinafter provided.
It is mutually agreed as follows:
1. REGISTRATION
a.
Registration of the Prospect requires either (a) this Registration Letter from Agent naming the Prospect and a face-to-face meeting
with a decision maker representing the Prospect or (b) a duly executed and authorized letter from the Prospect designating Agent as its exclusive
Agent.
b.
This Registration and Agreement is effective for sixty (60) days after the date hereof and may be extended for another sixty (60)
days if the Agent shows evidence satisfactory to Owner that Agent is actively pursuing the execution of a Lease Agreement between Owner and the
Prospect.
c.
If at any time following the registration of the Prospect pursuant to (a) or (b) above, Agent loses control of the Prospect as evidenced
by a letter from the Prospect designating some other Agent as the Prospect’s Agent, then upon notification of such event to Agent by Owner, this
Registration Letter and Commission Agreement shall become null and void.
d.
Agent has satisfied the aforesaid initial registration requirements of Owner and accordingly Owner agrees to recognize PharmaFab,
Inc. as Agent’s Prospect and agrees to pay
First Amendment to Lease – Page 12
a commission to Agent if a lease of space of the Project is consummated between the Prospect and Owner during the term of this Agreement.
2. CASH COMMISSION
a.
Primary Term. (1) If Agent requests a front-end cash-out of commission obligation hereunder, and if Prospect in Owner’s opinion
has sufficient credit to meet all of Prospect’s obligations under the lease, Owner shall, as set forth in d. below, pay Agent as the Commission hereunder
four and one-half percent (4-1/2%) of the total Rentals as hereafter payable for the entire initial term of the lease up to ten (10) years. Financial
statements and other information necessary to determine credit risk are to be provided by Agent.
b.
Renewal. If Agent requests a front-end cash-out of the commission obligation hereunder with respect to a renewal option contained
in the lease which has been duly exercised, and if Prospect in Owner’s opinion then has sufficient credit to meet all of Prospect’s obligations under the
lease during the renewal term, Owner shall pay Agent the then prevailing market commission for a renewal, based upon the total Rentals payable for
the renewal term, up to ten (10) years, providing that Agent is instrumental in assisting Owner in obtaining such renewal.
c.
Expansion. If Agent requests a front-end cash-out of the commission obligation hereunder with respect to an Option to Expand
contained in the Lease Agreement which has been duly exercised prior to the termination of the Lease Agreement and if Prospect in Owner’s opinion
then has sufficient credit to meet all of Prospect’s obligations under the lease as so expanded, Owner may pay Agent a commission of four and one-
half percent (4-1/2%) of the total Rentals payable for the expansion space providing that Agent is instrumental in assisting Owner in obtaining such
expansion.
d.
Time of Payment. (1) Initial Term. One-half (1/2) upon execution of the lease by Owner and Prospect, delivery thereof to both
parties and receipt by Owner of first full month’s rent and any security deposit; and the balance upon occupancy by Prospect, delivery to Owner of
satisfactory commencement letter executed by Prospect. In addition, no payment shall be payable until contingencies relating to the actual
consummation or cancellation of the agreement by Prospect (including but not limited to contingencies regarding zoning, restrictive covenants,
permitting, plan approvals and finish cost limits) are satisfactorily eliminated by the parties to the Lease Agreement. In addition for Build-to-Suit
facilities no commission will be payable until Owner has received interim financing for the project.
(2)
Renewal Term. If a renewal commission is due pursuant to Paragraph 2.b. above, the commission shall be payable upon written
exercise of the renewal option and payment of the rental for the first full month of the renewal term.
e.
Cancellation. Notwithstanding the above provisions, where Prospect individually or Prospect and Owner, jointly, have the right to
cancel the lease, a commission shall only be paid to Agent for the period up to the date on which the lease may be canceled. If the lease is not then
canceled, Owner shall pay the balance of the commission due for the remainder of the period covered under the lease at the time the Prospect’s right to
cancel expires, provided Prospect remains in occupancy of the space and is not in default under the Lease.
First Amendment to Lease – Page 13
f.
New Lease. In the event Agent furnishes Owner written authorization to represent Prospect and negotiates and consummates a new
Lease Agreement between Owner and Prospect covering an expansion or relocation facility, Owner shall pay Agent a commission based on the above
provisions for the expansion or relocation premises, but Agent’s commission under the original Lease Agreement shall be terminated as of the
commencement date of the new Lease Agreement and any unearned commission paid to the Agent with respect to the original Lease Agreement shall
be netted out of commission payable for the new Lease Agreement.
3. GENERAL
a.
Sale of Premises. In the event of sale of the premises and assignment of the Lease Agreement by Owner, Owner agrees to provide a
copy of this Commission Agreement to the Purchaser and to use its reasonable efforts to obtain from the purchaser or assignee an agreement whereby
such purchaser or assignee assumes the obligation to pay to Agent under the terms and provisions hereof, and Owner shall be released from all
liability for all future payments of commissions as may thereafter become due under this agreement.
b.
Definitions. “Rentals” shall mean the base monthly cash rent, and shall not include any amounts payable by Prospect to Owner for
reimbursement of costs and expenses passed through to Prospect, such as real estate taxes, insurance premiums, utilities, janitorial and common area
maintenance, or any operating expense escalations or amortization of tenant finish costs above Owner’s building standard allowance.
In addition rentals shall be reduced by the cost of any lease takeover obligations to Owner, free rent or other considerations by Owner to the benefit of
Prospect, whether agreed to in the Lease Agreement or other written instrument. Rentals for the purposes of this Commission Agreement, does not
include that portion of Prospect’s payments that relate to costs to Owner that are separately amortized because the cost of such improvements are
above Owner’s building standard allowance, relate to extraordinary items or otherwise would not be considered within the ordinary course of rental
payments in an industrial facility.
c.
Binding Effect. Except as otherwise herein provided, all rights and obligations hereunder shall be binding upon and inure to the
benefit of the successors, assigns, heirs, administrators and personal representatives of the Owner and Agent.
d.
Entire Agreement. Except as expressly herein provided, Owner shall have no obligation to pay, and Agent shall have no right to
receive, any commission or other payment with respect to the Lease or any transactions between Owner and Prospect, unless such right or obligation
is set forth in writing and signed by Owner and Prospect after the date hereof.
e.
Acceptance. This agreement is intended to be an offer, and if not accepted and returned to Owner in writing within three business
days from the date hereon, it is hereby withdrawn. If not received by said date, this offer is null and void. This Agreement is not valid unless fully
signed by both Owner and Agent.
f.
Owner’s Interest. Broker shall look solely to Owner’s interest in the Project for the recovery of any judgement against Owner for
failure to perform under this Agreement, and Owner
First Amendment to Lease – Page 14
(and Its partners, shareholders and agents) shall not be personally liable for any such judgement therefore.
EXECUTED BY OWNER this ___________ day of _______________, 1999.
WALSTIB, L.P., A DELAWARE LIMITED PARTNERSHIP
By: WALSTIB Venture, L.L.C., a Delaware limited liability company
Its sole general partner
By: TCDFW Development, Ltd., a Texas limited partnership
Its Administrative Member
By: Trammell Crow DFW Development, Inc., a Delaware corporation
Its sole general partner
By:
Its: Executive Vice President
Telephone:
(214) 979-6180
Facsimile:
(214) 979-6355
Executed At:
2200 Ross Avenue, Suite 3700
On:
EXECUTED BY AGENT this _________ day of _________, 1999.
FOBARE COMMERCIAL
By:
Title:
First Amendment to Lease – Page 15
Exhibit E
Payment of Commission with Respect to this Amendment Only
1.
Capitalized terms used in this exhibit which are not defined in the Amendment to which this exhibit is attached shall have the same
meanings attributed to such terms in the Commission Agreement. Upon the execution of the Amendment by Landlord and Tenant, Agent shall be
paid, in full, the commission due to Agent by reason of the existence of the Amendment.
2.
The foregoing timing of the payment due to Agent applies only with respect to the Amendment to which this exhibit is attached and
Landlord reserves the right to insist hereafter upon strict compliance with the terms of the Commission Agreement. The terms of the Commission
Agreement shall remain in full force and effect.
First Amendment to Lease – Page 16
COMMISSION AGREEMENT BETWEEN
WALSTIB, L.P., A DELAWARE LIMITED PARTNERSHIP
AND
FOBARE COMMERCIAL
THIS CONTRACT OF AGREEMENT, entered into by and between Walstib, L.P., a Delaware limited partnership hereinafter referred
to as “Owner,” and Fobare Commercial hereinafter referred to as “Agent.”
W I T N E S S E T H:
Agent has assisted or is assisting Owner in negotiating and consummating a Lease Agreement between Owner and PharmaFab, Inc.,
hereinafter referred to as “Prospect,” covering an approximate 44,000 square foot facility located at (in) 360 Riverside Business Park (Building B)
(the “Project”) for a term of 84 months beginning June 1, 1999 with rentals being due to Owner as therein provided, to which lease reference is
hereby made, and the same is hereby incorporated herein for all purposes; and
Agent and Owner hereby and herein desire to agree upon a commission to which Agent shall be entitled for such services based on rentals
actually received by Owner, as hereinafter provided.
It is mutually agreed as follows:
1. REGISTRATION
a.
Registration of the Prospect requires either (a) this Registration Letter from Agent naming the Prospect and a face-to-face meeting
with a decision maker representing the Prospect or (b) a duly executed and authorized letter from the Prospect designating Agent as its exclusive
Agent.
b.
This Registration and Agreement is effective for sixty (60) days after the date hereof and may be extended for another sixty (60)
days if the Agent shows evidence satisfactory to Owner that Agent is actively pursuing the execution of a Lease Agreement between Owner and the
Prospect.
c.
If at any time following the registration of the Prospect pursuant to (a) or (b) above, Agent loses control of the Prospect as evidenced
by a letter from the Prospect designating some other Agent as the Prospect’s Agent, then upon notification of such event to Agent by Owner, this
Registration Letter and Commission Agreement shall become null and void.
d.
Agent has satisfied the aforesaid initial registration requirements of Owner and accordingly Owner agrees to recognize PharmaFab,
Inc. as Agent’s Prospect and agrees to pay a commission to Agent if a lease of space of the Project is consummated between the Prospect and Owner
during the term of this Agreement.
2. CASH COMMISSION
a.
Primary Term. (1) If Agent requests a front-end cash-out of commission obligation hereunder, and if Prospect in Owner’s opinion
has sufficient credit to meet all of Prospect’s obligations under the lease, Owner shall, as set forth in d. below, pay Agent as the Commission hereunder
four and one-half percent (4-1/2%) of the total Rentals as hereafter payable for the entire initial term of the lease up to ten (10) years. Financial
statements and other information necessary to determine credit risk are to be provided by Agent.
b.
Renewal. If Agent requests a front-end cash-out of the commission obligation hereunder with respect to a renewal option contained
in the lease which has been duly exercised, and if Prospect in Owner’s opinion then has sufficient credit to meet all of Prospect’s obligations under the
lease during the renewal term, Owner shall pay Agent the then prevailing market commission for a renewal, based upon the total Rentals payable for
the renewal term, up to ten (10) years, providing that Agent is instrumental in assisting Owner in obtaining such renewal.
c.
Expansion. If Agent requests a front-end cash-out of the commission obligation hereunder with respect to an Option to Expand
contained in the Lease Agreement which has been duly exercised prior to the termination of the Lease Agreement and if Prospect in Owner’s opinion
then has sufficient credit to meet all of Prospect’s obligations under the lease as so expanded, Owner may pay Agent a commission of four and one-
half percent (4-1/2%) of the total Rentals payable for the expansion space providing that Agent is instrumental in assisting Owner in obtaining such
expansion.
d.
Time of Payment. (1) Initial Term. One-half (1/2) upon execution of the lease by Owner and Prospect, delivery thereof to both
parties and receipt by Owner of first full month’s rent and any security deposit; and the balance upon occupancy by Prospect, delivery to Owner of
satisfactory commencement letter executed by Prospect. In addition, no payment shall be payable until contingencies relating to the actual
consummation or cancellation of the agreement by Prospect (including but not limited to contingencies regarding zoning, restrictive covenants,
permitting, plan approvals and finish cost limits) are satisfactorily eliminated by the parties to the Lease Agreement. In addition for Build-to-Suit
facilities no commission will be payable until Owner has received interim financing for the project.
(2)
Renewal Term. If a renewal commission is due pursuant to Paragraph 2.b. above, the commission shall be payable upon written
exercise of the renewal option and payment of the rental for the first full month of the renewal term.
e.
Cancellation. Notwithstanding the above provisions, where Prospect individually or Prospect and Owner, jointly, have the right to
cancel the lease, a commission shall only be paid to Agent for the period up to the date on which the lease may be canceled. If the lease is not then
canceled, Owner shall pay the balance of the commission due for the remainder of the period covered under the lease at the time the Prospect’s right to
cancel expires, provided Prospect remains in occupancy of the space and is not in default under the Lease.
f.
New Lease. In the event Agent furnishes Owner written authorization to represent Prospect and negotiates and consummates a new
Lease Agreement between Owner and Prospect
covering an expansion or relocation facility, Owner shall pay Agent a commission based on the above provisions for the expansion or relocation
premises, but Agent’s commission under the original Lease Agreement shall be terminated as of the commencement date of the new Lease Agreement
and any unearned commission paid to the Agent with respect to the original Lease Agreement shall be netted out of commission payable for the new
Lease Agreement.
3. GENERAL
a.
Sale of Premises. In the event of sale of the premises and assignment of the Lease Agreement by Owner, Owner agrees to provide a
copy of this Commission Agreement to the Purchaser and to use its reasonable efforts to obtain from the purchaser or assignee an agreement whereby
such purchaser or assignee assumes the obligation to pay to Agent under the terms and provisions hereof, and Owner shall be released from all
liability for all future payments of commissions as may thereafter become due under this agreement.
b.
Definitions. “Rentals” shall mean the base monthly cash rent, and shall not include any amounts payable by Prospect to Owner for
reimbursement of costs and expenses passed through to Prospect, such as real estate taxes, insurance premiums, utilities, janitorial and common area
maintenance, or any operating expense escalations or amortization of tenant finish costs above Owner’s building standard allowance.
In addition rentals shall be reduced by the cost of any lease takeover obligations to Owner, free rent or other considerations by Owner to the benefit of
Prospect, whether agreed to in the Lease Agreement or other written instrument. Rentals for the purposes of this Commission Agreement, does not
include that portion of Prospect’s payments that relate to costs to Owner that are separately amortized because the cost of such improvements are
above Owner’s building standard allowance, relate to extraordinary items or otherwise would not be considered within the ordinary course of rental
payments in an industrial facility.
c.
Binding Effect. Except as otherwise herein provided, all rights and obligations hereunder shall be binding upon and inure to the
benefit of the successors, assigns, heirs, administrators and personal representatives of the Owner and Agent.
d.
Entire Agreement. Except as expressly herein provided, Owner shall have no obligation to pay, and Agent shall have no right to
receive, any commission or other payment with respect to the Lease or any transactions between Owner and Prospect, unless such right or obligation
is set forth in writing and signed by Owner and Prospect after the date hereof.
e.
Acceptance. This agreement is intended to be an offer, and if not accepted and returned to Owner in writing within three business
days from the date hereon, it is hereby withdrawn. If not received by said date, this offer is null and void. This Agreement is not valid unless fully
signed by both Owner and Agent.
f.
Owner’s Interest. Broker shall look solely to Owner’s interest in the Project for the recovery of any judgement against Owner for
failure to perform under this Agreement, and Owner (and Its partners, shareholders and agents) shall not be personally liable for any such judgement
therefore.
EXECUTED BY OWNER this _________ day of ___________, 1999.
WALSTIB, L.P., A DELAWARE LIMITED PARTNERSHIP
By: WALSTIB Venture, L.L.C., a Delaware limited liability company
Its sole general partner
By: TCDFW Development, Ltd., a Texas limited partnership
Its Administrative Member
By: Trammell Crow DFW Development, Inc., a Delaware corporation
Its sole general partner
By:
Its: Executive Vice President
Telephone:
(214) 979-6180
Facsimile:
(214) 979-6355
Executed At:
2200 Ross Avenue, Suite 3700
On:
EXECUTED BY AGENT this _________ day of _________, 1999.
FOBARE COMMERCIAL
By:
Title:
INTERIM AMENDMENT TO LEASE
Exhibit 10.50
This INTERIM AMENDMENT TO LEASE (this “Amendment”) is made and entered into as of September 4, 2003, by and between
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, a New York corporation (hereinafter referred to as “Landlord”), and
PFAB LP, a Texas limited partnership (hereinafter referred to as “Tenant”).
BACKGROUND:
A.
B.
C.
D.
E.
F.
Walstib, L.P. (“Walstib”) and PharmaFab, Inc., a Texas corporation (“PharmaFab”), entered into that certain Commercial Lease Agreement
dated on or about June 29, 1999, and having a Commencement Date as of October 25, 1999 (as same may have been amended and assigned,
the “Lease”) regarding certain premises (the “Premises”) located at 360 Riverside Business Center in the City of Grand Prairie, Tarrant
County, Texas, as more particularly described in the Lease.
Pursuant to that certain Assignment of Lease dated on or about June 29, 1999, to be effective as of July 1, 1999, PharmaFab assigned its
right, title and interest in the Lease to Tenant.
Walstib and Tenant amended the Lease pursuant to that certain First Amendment to Lease dated effective as of September 1, 2002 (the “First
Amendment”) pursuant to which the Premises were expended from approximately 44,000 square feet of space in Suite 100 of Building B of
the industrial Center (the “Suite 100 Space”) to include approximately 50,000 additional square feet in Suite 100 of Building A of the
Industrial Canter (the “Building A Space”) and Bruce K. Montgomery was released from his Guaranty of Lease.
Landlord succeeded to the interest of Walstib under the Lease.
Landlord and Tenant are currently negotiating a Second Amendment to Lease (the “Second Amendment”) relocating a portion of the
Premises.
Landlord and Tenant desire to amend the Lease on an interim basis, to allow entry by Tenant into the space located at 2940 North Highway
360, Grand Prairie, Texas (the “Expansion Premises”) for the purpose of installing Tenant’s equipment and telecommunications equipment.
NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which
are acknowledged, the parties agree as follows:
AGREEMENT
1.
2.
3.
4.
5.
Capitalized Terms. All capitalized terms which are not otherwise defined herein shall have the meaning set forth in the Lease, as amended
hereby.
Expansion. As of September 4, 2003 (the “Effective Date’’, the term “Premises” as used In the Lease shall include the Expansion Premises,
Tenant’s occupancy of the Expansion Premises is under all terms and conditions of the Lease, as modified hereby.
Term - Expansion Premises. The term of the Lease with regard to the Expansion Premises is month to month (‘Temporary Expansion
Term”). The Temporary Expansion Term shall expire upon the earlier of (i) full execution of the Second Amendment and fulfillment of the
contingency set forth therein, or (ii) 15 days after written notice of termination by either party to the other party.
Rental. The Rent for the Expansion Premises is $1,000 per month, payable as provided in the Lease. Tenant shall not be responsible for
payment of Tenant’s Share of Operating Expenses with regard to the Expansion Premises during the Temporary Expansion Term. Rent for
any partial calendar month shall be prorated on a per diem basis.
Acceptance of Premises. Tenant accepts the Expansion Premises in their “AS IS, WHERE IS” condition, and Landlord has no obligation to
Improve, repair, restore, or refurbish the Premises. Tenant’s occupancy of any portion of the Premises is conclusive evidence that Tenant:
(A) accepts such portion of the Premises as suitable for the purposes for which they are leased; (B) accepts such portion of the Premises as
being in a good and satisfactory condition; (C) waives any defects in the Premises; and (D) having been provided an opportunity to inspect
and measure each portion of the Premises, agrees that the square footage numbers specified in this Amendment are accurate, binding, and
conclusive for all purposes. Neither Landlord nor any other Landlord Entity has made, and Tenant waives, any express or implied
representation or warranty with respect to the Premises or any other portion of the Industrial Center including, without limitation, any
representation or warranty with respect to the suitability or fitness of the Premises or any other portion of the Industrial Center for the
conduct of Tenant’s business. Landlord expressly recognizes, covenants and agrees that notwithstanding the terms of this Paragraph 4 or
Paragraph 7, to the contrary, nothing in this Paragraph 4 relieves Landlord of any of its obligations pursuant to the Lease. Including, without
limitation, Paragraph 7.2 of the Lease and Paragraph 16.17 of the Lease.
6.
Brokerage Mutual Indemnities.
a.
Tenant warrants that it has had no dealings with any broker or agent in connection with the negotiation or execution of this
Amendment other than Trammel Crow Company and CB Richard Ellis (collectively, “Brokers”). Tenant shall indemnify, defend, and hold Landlord
harmless against all costs, expenses, attorneys’ fees, or other liability for commissions or other compensation or charges claimed by any broker or
agent other than Brokers claiming by, through, or under Tenant with respect to this Amendment.
b.
Landlord Warrants that it has had no dealing; with any broker or agent in connection with the negotiation or execution of this
Amendment other than Brokers. Landlord
2
shall indemnify, defend, and hold Tenant harmless against all costs, expenses, attorneys’ fees, or other liability for commissions or other compensation
or charges claimed by any broker or agent, including Brokers, claiming by, through or under Landlord with respect to this Amendment.
c.
Landlord and Broker.
Any brokerage commissions payable to Brokers are payable by Landlord pursuant to the terms of separate agreements between
7.
8.
9.
No Offsets. Tenant hereby represents to Landlord that to the best of Tenant’s knowledge, as of the date of this Amendment. Tenant has no
defenses to or offsets against the full and timely payment and performance of each and every covenant and obligation required to be
performed by Tenant under the terms of the Lease.
Conflicts. The terms of this Amendment prevail if there is a conflict with the terms of the Lease.
Headings. The headings or captions of the paragraphs in this Amendment are for convenience only and shall not act and shall not be implied
to act to limit or expand the construction and intent of the contents of the respective Paragraph.
10.
Binding Effect. This Amendment is binding upon and shall inure to the benefit of the parties and their respective successors and assigns (but
this reference to assigns shall not be deemed to act as a consent to an assignment by Tenant).
11.
Ratification. The Lease, as amended and modified hereby, is ratified and confirmed by the parties as being in full force and effect.
3
EXECUTED as of the date first above written.
LANDLORD:
TEACHERS INSURANCE AND ANNUITY|
ASSOCIATION OF AMERICA,
a New York Corporation
By:
Print Name:
As Its:
TENANT:
PFAB LP,
a Texas limited partnership
By: PharmaFab Texas, LLC,
its general partner
By:
Print Name: Darlene M. Ryan
As Its: Sole Manager
ATTACHMENT “A”
to Interim Amendment to Lease by and between
Teachers Insurance and Annuity Association of America, as Landlord
and
PFAB LP, as Tenant
FLOOR PLAN OF THE EXPANSION PREMISES
THIRD AMENDMENT TO LEASE
Exhibit 10.51
This THIRD AMENDMENT TO LEASE (this “Amendment”) is made and entered into as of _______________, 2003, by and between
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, a New York corporation (hereinafter referred to as “Landlord”), and
PFAB LP, a Texas limited partnership (hereinafter referred to as “Tenant”).
BACKGROUND:
A.
B.
C.
D.
E.
F.
Walstib, L.P. (“Walstib”) and PharmaFab, Inc., a Texas corporation (“PharmaFab”), entered into that certain Commercial Lease Agreement
dated on or about June 29, 1999, and having a Commencement Date as of October 25, 1999 (as same may have been amended and assigned,
the “Lease”) regarding certain premises (the “Premises”) located at 360 Riverside Business Center in the City of Grand Prairie, Tarrant
County, Texas, as more particularly described in the Lease.
Pursuant to that certain Assignment of Lease dated on or about June 29, 1999, to be effective as of July 1, 1999, PharmaFab assigned its
right, title and interest in the Lease to Tenant.
Walstib and Tenant amended the Lease pursuant to that certain First Amendment to Lease dated effective as of September 1, 2002 (the “First
Amendment”) pursuant to which the Premises were expanded from approximately 44,000 square feet of space in Suite 100 of Building B of
the Industrial Center (the “Suite 100 Space”) to include approximately 50,000 additional square feet in Suite 100 of Building A of the
Industrial Center (the “Building A Space”) and Bruce K. Montgomery was released from his Guaranty of Lease.
Landlord succeeded to the interest of Walstib under the Lease.
Landlord and Tenant amended the Lease on a short term basis pursuant to an Interim Amendment to Lease, dated September 4, 2003.
Landlord and Tenant desire to further amend the Lease as hereinafter set forth to include, without limitation, the release of Darlene M. Ryan
from any guaranty of the Lease.
NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which
are acknowledged, the parties agree as follows:
AGREEMENT:
1.
2.
3.
4.
Capitalized Terms. All capitalized terms which are not otherwise defined herein shall have the meaning set forth in the Lease, as amended
hereby.
Relocation. As of the respective Effective Dates set forth below, the Building A Space will be relocated to 2940 N. Highway 360, Building
B, Suite 400 (“Suite 400 Space”) consisting of approximately 20,170 square feet of space and 2940 N. Highway 360, Building B, Suite 200
consisting of approximately 33,112 square feet of space (“Suite 200 Space”) for a total of approximately 53,282 square feet of space.
The Lease will terminate as to the Building A Space [except with regard to liabilities due and outstanding as of the Suite 400 Effective Date
(hereinafter defined)] and Tenant will relocate from the Building A Space to the Suite 400 Space on September 9, 2003 (the “Suite 400
Effective Date”).
Upon vacating the Building A Space, Tenant shall surrender such space in accordance with the terms of the Lease, as though the Lease had
expired with respect to the Building A Space. Tenant is solely responsible for all costs of relocating from the Building A Space.
Subject to the satisfaction of the contengency set forth in Paragraph 10 of this Amendment, effective 5 days after the date SmartMail, LLC
(“SmartMail”), the current tenant of Suite 200 of Building B, vacates Suite 200 (the “Suite 200 Effective Date”), the Premises shall be
deemed to include the Suite 200 Space. From and after the Suite 200 Effective Date, the term “Premises” shall be deemed to refer to the
Suite 100 Space, the Suite 200 Space and the Suite 400 Space for a total of approximately 97,282 square feet of space, all as more fully
described on Attachment A hereto.
Term. The Lease, as amended hereby shall expire on November 30, 2010 (the “Expiration Date”).
Base Rental. Upon the Suite 400 Effective Date, monthly Base Rent is payable as follows:
a.
b.
c.
Suite 400 Space. From the Suite 400 Effective Date through the date prior to the Suite 200 Effective Date, Monthly Base Rent for
the Suite 400 Space is $19,867.45. From the Suite 200 Effective Date until May 9, 2004, Base Rental for the Suite 400 Space is
abated. Thereafter, Monthly Base Rental for the Suite 400 Space is as follows:
5/9/04 - 4/30/09
5/1/03 - 11/30/10
$16,505.78
$18,774.91
Suite 200 Space. From the Suite 200 Effective Date through the date prior to the fifth anniversary thereof, Monthly Base Rental for
the Suite 200 Space is $21,633.17. From and after the fifth anniversary of the Suite 200 Effective Date through the Expiration Date,
the Monthly Base Rental for the Suite 200 Space is $23,702.67.
Suite 100 Space. Monthly Base Rental for the Suite 100 Space is as follows:
2
9/1/03 - 10/31/04
11/1/04 - 10/31/05
11/1/05 - 11/30/10
$28,930.00
$35,126.67
$36,593.33
Landlord and Tenant agree to execute and deliver a memorandum setting forth the actual dates and rental rates once such dates are
determined.
5.
Operating Expenses. Tenant shall be liable for Tenant’s Share of Operating Expenses for each portion of the Premises on the applicable
Effective Date for such portion, payable as provided in the Lease. Tenant’s Share of Operating Expenses for the Industrial Park and Building
is determined on a per square foot basis by dividing the number of square feet in the Premises (or applicable portion thereof) by the total
number of square feet in the Industrial Park or Building, as applicable. From the Suite 400 Effective Date through the date prior to the Suite
200 Effective Date, Landlord estimates Tenant’s Share of Operating Expenses as follows:
(a)
(b)
Industrial Park
Building
29.90%
56.49%
Upon the Suite 200 Effective Date, Landlord estimates Tenant’s Share of Operating Expenses as follows:
(a)
(b)
Industrial Park
Building
45.33%
85.64%
6.
Right of First Refusal.
a.
b.
If during the Lease Term, Suite 300 of Building B is available for lease and Landlord enters into a letter of intent with a third party
covering all of the essential terms (collectively, the “Third Party Terms”) for any of such space (the “First Refusal Space”), then
Landlord shall deliver a notice to Tenant (the “First Refusal Notice”) offering to lease the First Refusal Space to Tenant under the
Third Party Terms (the “ROFR Terms”). As used in this Paragraph 6 only, the term available for lease means that the First Refusal
Space is neither: (i) subject to any rights of third parties existing as of the date of this Amendment, including, without limitation,
previously granted rights of first notice, expansion rights, extension rights, options to lease, or other previously granted rights, nor
(ii) subject to renewal by its current tenant, Statewide, whether or not such renewal is pursuant to an option to renew set forth in its
lease as of the date of this Amendment.
Tenant may elect to lease the First Refusal Space under the ROFR Terms by delivering a notice (the “Response Notice”) to
Landlord within 5 business days after the date Tenant receives the First Refusal Notice. If (i) Landlord does not receive the
Response Notice within the 5 business day period or (ii) in the Response Notice Tenant elects not to lease the First Refusal Space
under the ROFR Terms, then Tenant is deemed to waive its right to lease the First Refusal Space and Tenant has no further rights
under this Paragraph 6. Notwithstanding the foregoing, however, if Landlord does not then execute a lease for the First Refusal
Space with
3
any third party, under economic terms no more than 5% different from those set forth in the Third Party Terms, then this Paragraph
6, and the parties’ rights and obligations hereunder, will be reinstated in their entirety.
c.
d.
If Tenant timely delivers a Response Notice electing to lease First Refusal Space under the ROFR Terms, then Landlord shall
promptly prepare, and deliver to Tenant an amendment to the Lease adding the First Refusal Space to the Premises upon the ROFR
Terms, which amendment will be in a form substantially similar to this Amendment. Landlord and Tenant shall execute and deliver
such amendment within 5 business days thereafter.
Landlord is not obligated to offer the First Refusal Space to Tenant, and Tenant may not exercise its option to lease the First Refusal
Space, if Tenant is in default under the Lease at the time Landlord would otherwise be obligated to give notice to Tenant under this
Paragraph.
The Right of First Offer set forth in Section 7 of the First Amendment is hereby deleted and shall be of no further force and effect.
4
7.
8.
9.
10.
Security Deposit; Release of Guaranties. Upon execution of this Amendment, Tenant shall deposit the amount of $48,706.56 as in increase in
the Security Deposit currently held by Landlord under Section 5 of the Lease for a total Security Deposit of $86,706.57. The Security
Deposit shall be held and applied by Landlord as provided in the Lease. Upon execution of this Amendment by Landlord, Darlene M. Ryan
is and shall automatically without any further action be deemed released from and shall have no further liability pursuant to the guaranties
previously executed by her in connection with the Lease, including without limitation, that certain Guaranty of Lease dated June 29, 1999
and that certain Guaranty of Lease dated effective September 1, 2002. It is further recognized and agreed that pursuant to the terms of the
First Amendment, Bruce K. Montgomery, was previously released from any and all guaranties previously executed by him in connection
with the Lease, including, without limitation, that certain Guaranty of Lease Dated June 29, 1999.
Acceptance of Premises. Tenant accepts the Premises including Suites 200 and 400 in their “AS IS, WHERE IS” condition, and Landlord,
subject to its obligations under Attachment B, has no obligation to improve, repair, restore, or refurbish the Premises. Tenant’s occupancy of
any portion of the Premises is conclusive evidence that Tenant: (A) accepts such portion of the Premises as suitable for the purposes for
which they are leased; (B) accepts such portion of the Premises as being in a good and satisfactory condition; (C) waives any defects in the
Premises; and (D) having been provided an opportunity to inspect and measure each portion of the Premises, agrees that the square footage
numbers specified in this Amendment are accurate, binding, and conclusive for all purposes. Neither Landlord nor any other Landlord Entity
has made, and Tenant waives, any express or implied representation or warranty with respect to the Premises or any other portion of the
Industrial Center including, without limitation, any representation or warranty with respect to the suitability or fitness of the Premises or any
other portion of the Industrial Center for the conduct of Tenant’s business. Landlord expressly recognizes, covenants and agrees that
notwithstanding the terms of this Paragraph 8 or Paragraph 13, to the contrary, nothing in this Paragraph 8 relieves Landlord of any of its
obligations pursuant to the Lease, including, without limitation, Paragraph 7.2 of the Lease and Paragraph 16.17 of the Lease.
Finish-Out of Premises. Landlord agrees to provide Tenant with a finish-out allowance of $301,036 for costs incurred in connection with
renovations to the Premises. Tenant hereby waives any rights it may have to approximately $250,000 in additional tenant improvements to
be made to the Building A Space. Tenant must perform all Tenant Finish Work in accordance with the terms of the Lease and Attachment B
to this Amendment.
Contingency. The Suite 200 Space is currently subject to a lease dated February 25, 2000 by and between Landlord, as successor in interest
to Walstib and SmartMail (the “SmartMail Lease”) The effectiveness of this Amendment is contingent on Landlord executing an amendment
to the SmartMail Lease in form and substance satisfactory to Landlord, relocating SmartMail to the Building A Space. If Landlord and
SmartMail fail to so amend the SmartMail Lease on or before October 2, 2003, Landlord shall notify Tenant in writing and this Amendment
shall be terminated and of no further force and effect.
5
11.
Brokerage; Mutual Indemnities.
a.
b.
c.
Tenant warrants that it has had no dealings with any broker or agent in connection with the negotiation or execution of this
Amendment other than Trammell Crow Company and CB Richard Ellis (collectively, “Brokers”). Tenant shall indemnify, defend,
and hold Landlord harmless against all costs, expenses, attorneys’ fees, or other liability for commissions or other compensation or
charges claimed by any broker or agent other than Brokers claiming by, through, or under Tenant with respect to this Amendment.
Landlord warrants that it has had no dealings with any broker or agent in connection with the negotiation or execution of this
Amendment other than Brokers. Landlord shall indemnify, defend, and hold Tenant harmless against all costs, expenses, attorneys’
fees, or other liability for commissions or other compensation or charges claimed by any broker or agent, including Brokers,
claiming by, through or under Landlord with respect to this Amendment.
Any brokerage commissions payable to Brokers are payable by Landlord pursuant to the terms of separate agreements between
Landlord and Broker.
No Offsets. Tenant hereby represents to Landlord that to the best of Tenant’s knowledge, as of the date of this Amendment, Tenant has no
defenses to or offsets against the full and timely payment and performance of each and every covenant and obligation required to be
performed by Tenant under the terms of the Lease.
Conflicts. The terms of this Amendment prevail if there is a conflict with the terms of the Lease.
Headings. The headings or captions of the paragraphs in this Amendment are for convenience only and shall not act and shall not be implied
to act to limit or expand the construction and intent of the contents of the respective paragraph.
Binding Effect. This Amendment is binding upon and shall inure to the benefit of the parties and their respective successors and assigns (but
this reference to assigns shall not be deemed to act as a consent to an assignment by Tenant).
Ratification. The Lease, as amended and modified hereby, is ratified and confirmed by the parties as being in full force and effect.
Acknowledgement of Option to Extend. Landlord recognizes, covenants and agrees that the Option to Extend set forth in Paragraph 8 of the
First Amendment remains in full force and effect and applies and shall continue to apply to the Premises as defined herein.
12.
13.
14.
15.
16.
17.
EXECUTED as of the date first above written.
LANDLORD:
6
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF
AMERICA,
a New York corporation
By:
Print Name:
As Its:
TENANT:
PFAB LP,
a Texas limited partnership
By: PharmaFab Texas, LLC,
its general partner
By:
Print Name: Darlene M. Ryan
As Its:
Sole Manager
7
ATTACHMENT “A”
to Third Amendment to Lease by and between
Teachers Insurance and Annuity Association of America, as Landlord,
and
PFAB LP, as Tenant
FLOOR PLAN OF THE PREMISES
8
ATTACHMENT B
to Third Amendment to Lease by and between
Teachers Insurance and Annuity Association of America, as Landlord,
and
PFAB LP, as Tenant
TENANT FINISH CONSTRUCTION
A.
Plans and Specifications: Tenant shall submit to Landlord at least 30 days prior to commencement of any remodeling in the Premises
complete initial plans and specifications (the “Initial Construction Documents”) for the remodeling of the Premises. The Initial
Construction Documents must include, without limitation:
1.
2.
3.
4.
5.
General Notes Sheet
Demolition Plan
New Construction Plan with details of all new improvements
Finishes Plan
Electrical, Mechanical and Plumbing Plan
Within 15 days after receipt of the Initial Construction Documents, Landlord shall deliver to Tenant a notice either approving or disapproving
them. Any disapproval must specify in reasonable detail the reasons for the disapproval. If Tenant does not receive a notice from Landlord
disapproving the Initial Construction Documents within the 15-day period, Landlord is deemed to approve the Initial Construction
Documents. If Landlord disapproves the Initial Construction Documents, Tenant shall revise them to conform to Landlord’s objections and
deliver complete copies of the revised Initial Construction Documents to Landlord.
The approved Initial Construction Documents are referred to as the “Construction Documents” and all work to be performed by Tenant
pursuant to the Construction Documents is referred to as the “Tenant Finish Work”. Landlord’s approval of the Construction Documents is
not a warranty that the Construction Documents comply with Applicable Laws.
B.
Tenant Finish Work. Tenant shall pay the Actual Cost (defined below) of all Tenant Finish Work. Within 45 days of completion of the
Tenant Finish Work, and presentation to Landlord of (i) receipts and invoices marked “paid” (ii) lien releases executed by all parties
performing Tenant Finish Work, including without limitation, the general contractors,
9
materialmen and other vendors performing any portion of the Tenant Finish Work or supplying any materials used in connection therewith,
and (iii) the Architect’s Certificate of Substantial Completion, Landlord will reimburse Tenant for a portion of the Tenant Finish Work, up to
the amount of $301,036.00 (the “Work Allowance”). The term “Actual Cost” means the cost of all labor and materials and all hard and soft
costs relating to the Tenant Finish Work, together with the Building Service Fee of 4% of all hard costs of the Tenant Finish Work.
Tenant, at its cost and risk (subject to reimbursement of the Work Allowance by Landlord), shall construct or cause to be constructed the
Tenant Finish Work in substantial accordance with the Construction Documents. Tenant shall allow Landlord access to the Premises at all
times to inspect the Tenant Finish Work. Landlord has no obligation to inspect the Tenant Finish Work. No inspection by Landlord of the
Tenant Finish Work is a warranty that the Tenant Finish Work complies with the Construction Documents or any Applicable Laws.
C.
General.
1.
2.
3.
4.
5.
Any changes to the Construction Documents must first be submitted to Landlord for review and approval prior to the work reflected
in such amended Plans being undertaken by Tenant.
Workmanship and materials to be used in the Tenant Finish Work shall be of best quality. Any approval by Landlord of the Plans
shall not in any way constitute a representation or warranty of Landlord as to the adequacy of sufficiency of the Plans; such approval
shall merely be the consent of Landlord as may be required hereunder in connection with the Tenant Finish Work in accordance with
the Plans under the terms of the Lease.
Tenant shall perform the Tenant Finish Work consistent with Building Rules and Regulations, in a manner to minimize noise and
other interference with tenants of the Industrial Center and shall remove all trash and debris from the Premises on a daily basis.
Upon completion of the construction of Tenant Finish Work, Tenant shall promptly restore any area of the Industrial Center
damaged as a result of Tenant’s construction of the Tenant Finish Work to the condition existing prior to the commencement of such
construction.
All contractors, subcontractors, suppliers, service providers, moving companies, and others performing work of any type for Tenant
in the Industrial Center shall carry the insurance listed below with companies acceptable to Landlord:
a.
Commercial General Liability Insurance (ISO Form CG00010798 or its equivalent), written on an “occurrence” basis, with
minimum limits of $1,000,000 per occurrence; $3,000,000 general aggregate for bodily injury, personal injury and property
damage. If required by Landlord, liquor liability coverage will be included.
10
b.
c.
Workers’ Compensation insurance with statutory limits and Employers Liability with a $1,000,000 per accident limit for
bodily injury or disease.
Automobile Liability covering all owned, non-owned and hired vehicles with a $1,000,000 per accident limit for bodily
injury and property damage.
Tenant shall deliver to Landlord, do Trammell Crow Company (“Manager”), 2200 Ross Avenue, Suite 3700, Dallas, Texas 75201, Attention:
Betty Venator, duly executed certificates of all insurance (Acord Form 27, modified as necessary to cover liability insurance) and additional
insured endorsements reasonably satisfactory to Landlord (on ISO Form 2026 or its equivalent, without modification) prior to entering the
Premises and annually thereafter, reflecting evidence of required coverages.
All insurance required under hereunder (i) shall be primary and non-contributory (ii) shall provide for severability of interests, (iii) shall be
issued by insurers, licensed to do business in the state in which the Premises are located and which are rated A:IX or better by Best’s Key
Rating Guide, (iv) shall be endorsed to include Landlord and such other persons or entities as Landlord may from time to time designate, as
additional insureds without restriction (Commercial General Liability only), and (v) shall be endorsed to provide at least 30-days prior
notification of cancellation or material change in coverage to said additional insureds. Each policy must be endorsed to waive any rights of
subrogation against Landlord, its officers, directors, employees, agents, partners and assigns.
11
FOURTH AMENDMENT TO LEASE
Exhibit 10.52
This FOURTH AMENDMENT TO LEASE (this Amendment) is made and entered into as of June ___, 2009 (the Execution
Date), to be effective as of May 1, 2009 (the Effective Date), by and between TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA, a New York corporation (Landlord), and NEOS THERAPEUTICS, LP, a Texas limited partnership,
formerly known as PFAB LP (Tenant).
BACKGROUND:
A.
B.
C.
D.
E.
F.
Walstib, L.P., a Delaware limited partnership (Walstib), and PharmaFab, Inc., a Texas corporation (PharmaFab), entered into
that certain Commercial Lease Agreement dated on or about June 29, 1999, and having a Commencement Date as of October
25, 1999 (the Original Lease) regarding certain premises containing approximately 44,000 square feet in Suite 100 (the
Original Premises) of Building B (the Building) in the industrial complex commonly known as 360 Riverside Business
Center located at 2940 N. Highway 360 in the City of Grand Prairie, Tarrant County, Texas, as more particularly described in
the Original Lease (the Industrial Center).
Pursuant to that certain Assignment of Lease dated on or about June 29, 1999, to be effective as of July 1, 1999, PharmaFab
assigned its right, title and interest in the Original Lease to PFAB LP, a Texas limited partnership (PLP).
Walstib and PLP amended the Original Lease pursuant to that certain First Amendment to Lease dated effective as of
September 1, 2002 (the First Amendment) pursuant to which (i) the Original Premises were expanded to include
approximately 50,000 additional square feet in Suite 100 of Building A of the Industrial Center (the Building A Premises)
and (ii) Bruce K. Montgomery was released from his Guaranty of Lease.
Landlord succeeded to the interest of Walstib under the Lease.
Landlord and PLP further amended the Original Lease on a short term basis pursuant to an Interim Amendment to Lease dated
September 4, 2003 (the Second Amendment).
Landlord and PLP further amended the Original Lease pursuant to that certain Third Amendment to Lease dated October 1,
2003 (the Third Amendment) pursuant to which (i) the Building A Premises were relocated to Suites 200 and 400 of the
Building such that the Premises (as defined in the Original Lease) consist of (1) approximately 77,112 square feet of space in
Suites 100 and 200 of the Building (collectively, the Renewal Premises) and (2) approximately 20,170 square feet of space in
Suite 400 of the Building (the Suite 400 Space) and (ii) Darlene M. Ryan was released from her Guaranty of Lease. The
Original Lease, as amended by the First Amendment, Second Amendment and Third Amendment, is referred to herein as the
Lease.
G.
On June 22, 2007, Tenant changed its name to Neos Therapeutics, LP.
FOURTH AMENDMENT TO LEASE
PAGE 1
H.
Landlord and Tenant desire to further amend the Lease to extend the Term of the Lease for the Renewal Premises and modify
certain provisions of the Lease as hereinafter set forth, but not otherwise.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties agree as follows:
1.
2.
3.
4.
Capitalized Terms. All capitalized terms which are not otherwise defined herein shall have the meaning set forth in the Lease,
as amended hereby.
Term. The Term for the Renewal Premises is extended to expire on December 31, 2019 (the Expiration Date). The Term for
the Suite 400 Space shall expire on November 30, 2010. Commencing December 1, 2010, the term “Premises” shall refer to
the Renewal Premises only.
Base Rent. From the Effective Date through the Expiration Date, the Base Rent payable with respect to the Renewal Premises
and the Suite 400 Space, as applicable, is as follows:
Period
Base Rent/SF
(Renewal Premises –
77,112 square feet)
Base Rent/SF
(Suite 400 Space –
20,170 square feet
Monthly Base
Rent
5/1/09 - 9/30/09
10/1/09-11/30/10
12/1/10-4/30/11
5/1/11 -12/31/13
1/1/14-12/31/16
1/1/17 -12/31/19
$0.00
$7.50
$7.50
$8.50
$9.00
$9.50
$11.17
$11.17
-
-
-
-
$18,774.91
$66,969.91
$48,195.00
$54,621.00
$57,834.00
$61,047.00
All other terms of the Lease regarding the payment of Base Rent remain unchanged. Tenant shall continue to pay all other
amounts payable under the Lease; provided, however, Tenant’s Share shall be amended in accordance with Section 5 of this
Amendment.
Acceptance of Premises. Tenant accepts the Premises in their “AS-IS” condition and Landlord shall have no obligation to
improve, repair, restore or refurbish the Renewal Premises except as otherwise specifically provided in this Amendment.
Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty, except as
otherwise expressly provided in this Amendment, with respect to the Renewal Premises or any other portion of the Industrial
Center including, without limitation, any representation or warranty with respect to the suitability or fitness of the Renewal
Premises or any other portion of the Industrial Center for the conduct of Tenant’s business. Nothing in this Paragraph 4 shall
negate or diminish Landlord’s repair or restoration obligations under the Lease.
5.
Operating Expenses.
FOURTH AMENDMENT TO LEASE
PAGE 2
a.
Tenant shall be liable for Tenant’s Share of Operating Expenses for the Premises, payable as provided in the Lease.
Tenant’s Share for the Industrial Center and the Building is determined on a per square foot basis by dividing the
number of square feet in the Premises (or applicable portion thereof) by the total number of square feet in the
Industrial Center or the Building, as applicable.
From the Effective Date through November 30, 2010, Tenant’s Share of Operating Expenses is as follows:
(a)
(b)
Industrial Center
Building
45.33%
85.64%
From December 1, 2010 through the Expiration Date, Tenant’s Share of Operating Expenses is as follows:
(a)
(b)
Industrial Center
Building
35.93%
67.88%
b.
Upon the Effective Date, Section 4.2 of the Lease is amended by adding the following:
(g)
For purposes of determining Tenant’s Share of Operating Expenses, Controllable Operating Expenses
(defined below) for any calendar year will not increase over the amount of Controllable Operating Expenses
during the previous year (calculated upon a base equal to the actual expenses incurred for calendar year
2009) by more than 8% per year on a cumulative basis, compounded annually. For example, the maximum
amount of Controllable Operating Expenses that may be included in the calculation of such Additional Rent
for each calendar year after 2009 shall equal the product of the Controllable Operating Expenses incurred
for calendar year 2009 and the following percentages for the following calendar years: 108% for 2010,
116.64% for 2011, 125.97% for 2012, etc. The term Controllable Operating Expenses means all Operating
Expenses except costs and expenses for taxes, insurance, property management fees (except for property
management fees paid to affiliates of Landlord), utilities, costs to Landlord resulting from compliance with
Applicable Requirements, and any increases in service contract fees and expenses resulting from
government-mandated wage increases.
6.
Tenant’s Insurance. Upon the Effective Date, Section 8.2 of the Lease is deleted and the following substituted therefor:
(a)
At its sole cost and expense, Tenant shall maintain in full force and effect during the Term of this Lease the
following insurance coverages insuring against claims which may arise from or in connection with the Tenant’s operation and
use of the Premises.
(i)
Commercial General Liability Insurance (ISO Form CG00010798 or its equivalent), written on an
“occurrence” basis, with minimum limits of
FOURTH AMENDMENT TO LEASE
PAGE 3
$1,000,000 per occurrence; $2,000,000 general aggregate for bodily injury, personal injury and property damage and
excess umbrella liability insurance in the amount of $5,000,000. Tenant’s Commercial General Liability Insurance
must cover business carried on, in or from the Premises and Tenant’s use and occupancy of the Premises (including
contractual liability and must have no deductible).
(ii)
Workers’ compensation insurance complying with statutory requirements of the State of Texas and
employers liability insurance in amounts not less than $500,000 bodily injury per accident/$500,000 disease each
employee/$500,000 disease policy limit.
(iii)
Automobile Liability covering all owned, non-owned and hired vehicles with a $1,000,000 per
accident limit for bodily injury and property damage.
(iv)
Property insurance against all risks of loss to any tenant improvements or betterments and business
personal property on a full replacement cost basis with no coinsurance penalty provision and a deductible not to
exceed $25,000; and Business Interruption Insurance with a limit of liability representing loss of at least
approximately six months of income.
(b)
Tenant shall deliver to Landlord duly executed certificates of all insurance (Acord Form 28, modified as
necessary to cover liability insurance) and additional insured endorsements reasonably satisfactory to Landlord (on ISO Form
2026 or its equivalent, without modification) prior to July 1, 2009 and annually thereafter, reflecting evidence of required
coverages together with endorsements required under this Section 8.2.
(c)
All insurance required under Paragraph 8.2 (i) shall be primary and non- contributory, (ii) shall provide for
severability of interests, (iii) shall be issued by insurers, licensed to do business in the state in which the Premises are located
and which are rated A-:IX or better by Best’s Key Rating Guide, (iv) shall be endorsed to include Landlord, Landlord’s
property manager and such other persons or entities as Landlord may from time to time designate, as additional insureds
without restriction (Commercial General Liability and excess umbrella liability insurance only), (v) shall be endorsed to
endeavor to provide at least 30-days prior notification of cancellation or material change in coverage to said additional
insureds, and (vi) shall be endorsed to waive any rights of subrogation against Landlord, its officers, directors, employees,
agents, partners and assigns. All deductibles shall be at Tenant’s sole risk and shall be paid by, assumed by and for the
account of Tenant.
(d)
If Tenant fails to comply with the insurance requirements, Landlord may obtain the required insurance on
behalf of Tenant and Tenant shall pay the cost thereof as Additional Rent.
7.
Waiver of Subrogation. Upon the Effective Date, Section 8.4 of the Lease is deleted and the following substituted therefor:
FOURTH AMENDMENT TO LEASE
PAGE 4
Each party waives all claims that arise or may arise in its favor against the other party, or anyone claiming through or under
them, by way of subrogation or otherwise, during the Lease Term or any extension or renewal thereof, for all losses of, or
damage to, any of its property (WHETHER OR NOT THE LOSS OR DAMAGE IS CAUSED IN WHOLE OR IN
PART BY THE FAULT OR NEGLIGENCE OR STRICT LIABILITY OF THE OTHER PARTY OR ANYONE FOR
WHOM THE OTHER PARTY IS RESPONSIBLE), which loss or damage is covered by valid and collectible Special
Form Property insurance policies or would have been covered by such insurance policies had the party maintained such
insurance. The party incurring the loss or damage will be responsible for any deductible or self-insured retention under its
property insurance. These waivers are in addition to, and not in limitation of, any other waiver or release in this Lease with
respect to any loss or damage to property of the parties. Each party shall immediately give each insurance company issuing to
it policies of Special Form Property insurance written notice of the terms of these mutual waivers, and have the insurance
policies properly endorsed, if necessary, to prevent the invalidation of the insurance coverages by reason of these waivers.
8.
Indemnity. Upon the Effective Date, Section 8.5 of the Lease is amended by adding the following:
THE INDEMNITY IN THIS SECTION WILL APPLY EVEN IF THE LOSS OR DAMAGE IS CAUSED OR
ALLEGED TO BE CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OR STRICT LIABILITY OF A
LANDLORD ENTITY BUT WILL NOT APPLY TO THE EXTENT THE DAMAGE OR LOSS IS CAUSED BY THE
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH LANDLORD ENTITY.
9.
Exemption of Landlord from Liability. Upon the Effective Date, Section 8.6 of the Lease is deleted and the following
substituted therefor:
Landlord Entities shall not be liable for and Tenant waives any claims against Landlord Entities (EVEN IF SUCH CLAIMS
ARE CAUSED SOLELY OR IN PART BY THE NEGLIGENCE OF LANDLORD ENTITIES BUT NOT TO THE
EXTENT CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LANDLORD ENTITIES)
for injury or damage to the person or the property of Tenant, Tenant’s employees, contractors, invitees, customers or any other
person in or about the Premises, Building or Industrial Center from any cause whatsoever, including, but not limited to,
damage or injury which is caused by or results from (i) fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures
or (ii) from the condition of the Premises, other portions of the Building or Industrial Center. Landlord shall not be liable for
any damages arising from any act or neglect of any other tenant of Landlord nor from the failure by Landlord to enforce the
provisions of any other lease in the Industrial Center. NOTWITHSTANDING LANDLORD’S NEGLIGENCE OR
BREACH OF THIS LEASE, LANDLORD SHALL UNDER NO CIRCUMSTANCES BE LIABLE FOR INJURY TO
TENANT’S BUSINESS, FOR ANY LOSS OF INCOME OR PROFIT THEREFROM OR ANY INDIRECT,
CONSEQUENTIAL OR PUNITIVE DAMAGES.
10.
Right of First Refusal. The Right of First Refusal covering Suite 300 of the Building as set forth in Section 6 of the Third
Amendment, remains in full force and effect during the
FOURTH AMENDMENT TO LEASE
PAGE 5
Term as extended by this Amendment, and may be exercised by Tenant during such extended Term in accordance with Section 6 of the
Third Amendment.
11.
Security Deposit. Upon execution of this Amendment, Tenant shall deposit the amount of $48,195.00 (the Security Deposit
Increase) which shall be added to and become part of the Security Deposit currently held by Landlord under Section 5 of the
Lease for a total Security Deposit of $134,901.57. The Security Deposit, as increased by the Security Deposit Increase, shall
be held and applied by Landlord as provided in the Lease.
12.
Contingency.
a.
b.
Landlord acknowledges that in anticipation of the execution of this Amendment, Tenant is withholding payment of
Base Rent and Operating Expenses for the months of May and June, 2009 (the Deferred Rent). Subject to the terms
of this Paragraph 12, such failure to make Base Rent and Operating Expense payments is not a default under the
Lease, and Landlord will not assess interest or a late charge as provided under the Lease.
Tenant is currently negotiating a Venture Capital Agreement (the VC Agreement) with third parties. Tenant shall
notify Landlord in writing on or before July 2, 2009 (the Notification Date) whether the VC Agreement was fully
executed (the Tenant’s Notice). If Tenant fails to timely deliver the Tenant’s Notice on or prior to the Notification
Date, Tenant shall be deemed to have executed the VC Agreement, and this Amendment shall remain in full force
and effect. If Tenant delivers the Tenant’s Notice on or prior to the Notification Date advising Landlord that the VC
Agreement was not fully executed on or before July 1, 2009, then (i) this Amendment shall automatically terminate
without further action by Landlord or Tenant, (ii) within twenty (20) days of receipt of such Tenant’s Notice,
Landlord will return the Security Deposit Increase to Tenant and (iii) within five (5) business days after the date of
such Tenant’s Notice, Tenant shall pay the Deferred Rent. Failure to pay such Deferred Rent within such 5-business
day period shall constitute a Default under the Lease.
13.
Option to Extend. Tenant may extend the Term subject to all of the following conditions:
a.
b.
If Tenant is not in default under the Lease at the time of the exercise of this option or at the commencement of the
extended Term, Tenant may extend the Term for 2 extension terms of 5 years each (each, an Extension Term),
commencing on the next day after the then-current Expiration Date, by giving Landlord an extension notice at least 9
months, but not more than 12 months, prior to the then-current Expiration Date (the Extension Notice Period).
If Tenant gives a valid extension notice, then subject to this Section 13, the Term is extended for 5 years upon the
same terms as in the Lease (as amended hereby), except that the Rent and other applicable terms adjust based on the
Market Rate (defined and determined below), and Tenant has no further option to extend the Term after both options
set forth in this Section 13 are exercised. If Tenant does
FOURTH AMENDMENT TO LEASE
PAGE 6
c.
d.
e.
not give an extension notice during the applicable Extension Notice Period, then this option expires automatically at
the end of the applicable Extension Notice Period.
Within 30 days after Landlord receives Tenant’s extension notice, Landlord shall deliver a notice to Tenant specifying
the Market Rate (the Market Rate Notice). The term Market Rate means the minimum rent, refurbishment
allowance, and other economic terms that a non-encumbered, non-equity tenant, having a credit standing
substantially similar to that of Tenant as of the date of the Lease and requiring substantially the same space and terms
as Tenant, would be able to obtain from a willing landlord comparable to Landlord, in arms-length negotiations for
comparable space located within the Industrial Center and other comparable buildings in the Grand Prairie/Arlington
markets, and leased at the time in question for a comparable period of time, as determined by Landlord in its
reasonable discretion based upon current market conditions for comparable space located within the Industrial Center
and other comparable buildings in the Grand Prairie/Arlington markets. In determining Market Rate, Landlord shall
consider, among other things and in addition to base rent and refurbishment allowance: (i) Operating Expense
treatment, (ii) rental abatement concessions, lease takeover payments, (iv) whether or not brokerage commissions are
involved, and (v) other allowance, inducements, and concessions.
Tenant shall notify Landlord within 15 days after the date of the Market Rate Notice whether it approves Landlord’s
designation of Market Rate (the Response Notice), and if Tenant does not timely give a Response Notice, Tenant is
deemed to approve the Market Rate specified in the Market Rate Notice. If Tenant gives a valid Response Notice
that it disapproves of Landlord’s designation of Market Rate, then Landlord and Tenant shall negotiate in good faith
for a period of 20 days after the date of the Response Notice to reach agreement on the Market Rate. If Landlord and
Tenant do not reach agreement on the Market Rate within the 20-day period, then Tenant, as its sole remedy, may
either (i) revoke its exercise notice by delivering a Revocation Notice (herein so called) to Landlord within 5 days
after the end of the 20-day negotiation period (the Revocation Period), or (ii) deliver an Arbitration Notice (herein
so called) to Landlord before the end of the Revocation Period, notifying Landlord of its election to submit the
determination of Market Rate to arbitration, to be conducted by the American Arbitration Association office located
in Dallas, Texas, in accordance with Section 13(e) below. If Tenant does not deliver a Revocation Notice or an
Arbitration Notice before the end of the Revocation Period, then Tenant is deemed to have given a timely Revocation
Notice.
If Tenant gives a valid Arbitration Notice, then Landlord, or its designated representative, and Tenant shall each place
in a separate sealed envelope their final proposal as to Market Rate (as to each party individually, Final Proposal)
and shall meet with each other within 10 days after the last day of the Revocation Period (the Meeting Date). At the
meeting, Landlord and Tenant shall exchange and then open the envelopes in each other’s presence. If Landlord and
Tenant do not mutually
FOURTH AMENDMENT TO LEASE
PAGE 7
agree upon the Market Rate within 5 days after the Meeting Date, then the Market Rate will be submitted to baseball-
style arbitration, and within 15 days after the Meeting Date, Landlord and Tenant shall agree upon and jointly appoint
a 3 - member arbitration panel (the Panel) to conduct the arbitration. In appointing the Panel, Landlord and Tenant
shall choose real estate professionals (excluding appraisers and attorneys) with knowledge of the Grand Prairie and
Arlington markets for industrial space comparable to the Industrial Center. If Landlord and Tenant do not agree upon
and appoint a 3- member Panel within 15 days after the Meeting Date, then within 5 days, Landlord and Tenant shall
each appoint one panel member, and within 5 days thereafter, the two appointed members shall select the third. The
determination of the Panel will be limited solely to the issue whether Landlord’s or Tenant’s Final Proposal is closer
to the actual Market Rate for the Premises as determined by the Panel. The Panel may hold hearings and require
briefs from Landlord and Tenant as the Panel, in its sole discretion, determines is necessary. In addition, Landlord or
Tenant may submit to the Panel and the other party, within 5 days after the appointment thereof, any market data and
additional information that the party deems relevant to the determination of Market Rate (MR Data), and the other
party may submit a reply in writing within 5 days after receipt of such MR Data. The Panel shall, within 30 days
after its appointment, notify Landlord and Tenant whether Landlord’s or Tenant’s Final Proposal is closer to the
actual Market Rate for the Premises as determined by the Panel. The Panel’s decision is binding upon Landlord and
Tenant. The cost of arbitration shall be paid by Landlord and Tenant equally, except that each party will be
responsible for its own legal fees and costs of experts in connection with its presentation of information and evidence
to the Panel.
f.
If the Term is extended under this Section 13, Landlord shall prepare, and Landlord and Tenant shall promptly
execute and deliver, an amendment to the Lease to reflect the extension of the Term and, if applicable, the
modification of the Premises.
g.
The Option to Extend contained in Section 8 of the First Amendment is hereby deleted in its entirety.
14.
Brokerage; Mutual Indemnities.
a.
b.
Tenant warrants that it has had no dealings with any broker or agent in connection with the negotiation or execution
of this Amendment other than CB Richard Ellis, Inc. and Jackson & Cooksey, Inc. (collectively, Brokers). Tenant
shall indemnify, defend, and hold Landlord harmless against all costs, expenses, attorneys’ fees, or other liability for
commissions or other compensation or charges claimed by any broker or agent other than Brokers claiming by,
through, or under Tenant with respect to this Amendment.
Landlord warrants that it has had no dealings with any broker or agent in connection with the negotiation or
execution of this Amendment other than Brokers. Landlord shall indemnify, defend, and hold Tenant harmless
against all costs, expenses,
FOURTH AMENDMENT TO LEASE
PAGE 8
attorneys’ fees, or other liability for commissions or other compensation or charges claimed by any broker or agent,
including Brokers, claiming by, through or under Landlord with respect to this Amendment.
c.
Any brokerage commissions payable to Brokers are payable by Landlord pursuant to the terms of separate
agreements between Landlord and Broker.
No Offsets. Tenant hereby represents to Landlord that to the best of Tenant’s knowledge, as of the date of this Amendment,
Tenant has no defenses to or offsets against the full and timely payment and performance of each and every covenant and
obligation required to be performed by Tenant under the terms of the Lease, as amended hereby.
Conflicts. The terms of this Amendment prevail if there is a conflict with the terms of the Lease.
Headings. The headings or captions of the paragraphs in this Amendment are for convenience only and shall not act and shall
not be implied to act to limit or expand the construction and intent of the contents of the respective paragraph.
Binding Effect. This Amendment is binding upon and shall inure to the benefit of the parties and their respective successors
and assigns (but this reference to assigns shall not be deemed to act as a consent to an assignment by Tenant).
Ratification. The Lease, as amended and modified hereby, is ratified and confirmed by the parties as being in full force and
effect.
15.
16.
17.
18.
19.
[Remainder of page intentionally left blank.]
FOURTH AMENDMENT TO LEASE
PAGE 9
EXECUTED as of the date first above written.
LANDLORD:
TEACHERS INSURANCE AND ANNUITY ASSOCIATION
OF AMERICA,
a New York corporation
By:
Print Name:
As Its:
TENANT:
NEOS THERAPEUTICS, LP,
a Texas limited partnership
By: PharmaFab Texas, LLC,
a Texas limited liability company,
its manager
By:
Name:
As Its:
FOURTH AMENDMENT TO LEASE
PAGE 10
FIFTH AMENDMENT TO LEASE
Exhibit 10.53
This FIFTH AMENDMENT TO LEASE (this Amendment) is made and entered into as of April ___., 2010 (the Execution
Date), by and between TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, a New York corporation
(Landlord), and NEOS THERAPEUTICS, LP, a Texas limited partnership, formerly known as PFAB LP (Tenant).
BACKGROUND:
A.
B.
C.
D.
E.
F.
G.
H.
Walstib, L.P., a Delaware limited partnership (Walstib), and PharmaFab, Inc., a Texas corporation (PharmaFab), entered into
that certain Commercial Lease Agreement dated on or about June 29, 1999, and having a Commencement Date as of October
25, 1999 (the Original Lease), regarding certain premises containing approximately 44,000 square feet in Suite 100 (the
Original Premises) of Building B (the Building) in the industrial complex commonly known as 360 Riverside Business
Center located at 2940 N. Highway 360 in the City of Grand Prairie, Tarrant County, Texas, as more particularly described in
the Original Lease (the Industrial Center).
Pursuant to that certain Assignment of Lease dated on or about June 29, 1999, to be effective as of July 1, 1999, PharmaFab
assigned its right, title and interest in the Original Lease to PFAB LP, a Texas limited partnership (PLP).
Walstib and PLP amended the Original Lease pursuant to that certain First Amendment to Lease dated effective as of
September 1, 2002 (the First Amendment) pursuant to which (i) the Original Premises were expanded to include
approximately 50,000 additional square feet in Suite 100 of Building A of the Industrial Center (the Building A Premises)
and (ii) Bruce K. Montgomery was released from his Guaranty of Lease.
Landlord succeeded to the interest of Walstib under the Lease.
Landlord and PLP further amended the Original Lease on a short term basis pursuant to an Interim Amendment to Lease dated
September 4, 2003 (the Second Amendment).
Landlord and PLP further amended the Original Lease pursuant to that certain Third Amendment to Lease dated October 1,
2003 (the Third Amendment) pursuant to which (i) the Building A Premises were relocated to Suites 200 and 400 of the
Building such that the definition of the premises (as defined in the Original Lease and as amended by the Third Amendment)
consist of (1) approximately 77,112 square feet of space in Suites 100 and 200 of the Building (collectively, the Suite 100
Space) and (2) approximately 20,170 square feet of space in Suite 400 of the Building (the Suite 400 Space) (collectively, the
Premises) and (ii) Darlene M. Ryan was released from her Guaranty of Lease.
On June 22, 2007, Tenant changed its name to Neos Therapeutics, LP.
Landlord and Tenant further amended the Original Lease pursuant to that certain Fourth Amendment to Lease effective as of
May 1,,2009 (the Fourth Amendment), whereby the Term was extended for the Suite 100 Space. The Original Lease, as
amended by the First
FIFTH AMENDMENT TO LEASE
PAGE 1
Amendment, Second Amendment, Third Amendment and Fourth Amendment, is referred to herein as the Lease.
I.
Landlord and Tenant desire to further amend the Lease to extend the Term of the Lease for the Suite 400 Space and modify
certain provisions of the Lease as hereinafter set forth, but not otherwise.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties agree as follows:
1.
2.
3.
4.
Capitalized Terms. All capitalized terms which are not otherwise defined herein shall have the meaning set forth in the Lease,
as amended hereby.
Term. The Term for the Suite 400 Space is hereby extended to expire on December 31, 2019 (the Expiration Date).
Therefore, in accordance with the Fourth Amendment and this Amendment, the Term for the entire Premises (consisting of
the Suite 100 Space and the Suite 400 Space) expires on the Expiration Date.
Base Rent. From March 1, 2010 (the “Effective Date”) through the Expiration Date, the Base Rent payable with respect to
the Suite 400 Space only is as follows:
Period
Base Rent/SF
Monthly Base Rent
3/1/10 - 5/31/11
6/1/11 - 1/31/14
2/1/14 - 1/31/17
2/1/17 - 12/31/19
$8.00
$10.05
$10.55
$11.05
$13,446.67
$16,892.38
$17,732.79
$18,573.21
All other terms of the Lease regarding the payment of Base Rent remain unchanged. Tenant shall continue to pay all other
amounts payable under the Lease; provided, however, Tenant’s Share shall be amended in accordance with Section 5 of this
Amendment.
Acceptance of Premises. Tenant accepts the Premises in their “AS-IS” condition and Landlord shall have no obligation to
improve, repair, restore or refurbish the Premises except as otherwise specifically provided in this Amendment. Tenant
acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty, except as otherwise
expressly provided in this Amendment or the Lease, with respect to the Premises or any other portion of the Industrial Center
including, without limitation, any representation or warranty with respect to the suitability or fitness of the Premises or any
other portion of the Industrial Center for the conduct of Tenant’s business. Nothing in this Paragraph 4 shall negate or
diminish Landlord’s repair or restoration obligations under the Lease, as amended.
5.
Operating Expenses. From the Effective Date through Expiration Date, Tenant’s Share of Operating Expenses is as follows:
FIFTH AMENDMENT TO LEASE
PAGE 2
(a)
(b)
Industrial Center
Building
45.33%
85.64%
6.
7.
8.
9.
Finish-Out of Premises. Landlord agrees to provide Tenant with a finish-out allowance of $500,000.00 for costs incurred in
connection with renovations to the Premises. The Tenant Finish Work will be performed and the allowance applied in
accordance with Attachment A attached to this Amendment.
Permitted Use. Upon the Execution Date, Section 1.8 of the Lease is hereby deleted and the following substituted therefor:
“1.8
Permitted Use: Manufacturing, storage and distribution of pharmaceutical products in compliance with all
Applicable Requirements, including use of portions of the Premises as laboratory space for research and manufacturing
purposes in connection with Tenant’s business.”
Right of First Refusal. The Right of First Refusal covering Suite 300 of the Building, as set forth in Section 6 of the Third
Amendment, (i) remains in full force and effect during the Term as extended by this Amendment, and (ii) may be exercised by
Tenant during such extended Term in accordance with Section 6 of the Third Amendment.
Option to Extend. The Option to Extend set forth in Section 13 of the Fourth Amendment (i) remains in full force and effect
and (ii) shall include and be applicable to the entire Premises (including the Suite 400 Space).
10.
Brokerage; Mutual Indemnities.
a.
b.
c.
Tenant warrants that it has had no dealings with any broker or agent in connection with the negotiation or execution
of this Amendment other than CB Richard Ellis, Inc. and Jackson & Cooksey, Inc. (collectively, the Brokers).
Tenant shall indemnify, defend, and .hold Landlord harmless against all costs, expenses, attorneys’ fees, or other
liability for commissions or other compensation or charges claimed by any broker or agent other than Brokers
claiming by, through, or under Tenant with respect to this Amendment,
Landlord warrants that it has had no dealings with any broker or agent in connection with the negotiation or
execution of this Amendment other than Brokers. Landlord shall indemnify, defend, and hold Tenant harmless
against all costs, expenses, attorneys’ fees, or other liability for commissions or other compensation or charges
claimed by any broker or agent, including Brokers, claiming by, through or under Landlord with respect to this
Amendment.
Any brokerage commissions payable to Brokers are payable by Landlord pursuant to the terms of separate
agreements between Landlord and Broker.
11.
No Offsets. Tenant hereby represents to Landlord that to the best of Tenant’s knowledge, as of the date of this Amendment,
Tenant has no defenses to or offsets against the full and
FIFTH AMENDMENT TO LEASE
PAGE 3
timely payment and performance of each and every covenant and obligation required to be performed by Tenant under the
terms of the Lease, as amended hereby.
Conflicts. The terms of this Amendment prevail if there is a conflict with the terms of the Lease.
Headings. The headings or captions of the paragraphs in this Amendment are for convenience only and shall not act and shall
.not be implied to act to limit or expand the construction and intent of the contents of the respective paragraph.
Binding Effect. This Amendment is binding upon and shall inure to the benefit of the parties and their respective successors
and assigns (but this reference to assigns shall not be deemed to act as a consent to an assignment by Tenant).
Ratification. The Lease, as amended and modified hereby, is ratified and confirmed by the parties as being in full force and
effect.
12.
13.
14.
15.
[Remainder of page intentionally left blank]
FIFTH AMENDMENT TO LEASE
PAGE 4
EXECUTED as of the date first above written.
LANDLORD:
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA,
a New York corporation
By:
Print Name:
As Its:
TENANT:
NEOS THERAPEUTICS, LP
a Texas limited partnership
By: PharmaFab Texas, LLC,
A Texas limited liability company,
Its manager
By:
Name:
Title:
FIFTH AMENDMENT TO LEASE
PAGE 5
ATTACHMENT A
to Fifth Amendment to Lease by and between
Teachers Insurance and Annuity Association of America, as Landlord,
and
Neos Therapeutics, LP, as Tenant
TENANT FINISH WORK
A.
Plans and Specifications: Tenant shall submit to Landlord within thirty (30) days following the Execution Date initial plans
and specifications (the “Initial Construction Documents”) for the remodeling of the Premises. The Initial Construction
Documents must include, without limitation:
1.
2.
3.
4.
5.
General Notes Sheet
Demolition Plan
New Construction Plan with details of all new improvements
Finishes Plan
Electrical, Mechanical and Plumbing Plan
Within 15 days after receipt of the Initial Construction Documents, Landlord shall deliver to Tenant a notice either approving
or disapproving them. Landlord shall not unreasonably withhold, condition or delay its approval of any plans, changes to such
plans, designation of contractors or other matters related to the Tenant Finish Work; provided, if the Tenant Finish Work
affects the structural portions of the Building or the Building systems, Landlord’s approval shall be in its commercially
reasonable discretion. Any disapproval must specify in reasonable detail the reasons for the disapproval. If Tenant does not
receive a notice from Landlord disapproving the Initial Construction Documents within the 15-day period, Landlord is
deemed to approve the Initial Construction Documents. If Landlord disapproves the Initial Construction Documents, Tenant
shall revise them to conform to Landlord’s reasonable objections and deliver copies of the revised Initial Construction
Documents to Landlord.
The approved Initial Construction Documents are referred to as the “Construction Documents” and all work to be performed
by Tenant pursuant to the Construction Documents is referred to as the “Tenant Finish Work”. Landlord’s approval of the
Construction Documents is not a warranty that the Construction Documents comply with Applicable Requirements.
FIFTH AMENDMENT TO LEASE
PAGE 6
B.
Tenant Finish Work. Tenant, at its cost and risk (subject to reimbursement of the Work Allowance by Landlord), shall
construct or cause to be constructed the Tenant Finish Work in substantial accordance with the Construction Documents.
Tenant shall solicit bids from three contractors approved by Landlord for performance of the Tenant Finish Work, and Tenant
shall select one of the three contractors.
Tenant shall pay the Actual Cost (defined below) of all Tenant Finish Work subject to reimbursement by Landlord as specified
below of a work allowance not to exceed a maximum of $500,000.00 (the “Work Allowance”).
The term “Actual Cost” means the cost of all labor and materials and all hard and soft costs relating to the Tenant Finish Work
(including thirty-party, out-of-pocket costs incurred by Tenant in designing and constructing Tenant Finish Work [i.e.
preparation and revisions of Tenant’s space plan, preparation and revisions of the Construction Documents and Initial
Construction Documents, Tenant’s working drawings, space planning, interior architect, engineering, all construction and
materials costs of Tenant’s contractor and all subcontractors, relocation, and cabling, and any and all other hard and soft costs
incurred by Tenant in connection with the Tenant Finish Work]), together with the Building Service Fee of 5% of all hard
costs of the Tenant Finish Work
Tenant shall allow Landlord access to the Premises at all times to inspect the Tenant Finish Work. Landlord has no obligation
to inspect the Tenant Finish Work. No inspection by Landlord of the Tenant Finish Work is a warranty that the Tenant Finish
Work complies with the Construction Documents or any Applicable Requirements.
The Work Allowance is available for Tenant’s use from the date of this Amendment through February 28, 2011, after which
Tenant’s right to same will expire and be of no further force and effect.
C.
DISBURSEMENT OF WORK ALLOWANCE. Landlord shall pay to Tenant the Actual Cost of the Tenant Finish Work, up
to the total Work Allowance, as follows:
1.
On or about the 15th of each month (each, a “Submittal Date”), Tenant shall deliver to Landlord the following (the
“Payment Conditions”): (a) a request for reimbursement to Tenant of a specified portion of the Work Allowance (the
“Disbursement”), showing the schedule, by trade, of the percentage of completion of the Tenant Finish Work,
describing with specificity the portion of the Tenant Finish Work completed since the previous Submittal Date (the
“Completed Work”) (the Completed Work shall be summarized on AIA form G-702 — Contractor’s Application for
Payment, or its equivalent), and substantiating, to Landlord’s reasonable satisfaction, the amount of the Disbursement
in relation to the Completed Work; (b) executed, unconditional, and recordable lien waivers and releases reasonably
satisfactory to Landlord covering all of the Completed Work; (c) paid receipts for all items of the Completed Work in
excess of $1,000; and (d) all other information reasonably required by Landlord, including copies of all operating
manuals and service manuals that Tenant has received relating to the Tenant Finish Work, if any.
FIFTH AMENDMENT TO LEASE
PAGE 7
2.
3.
4.
5.
Within 30 days after each Submittal Date (each, a “Reimbursement Date”), if Tenant has fully complied with
Paragraph C(1) above, Landlord shall pay Tenant the lesser of: (a) the applicable Disbursement, less a 10% retainage
(all of which are collectively the “Retainage”) (except to the extent Tenant’s payments to its contractor, architect,
engineer, etc., already reflect a 10% retainage), and (b) the balance of any remaining available portion of the Work
Allowance (not including the Retainage). The final disbursement of the Work Allowance by Landlord (not including
the Retainage) will be adjusted, if necessary, so that the total Retainage is 10% of the total available Work
Allowance.
Within five (5) business days after each Submittal Date, Landlord will give Tenant written notice of any missing or
incomplete Payment Conditions, information or documentation reasonably required by Landlord in order to process
Tenant’s reimbursement request. The applicable Reimbursement Date shall be automatically extended by the number
of days beyond the five (5) business day notice period taken by Tenant to submit the missing or incomplete
documentation. Further, upon Tenant’s written request, Landlord may omit payment for costs with incomplete
documentation and make immediate payment on only that portion of the reimbursement request that the parties agree
is complete, with the balance of such payment request to be paid along with Tenant’s next monthly reimbursement
request, subject to Tenant’s submittal of all missing or incomplete documentation.
Within 30 days after the completion of the Tenant Finish Work, if Tenant has fully complied with Paragraph C(1)
above with respect to all of the Tenant Finish Work, Landlord shall pay the Retainage to Tenant.
If Landlord fails to pay all or any portion of the Work Allowance to Tenant when due, and if Tenant has fully
complied with this Paragraph C, then Tenant shall notify Landlord in writing of the failure (the “Delinquency
Notice”), and Landlord shall have 30 days after it receives the Delinquency Notice to cure the failure. If Landlord
does not cure the failure within that 30-day period, then Tenant may, at its option, pay all or any portion of the
amounts due and offset those payments, plus interest at 6% per annum (but not to exceed the highest rate allowable
under applicable law), against the next due installments of Base Rent.
D.
General.
1.
2.
Any material changes to the Construction Documents must first be submitted to Landlord for review and approval
prior to the work reflected in such amended Construction Documents being undertaken by Tenant.
Workmanship and materials to be used in the Tenant Finish Work shall be of best quality. Any approval by Landlord
of the Construction Documents shall not in any way constitute a representation or warranty of Landlord as to the
adequacy or sufficiency of the Construction Documents; such approval shall merely be the consent of Landlord as
may be required hereunder in connection with the Tenant
FIFTH AMENDMENT TO LEASE
PAGE 8
Finish Work in accordance with the Construction Documents under the terms of the Lease.
3.
4.
5.
6.
Tenant shall perform the Tenant Finish Work consistent with Building Rules and Regulations, in a manner to
minimize noise and other interference with tenants of the Industrial Center and shall remove all trash and debris from
the Premises on a daily basis.
Upon completion of the construction of Tenant Finish Work, Tenant shall promptly restore any area of the Industrial
Center damaged as a result of Tenant’s construction of the Tenant Finish Work to the condition existing prior to the
commencement of such construction.
Any entry upon the Premises by Tenant and its agents and contractors shall be deemed to be under all of the terms,
the covenants provisions and conditions of the Lease.
All contractors, subcontractors, suppliers, service providers, moving companies and others (the “Service Providers”)
performing work of any type for Tenant in the Industrial Center shall (i) carry the insurance listed below with
companies acceptable to Landlord, and (ii) furnish certificates of insurance to Landlord evidencing required
coverages at least 10 days prior to entry on the Industrial Center and annually thereafter;
a.
b.
c.
d.
Commercial general liability insurance written on the most current form of ISO CG 00 01 (occurrence basis)
or its equivalent, have a minimum each occurrence limit of $1,000,000, a minimum general aggregate limit
of $2,000,000, and not exclude the Lease from the definition of “Insured Contract” under the contractual
liability provisions;
Workers’ compensation insurance complying with statutory requirements of the State of Texas and
employers liability insurance in amounts not less than $500,000 bodily injury per accident/$500,000 disease
each employee/$500,000 disease policy limit;
Business automobile insurance for claims arising out of ownership, maintenance, or use of owned, non-
owned, and hired motor vehicles at, upon, or away from the Industrial Center. The minimum limits must be
$1,000,000 each occurrence; and
Excess/umbrella liability insurance, applying on at least a “following form” (or primary) basis, in excess of
commercial general liability, employers liability, and business automobile liability, with a minimum limit of
$3,000,000 each occurrence and aggregate, where applicable.
Landlord, Landlord’s designated property management firm, and all Landlord Entities shall be named additional
insureds on each of said policies (excluding the worker’s compensation policy) and said policies shall be issued by an
insurance
FIFTH AMENDMENT TO LEASE
PAGE 9
company or companies authorized to do business in the State and which have policyholder ratings not lower than
“A-” and financial ratings not lower than “IX” in Best’s Insurance Guide (latest edition in effect as of the date of the
Lease and subsequently in effect as of the date of renewal of the required policies). EACH OF SAID POLICIES
SHALL ALSO INCLUDE A WAIVER OF SUBROGATION PROVISION OR ENDORSEMENT IN FAVOR OF
LANDLORD AND THE LANDLORD ENTITIES, AND AN ENDORSEMENT PROVIDING THAT LANDLORD
SHALL RECEIVE THIRTY (30) DAYS PRIOR WRITTEN NOTICE OF ANY CANCELLATION OF, NON-
RENEWAL OF, REDUCTION OF COVERAGE OR MATERIAL CHANGE IN COVERAGE ON SAID
POLICIES. In addition, all policies of the Service Providers shall be endorsed to be primary, with the policies of all
Landlord Entities being excess, secondary and non-contributing. Each Service Provider hereby waives its right of
recovery against any Landlord indemnitee of any amounts paid by it or on its behalf to satisfy applicable worker’s
compensation laws. The policies or duly executed certificates showing the material terms for the same, together with
satisfactory evidence of the payment of the premiums therefor, shall be deposited with Landlord on the date each
Service Provider first enters the Industrial Center and upon renewals of such policies not less than fifteen (15) days
prior to the expiration of the term of such coverage. If certificates are supplied rather than the policies themselves,
each Service Provider shall allow Landlord, at all reasonable times, to inspect its policies of insurance required
herein.
With respect to insurance coverages, except worker’s compensation, maintained hereunder by each Service Provider
and insurance coverages separately obtained by Landlord, all insurance coverages afforded by policies of insurance
maintained by each Service Provider shall be primary insurance as such coverages apply to Landlord, and such
insurance coverages separately maintained by Landlord shall be excess, and each Service Provider shall have its
insurance policies so endorsed. The amount of liability insurance under insurance policies maintained by each
Service Provider shall not be reduced by the existence of insurance coverage under policies separately maintained by
Landlord. Each Service Provider shall be solely responsible for any premiums, assessments, penalties, deductible
assumptions, retentions, audits, retrospective adjustments or any other kind of payment due under its policies.
FIFTH AMENDMENT TO LEASE
PAGE 10
SIXTH AMENDMENT TO LEASE
Exhibit 10.54
This Sixth Amendment to Lease (“Amendment”) is made effective as of August ____, 2013, by and between RIVERSIDE
BUSINESS GREEN, LP, a Delaware limited partnership (“Landlord”) and NEOS THERAPEUTICS, LP, a Texas limited partnership
(“Tenant”), with reference to the following facts and circumstances.
A.
B.
Landlord is the owner of that certain building located at 2940 N. Highway 360, Grand Prairie, Texas (the
“Building”).
Walstib, L.P., predecessor in interest to Landlord, and PharmaFab, Inc. predecessor in interest to Tenant, entered into
a certain Commercial Lease Agreement dated June 29, 1999, as amended by that certain First Amendment to Lease
dated September 1, 2002, that certain Interim Amendment to Lease dated September 4, 2003, that certain Third
Amendment to Lease dated October 1, 2003, that certain Fourth Amendment to Lease dated May 1, 2009 and that
certain Fifth Amendment to Lease dated April 5, 2010 (collectively, the “Lease”), for (i) certain premises containing
approximately 77,112 rentable square feet located in Suites 100 and 200 of the Building (the “Suite 100 Space”) and
certain premises containing approximately 20,170 rentable square feet located in Suite 400 f the Building (the “Suite
400 Space”). The Suite 100 Space and Suite 400 Space shall be known collectively herein as the “Premises”).
C.
Landlord and Tenant desire to amend the Lease upon terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing facts and circumstances, the mutual covenants and promises contained
herein and after good and valuable consideration, the receipt and sufficiency of which is acknowledged by each of the parties, the
parties do hereby agree to the following:
1.
Definitions. Each capitalized term used in this Amendment shall have the same meaning as is ascribed to such
capitalized term in the Lease, unless otherwise provided for herein.
2.
Term. The term of the Lease is hereby extended for the period commencing on January 1, 2020, and ending on
December 31, 2024 (the “Extended Term”).
3.
Base Rent.
a. During the Extended Term, monthly installments of Base Rent for the Suite 100 Space shall be as follows:
Months
Monthly Installment
January 1, 2020 - December 31, 2020
January 1, 2021 - December 31, 2021
January 1, 2022 - December 31, 2022
$64,260.00
$64,260.00
$67,473.00
Annual
$771,120.00
$771,120.00
$809,676.00
- 1 -
January 1, 2023 - December 31, 2023
January 1, 2024 - December 31, 2024
$67,473.00
$70,686.00
$809,676.00
$848,232.00
b. During the Extended Term, monthly installments of Base Rent for the Suite 400 Space shall be as follows:
Months
Monthly Installment
January 1, 2020 - December 31, 2020
January 1, 2021 - December 31, 2021
January 1, 2022 - December 31, 2022
January 1, 2023 - December 31, 2023
January 1, 2024 - December 31, 2024
$19,497.67
$19,497.67
$20,472.55
$20,472.55
$21,514.67
Annual
$233,972.00
$233,972.00
$245,670.60
$245,670.60
$258,176.00
Provided that Tenant has faithfully performed all of the terms and conditions of this Lease, Landlord agrees to abate Tenant’s obligation
to pay Base Rent for months of August, September, October, November, and December of 2013 and January of 2014.
4.
Landlord Work. Landlord shall, at Landlord’s expense, (i) add seven (7) speed bumps around the Building to be
located in the area mutually and reasonably agreed upon by Landlord and Tenant and (ii) install a fence or comparable barrier on the
north side of the Building, which shall be mutually and reasonably acceptable to Landlord and Tenant.
5.
Option to Extend. The Option to Extend as set forth in Section 13 of that certain Fourth Amendment to Lease dated
May 1, 2009, shall remain in full force during the Extended Term and effect and shall be applicable to the entire Premises.
6.
Right of First Refusal. The Right of First Refusal covering Suite 300 of the Building, as set forth in Section 6 of that
certain Third Amendment to Lease dated October 1, 2003 (the “Third Amendment”) (i) shall remain in full force and effect during the
Term and the Extended Term, and (ii) may be exercised by Tenant during the Term or the Extended Term in accordance with Section 6
of the Third Amendment.
7.
Assignment and Subletting: Effective as of the full execution of this Amendment, Section 12.1(b) of the Lease is
hereby deleted and replaced with the following:
“(b) A change in control of Tenant shall constitute an assignment requiring Landlord’s consent. The transfer, on a cumulative
basis of a majority of the voting or management control of Tenant shall constitute a change in control for this purpose. So
long as such change in control does not result in a material decline in Tenant’s credit, in the event that Landlord fails to
provide written consent to an assignment that arises from a change in control, Landlord’s sole remedy for such assignment
shall be to provide Tenant with forty-eight (48) months prior written notice of termination of the Lease.”
8.
Confidentiality.
- 2 -
a.
b.
Landlord acknowledges that Landlord has or may have access to and gain knowledge of confidential and
proprietary information of Tenant and its Affiliates and business partners, including, but not limited to,
business practices, discoveries, ideas, formulations, costs and pricing data, techniques, programs, marketing
plans, strategies and tactics, research and development information, data relating to the approval,
administration, use or experience relating to any product of Tenant or any of its Affiliates or business
partners (whether marketed or in development), and financial and technical information, all of which
information is considered confidential by Tenant (“Confidential Information”). For the purposes of this
Lease, the term “Affiliates” shall mean all entities controlling, controlled by or under common control with
Tenant. The term “control” shall mean the ability to vote fifty percent (50%) or more of the voting
securities of an entity or otherwise having the ability to influence and direct the policies and direction of an
entity. Landlord agrees that Landlord will not use or disclose Confidential Information for any reason other
than to carry out the purpose of this Lease without the prior written consent of Tenant. Notwithstanding the
foregoing, Landlord is expressly permitted to disclose tenant’s financial and other related information to
Landlord’s Affiliates, agents, employees, lenders (both current and potential and any potential buyer of the
Building. The foregoing restrictions on use and disclosure shall not apply to information which Landlord
can prove was or became public knowledge through no fault of Landlord.
Landlord may disclose Confidential Information (i) in response to a valid order of a court or any
governmental agency or regulatory body or (ii) as otherwise required by law; provided that the Landlord
promptly notifies Tenant of such pending order or requirement and lends Tenant all reasonable assistance, so
that the Tenant may seek a protective order or other appropriate remedy; and provided further that in the
event that no such protective order or other remedy is obtained, the Landlord will furnish only that portion
of the Confidential Information which it is legally required to furnish in order to comply. Notwithstanding
the foregoing, information required to be disclosed pursuant this Section 8(b) will continue to be considered
Confidential Information for all other purposes.
9.
Recover Reconciliation. Except for a $44,738.77 credit due Tenant for the 2012 Recovery Reconciliation as shown
in more detail on Exhibit A, attached hereto, Tenant hereby represents to Landlord that, to the best of Tenant’s knowledge, as of the
date of this Amendment, that Tenant has no defenses, offsets or counterclaims that could be asserted in an action by Landlord to
enforce Landlord’s remedies under the Lease.
10.
No Defenses. Tenant affirms that, to the best of its knowledge, as of the date of execution of this Amendment: (a) no
default or breach by Landlord exists under the Lease; (b) all tenant improvements to be constructed by Landlord prior to the date of this
Amendment, if any, are complete and Tenant has accepted the Premises in “as is, where is” condition as of the date of
- 3 -
this Amendment; and (c) Landlord has fully funded or Tenant has waived any unfunded tenant improvement allowances payable under
the Lease.
11.
Broker. Tenant represents to Landlord that except for CB Richard Ellis, Inc. and Jackson and Cooksey (the
“Brokers”), Tenant has not dealt with any real estate broker, salesperson or finder in connection with this Amendment, and no other
such person initiated or participated in the negotiation of this Amendment or is entitled to any commission in connection herewith.
Tenant hereby agrees to indemnify, defend and hold Landlord, its property manager and their respective employees harmless from and
against any and all liabilities, claims, demands, actions, damages, costs and expenses (including attorneys fees) arising from either (a) a
claim for a fee or commission made by any broker, other than the Brokers, claiming to have acted by or on behalf of Tenant in
connection with this Amendment, or (b) a claim of, or right to lien under the statutes of the state in which the Premises are located
relating to real estate broker liens with respect to any such broker retained by Tenant.
12.
Submission. Submission of this Amendment by Landlord to Tenant for examination and/or execution shall not in
any manner bind Landlord and no obligations on Landlord shall arise under this Amendment unless and until this Amendment is fully
signed and delivered by Landlord and Tenant; provided, however, the execution and delivery by Tenant of this Amendment to Landlord
shall constitute an irrevocable offer by Tenant of the terms and conditions herein contained, which offer may not be revoked for ten
(10) days after such delivery.
13.
Miscellaneous.
a.
b.
c.
d.
Modification. A modification of any provision herein contained, or any other amendment to this
Amendment, shall be effective only if the modification or amendment is in writing and signed by both
Landlord and Tenant.
Successors and Assigns. This Amendment shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
Number and Gender. As used in this Amendment, the neuter includes masculine and feminine, and the
singular includes the plural.
Construction. Headings at the beginning of each Section and subsection are solely for the convenience of
the parties and are not a part of this Amendment. Except as otherwise provided in this Amendment, all
exhibits referred to herein are attached hereto and are incorporated herein by this reference. Unless
otherwise indicated, all references herein to Articles, Section, subsections, paragraphs, subparagraphs or
provisions are to those in this Amendment. Any reference to a paragraph or Section herein includes all
subparagraphs or subsections thereof. In the event any portion of this Amendment shall be declared by any
court of competent jurisdiction to be invalid, illegal or unenforceable, such portion shall be deemed severed
from this Amendment, and the remaining parts hereof shall remain in full force
- 4 -
e.
f.
g.
h.
i.
j.
and effect, as fully as though such invalid, illegal or unenforceable portion had never been part of this
Amendment.
Integration of Other Agreements. This Amendment, the Lease and prior amendments set forth the entire
agreement and understanding of the parties with respect to the matters set forth herein and supersedes all
previous written or oral understandings, agreements, contracts, correspondence and documentation with
Any oral representation or modifications concerning this Amendment shall be of no
respect thereto.
force or effect.
Duplicate Originals; Counterparts. This Amendment may be executed in any number of duplicate originals,
all of which shall be of equal legal force and effect. Additionally, this Amendment may be executed in
counterparts, but shall become effective only after a counterpart hereof has been executed by each party; all
said counterparts shall, when taken together, constitute the entire single agreement between parties.
No Waiver. No failure or delay of either party in the exercise of any right given to such party hereunder
shall constitute a waiver thereof unless the time specified herein for exercise of such right has expired, nor
shall any single or partial exercise of any right preclude other or further exercise thereof or of any other
right. No waiver by any party hereto of any breach or default shall be considered to be a waiver of any other
breach or default. The waiver of any condition shall not constitute a waiver of any breach or default with
respect to any covenant, representation or warranty.
Further Assurances. Landlord and Tenant each agree to execute any and all other documents and to take any
further actions reasonably necessary to consummate the transactions contemplated hereby.
No Third Party Beneficiaries. Except as otherwise provided herein, no person or entity shall be deemed to
be a third party beneficiary hereof, and nothing in this Amendment, (either expressed or implied) is intended
to confer upon any person or entity, other than Landlord and/or Tenant (and their respective nominees,
successors and assigns), any rights, remedies, obligations or liabilities under or by reason of this
Amendment.
Full Force and Effect. The Lease, as amended hereby, shall continue in full force and effect, subject to the
terms and provisions thereof and hereof. In the event of any conflict between the terms of the Lease and the
terms of this Amendment, the terms of this Amendment shall control.
- 5 -
IN WITNESS WHEREOF, this Amendment is executed as of the day and year aforesaid.
LANDLORD:
RIVERSIDE BUSINESS GREEN, LP
a Delaware limited partnership
By:
Printed Name:
Title:
Date:
TENANT:
NEOS THERAPEUTICS, LP
a Texas limited partnership
By:
Printed Name:
Title:
Date:
- 6 -
AMENDED AND RE-STATED
EMPLOYMENT AGREEMENT
Exhibit 10.55
This Amended and Re-Stated Employment Agreement (the "Agreement"), is effective as of March 21, 2023 (the
"Effective Date"), between Aytu BioPharma, Inc., a Delaware corporation headquartered at 373 Inverness Parkway, Suite
206, Englewood, CO 80112 USA, hereinafter referred to as the "Company"), and Greg Pyszczymuka as ("Executive").
RECITALS
WHEREAS, the Company is a duly organized Delaware corporation, with its principal place of business within the
State of Colorado, and is in the business of developing and marketing pharmaceuticals, medical devices, and other healthcare
products; and
WHEREAS, the Company desires assurance of the continued association and services of the Executive in order to
continue to retain the Executive's experience, skills, abilities, background and knowledge, and is willing to engage the
Executive's services on the terms and conditions set forth in this Agreement; and
WHEREAS, Executive desires to be in the continued employ of the Company, and is willing to accept such
continued employment on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and
valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
1.
Employment.
(a)
Term. The Company hereby agrees to employ Executive and Executive hereby accepts such
employment with the Company for the period of 12 months beginning on the Effective Date, with automatic renewal of the
employment period every 12 months. . The Term of this Agreement (the “Term”) shall continue until the termination of
Executive's employment in accordance with the provisions of this Agreement. The termination of Executive's employment
under this Agreement shall end the Term but shall not terminate Executive's or the Company's other obligations that are
intended to survive the termination of this Agreement (including without limitation, the payments under Section 4 and 5 and
Executive's obligations under Section 8).
(b)
Position and Duties. During the Term, the Executive shall serve as the Chief Commercial Officer,
and shall have supervision and control over and responsibility for the day-to-day business and affairs of the commercial
operational aspects of the Company and shall have such other powers and duties as may from time to time be prescribed by
the Chief Executive Officer ("CEO") of the Company, provided that such duties are consistent with the Executive's position
or other positions that he may hold from time to time. The Executive shall devote his full working time and efforts to the
business and affairs of the Company. Notwithstanding the foregoing, the Executive may serve on other boards of directors,
with the approval of the CEO, or engage in religious, charitable or other
community activities as long as such services and activities are disclosed to the Board and do not interfere with the
Executive's performance of his duties to the Company as provided in this Agreement. During the Term, Executive agrees not
to acquire, assume or participate in, directly or indirectly, any position, investment or interest known by the Executive to be
adverse, competitive, or antagonistic to the Company, its business or prospects, its financial position, or otherwise or in any
company, person or entity that is, directly or indirectly, in competition with the business of the Company or any of its
affiliates. This provision shall encompass any advisory boards of which Executive is or becomes a member of during the
term hereof. Executive shall provide written disclosure to the Compensation Committee ("Compensation Committee") of the
Company's Board of Directors (the "Board") as to all advisory boards on which Executive sits, and will provide the Company
with written notice within 10 business days of Executive agreeing to sit on any additional advisory boards. On termination of
Executive's employment, regardless of the reason for such termination, Executive shall immediately (and with
contemporaneous effect) resign any directorships, offices or other positions that Executive may hold in the Company or any
affiliate, unless otherwise agreed in writing by the parties.
2.
Compensation and Related Matters.
(a)
Base Salary. During the Term, the Executive's initial annual base salary shall be three hundred
seventy-five thousand dollars ($375,000.00), less applicable deductions and withholdings. The Executive's base salary shall
be reviewed at least semi-annually by the Compensation Committee or a majority of the independent members of the Board,
and the base salary may be increased only by the Compensation Committee or a majority of the independent members of the
Board. The base salary in effect at any given time is referred to herein as "Base Salary." The Base Salary shall be payable in a
manner that is consistent with the Company’s usual payroll practices for senior executives.
(b)
Bonus Compensation. The Executive shall be eligible for an annual discretionary bonus (hereinafter
referred to as the "Bonus") with a target amount of forty percent (40%) of the Base Salary, subject to standard deductions and
withholdings, based on the Compensation Committee's determination, in good faith, and based upon the Executive's
individual achievement and company performance objectives as set by the Board or the Compensation Committee, of
whether the Executive has met such performance milestones as are established for the Executive by the Board or the
Compensation Committee, in good faith, in consultation with the Executive (hereinafter referred to as the "Performance
Milestones"). The Performance Milestones will be based on certain factors including, but not limited to, the Executive's
performance and the Company's financial and operational performance. The Executive must be employed on the date the
Bonus is awarded to be eligible for the Bonus, subject to the termination provisions hereof. Bonuses shall be paid during the
calendar quarter following the calendar quarter for which such Bonus was earned when Performance Milestones are met
during a calendar quarter. Fourth quarter Bonuses and Bonuses calculated on the basis of partial Performance Milestone
satisfaction shall be paid within 75 days of fiscal year-end.
(c)
Transaction Bonus Compensation. In recognition of Executive's significant contributions in securing
the Rumpus Therapeutics asset purchase and success in integrating the Company's commercial operations following the Neos
Therapeutics merger (the "Transactions"), Executive acknowledges prior receipt of a one-time, discretionary bonus (the
"Transaction Bonus") in the amount of one hundred thousand dollars
2
($100,000.00).
(d)
Restricted Stock Grant. Executive acknowledges previous receipt of a sign on restricted stock grant
of 75,000 shares, scheduled to vest over a (3) year period of employment with the Company beginning on October 1, 2021,
and performance-based restricted stock units of 50,000 shares scheduled to vest over a (3) year period of employment with
the Company beginning on the grant date of the performance-based award.
(e)
Expenses. The Executive shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by him during the Term in performing services hereunder, in accordance with the policies and procedures then in
effect and established by the Company for its senior executive officers.
(f)
Other Benefits. During the Term, the Executive shall be eligible to participate in or receive benefits
under the Company's employee benefit plans in effect from time to time, subject to the terms of such plans.
(g)
Vacations. For the term of this Agreement, Executive shall be entitled to paid time off at the rate of
five (5) weeks per annum. In accordance with Company policy, unused paid time off will accrue up to a maximum accrual of
240 hours, which is considered the maximum accrual amount. Current accrued PTO of Executive, at the time of this
employment agreement execution, shall not be impacted and remain unchanged. The Executive shall also be entitled to all
paid holidays given by the Company to its executives.
3.
Termination. During the Term, the Executive's employment hereunder may be terminated without any breach
of this Agreement under the following circumstances:
(a)
Death. The Executive's employment hereunder shall terminate upon his death.
(b)
Disability. The Company may terminate the Executive's employment if he is disabled and unable to
perform the essential functions of the Executive's then existing position or positions under this Agreement with or without
reasonable accommodation for a period of 180 days (which need not be consecutive) in any 12-month period. If any question
shall arise as to whether during any period the Executive is disabled so as to be unable to perform the essential functions of
the Executive's then existing position or positions with or without reasonable accommodation, the Executive may, and at the
request of the Company shall, submit to the Company a certification in reasonable detail by a physician selected by the
Company to whom the Executive or the Executive's guardian has no reasonable objection as to whether the Executive is so
disabled or how long such disability is expected to continue, and such certification shall for the purposes of this Agreement
be conclusive of the issue. The Executive shall cooperate with any reasonable request of the physician in connection with
such certification. If such question shall arise and the Executive shall fail to submit such certification, the Company's
determination of such issue shall be binding on the Executive. Nothing in this Section 3{b) shall be construed to waive the
Executive's rights, if any, under existing law including, without limitation, the Family and Medical Leave Act of 1993, 29
U.S.C. §260 I et seq. and the Americans with Disabilities Act, 42 U.S.C. §12101 et seq.
(c)
Termination by Company for Cause. The Company may terminate the Executive's employment
hereunder for Cause. For purposes of this Agreement, "Cause"
3
shall mean any of the following: (i) the Executive's material breach of any agreement with the Company, including the
Confidentiality and Intellectual Property Agreement, dated 10/04/2021 (the "Confidentiality Agreement"), the provisions of
Section 8 of this Agreement, the Code of Conduct or any other material policy that may result in material injury to the
Company; (ii) the Executive's conviction of , or entry of a plea of guilty to, or a plea of nolo contender with respect to, any
crime other than a traffic violation or infraction which is a misdemeanor; (iii) the Executive's act of fraud or intentional
misrepresentation in connection with the Executive's duties or otherwise in connection with the business of the Company,
that may result in material injury to the Company; (iv) the Executive's unintended but material breach in the performance of
duties under this Agreement, including insubordination or failure to implement or follow a lawful policy or directive of the
CEO or Company, provided that if such failure is curable, it is not cured within 30 days following written notice thereof from
the CEO or Board; or (v) the Executive's willful malfeasance or willful misconduct in the performance of the Executive's
duties for the Company.
(d)
Termination Without Cause. The Company may terminate the Executive's employment hereunder at
any time without Cause. Any termination by the Company of the Executive's employment under this Agreement which does
not constitute a termination for Cause under Section 3(c) and does not result from the death or disability of the Executive
under Section 3(a) or (b) shall be deemed a termination without Cause.
(e)
Termination by the Executive. The Executive may terminate his employment hereunder at any time
for any reason, including but not limited to Good Reason. For purposes of this Agreement, "Good Reason" shall mean,
without the Executive's consent, the occurrence of any of the following: (i) the Company materially breaches a material term
of this Agreement, and such breach causes or is likely to cause material harm to the Executive; (ii) there is a change in the
Executive's responsibilities that represents a material and adverse change from the Executive's overall responsibilities, taken
as a whole; (iii) there is a Change in Control that results in a change in the Executive's responsibilities that represents a
material and adverse change from the Executive's overall responsibilities, taken as a whole; (iv) the Executive's Base Salary
is substantially reduced or diminished; or (v) the Executive's place of employment is relocated by the Company more than a
50-mile radius from Philadelphia, Pennsylvania (it being understood and agreed that the Executive may be required to travel
in connection with Company business and none of such travel shall constitute or give rise to "Good Reason"). The
Executive's voluntary termination shall be deemed to have occurred for Good Reason for purposes of this Agreement only if
(x) the Executive provides written notice to the Company within 30 days after the Executive becomes aware of circumstances
giving rise to Good Reason, (y) the Company fails to correct the circumstances giving rise to Good Reason within 30 days
following the receipt of such notice (the "Cure Period") and (z) the Executive resigns within 30 days following the end of the
Cure Period. If the Company cures the Good Reason condition during the Cure Period, Good Reason shall be deemed not to
have occurred.
(f)
Notice of Termination. Except for termination as specified in Section 3(a), any termination of the
Executive's employment by the Company or any such termination by the Executive shall be communicated by written Notice
of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice,
which shall indicate the specific termination provision in this Agreement relied upon.
(g)
Date of Termination. "Date of Termination" shall mean: (i) if the
4
Executive's employment is terminated by his death, the date of his death; (ii) if the Executive's employment is terminated on
account of disability under Section 3(b) or by the Company for Cause under Section 3(c), the date on which Notice of
Termination is given; (iii) if the Executive's employment is terminated by the Company under Section 3(d), the date on which
a Notice of Termination is given; (iv) if the Executive's employment is terminated by the Executive under Section 3(e)
without Good Reason, 30 days after the date on which a Notice of Termination is given, and (v) if the Executive's
employment is terminated by the Executive under Section 3(e) with Good Reason, the date on which a Notice of Termination
is given after the end of the Cure Period, 30 days after the date on which a Notice of Termination is given. Notwithstanding
the foregoing, in the event that the Executive gives a Notice of Termination to the Company, the Company may unilaterally
accelerate the Date of Termination and such acceleration shall not result in a termination by the Company for purposes of this
Agreement.
4.
Compensation Upon Termination.
(a)
Termination Generally. If the Executive's employment with the Company is terminated for any
reason, the Company shall pay or provide to the Executive (or to his authorized representative or estate) (i) any Base Salary
earned through the Date of Termination, unpaid expense reimbursements (subject to, and in accordance with, Section 2(c) of
this Agreement) and unused vacation that accrued through the Date of Termination on or before the time required by law but
in no event more than 30 days after the Executive's Date of Termination in a lump sum payment; and (ii) any vested benefits
the Executive may have under any employee benefit plan of the Company through the Date of Termination, which vested
benefits shall be paid and/or provided in accordance with the terms of such employee benefit plans (collectively, the
"Accrued Benefit").
(b)
Termination by the Company Without Cause, by the Executive with Good Reason. During the Term,
if the Executive's employment is terminated by the Company without Cause as provided in Section 3(d), or the Executive
terminates his employment for Good Reason as provided in Section 3(e), then the Company shall pay the Executive his
Accrued Benefit. In addition, subject to the Executive signing a separation agreement containing, among other provisions, a
general release of claims in favor of the Company and related persons and entities, confidentiality, return of property and
non-disparagement, in a form and manner satisfactory to the Company (the "Separation Agreement and Release") and the
Separation Agreement and Release becoming fully effective, all within the time frame set forth in the Separation Agreement
and Release:
(i)
The Company shall pay the Executive an amount equal to the Executive's annual Base Salary
plus any pro-rated incentive compensation earned (at target amount of forty percent (40%) of the Executive's Base
Salary) but unpaid as of the Date of Termination (the "Severance Amount"). In the event the Company determines
that bonus payouts for Company executives will not be paid in full for the fiscal year during which the Executive's
termination occurs, at the Company's sole determination, Executive's pro-rated incentive compensation may be
reduced below forty percent (40%) commensurate with such other executive bonuses paid for that fiscal year.
Notwithstanding the foregoing, if the Executive breaches any of the provisions of the Confidentiality Agreement or
Section 8 of this Agreement, all payments of the Severance Amount sha11 immediately cease; and
5
(ii)
Notwithstanding anything to the contrary in the applicable Restricted Stock Agreement, the
issued restricted stock will immediately vest following the expiration of the revocation period as set forth in
Separation Agreement and Release; and
(iii)
If the Executive was participating in the Company's group health plan immediately prior to
the Date of Termination and elects COBRA health continuation, then the Company shall pay to the Executive a
monthly cash payment for 12 months or the Executive's COBRA health continuation period, whichever ends earlier,
in an amount equal to the monthly employer contribution that the Company would have made to provide health
insurance to the Executive if the Executive had remained employed by the Company; and
(iv)
The amounts payable under this Section 4(b) shall be paid out in a substantially equal
insta11ments in accordance with the Company's payroll practice over 12 months commencing within 60 days after the
Date of Termination; provided, however, that if the 60-day period begins in one calendar year and ends in a second
calendar year, the Severance Amount shall begin to be paid in the second calendar year by the last day of such 60-day
period; provided, further, that the initial payment shall include a catch-up payment to cover amounts retroactive to the
day immediately fol1owing the Date of Termination. Each payment pursuant to this Agreement is intended to
constitute a separate payment for purposes of Treasury Regulation Section l.409A-2(b)(2)
5.
Change in Control Payment. The provisions of this Section 5 set forth certain terms of an agreement reached
between the Executive and the Company regarding the Executive's rights and obligations upon the occurrence of a Change in
Control of the Company. These provisions are intended to assure and encourage in advance the Executive's continued
attention and dedication to his assigned duties and his objectivity during the pendency and after the occurrence of any such
event. These provisions shall apply in lieu of, and expressly supersede, the provisions of Section 4(b) regarding severance
pay and benefits upon a termination of employment, if such termination of employment occurs within 12 months after the
occurrence of the first event constituting a Change in Control. These provisions shall terminate and be of no further force or
effect beginning 12 months after the occurrence of a Change in Control. Regardless of change in employment status
following Change in Control, all stock options and other stock-based awards held by the Executive and granted after the
Effective Date shall immediately accelerate and become fully exercisable or non-forfeitable as of the Date of Change in
Control.
(a)
Change in Control. During the Term, if within 12 months after a Change in Control, the Executive's
employment is terminated by the Company without Cause as provided in Section 3(d) or the Executive terminates his
employment for Good Reason as provided in Section 3(e), then, subject to the signing of the Separation Agreement and
Release by the Executive and the Separation Agreement and Release effective all within the time frame set forth in the
Separation Agreement and Release,
(i)
The Company shall pay the Executive a lump sum in cash in an amount equal to one time the
sum of (A) the Executive's then current Base Salary (or the Executive's Base Salary in effect immediately prior to the
Change in Control, if higher) plus (B) the Executive's target annual incentive compensation for the then-
6
current year; and
(ii)
Notwithstanding anything to the contrary in any applicable option agreement or stock-based
award agreement, all stock options and other stock-based awards held by the Executive and granted after the Effective
Date shall immediately accelerate and become fully exercisable or non-forfeitable as of the Date of Termination; and
(iii)
If the Executive was participating in the Company's group health plan immediately prior to
the Date of Termination and elects COBRA health continuation, then the Company shall pay to the Executive a
monthly cash payment for 12 months or the Executive's COBRA health continuation period, whichever ends earlier,
in an amount equal to the monthly employer contribution that the Company would have made to provide health
insurance to the Executive if the Executive had remained employed by the Company; and
(iv)
The amounts payable under this Section S(a) shall be paid or commence to be paid within 60
days after the Date of Termination; provided, however, that if the 60-day period begins in one calendar year and ends
in a second calendar year, such payment shall be paid or commence to be paid in the second calendar year by the last
day of such 60-day period.
For the avoidance of doubt, all stock options and other stock-based awards held by the Executive as of the Effective
Date shall be treated as indicated in the applicable award agreements.
(b)
Additional Limitation.
(i)
Anything in this Agreement to the contrary notwithstanding, in the event that the amount of
any compensation, payment or distribution by the Company to or for the benefit of the Executive, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, calculated in a manner
consistent with Section 280G of the Code and the applicable regulations thereunder (the "Aggregate Payments"),
would be subject to the excise tax imposed by Section 4999 of the Code, then the Aggregate Payments shall be
reduced (but not below zero) so that the sum of all of the Aggregate Payments shall be $1.00 less than the amount at
which the Executive becomes subject to the excise tax imposed by Section 4999 of the Code; provided that such
reduction shall only occur if it would result in the Executive receiving a higher After Tax Amount (as defined below)
than the Executive would receive if the Aggregate Payments were not subject to such reduction. In such event, the
Aggregate Payments shall be reduced in the following order, in each case, in reverse chronological order beginning
with the Aggregate Payments that are to be paid the furthest in time from consummation of the transaction that is
subject to Section 280G of the Code: (1) cash payments not subject to Section 409A of the Code; (2) cash payments
subject to Section 409A of the Code; (3) equity-based payments and acceleration; and (4) non-cash forms of benefits;
provided that in the case of all the foregoing Aggregate Payments all amounts or payments that are not subject to
calculation under Treas. Reg. § I .280G-1, Q&A-24(b) or (c) shall be reduced before any amounts that are subject to
calculation under Treas. Reg. §1.2800-1, Q&A-24(b) or(c).
7
(ii)
For purposes of this Section 5(b), the "After Tax Amount" means the amount of the
Aggregate Payments less all federal, state, and local income, excise and employment taxes imposed on the Executive
as a result of the Executive's receipt of the Aggregate Payments. For purposes of determining the After Tax Amount,
the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation
applicable to individuals for the calendar year in which the determination is to be made, and state and local income
taxes at the highest marginal rates of individual taxation in each applicable state and locality, net of the maximum
reduction in federal income taxes which could be obtained from deduction of such state and local taxes.
(iii)
The determination as to whether a reduction in the Aggregate Payments shall be made
pursuant to Section 5(b)(i) shall be made by a nationally recognized accounting firm selected by the Company (the
"Accounting Finn"), which shall provide detailed supporting calculations both to the Company and the Executive
within 15 business days of the Date of Termination, if applicable, or at such earlier time as is reasonably requested by
the Company or the Executive. Any determination by the Accounting Firm shall be binding upon the Company and
the Executive.
(c)
Definitions. For purposes of this Section 5, the following terms shall have the following meanings:
"Change in Control" shall mean the consummation of any of the following:
(i)
A sale of all or substantially all of the assets of the Company on a consolidated basis to an
unrelated person or entity; or
(ii)
A merger, reorganization or consolidation in which the outstanding shares of common stock
of the Company are converted into or exchanged for shares of the successor entity and the holders of the Company's
outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding
voting power of the surviving entity immediately upon the completion of such transaction; or
(iii)
The sale of all or a majority of the common stock of the Company to an unrelated person or
entity; or
(iv)
Any other transaction in which the holders of the Company's outstanding voting power
immediately prior to such transaction do not own at least a majority of the outstanding voting power of the surviving
entity in the transaction immediately upon the completion of such transaction.
6.
Section 409A.
(a)
Anything in this Agreement to the contrary notwithstanding, if at the time of the Executive's
separation from service within the meaning of Section 409A of the Code, the Company determines that the Executive is a
"specified employee" within the meaning of Section 409A(a){2)(B)(i) of the Code, then to the extent any payment or benefit
8
that the Executive becomes entitled to under this Agreement on account of the Executive's separation from service would be
considered deferred compensation otherwise subject to the 20 percent additional tax imposed pursuant to Section 409A(a) of
the Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, such payment shall not be payable and such
benefit shall not be provided until the date that is the earlier of (A) six months and one day after the Executive's separation
from service, or (B) the Executive's death. If any such delayed cash payment is otherwise payable on an installment basis, the
first payment shall include a catch-up payment covering amounts that would otherwise have been paid during the six-month
period but for the application of this provision, and the balance of the installments shall be payable in accordance with their
original schedule.
(b)
All in-kind benefits provided and expenses eligible for reimbursement under this Agreement shall be
provided by the Company or incurred by the Executive during the time periods set forth in this Agreement. All
reimbursements shall be paid as soon as administratively practicable, but in no event shall any reimbursement be paid after
the last day of the taxable year following the taxable year in which the expense was incurred. The amount of in-kind benefits
provided or reimbursable expenses incurred in one taxable year sha11 not affect the in-kind benefits to be provided or the
expenses eligible for reimbursement in any other taxable year (except for any lifetime or other aggregate limitation
applicable to medical expenses). Such right to reimbursement or in-kind benefits is not subject to liquidation or exchange
for another benefit.
(c)
To the extent that any payment or benefit described in this Agreement constitutes "non-qualified
deferred compensation" under Section 409A of the Code, and to the extent that such payment or benefit is payable upon the
Executive's termination of employment, then such payments or benefits shall be payable only upon the Executive's
"separation from service." The determination of whether and when a separation from service has occurred sha11 be made in
accordance with the presumptions set forth in Treasury Regulation Section 1.409A- 1(h).
(d)
The parties intend that this Agreement will be administered in accordance with Section 409A of the
Code. To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code,
the provision shall be read in such a manner so that all payments hereunder comply with Section 409A of the Code. Each
payment pursuant to this Agreement is intended to constitute a separate payment for purposes of Treasury Regulation Section
l.409A-2(b)(2). The parties agree that this Agreement may be amended, as reasonably requested by either party, and as may
be necessary to fully comply with Section 409A of the Code and all related rules and regulations in order to preserve the
payments and benefits provided hereunder without additional cost to either party.
(e)
The Company makes no representation or warranty and shall have no liability to the Executive or any
other person if any provisions of this Agreement are determined to constitute deferred compensation subject to Section 409A
of the Code but do not satisfy an exemption from, or the conditions of, such Section.
7.
Intellectual Property. The Executive acknowledges that all discoveries, concepts, ideas, inventions,
innovations, improvements, developments, methods, designs, analyses, drawings, reports, patent applications,
copyrightable work and mask work (whether or not including any confidential information) and all registrations or
applications
9
related thereto, all other proprietary information and all similar or related information (whether or not patentable) which
relate to the Company's or any of its affiliates' actual or anticipated business, research and development or existing or future
products or services and which are conceived, developed or made by the Executive (whether alone or jointly with others)
while employed by the Company and its affiliates, whether before or after the date of this Agreement (collectively referred
to as "Work Product"), are the property of the Company or such affiliated companies. The Executive shall promptly disclose
such Work Product to the Board and, at the Company's expense, perform all actions reasonably requested by the Board
(whether during or after the period of employment) to establish and confirm such ownership (including, without limitation,
executing and delivering assignments, consents, powers of attorney and other instruments). The Executive acknowledges
that all Work Product shall be deemed to constitute "works made for hire" under the U.S. Copyright Act of 1976, as
amended.
8.
Confidential Information, Noncompetition and Cooperation. The Executive agrees that he continues to be
bound by the terms of the Confidentiality Agreement.
(a)
The Executive agrees that all property (including, without limitation, all equipment, tangible
proprietary information, documents, records, notes, contracts and computer generated materials) furnished to or created or
prepared by the Executive incident to the Executive's employment belongs to the Company and shall be promptly returned to
the Company upon termination of the Executive's employment.
(b)
Upon termination of the Executive's employment, the Executive shall be deemed to have resigned
from any and all offices and directorships then held with the Company and its affiliates. Following any termination of
employment, the Executive shall reasonably cooperate with the Company (i) in the winding up of pending work on behalf of
the Company and the orderly transfer of work to other employees, and (ii) in the defense of any action brought by any third
party against the Company that relates to the Executive's employment by the Company; provided, that in each case the
Company shall reimburse the Executive for any reasonable and documented out-of-pocket fees and expenses incurred by the
Executive in connection with such cooperation.
(c)
The Executive acknowledges that in the course of the Executive's employment with the Company, the
Executive will become familiar with the Company's and its affiliates' trade secrets and with other confidential and proprietary
information and that the Executive's services will be of special, unique and extraordinary value to the Company and its
affiliates. Therefore, the Executive agrees that the Executive shall not, during the Term and for a period of one (1) year
thereafter, directly or indirectly, either for himself or for any other person or entity or otherwise, (i) participate in any
business or enterprise (including, without limitation, any division, group or franchise of a larger organization), engaged,
anywhere within North America at the time of termination (the "Restricted Territory"), in the business of developing or
commercializing controlled release, ion exchange resin based pharmaceutical products, developing or commercializing
ADHD products, or developing or commercializing any products addressing Vascular Ehlers-Danlos Syndrome, or any other
business in which the Executive would be required to employ, reveal or otherwise utilize trade secrets of the Company and its
affiliates used prior to termination that may result in a material injury to the Company (with it being understood that the term
"participate in" shall include, without limitation, having any direct or indirect interest in any person or entity, whether as a
sole proprietor, owner, stockholder, partner, joint venturer,
10
creditor or otherwise, or rendering any direct or indirect service or assistance to any person or entity -whether as a director,
officer, manager, supervisor, employee, agent, consultant, advisor or otherwise); provided that, nothing herein shall prohibit
the Executive from being a passive owner of not more than two percent (2%) of the outstanding stock of any class of an
entity which is publicly traded so long as the Executive has no active participation in the business of such corporation; (ii)
induce or attempt to induce any customer, supplier, licensee or other business relation of the Company or any of its
subsidiaries to cease doing business with the Company or any such subsidiary or in any way interfere with the relationship
between any such customer, supplier, licensee or business relation and the Company and any such subsidiary; or (iii) induce
or attempt to induce any employee of the Company or its affiliates to leave the employ of the Company or any such affiliated
company, or in any way interfere with the relationship between the Company and any of its affiliates and any employee
thereof, or hire or otherwise engage any person who was an employee of the Company or any of its affiliated companies
within one year before any such hiring would take place.
(d)
The Executive agrees that he will not directly or indirectly, individually or in concert with others,
make any statement calculated or likely to have the effect of undermining or disparaging the business or the business
reputation of the Company or its affiliates or their respective employees, officers, directors, customers, suppliers, successors
and assigns, including, without limitation, negative comments about any such person or company, its management methods,
policies and/or practices. Notwithstanding the foregoing, nothing herein shall prohibit the Executive from responding
accurately and fully to any question, inquiry or request made in connection with any governmental inquiry, investigation,
review, audit or proceeding, any legal proceeding or claim (whether in court, arbitration or otherwise) of any nature, or as
otherwise required by law.
(e)
If, at the time of enforcement of this Section 8, a court holds that the restrictions stated herein are
unreasonable under circumstances then existing, the parties hereto agree that the maximum duration, scope or geographical
area reasonable under such circumstances shall be substituted for the stated period, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum duration, scope and area permitted by law. Because
the Executive's services are unique and because the Executive has access to confidential and proprietary information of the
Company and its business, the parties hereto agree that money damages would not be an adequate remedy for any breach of
Section 8 of this Agreement. Therefore, in the event of a breach or threatened breach of Section 8 of this Agreement, the
Company or its successors or assigns may, in addition to other rights and remedies existing in their favor and notwithstanding
anything herein to the contrary, apply to any court of competent jurisdiction for specific performance and/or injunctive or
other equitable relief in order to enforce or prevent any violations of, the provisions hereof (without posting a bond or other
security).
(f)
The Executive acknowledges that the provisions of this Section 8 are in consideration of the
Executive's employment with the Company and additional good and valuable consideration as set forth in this Agreement.
The Executive agrees and acknowledges that the restrictions contained in Section 8 do not preclude the Executive from
earning a livelihood, nor do they unreasonably impose limitations on the Executive's ability to earn a living. The Executive
acknowledges (i) that the business of the Company and its affiliates will be conducted throughout the Restricted Territory, (ii)
notwithstanding the state
11
of formation or principal office of the Company and its affiliates, or any of their respective executives or employees
(including the Executive), it is expected that the Company will have business activities and have valuable business
relationships within its industry throughout the Restricted Territory, and (iii) as part of the Executive's responsibilities, the
Executive may be traveling throughout the Restricted Territory in furtherance of the Company's and its affiliates' business
and its relationships. The Executive acknowledges that the potential harm to the Company of the non-enforcement of Section
8 outweighs any potential harm to the Executive of its enforcement by injunction or otherwise. The Executive acknowledges
that the Executive has carefully read this Agreement and has given careful consideration to the restraints imposed upon the
Executive by this Agreement and is in full accord as to their necessity for the reasonable and proper protection of confidential
and proprietary information of the Company and its subsidiaries now existing or to be developed in the future. The Executive
acknowledges that each and every restraint imposed by this Agreement is reasonable with respect to scope, duration, and
geographical area.
9.
Arbitration of Disputes. Any controversy or claim arising out of or relating to this Agreement or the breach
thereof or otherwise arising out of the Executive's employment or the termination of that employment (including, without
limitation, any claims of unlawful employment discrimination whether based on age or otherwise) shall, to the fullest extent
permitted by law, be settled by arbitration in any forum and form agreed upon by the parties or, in the absence of such an
agreement, under the auspices of the American Arbitration Association ("AAA") in accordance with the Employment
Dispute Resolution Rules of the AAA, including, but not limited to, the rules and procedures applicable to the selection of
arbitrators. In the event that any person or entity other than the Executive or the Company may be a party with regard to any
such controversy or claim, such controversy or claim shall be submitted to arbitration subject to such other person or entity's
agreement. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The
parties consent to the jurisdiction to the federal courts of the District of Colorado or, if there shall be no jurisdiction, to the
state courts located in Arapahoe County, Colorado, to enforce any arbitration award rendered with respect thereto. This
Section 8 shall be specifica1ly enforceable. Notwithstanding the foregoing, this Section 8 shall not preclude either party from
pursuing a court action for the sole purpose of obtaining a temporary restraining order or a preliminary injunction in
circumstances in which such relief is appropriate; provided that any other relief shall be pursued through an arbitration
proceeding pursuant to this Section 9.
10.
Consent to Jurisdiction. To the extent that any court action is permitted consistent with or to enforce Section
9 of this Agreement, the parties hereby consent to the jurisdiction of the Superior Court of the State of Colorado and the
United States District Court for the District of Colorado. Accordingly, with respect to any such court action, the Executive (a)
submits to the personal jurisdiction of such courts; (b) consents to service of process; and (c) waives any other requirement
(whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction or service of process.
11.
Integration. This Agreement constitutes the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior agreements between the parties concerning such subject matter, provided that the
Confidentiality Agreement remains in full force and effect.
12.
Withholding. All payments made by the Company to the Executive under
12
this Agreement shall be net of any tax or other amounts required to be withheld by the Company under applicable law.
13.
Successor to the Executive. This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal representatives, executors, administrators, heirs, distributees, devisees and legatees. In the event of the
Executive's death after his termination of employment but prior to the completion by the Company of all payments due him
under this Agreement, the Company shall continue such payments to the Executive's beneficiary designated in writing to the
Company prior to his death (or to his estate, if the Executive fails to make such designation).
14.
Enforceability. If any portion or provision of this Agreement (including, without limitation, any portion or
provision of any section of this Agreement) shall to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than
those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of
this Agreement shall be valid and enforceable to the fullest extent permitted by law.
15.
Survival. The provisions of this Agreement shall survive the termination of this Agreement and/or the
termination of the Executive's employment to the extent necessary to effectuate the terms contained herein.
16.
Waiver. No waiver of any provision hereof shall be effective unless made in writing and signed by the
waiving party. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver
by any party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be
deemed a waiver of any subsequent breach.
17.
Notices. Any notice to be given under this Agreement shall be in writing and delivered personally or sent by
overnight courier or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at
the address indicated below, or to such other address of which such party subsequently may give notice in writing:
(a)
If to Executive: To the address specified in the payroll
records of the Company.
(b)
If to the Company:
Aytu BioPharma, Inc.
373 Inverness Parkway
Suite 206
Englewood, Colorado 80112
Any notice delivered personally or by overnight courier shall be deemed given on the date delivered and any notice sent by
registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date mailed.
18.
Amendment. This Agreement may be amended or modified only by a written instrument signed by the
Executive and by a duly authorized representative of the
13
Company.
19.
Governing Law. This is a Colorado contract and shall be construed under and be governed in all respects by
the laws of the State of Colorado, without giving effect to the conflict of laws principles of such State. With respect to any
disputes concerning federal law, such disputes shall be determined in accordance with the law as it would be interpreted and
applied by the United States Court of Appeals for the Tenth Circuit.
20.
Counterparts. This Agreement may be executed in any number of counterparts, each of which when so
executed and delivered shall be taken to be an original; but such counterparts shall together constitute one and the same
document.
21.
Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume
and agree to perform this Agreement to the same extent that the Company would be required to perform it if no succession
had taken place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any
succession shall be a material breach of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement effective on the date and year first above written.
AYTU BIOPHARMA, INC.
By: Vivian Lu
Its: Chairwoman of the Compensation Committee Board of Directors
Executive
Greg Pyszczymuka
14
SUBSIDIARIES OF AYTU BIOPHARMA, INC.
Exhibit 21.1
Name of Subsidiary
Aytu Therapeutics, LLC
Innovus Pharmaceuticals, Inc.
Semprae Laboratories, Inc
Supplement Hunt, Inc.
Delta Prime Savings Club, Inc
Neos Therapeutics, Inc.
Neos Therapeutics Brands, LLC
Neos Therapeutics, LP
PharmaFab Texas, LLC
1.
2.
3.
4.
5.
6.
7.
8.
9.
State Jurisdiction
Delaware
Nevada
Delaware
Nevada
Nevada
Delaware
Delaware
Texas
Texas
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in Aytu BioPharma, Inc. Registration Statements on Form S-8 (No. 333-
255325, 333-205462, 333-236598 and 333-272897), Form S-3 (Nos. 333-259862, 333-235548, 333-236599, 333-239010 and
333-265479) and Form S-1 (File Nos. , 333-212100, 333-213489, 333-222994, 333-223385, 333-227243, 333-227706 and
333-271556) of our report dated September 27, 2022, except for Note 2, as to which the date is October 12, 2023, relating to
the consolidated financial statements as of and for the year ended June 30, 2022 that appear in this Annual Report on Form
10-K.
Exhibit 23.1
/s/Plante & Moran, PLLC
Denver, Colorado
October 12, 2023
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our report dated October 12, 2023, with respect to the consolidated financial statements included in the Annual Report of Aytu
BioPharma, Inc. on Form 10-K for the year ended June 30, 2023. We consent to the incorporation by reference of said report into the Registration
Statements of Aytu BioPharma, Inc. on Forms S-1 (File Nos. 333-212100, 333-213489, 333-222994, 333-223385, 333-227243, 333-227706 and 333-
271556), on Forms S-3 (File Nos. 333-259862, 333-235548, 333-236599, 333-239010 and 333-265479) and on Forms S-8 (File Nos. 333-255325,
333-205462, 333-236598 and 333-272897).
Exhibit 23.2
/s/ GRANT THORNTON LLP
Denver, Colorado
October 12, 2023
AYTU BIOPHARMA, INC.
Certification by Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.1
I, Joshua R. Disbrow, certify that:
1.
2.
3.
4.
I have reviewed this report on Form 10-K for the year ended June 30, 2023 of Aytu BioPharma, Inc.;
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;
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;
The registrant’s other certifying officer and I are 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)
b)
c)
d)
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 is made known to us by others within those entities particularly
during the period in which this report is being prepared;
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;
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
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 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.
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies or 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
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: October 12, 2023
By:
/s/ Joshua R. Disbrow
Joshua R. Disbrow
Chief Executive Officer (Principal Executive Officer)
AYTU BIOPHARMA, INC.
Certification by Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2
I, Mark Oki, certify that:
1.
2.
3.
4.
I have reviewed this report on Form 10-K for the year ended June 30, 2023 of Aytu BioPharma, Inc.;
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;
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;
The registrant’s other certifying officer and I are 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)
b)
c)
d)
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 is made known to us by others within those entities particularly
during the period in which this report is being prepared;
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;
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
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 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.
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies or 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
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: October 12, 2023
By:
/s/ Mark Oki
Mark Oki
Chief Financial Officer (Principal Financial Officer and
Principal Accounting Officer)
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
Exhibit 32.1
I Joshua R. Disbrow, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‐Oxley Act of 2002, that, to my
knowledge, the Annual Report on Form 10‐K of Aytu BioPharma, Inc. for the fiscal year ended June 30, 2023 fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10‐K fairly presents, in
all material respects, the financial condition and results of operations of Aytu BioPharma, Inc.
Date: October 12, 2023
By:
/s/ Joshua R. Disbrow
Joshua R. Disbrow
Chief Executive Officer (Principal Executive Officer)
I Mark Oki, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‐Oxley Act of 2002, that, to my
knowledge, the Annual Report on Form 10‐K of Aytu BioPharma, Inc. for the fiscal year ended June 30, 2022 fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10‐K fairly presents, in
all material respects, the financial condition and results of operations of Aytu BioPharma, Inc.
Date: October 12, 2023
By:
/s/ Mark Oki
Mark Oki
Chief Financial Officer (Principal Financial Officer and
Principal Accounting Officer)