Note 12 – Subsequent Events

In April 2016, the Company added a fourth director. He will hold office until the Company’s next annual meeting of stockholders. In April, the Board granted to each of Aytu’s two non-executive directors, including the new director, options to purchase 100,000 shares of Aytu common stock for board fees in fiscal year 2016. The options vested upon grant and have an exercise price of $0.56 per share, which was the closing price of Aytu common stock on the date of grant.

On April 22, 2016, the Company entered into and closed a license and supply agreement for the exclusive U.S. rights to Natesto™ (testosterone) nasal gel from Acerus Pharmaceuticals Corporation (“Acerus”).

The license’s term runs for the greater of eight years or until the expiry of the latest to expire patent including claims covering Natesto and until the entry on the market of at least one AB-rated generic product.

Aytu paid Acerus an upfront fee of $2.0 million upon execution of the agreement. On September 5, 2016, Aytu will pay an additional $2.0 million (the “Second Upfront”). On January 1, 2017, Aytu will pay an additional $4.0 million (the “Third Upfront”).

In addition to the upfront payments, Aytu must make the following one-time, non-refundable payments to Acerus within 45 days of the occurrence of the following event:

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$2.5 million if net sales during any four consecutive calendar quarter period equal or exceed $25.0 million (the “First Milestone”);

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$5.0 million if net sales during any four consecutive calendar quarter period equal or exceed $50.0 million;

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$7.5 million if net sales during any four consecutive calendar quarter period equal or exceed $75.0 million;

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$10.0 million if net sales during any four consecutive calendar quarter period equal or exceed $100.0 million; and

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$12.5 million if net sales during any four consecutive calendar quarter period equal or exceed $125.0 million.

The Company also agreed to purchase on April 28, 2016, an aggregate of 12,245,411 shares of Acerus common stock for Cdn.$2,534,800 (approximately US$2.0 million), with a purchase price per share of Cdn.$0.207. We cannot dispose of these shares until August 29, 2016.

During the term of the agreement, Aytu will purchase all of its Natesto product need from Acerus. Each month Aytu will provide Acerus with a two-year forecast of its product needs, the first three months of which will be noncancelable. Pursuant to the agreement, Aytu will pay Acerus a supply price per unit of the greater of 115% of Acerus’ cost of goods sold for Natesto, not to exceed a fixed ceiling price and (ii) 10% of the net selling price for the first year of the agreement that increases to 16% in the second year and 25% in the third year of the agreement and remains constant after that. Upon the expiration or invalidation of the last-to-expire (or be invalidated) Acerus patent covered by the agreement, the supply price will be reduced to an amount equal to the sum of (A) 115% of Acerus’ cost of goods sold (but not to exceed the fixed ceiling price) and (B) 50% of the difference between the supply price and 115% of Acerus’ cost of goods sold (but not to exceed the fixed ceiling price); provided that the supply price will not be reduced to an amount lower than 115% of Acerus’ cost of goods sold (but no to exceed the fixed ceiling price).

In the event of any termination of the agreement prior to the date on which the Second Upfront, Third Upfront and/or First Milestone is otherwise payable, all of those amounts will, unless otherwise paid prior to the effective date of termination, be payable on the effective termination date. Following the termination date, any further milestone amounts will be payable to Acerus in accordance with the agreement, even if the milestone is met after the termination date.

On May 2, 2016, the Company entered into an underwriting agreement with Joseph Gunnar & Co. as representative of the several underwriters named therein, relating to an underwritten public offering of 18,750,000 shares of its common stock, par value $0.0001 per share, and warrants to purchase up to an aggregate of 18,750,000 shares of common stock at a combined public offering price of $0.40 per share and related warrant. Each warrant will be exercisable for five years from issuance and have an exercise price equal to $0.50.

The Company’s net proceeds from the sale of the shares was approximately $6.7 million, after deducting underwriting discounts and commissions and estimated offering expenses. In addition, the Company has granted the underwriters a 45-day option to purchase up to an additional 2,812,500 shares of common stock and/or 2,812,500 additional warrants. The Underwriters have already elected to exercise their over-allotment option to purchase 2,049,250 warrants.

In connection with the public offering, Aytu is obligated to issue to the placement agents’ warrants for an amount of shares equal to 7% of the number of shares of our common stock issued in the offering. We issued warrants to the placement agents to purchase 1,312,500 shares of our common stock at an exercise price of $0.50 per share. These warrants are exercisable for five years from the date of issuance.

Pursuant to the terms of the notes, the notes (inclusive of accrued but unpaid interest) were automatically convertible due to the public offering, into securities of the Company in an amount equal to 120% - 130% of the number of such shares issuable calculated by dividing the outstanding principal and accrued interest by $0.40. On May 5, 2016, the date of the conversion, an aggregate of $1,050,000 of principal and $78,000 of accrued interest on the notes converted into an aggregate of 3,659,978 shares of common stock and warrants to purchase 3,659,978 shares of common stock with an exercise price of $0.50 per share.

In connection with the conversion, we were obligated to issue to the placement agents for the convertible note offering warrants for an amount of shares equal to 8% of the number of shares of our common stock issued upon conversion of the notes. As a result of the note conversion, we will issue warrants to the placement agents to purchase an aggregate of approximately 270,772 shares of our common stock at an exercise price of $0.40 per share. These warrants are exercisable for five years from the date of issuance of the related notes in July and August 2015. The warrants have a cashless exercise feature.

After all of these transactions, the Company has 44,856,459 common shares outstanding and 30,279,665 warrants and options with a weighted average exercise price of $0.64 as of May 6, 2016.