UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

SCHEDULE 14A

 

(RULE 14a-101)

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(A) of the

Securities Exchange Act of 1934

 

Filed by the Registrant  ☒  Filed by a Party other than the Registrant  ☐

 

Check the appropriate box:

 

☐ Preliminary Proxy Statement

 

☐ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

☒ Definitive Proxy Statement

 

☐ Definitive Additional Materials

 

☐ Soliciting Material Pursuant to § 240.14a-12

 

 

Aytu BioScience, Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement if other Than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

☒ No fee required.

 

☐ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:

 

☐ Fee paid previously with preliminary materials.

 

☐ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:

 

 

 

 

AYTU BIOSCIENCE, INC.

373 Inverness Parkway, Suite 206

Englewood, Colorado 80112

  

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD APRIL 12, 2019

 

 

 

To the Stockholders of Aytu BioScience, Inc.:

 

The 2019 Annual Meeting of Stockholders of Aytu BioScience, Inc. will be held at the Corporate Office at 373 Inverness Pkwy, Ste 206, Englewood, CO 80112, on April 12, 2019, at 10:00 a.m. Mountain Daylight Time, for the following purposes:

 

1. To elect six directors named in the proxy statement to serve until the 2019 Annual Meeting of Stockholders or until their successors are duly elected and qualified;
2. To approve for purposes of complying with NASDAQ Listing Rule 5635(d), the closing of the transactions (the “Exchange Transactions”) contemplated by that certain Exchange Agreement (the “Exchange Agreement”) between the Aytu BioScience, Inc. (the “Company”) and Armistice Capital Master Fund Ltd. (“Armistice”), pursuant to which the Company has agreed, subject to stockholder approval, to exchange the Promissory Note, dated November 29, 2018, issued by the Company to Armistice in the principal amount of $5,000,000 (the “Note”) for: 3,120,064 shares of common stock of the Company, 2,751,148 shares of Series E Convertible Preferred Stock of the Company (the “Preferred Shares”), and a Common Stock Purchase Warrant (the “Warrant”) exercisable for 4,403,409 shares of common stock of the Company (such proposal referred to herein as the “Exchange Agreement Proposal”);
3. To ratify the appointment of Plante & Moran, PLLC (“Plante Moran”) as our independent registered public accounting firm for the fiscal year ending June 30, 2019;
4. To approve the adjournment of the Annual Meeting, if necessary, to continue to solicit votes for the Exchange Agreement Proposal (the “Adjournment Proposal”); and
5. To act upon such other matters as may properly come before the meeting or any adjournment or postponement thereof.

 

These matters are more fully described in the proxy statement accompanying this notice.

 

The Board has fixed the close of business on February 14, 2019 as the record date for the determination of stockholders entitled to notice of and to vote at the meeting or any adjournment thereof. A list of stockholders eligible to vote at the meeting will be available for review during our regular business hours at our principal offices in Englewood, Colorado for the 10 days prior to the meeting for review for any purposes related to the meeting.

 

You are cordially invited to attend the meeting in person. However, to assure your representation at the meeting, you are urged to vote by proxy by following the instructions contained in the proxy statement. You may revoke your proxy in the manner described in the proxy statement at any time before it has been voted at the meeting. Any stockholder attending the meeting may vote in person even if he or she has returned a proxy. Your vote is important. Whether or not you plan to attend the annual meeting, we hope that you will vote as soon as possible.

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to be Held on April 12, 2019.  The proxy statement and annual report to shareholders are available at www.proxyvote.com. We are pleased to take advantage of the Securities and Exchange Commission, or SEC, rules that allow us to furnish these proxy materials (including an electronic proxy card for the meeting and our 2018 Annual Report to Stockholders, which is our Annual Report on Form 10-K for the year ended June 30, 2018 (the “2018 10-K”)) to stockholders via the Internet. On or about March 1, 2019, we will mail to our stockholders a Notice of Internet Availability of Proxy Materials containing instructions on how to access our proxy statement and 2018 Annual Report to Stockholders and how to vote. Taking advantage of these rules allows us to lower the cost of delivering annual meeting materials to our stockholders and reduce the environmental impact of printing and mailing these materials.

 

Englewood, Colorado
Dated: February 25, 2019
By Order of the Board of Directors
/s/ Joshua Disbrow
Joshua R. Disbrow
Chairman and Chief Executive Officer

 

QUESTIONS AND ANSWERS ABOUT THE 2019 ANNUAL MEETING

 

 

 

 

 

If your shares are held in a stock brokerage account or by a bank or other holder of record, you are considered the “beneficial owner” of shares held in street name. In that case, these proxy materials have been forwarded to you by your broker, bank, or other holder of record who is considered, with respect to those shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker, bank, or other holder of record on how to vote your shares by using the voting instruction card included in the Notice of Internet Availability of Proxy Materials.

 

 

 

● are present and entitled to vote in person at the meeting; or

 

● properly submitted a proxy card or voter instruction card in advance of or at the meeting.

 

 

 

 

 

 

We will also consider any other business that properly comes before the meeting. As of the record date, we are not aware of any other matters to be submitted for consideration at the meeting. If any other matters are properly brought before the meeting, the persons named in the proxy card or voter instruction card will vote the shares they represent using their best judgment.

 

 

 

 

 

 

 

 

 

 

 

The Internet and telephone voting procedures are designed to authenticate stockholders’ identities by use of a control number to allow stockholders to vote their shares and to confirm that stockholders’ instructions have been properly recorded. Voting via the Internet or telephone must be completed by 11:59 p.m. Eastern Time on April 11, 2019. If stockholders have any questions or need assistance voting their proxy, please call David Green, our Chief Financial Officer, at our headquarters at 1-720-437-6580. Of course, you can always come to the meeting and vote your shares in person. If you submit or return a proxy card without giving specific voting instructions, your shares will be voted as recommended by our Board of Directors.

 

 

 

● Filing a written notice of revocation bearing a later date than the proxy with our Corporate Secretary either before the meeting or at the meeting at 373 Inverness Parkway, Suite 206, Englewood, Colorado 80112;

 

● Duly executing a later-dated proxy relating to the same shares and delivering it to our Corporate Secretary either before or at the meeting and before the taking of the vote, at 373 Inverness Parkway, Suite 206, Englewood, Colorado 80112;

 

● Attending the meeting and voting in person (although attendance at the meeting will not in and of itself constitute a revocation of a proxy); or

 

● If you voted by telephone or via the Internet, voting again by the same means prior to 11:59 p.m. Eastern Time on April 11, 2019 (your latest telephone or internet vote, as applicable, will be counted and all earlier votes will be disregarded).

 

If you are a beneficial owner of shares, you may submit new voting instructions by contacting your bank, broker, or other holder of record. You may also vote in person at the meeting if you obtain a legal proxy from them as described in the answers to the two previous questions.

 

 

 

 

 

 

AYTU BIOSCIENCE, INC.

373 Inverness Parkway, Suite 206

Englewood, Colorado 80112

 

PROXY STATEMENT

ANNUAL MEETING OF STOCKHOLDERS

APRIL 12, 2019

 

 

 

This proxy statement has been prepared by the management of Aytu BioScience, Inc. “We,” “our” and the “Company” each refers to Aytu BioScience, Inc.

 

In accordance with the rules of the SEC, instead of mailing a printed copy of our proxy materials to each stockholder of record, we are furnishing proxy materials, including the notice, this proxy statement, our 2018 Annual Report to Stockholders, including financial statements, and a proxy card for the meeting, by providing access to them on the Internet to save printing costs and benefit the environment. These materials will first be available on the Internet on or about March 1, 2019. We will mail a Notice of Internet Availability of Proxy Materials on or about March 1, 2019 to our stockholders of record and beneficial owners as of February 14, 2019, the record date for the meeting. This proxy statement and the Notice of Internet Availability of Proxy Materials contain instructions for accessing and reviewing our proxy materials on the Internet and for voting by proxy over the Internet. If you prefer to receive printed copies of our proxy materials, the Notice of Internet Availability of Proxy Materials contains instructions on how to request the materials by mail. You will not receive printed copies of the proxy materials unless you request them. If you elect to receive the materials by mail, you may also vote by proxy on the proxy card or voter instruction card that you will receive in response to your request.

 

GENERAL INFORMATION ABOUT SOLICITATION VOTING AND ATTENDING

 

Who Can Vote

 

You are entitled to attend the meeting and vote your common stock if you held shares as of the close of business on February 14, 2019. As of February 14, 2019, there were 12,455,435 shares of common stock outstanding and entitled to vote.

 

Counting Votes

 

Consistent with state law and our bylaws, the presence, in person or by proxy, of at least a majority of the outstanding shares of our capital stock entitled to vote at the meeting will constitute a quorum for purposes of voting on a particular matter at the meeting. Once a share is represented for any purpose at the meeting, it is deemed present for quorum purposes for the remainder of the meeting and any adjournment thereof unless a new record date is set for the adjournment. Shares held of record by stockholders or their nominees who do not vote by proxy or attend the meeting in person will not be considered present or represented and will not be counted in determining the presence of a quorum. Signed proxies that withhold authority or reflect abstentions and “broker non-votes” will be counted for purposes of determining whether a quorum is present. When a broker, bank, or other nominee has discretion to vote on one or more proposals at a meeting but does not have discretion to vote on other matters at the meeting, the broker, bank, or other nominee will inform the inspector of election that it does not have the authority to vote on the “non-discretionary” matters with respect to shares held for beneficial owners which did not provide voting instructions with respect to the “non-discretionary” matters.  This situation is commonly referred to as a “broker non-vote.” Broker non-votes will be counted for purposes of establishing a quorum to conduct business at the meeting, but not for determining the number of shares voted FOR, AGAINST, or ABSTAIN with respect to any matters.

 

Prior to the execution of the Exchange Agreement, the Company and Armistice entered into a Waiver of Blocker pursuant to which the Company and Armistice waived the beneficial ownership limitation contained in the Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock, solely with respect to Armistice. As a result, as of the record date Armistice holds 2,348,217 shares of Common Stock, or approximately 19.0% of the outstanding voting stock of the Company, and will be entitled to vote all of these shares at the Annual Meeting, including with respect to the Exchange Agreement Proposal.

 

 

Assuming the presence of a quorum at the meeting:

 

● The election of directors will be determined by a plurality of the votes cast at the meeting. This means that the six nominees receiving the highest number of “FOR” votes will be elected as directors. Abstentions and broker non-votes, if any, are not treated as votes cast, and therefore will have no effect on this proposal.

 

 

● The approval of the Adjournment Proposal will require the affirmative vote of a majority of the votes cast at the meeting. Abstentions and broker non-votes, if any, are not treated as votes cast, and therefore will have no effect on this proposal.

 

● The ratification of the appointment of our independent registered public accounting firm requires the affirmative vote of a majority of the votes cast at the meeting. Abstentions and broker non-votes, if any, are not treated as votes cast, and therefore will have no effect on this proposal.

 

We strongly encourage you to vote your shares promptly. This action ensures that your shares will be voted in accordance with your wishes at the meeting.

 

Attending the Annual Meeting

 

If you are a holder of record and plan to attend the annual meeting, please bring a photo identification to confirm your identity. If you are a beneficial owner of common stock held by a bank or broker, i.e., in “street name,” you will need proof of ownership to be admitted to the meeting. A recent brokerage statement or letter from a bank or broker are examples of proof of ownership. If you want to vote in person your common stock held in street name, you must get a proxy in your name from the registered holder.

 

PROPOSAL NO. 1 — ELECTION OF DIRECTORS

 

Our bylaws provide that the number of directors constituting our Board of Directors shall be determined solely and exclusively by resolution duly adopted from time to time by our Board. There are six directors presently serving on our Board, and the number of directors to be elected at this annual meeting is six. Our full Board has proposed the six nominees listed below (who are our current directors) for re-election to the Board for a one-year term.

 

Our Board has determined that, under NASDAQ rules, all of our directors are independent, except for Mr. Disbrow and Mr. Mehta. In addition to the specific bars to independence set forth in the NASDAQ rules, we also consider whether a director or his affiliates have provided any services to, worked for or received any compensation from us or any of our subsidiaries in the past three years in particular. In addition, none of the nominees are related by blood, marriage or adoption to any other nominee or any of our executive officers, except that Joshua Disbrow and Jarrett Disbrow, our Chief Operating Officer, are brothers.

 

Directors with Terms Expiring in 2019
Name		Age		Director Since		Position(s) with Aytu
Joshua R. Disbrow		44		January 2016		Chairman & Chief Executive Officer, Director
Gary V. Cantrell		63		July 2016		Director
Carl C. Dockery		55		April 2016		Director
John A. Donofrio, Jr.		51		July 2016		Director
Michael E. Macaluso		67		April 2016		Director
Ketan B. Mehta		57		November 2018		Director

  

 

Joshua R. Disbrow – Chairman and Chief Executive Officer

 

Joshua R. 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 with Luoxis Diagnostics, Inc. and Vyrix Pharmaceuticals, Inc. that formed Aytu BioScience, Mr. Disbrow was the Chief Executive Officer of Luoxis since January 2013. Mr. Disbrow 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. 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 21 years in the pharmaceutical, diagnostic and medical device industries and has held positions of increasing responsibility in sales, commercialization, sales management, commercial operations and commercial strategy. 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 and BS in Management from North Carolina State University. Mr. Disbrow’s experience in executive management and marketing within the pharmaceutical industry, monetizing company opportunities, and corporate finance led to the conclusion that he should serve as a director of our Company in light of our business and structure.

 

Gary V. Cantrell – Director

 

Gary Cantrell joined our Board of Directors in July 2016. He has 30 years of experience in the life sciences industry ranging from clinical experience as a respiratory therapist to his current executive consulting business as Principal of Averaden, LLC, where he has served since July 2015. Prior to his service at Averaden, LLC, Mr. Cantrell consulted exclusively with Mayne Pharma Group Limited (“Mayne”) (ASX: MYX) as Business Development Executive focused on acquiring branded prescription assets for Mayne’s U.S. Specialty Brands Division, a position he held from July 2015 to October 2017. Mr. Cantrell served as CEO of Yasoo Health Inc. (“Yasoo”), a global specialty nutritional company from 2007 through June 2015, highlighted by the sale of its majority asset AquADEKs to Actavis Generics in March 2016. Previously, he was President of The Catevo Group, a U.S.-based healthcare consulting firm. Prior to that, he was Executive Vice President, Sales and Marketing for TEAMM Pharmaceuticals Inc., an Accentia Biopharmaceuticals company, where he led all commercial activities for a public specialty pharmaceutical business. His previous 22 years were at GlaxoSmithKline plc where he held progressively senior management positions in sales, marketing and business development. Mr. Cantrell is a graduate of Wichita State University and serves as an advisor to several emerging life science companies. He served as a director for Yasoo Health Inc., Yasoo Health Limited and Flexible Stenting Solutions, Inc., a leading developer of next generation peripheral arterial, venous, neurovascular and biliary stents, which was sold to Cordis, while a Division of Johnson & Johnson in March 2013. Mr. Cantrell served as a director of Vyrix from February 2014 to April 2015. Mr. Cantrell’s experience in consulting and executive management within the pharmaceutical industry led to the conclusion that he should serve as a director of our Company in light of our business and structure.

 

Carl C. Dockery – Director

 

Carl 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. Mr. Dockery serves as a director of CytoDyn Inc. (OTCQB: CYDY), a biotechnology company. 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 director of a publicly traded biopharmaceutical company, led to the conclusion that he should serve as a director of our Company in light of our business and structure.

 

John A. Donofrio, Jr. – Director

 

John Donofrio joined our Board of Directors in July 2016. He is a senior finance executive with 24 years of experience in the pharmaceutical industry across a broad range of areas, including 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. He has served as the Chief Financial Officer and Head of Business Development at TrialCard since March of 2018. 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, since August 2013. 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. He was also the Senior Finance Partner accountable for the U.S. Specialty Business Units of GlaxoSmithKline plc. 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 financial expertise and experience in the pharmaceutical industry, led to the conclusion that he should serve as a director of our Company in light of our business and structure.

 

 

Michael Macaluso – Director 

 

Michael Macaluso joined our Board of Directors in April 2015. Mr. Macaluso is also the Chairman and Chief Executive Officer of Ampio. Mr. Macaluso has been a member of Ampio’s board of directors since March 2010 and Ampio’s Chief Executive Officer since January 2012. Mr. Macaluso served in the roles of president and Chief Executive Officer of Isolagen, Inc. (AMEX: ILE) from June 2001 until September 2004. Mr. Macaluso also served on the board of directors of Isolagen from June 2001 until April 2005. From October 1998 until June 2001, Mr. Macaluso was the owner of Page International Communications, a manufacturing business. Mr. Macaluso was a founder and principal of International Printing and Publishing, a position Mr. Macaluso held from 1989 until 1997, when he sold that business to a private equity firm. Mr. Macaluso’s experience in executive management and marketing within the pharmaceutical industry, monetizing company opportunities, and corporate finance led to the conclusion that he should serve as a director of our Company in light of our business and structure.

 

Ketan B. Mehta – Director

 

Ketan B. Mehta joined our Board of Directors in November 2018. Mr. Mehta is the President and CEO and founder of Tris Pharma. Before founding Tris Pharma in 2000, Mr. Mehta worked for Capsugel (formerly a division of Pfizer) in sales, marketing and business development for eight years. Prior to Capsugel, he spent approximately six years as a pharmaceutical scientist for three different large pharmaceutical companies. Mr. Mehta is a pharmacist by education and holds an MS degree in Pharmaceutical Sciences from the University of Oklahoma. The Board of Directors believes that Mr. Mehta’s experience as a founder and CEO of a pharmaceutical company makes him a valuable member of the Board of Directors.

 

Vote Required

 

Directors are elected by a plurality of the votes cast at the annual meeting. This means that the six nominees receiving the highest number of “FOR” votes will be elected as directors. Abstentions and broker non-votes, if any, are not treated as votes cast, and therefore will have no effect on this proposal.

 

Recommendation

 

Our Board of Directors unanimously recommends that stockholders vote FOR all six of the director nominees listed above.

 

Unless marked otherwise, proxies received will be voted “FOR” the approval of all six of the director nominees listed above.

 

 

PROPOSAL NO. 2 — EXCHANGE AGREEMENT PROPOSAL

 

Overview

 

The Company and the Board of Directors have determined that it is in the best interests of the Company and its stockholders to exchange the Promissory Note, dated November 29, 2018, issued by the Company to Armistice in the principal amount of $5,000,000 (the “Note”), for: (1) 3,120,064 shares of Common Stock of the Company, (2) 2,751,148 shares of Series E Convertible Preferred Stock of the Company, and (3) a Common Stock Purchase Warrant exercisable for 4,403,409 shares of Common Stock of the Company (the “Exchange Securities”), and the Company desires to issue the Exchange Securities in exchange for the cancellation of the Note and the satisfaction of all principal and interest owed thereunder. The exchange of the Note for the Exchange Securities, and the other terms of the transactions contemplated thereby, are subject to the terms and conditions of the Exchange Agreement between the Company and Armistice included in this proxy statement as Appendix A, including the condition that the Company receive stockholder approval. The Exchange Agreement also includes the forms of Certificate of Designation of Preferences, Rights and Limitations of Series E Convertible Preferred Stock and the Common Stock Purchase Warrant to be issued to Armistice.

 

Purpose of this Proposal

 

The purpose of the Exchange Agreement Proposal is to approve the closing by the Company of the Exchange Transactions set forth in the Exchange Agreement, including the issuance of the Exchange Securities, the filing of the Certificate of Designation of Preferences, Rights and Limitations of Series E Convertible Preferred Stock, and the issuance of the Common Stock Purchase Warrant to Armistice.

 

Background of the Exchange Transaction

 

On November 29, 2018, the Company issued a secured, 8%, three-year, $5.0 million promissory note (the “Note”) to Armistice in connection with the Company’s acquisition of a license for Tuzistra XR and a complementary antitussive pending FDA review. On January 7, 2019, Armistice made an unsolicited offer to the Company to exchange the Note for a combination of common stock and warrants at a discount to the market price of the Company’s common stock of $0.03 per share, or a discount of approximately 3.3%. Mr. Disbrow negotiated initial terms with Armistice at that time and then on January 8, 2019 submitted the proposal to the Company’s Board of Directors.

 

On January 11, 2019, the Company’s Board of Directors met to discuss the proposal from Armistice. The Company’s outside legal counsel instructed the Board of Directors on its fiduciary duties related to considering the proposal, to which the Board asked questions and a discussion ensued. The Company’s management team then explained the terms of the proposed transaction to the Board and its views on the advantages and disadvantages of accepting the proposal. The management team and the Company’s outside legal counsel explained the risks of having such a large stockholder, the importance of structuring any transaction in a way that would protect the Company’s existing stockholders, and Armistice’s history with other companies where it holds a similar significant position in such companies’ stock. Ultimately, the Board determined that while the Note was important for the Company in order for it to quickly execute its transaction with TRIS Pharma, Inc. in November 2018, given the size of the Company and its current capitalization that it would be in the best interests of the Company and its stockholders to continue negotiating with Armistice to see if the exchange of the Note could occur on terms more favorable to the Company’s stockholders. The Board discussed ways that the exchange of the Note could be structured that would better protect the Company’s stockholders, including through the usage of convertible preferred stock with a mechanism that would prohibit Armistice from at any time owning more than 40% of the Company’s outstanding shares of common stock (and the voting power associated with the Company’s common stock). The Board directed the Company’s management team to continue discussions with Armistice and to negotiate more favorable terms for the Company’s stockholders, including but not limited to the usage of convertible preferred stock.

Subsequent to the meeting of the Board of Directors, the Company’s management team continued its negotiations with Armistice over the terms of the proposed transaction.

On January 14, 2019, the Board of Directors met to further discuss the proposal from Armistice. Mr. Disbrow reported on his conversations with Armistice. He explained that Armistice was amenable to revising the structure of the proposed transaction to address the Board’s concerns, including by agreeing to receive a portion of the consideration in convertible preferred stock with a blocking mechanism that would prohibit Armistice from at any time owning more than 40% of the Company’s outstanding shares of common stock. In addition, the Company’s management team was able to negotiate for the warrant to be issued to include more Company-favorable terms than the warrant issued in the Company’s last public offering. The Board discussed these improved terms and had additional discussion surrounding the risks associated with the transaction. After a lengthy discussion, the Board directed the Company’s management team to prepare and negotiate a term sheet with Armistice setting forth the terms of the proposed transaction.

Subsequent to the meeting of the Board of Directors, the Company’s management team and outside legal counsel prepared a term sheet for the proposed transaction and negotiated the term sheet with Armistice.

On January 17, 2019, the Board of Directors met to review and discuss proposed transaction with Armistice. Mr. Disbrow reported that management was able to successfully negotiate a term sheet with Armistice on the terms presented previously to the Board, with the only new term required by Armistice being the inclusion of a fundamental transaction provision in the warrant at the request of Armistice. However, Mr. Disbrow reported that the management team was able to negotiate with Armistice to include a more Company-favorable version of the fundamental transaction provision. After reviewing the term sheet and a discussion with the Company’s management team and outside legal counsel, the Board approved the term sheet and instructed the Company’s management team to execute the term sheet and begin negotiating definitive agreements.

Subsequent to the meeting of the Board of Directors, the Company and Armistice executed a term sheet and began negotiating definitive agreements for the transaction.

On January 29, 2019, the Board of Directors met and discussed the status of the Armistice transaction. The Company’s management team reported that it had negotiated definitive agreements for the transaction and that the management team was waiting on approval from NASDAQ before providing proposed final drafts to the Board.

On February 5, 2019, the Company’s management team provided the proposed definitive agreements to the Board of Directors for review and comment. Ultimately, the Board of Directors approved the transaction documents, including the Exchange Agreement attached hereto as Appendix A, and directed the Company’s management team to execute the Exchange Agreement and submit the Exchange Agreement Proposal to the Company’s stockholders for approval. Subsequent to this decision by the Board of Directors, the Company’s management team executed the Exchange Agreement.

Description of the Exchange Transactions

 

Exchange Agreement

 

On February 5, 2019, the Company and Armistice entered into the Exchange Agreement, pursuant to which Armistice agreed, subject to receipt of stockholder approval, to exchange the Note with the Company for: (1) 3,120,064 shares of Common Stock of the Company, (2) 2,751,148 shares of Series E Convertible Preferred Stock of the Company, and (3) a Common Stock Purchase Warrant exercisable for 4,403,409 shares of Common Stock of the Company. The Company agreed to issue the Exchange Securities in exchange for the cancellation of the Note and the satisfaction of all principal and interest owed thereunder. The exchange of the Note for the Exchange Securities, and the other terms of the transactions contemplated thereby, is subject to the terms and conditions of the Exchange Agreement. The Exchange Agreement includes the forms of Certificate of Designation of Preferences, Rights and Limitations of Series E Convertible Preferred Stock and the Common Stock Purchase Warrant issued to Armistice.

 

The Exchange Agreement contains standard representations, warranties and covenants of the Company and Armistice.  The representations, warranties and covenants contained in the Exchange Agreement were made only for purposes of the Exchange Agreement and as of specific dates; were solely for the benefit of the parties to the Exchange Agreement; and may be subject to limitations agreed upon by the parties, including being qualified by confidential disclosures made by each contracting party to the other for the purposes of allocating contractual risk between them that differ from those applicable to our stockholders. Stockholders should not rely on the representations, warranties and covenants or any description thereof as characterizations of the actual state of facts or condition of the Company. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Exchange Agreement, which subsequent information may or may not be fully reflected in public disclosures or statements by the Company. Accordingly, stockholders should read the representations and warranties in the Exchange Agreement not in isolation but only in conjunction with the other information about the Company that the Company included in reports, statements and other filings made with the SEC. The foregoing summary of the Exchange Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Exchange Agreement, a copy of which is attached as Appendix A and is incorporated by reference herein.

 

After giving effect to the Exchange Transactions, Armistice will own 5,468,281 shares of Common Stock, 2,751,148 shares of Series E Convertible Preferred Stock and warrants to purchase 7,392,298 shares of Common Stock.

 

 Series E Preferred Stock

 

General. In connection with the closing of the Exchange Transactions under the Exchange Agreement, the Company’s board of directors will designate shares of its preferred stock as Series E Preferred Stock. The preferences and rights of the Series E Preferred Stock will be as set forth in a Certificate of Designation of Preferences, Rights and Limitations of Series E Convertible Preferred Stock (the “Series E Certificate of Designation”) and is included as an exhibit to the Exchange Agreement, which is included as Appendix A.

 

Conversion. Each share of Series E Preferred Stock will be initially convertible at any time at the holder’s option into one share of Common Stock, which conversion ratio will be subject to adjustment for stock splits, stock dividends, distributions, subdivisions and combinations. Notwithstanding the foregoing, the Series E Certificate of Designation will further provide that the Company shall not effect any conversion of the Series E Preferred Stock to the extent that, after giving effect to an attempted conversion, Armistice (together with its affiliates, and any persons acting as a group together with Armistice or any of its affiliates) would beneficially own a number of shares of Common Stock in excess of 40% of the shares of the Company’s Common Stock then outstanding after giving effect to such exercise.

 

 

Fundamental Transaction. In the event the Company consummates a merger or consolidation with or into another person or other reorganization event in which the Company’s Common Stock is converted or exchanged for securities, cash or other property, or the Company sells, leases, licenses, assigns, transfers, conveys or otherwise disposes of all or substantially all of its assets or it or another person acquires 50% or more of the Company’s outstanding shares of Common Stock, then following such event, the holders of the Series E Preferred Stock will be entitled to receive upon conversion of such Series E Preferred Stock the same kind and amount of securities, cash or property which the holders would have received had they converted their Series E Preferred Stock immediately prior to such fundamental transaction. Any successor to the Company or surviving entity shall assume the obligations under the Series E Preferred Stock.

 

Liquidation Preference. In the event of a liquidation, the holders of Series E Preferred Stock will be entitled to participate on an as-converted-to-common-stock basis with holders of the Common Stock in any distribution of assets of the Company to the holders of the Common Stock.

 

Voting Rights. With certain exceptions, as described in the Series E Certificate of Designation, the Series E Preferred Stock will have no voting rights. However, as long as any shares of Series E Preferred Stock remain outstanding, the Series E Certificate of Designation provides that the Company shall not, without the affirmative vote of holders of a majority of the then-outstanding shares of Series E Preferred Stock: (a) alter or change adversely the powers, preferences or rights given to the Series E Preferred Stock or alter or amend the Series E Certificate of Designation, (b) amend the Company’s certificate of incorporation or other charter documents in any manner that adversely affects any rights of the holders, (c) increase the number of authorized shares of Series E Preferred Stock or (d) enter into any agreement with respect to any of the foregoing.

 

Dividends. The Series E Certificate of Designation will provide, among other things, that we shall not pay any dividends on shares of Common Stock (other than dividends in the form of Common Stock) unless and until such time as the Company pays dividends on each share of Series E Preferred Stock on an as-converted basis. Other than as set forth in the previous sentence, the Series E Certificate of Designation will provide that no other dividends shall be paid on shares of Series E Preferred Stock and that the Company shall pay no dividends (other than dividends in the form of Common Stock) on shares of Common Stock unless the Company simultaneously complies with the previous sentence.

 

Repurchase Restrictions. The Series E Certificate of Designation will not provide for any restriction on the repurchase of Series E Preferred Stock by the Company while there is any arrearage in the payment of dividends on the Series E Preferred Stock. There will be no sinking fund provisions applicable to the Series E Preferred Stock.

 

Redemption. The Company will not be obligated to redeem or repurchase any shares of Series E Preferred Stock. Shares of Series E Preferred Stock will not otherwise be entitled to any redemption rights or mandatory sinking fund or analogous fund provisions.

 

Exchange Listing. The Company does not intend to apply for listing of the Series E Preferred Stock on any securities exchange or other trading system.

 

The foregoing summary of the Series E Certificate of Designation does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Series E Certificate of Designation, a copy of which is attached as Exhibit A to the Exchange Agreement, which is in turn attached as Appendix A hereto and is incorporated by reference herein.

 

Common Stock Purchase Warrant

 

General. If the Exchange Agreement Proposal is approved by the Company’s stockholders, the Company will issue to Armistice a Common Stock Purchase Warrant to purchase 4,403,409 shares of Common Stock of the Company (the “Warrant”). A description of the material terms of the Warrant is included below. The Warrant entitles Armistice to purchase 4,403,409 shares of the Company’s Common Stock at an exercise price of $1.00 per share, subject to adjustment as discussed below. The Warrant will expire on the five-year anniversary of issuance, or earlier upon redemption or liquidation.

  

Exercise. The Warrant may be exercised by providing an executed notice of exercise form followed by full payment of the exercise price or on a cashless basis, if applicable. Armistice does not have the rights or privileges of holders of Common Stock or any voting rights with respect to the shares of Common Stock represented by the Warrant until it exercises the Warrant and receives its shares of Common Stock. After the issuance of shares of Common Stock upon exercise of the Warrant, Armistice will be entitled to one vote for each share held of record on all matters to be voted on by stockholders generally.

 

Beneficial Ownership Limitation. Armistice will be subject to a requirement that it will not have the right to exercise the Warrant to the extent that, after giving effect to such exercise, Armistice (together with its affiliates) would beneficially own in excess of 40% of the shares of Common Stock of the Company outstanding immediately after giving effect to such exercise.

 

 

Anti-Dilution Protection. If the number of outstanding shares of Common Stock (i) is increased by a stock dividend payable in shares of Common Stock, (ii) is increased by a split-up of shares of Common Stock, (iii) is decreased by a combination of outstanding shares of Common Stock, or (iv) is reclassified by the issuance of any shares of common stock of the Company then, on the effective date of such event, the exercise price of the Warrant will be multiplied by a fraction of which the numerator is (x) the number of shares of Common Stock outstanding immediately prior to such event and the denominator is (y) the number of shares of Common Stock outstanding immediately after such event, and the number of shares of Common Stock issuable upon exercise of the Warrant will be proportionately adjusted such that the aggregate exercise price will remain unchanged. Such adjustment will be effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and will be effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

In addition, if the Company, at any time while the Warrant is outstanding and unexpired, grants, issues or sells any (i) securities of the Company or its subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock, or (ii) rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then Armistice will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which it could have acquired if it had held the number of shares of Common Stock acquirable upon complete exercise of the Warrant immediately before the date on which a record is taken or the record holders are determined for the grant, issuance or sale of such Purchase Rights.

 

If the Company, at any time while the Warrant is outstanding and unexpired, declares or makes any dividend or other distribution of assets to holders of Common Stock, by way of return of capital or otherwise, at any time after the issuance of the Warrant, then Armistice shall be entitled to participate in such distribution to the same extent that it would have participated therein had it held the number of shares of Common Stock acquirable upon complete exercise of the Warrant immediately before the date of which a record is taken or the record holders are determined for such distribution.

 

Fundamental Transaction. In the event of a “fundamental transaction” then, upon a subsequent exercise of the Warrant, Armistice will have the right to purchase and receive the same kind and amount of consideration receivable by the stockholders of the Company in such fundamental transaction. The Company will cause the surviving company in a fundamental transaction to assume the obligations of the Company under the Warrant. For purposes of the Warrant, a “fundamental transaction” includes, subject to certain exceptions, (i) any reclassification, reorganization or recapitalization of the Common Stock of the Company, (ii) any merger or consolidation of the Company with or into another corporation, (iii) any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of the Company’s assets in one or more transactions, (iv) any, direct or indirect, purchase offer, tender offer or exchange offer is completed pursuant to which stockholders are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock of the Company, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination with another person whereby such other person acquires more than 50% of the outstanding shares of Common Stock of the Company.

 

Amendments. The Warrant provides that the terms of the Warrant may be amended only in a writing signed by the Company and Armistice.

 

The issuance of the Warrant is not expected to affect the rights of the Company’s existing security holders, other than with respect to potential dilution as a result of an increase in the number of shares of Common Stock outstanding if Armistice exercises the Warrant.

 

The foregoing summary of the Warrant does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Warrant, a copy of which is attached as Exhibit B to the Exchange Agreement, which is in turn attached as Appendix A hereto and is incorporated by reference herein.

 

Why does the Company Need Stockholder Approval?

 

Our Common Stock is listed on The NASDAQ Capital Market and, as such, we are subject to the NASDAQ Stock Market Rules. NASDAQ Stock Market Rule 5635(d) is referred to as the “NASDAQ 20% Rule.” In order to comply with the NASDAQ 20% Rule and to satisfy conditions under the Exchange Agreement, we are seeking stockholder approval for the Exchange Agreement Proposal.

 

The NASDAQ 20% Rule requires that an issuer obtain stockholder approval prior to certain issuances of common stock or securities convertible into or exchangeable for common stock at a price less than the “Minimum Price” of such securities if such issuance equals 20% or more of the common stock or voting power of the issuer outstanding before the transaction. The “Minimum Price” in the context of the Exchange Agreement Proposal means a price that is the lower of: (i) the closing price (as reflected on Nasdaq.com) immediately preceding the signing of the Exchange Agreement; or (ii) the average closing price of the common stock of the Company (as reflected on Nasdaq.com) for the five trading days immediately preceding the signing of the Exchange Agreement.

 

The aggregate number of shares of common stock and securities issuable upon the conversion or exercise of the Preferred Shares and the Warrant, as applicable, will exceed 20% of our outstanding common stock on the date before we close the transaction and could potentially be issued at a price less than the Minimum Price of the shares on the applicable date.

 

To meet the requirements of the NASDAQ 20% Rule, we need stockholder approval under the listing rules of NASDAQ to approve the Exchange Agreement Proposal and the issuances contemplated by the Exchange Agreement.

 

 

What is the Effect on Current Stockholders if the Exchange Agreement Proposal is Approved?

 

If stockholders approve the Exchange Agreement Proposal, the number of shares of common stock outstanding will be increased. As a result, our current stockholders (other than Armistice) will own a smaller percentage of the outstanding shares of common stock. However, based upon the Company’s capital structure as of December 31, 2018, the Exchange Transactions, including the retirement of the Note, will increase the net tangible book value per share of common stock and therefore, based on generally accepted accounting principles, will have an anti-dilutive impact on our current stockholders. After giving effect to the issuance by the Company of the securities to be issued in the Exchange Transactions at a price of $0.88 per share of common stock or preferred stock and warrant, our net tangible book value as of December 31, 2018 would have been approximately $4.7 million or $0.26 per share of common stock. This amount represents an immediate increase in net tangible book value of $0.29 per share to our current stockholders. The following table demonstrates the effect of the Exchange Transactions on our current stockholders:

 

Net tangible book value per share as of December 31, 2018		$	(0.03	)
Increase in net tangible book value per share attributable to the Exchange Transactions		$	0.29
Pro forma net tangible book value per share after the Exchange Transactions		$	0.26

 

The above table is based on 10,504,769 shares of common stock outstanding as of December 31, 2018, and:

 

What control will Armistice have over the Company if the Exchange Agreement Proposal is Approved?

 

If the Exchange Agreement Proposal is approved, Armistice will be entitled to hold at any time up to 40% of the outstanding shares of common stock of the Company, which means that Armistice could hold up to 40% of the voting power of the Company’s outstanding shares. As a result, while Armistice would not have de facto voting control, Armistice will be in a position to exercise significant influence over any vote of the Company’s stockholders and may also have greater influence over the Company in other matters.

 

Interests of Directors

 

Steven J. Boyd is the Chief Investment Officer and founder of Armistice. Following the issuance of the Note to Armistice, the Company expanded the size of its Board of Directors by two seats and anticipates electing Steven J. Boyd to fill one of the vacancies after the Annual Meeting, although the appointment of Mr. Boyd is not tied in any way to whether the Exchange Agreement Proposal is approved by the Company’s stockholders. The other vacancy was filled by Ketan B. Mehta.

 

Vote Required

 

Approval of the Exchange Agreement Proposal requires the affirmative vote of a majority of the total votes cast at the meeting. Abstentions and broker non-votes, if any, are not treated as votes cast, and therefore will have no effect on this proposal.

 

Recommendation

 

The Board recommends that stockholders vote “FOR” the approval of the Exchange Agreement Proposal.

 

Unless marked otherwise, proxies received will be voted “FOR” the approval of the Exchange Agreement Proposal.

 

 

 

PROPOSAL NO. 3 — RATIFICATION OF APPOINTMENT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

 

Our Audit Committee has appointed Plante Moran, Denver, Colorado, to serve as our independent registered public accounting firm for the fiscal year ending June 30, 2019. While our Board is solely responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm, our Board is requesting that the stockholders ratify this appointment. If the stockholders ratify this appointment, our Board, in its discretion, may appoint a different independent registered public accounting firm at any time during the year if it believes that doing so would be in the best interests of our stockholders. If the stockholders do not ratify this appointment, our Board may reconsider, but might not change, its appointment.

 

Effective October 1, 2018, EKS&H LLLP (“EKS&H”), the independent registered public accounting firm for the Company, combined with Plante Moran. As a result of this transaction, on October 19, 2018, the Company engaged Plante Moran as the new independent registered public accounting firm for the Company, and EKS&H resigned.

 

During the two most recent fiscal years ended June 30, 2018 and 2017, and through the subsequent interim period preceding the appointment of Plante Moran, there were no disagreements between the Company and EKS&H on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of EKS&H, would have caused them to make reference thereto in their reports on the Company’s financial statements for such years.

 

During the two most recent fiscal years ended June 30, 2018 and 2017 and through the subsequent interim period preceding the appointment of Plante Moran, there were no reportable events within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.

 

The audit reports of EKS&H on the Company’s financial statements for the years ended June 30, 2018 and 2017 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles, except the audit report of EKS&H on the Company’s financial statements for the year ended June 30, 2018 contained an explanatory paragraph indicating that there was substantial doubt about the ability of the Company to continue as a going concern.

 

During the two most recent fiscal years ended June 30, 2018 and 2017 and through the subsequent interim period preceding Plante Moran’s engagement, the Company did not consult with Plante Moran on either (1) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that may be rendered on the Company's financial statements, and Plante Moran did not provide either a written report or oral advice to the Company that Plante Moran concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (2) any matter that was either the subject of a disagreement, as defined in Item 304(a)(1)(iv) of Regulation S-K, or a reportable event, as defined in Item 304(a)(1)(v) of Regulation S-K.

 

The Company provided EKS&H a copy of the disclosures in this proxy statement, which were filed on October 22, 2018 in the Company’s Current Report on Form 8-K, and requested that EKS&H furnish it with a letter addressed to the Securities and Exchange Commission stating whether or not it agreed with the Company’s statements. A copy of the original letter filed on October 22, 2018 in the Company’s Current Report on Form 8-K is attached as Appendix B.

 

Representatives of Plante Moran are expected to be present at the annual meeting of stockholders.

 

The following table presents aggregate fees for professional services rendered by our previous independent registered public accounting firm, EKS&H, prior to its merger into Plante Moran, for the respective periods, all of which were approved by our full Board of Directors for fiscal 2017 and by the Audit Committee for fiscal 2018.

 

		Year Ended June 30,
		2018				2017
Audit fees (1)			223,000				132,000
Audit-related fees (2)			52,000				90,000
Tax fees (3)			-				-
Total Fees			275,000				222,000

 

 

(2) Audit-related fees for both fiscal year 2017 and 2018 were comprised of fees related to registration statements, including for our November 2016 public offering, our August 2017 private offering, our November 2017 S-3 filing and our March 2018 public offering, respectively.

 

(3) Tax fees are comprised of tax compliance, preparation and consultation fees.

 

 

Policy on Pre-Approval of Services of Independent Registered Public Accounting Firm

 

Our Audit Committee has responsibility for appointing, setting compensation and overseeing the work of the independent registered public accounting firm. In recognition of this responsibility, the Audit Committee pre-approves all audit and permissible non-audit services provided by the independent registered public accounting firm, although it has no written policy on this matter. Prior to engagement of the independent registered public accounting firm for the following year’s audit, management will submit to the Audit Committee for approval a description of services expected to be rendered during that year for each of following four categories of services:

 

Audit services include audit work performed in audit of the annual financial statements, review of quarterly financial statements, reading of annual, quarterly and current reports, as well as work that generally only the independent auditor can reasonably be expected to provide.

 

Audit-related services are for assurance and related services that are traditionally performed by the independent auditor, including the provisions of consents and comfort letters in connection with the filing of registration statements, due diligence related to mergers and acquisitions and special procedures required to meet certain regulatory requirements.

 

Tax services consist principally of assistance with tax compliance and reporting, as well as certain tax planning consultations.

 

Other services are those associated with services not captured in the other categories. We generally do not request such services from our independent auditor.

 

Prior to the engagement, the Audit Committee pre-approves these services by category of service. The fees are budgeted, and the Audit Committee requires the independent registered public accounting firm and management to report actual fees versus the budget periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval. In those instances, the Audit Committee requires specific pre-approval before engaging the independent registered public accounting firm.

 

Vote Required

 

Ratification of the appointment of Plante Moran as our independent registered public accounting firm requires the affirmative vote of a majority of the votes cast at the meeting. Abstentions and broker non-votes, if any, are not treated as votes cast, and therefore will have no effect on this proposal.

 

Recommendation

 

The Board unanimously recommends that stockholders vote FOR the ratification of the appointment of Plante Moran as our independent registered public accounting firm for the fiscal year ending June 30, 2019.

 

Unless marked otherwise, proxies received will be voted “FOR” the ratification of the appointment of Plante Moran as our independent registered public accounting firm for the fiscal year ending June 30, 2019.

 

 

PROPOSAL NO. 4 — ADJOURNMENT PROPOSAL

 

Overview

 

In order to ensure that approval of the Exchange Agreement Proposal is obtained, the Board wishes to seek approval of a proposal to adjourn the Annual Meeting, if necessary, to solicit more votes in favor of the Exchange Agreement Proposal.

 

Vote Required

 

Approval of the Adjournment Proposal requires the affirmative vote of the holders of a majority of the votes cast at the meeting. Abstentions and broker non-votes, if any, are not treated as votes cast, and therefore will have no effect on this proposal.

 

Recommendation

 

The Board recommends that stockholders vote “FOR” the Adjournment Proposal.

 

Unless marked otherwise, proxies received will be voted “FOR” the approval of the Adjournment Proposal.

 

 

CORPORATE GOVERNANCE

 

Information about the Board of Directors

 

Board Composition

 

Our Board of Directors currently consists of six members. Directors elected at this meeting and each subsequent annual meeting will be elected for one-year terms or until their successors are duly elected and qualified.

 

Joshua Disbrow has served as our Chief Executive Officer since April 2015 and as the Chairman of our Board since July 2016. Our Board does not currently have a policy on whether the same person should serve as both the Chief Executive Officer and Chairman of the Board or, if the roles are separate, whether the Chairman should be selected from the non-employee directors or should be an employee. The Board believes that it should have the flexibility to make these determinations at any given point in time in the way that it believes best to provide appropriate leadership for us at that time.

 

Selection of Nominees for our Board of Directors

 

To be considered as a director nominee, an individual must have, among other attributes: high personal and professional ethics, integrity and values; commitment to our Company and stockholders; an inquisitive and objective perspective and mature judgment; availability to perform all Board and committee responsibilities; and independence. In addition to these minimum requirements, our Board will evaluate whether the nominee’s skills are complementary to the existing directors’ skills and our Board’s need for operational, management, financial, international, industry-specific or other expertise. We do not have a specific written policy with regard to the consideration of diversity in identifying director nominees. We focus on identifying nominees with experience, qualifications, attributes and skills to work with the other directors to serve the long-term interests of our stockholders. All those matters being equal, we do and will consider diversity a positive additional characteristic in potential nominees.

 

In addition to candidates submitted by Board members, director nominees recommended by stockholders will be considered. Stockholder recommendations must be made in accordance with the procedures described in the section titled “Stockholder Proposals” below and will receive the same consideration that other nominees receive. All nominees are evaluated by our Board to determine whether they meet the minimum qualifications and whether they will satisfy our Board’s needs for specific expertise at that time.

 

No stockholder has nominated anyone for election as a director at this annual meeting.

 

Board Committees

 

Our Board has established an Audit Committee, Compensation Committee and Nominating and Governance Committee. Our Audit Committee consists of Mr. Donofrio (Chair), Mr. Cantrell and Mr. Dockery. Our Compensation Committee consists of Mr. Cantrell (Chair), Mr. Dockery and Mr. Donofrio. Our Nominating and Governance Committee consists of Mr. Dockery (Chair), Mr. Cantrell and Mr. Donofrio.

 

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://aytubio.com under the “Investor Relations—Corporate Governance” tab.

 

 

Audit Committee

 

Our Audit Committee consists of Mr. Donofrio (Chair), Mr. Cantrell and Mr. Dockery. The Audit Committee held four meetings during the year ended June 30, 2018. Each of Mr. Donofrio, Mr. Cantrell and Mr. Dockery satisfies the independence requirements of Rule 803(A)(2) of the NASDAQ listing rules and SEC Rule 10A-3. Our Audit Committee is responsible for, among other things:

 

● appointing, terminating, compensating, and overseeing the work of any accounting firm engaged to prepare or issue an audit report or other audit, review or attest services;

 

 

● handling such other matters that are specifically delegated to the Audit Committee by our board from time to time.

 

Our Board has determined that Mr. Donofrio qualifies as an audit committee financial expert, as defined in Item 407(d)(5) of Regulation S-K promulgated by the SEC. The designation does not impose on Mr. Donofrio any duties, obligations or liabilities that are greater than those generally imposed on members of our Audit Committee and our board of directors.

   

 

Compensation Committee

 

Our Compensation Committee consists of Mr. Cantrell (Chair), Mr. Dockery and Mr. Donofrio. The Compensation Committee held one meeting during the year ended June 30, 2018. Each of Mr. Cantrell, Mr. Dockery and Mr. Donofrio satisfies the independence requirements of the NASDAQ listing rules. Our Compensation Committee is responsible for, among other things:

 

 

● such other matters that are specifically delegated to the Compensation Committee by our board from time to time.

 

Pursuant to its written charter, our Compensation Committee has the authority to engage the services of outside advisors as it deems appropriate to assist it in the evaluation of the compensation of our directors, principal executive officer or other executive and non-executive officers, and in the fulfillment of its other duties. The Compensation Committee did not engage the services of outside advisors during fiscal year 2018. Additionally, our Compensation Committee has the authority to review and approve the compensation of our other officers and employees and may delegate its authority to review and approve the compensation of other non-executive officer employees to specified executive officers.

 

Nominating and Governance Committee

 

Our Nominating and Governance Committee consists of Mr. Dockery (Chair), Mr. Cantrell and Mr. Donofrio. The Nomination and Governance Committee did not hold any meetings during the year ended June 30, 2018. Each of Mr. Dockery, Mr. Cantrell and Mr. Donofrio satisfies the independence requirements of the NASDAQ listing rules. It is responsible for, among other things:

 

 

● generally advising our Board on corporate governance and related matters.

 

 

Risk Oversight

 

Our Board of Directors is responsible for our Company’s risk oversight. In fulfilling that role, our Board focuses on our general risk-management strategy and the most significant risks facing our Company, and ensures that risk-mitigation strategies are implemented by management. Our Compensation Committee oversees risks related to our compensation and benefit plans and policies to ensure sound pay practices that do not cause risks to arise that are reasonably likely to have a material adverse effect on our Company. Our Board seeks to minimize risks related to governance structure by implementing sound corporate governance principles and practices.

 

Family Relationships

 

Jarrett T. Disbrow, our Chief Operating Officer, is the brother of Joshua R. Disbrow, our Chief Executive Officer and a director. There are no other family relationships among or between any of our current or former executive officers and directors.

 

Executive Officers

 

Our executive officers are as follows:

 

Name		Age		Position
Joshua R. Disbrow		44		Chairman and Chief Executive Officer
Jarrett T. Disbrow		44		Chief Operating Officer
David A. Green		56		Chief Financial Officer, Secretary, and Treasurer

 

Biographical information regarding Joshua R. Disbrow is set forth above.

 

Jarrett T. Disbrow – Chief Operating Officer

 

Jarrett Disbrow has been employed by us since April 16, 2015. Prior to the closing of the Merger, Mr. Disbrow was the Chief Executive Officer of Vyrix Pharmaceuticals from November 2013. Mr. Disbrow joined Vyrix from Eurus Pharma LLC, or Eurus Pharma, where he held the position of general manager from 2011 to 2013. Prior to joining Eurus Pharma, Mr. Disbrow was the founder, president and chief executive officer of Arbor Pharmaceuticals, Inc., or Arbor Pharmaceuticals, from 2006 to 2010. Following Arbor Pharmaceuticals’ acquisition in 2010, Mr. Disbrow remained with the company as vice president of commercial development. Prior to founding Arbor Pharmaceuticals in 2006, he was head of marketing for Accentia Biopharmaceuticals, Inc. from 2002 to 2006. Mr. Disbrow began his career with GlaxoWellcome, Inc. (now GlaxoSmithKline plc) from 1997 to 2001, where he held positions of increasing responsibility in sales and later marketing. Mr. Disbrow received a BS in business management from North Carolina State University in Raleigh, NC. Mr. Disbrow served on our Board of Directors from April 2015 to July 2016.

 

David A. Green – Chief Financial Officer, Secretary and Treasurer

 

Mr. Green has served as our Chief Financial Officer, Secretary and Treasurer since December 18, 2017. Prior to joining the Company, Mr. Green served as Chief Accounting Officer from May 2016 until February 2017 at Intarcia Therapeutics, Inc., a biopharmaceutical company currently engaged in late stage clinical development. Mr. Green was a Consultant at DAG Advisors, a position he held October 2014 to May 2016. From February 2012 until October 2014, he was Chief Financial Officer of Catheter Connections, a commercial-stage medical device company that was acquired by Merit Medical. Preceding Catheter Connections, Mr. Green was CFO at Specialized Health Products International, a publicly traded medical device company that was acquired by C.R. Bard. Prior to his time serving in senior financial leadership roles at commercial-stage specialty life sciences companies, Mr. Green was a Managing Director at Duff & Phelps, a global investment banking and corporate finance advisory firm for nearly a decade. Mr. Green was also a founding member of Ernst & Young's Palo Alto Center for Strategic Transactions, where he advised the firm's clients on using strategic transactions to accelerate growth. Mr. Green earned a Bachelor of Science from the State University of New York, and a Master of Business Administration from the University of Rochester, and is a Certified Public Accountant.

 

 

Involvement in Certain Legal Proceedings

 

None of our directors or executive officers has been involved in any legal proceeding in the past 10 years that would require disclosure under Item 401(f) of Regulation S-K promulgated under the Securities Act.

 

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 Investors—Corporate Governance section of our website, http://aytubio.com.

 

Information Regarding Meetings of the Board

 

The business of our Company is under the general oversight of our Board of Directors as provided by the Delaware General Corporation Law and our bylaws. During the fiscal year ended June 30, 2018, our Board held 14 meetings and also conducted business by written consent. Except for Mr. Mehta, who joined in the Board in November 2018, each person who was a director during fiscal 2018 attended at least 75% of the Board meetings and the committees on which he served. We do not have a formal written policy with respect to Board members’ attendance at our annual meetings of stockholders, but we encourage them to do so.

 

We have not adopted a policy with regard to board members’ attendance at annual meetings of stockholders. Except for Mr. Mehta, who joined in the Board in November 2018, all of our directors attended our 2018 annual meeting of stockholders.

 

Director Independence 

  

Four of our six directors are independent under the NASDAQ listing rules. The other director, Joshua Disbrow, is not independent due to being an executive officer of our Company.

 

Stockholder Proposals and Communications with the Board

 

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 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.

 

There have been no changes to these nominating procedures since the adoption of the bylaws.

 

Stockholders who wish to communicate with our Board of Directors or with specified individual directors may do so directly by writing to:

 

Englewood, Colorado 80112

 

We will forward all communications from stockholders to our full Board of Directors, to non-management directors or to an individual director that is most closely related to the subject matter of the communication, except for the following types of communications: (i) communications that advocate that we engage in illegal activity; (ii) communications that, under community standards, contain offensive or abusive content; (iii) communications that have no relevance to our business or operations; and (iv) mass mailings, solicitations and advertisements. The Corporate Secretary will determine when a communication is not to be forwarded. Our acceptance and forwarding of communications to directors does not imply that directors owe or assume any fiduciary duties to persons submitting the communications.

 

 

DIRECTOR COMPENSATION

 

Our current compensation package for non-employee directors, effective July 1, 2017, consists of: an annual cash retainer of $40,000 for the board chair, $25,000 for each other director, $10,000 for each committee chair and $5,000 for each other committee member; a grant of 65,000 restricted shares of stock upon appointment to the board; and an annual stock option grant of 15,000 shares thereafter.

 

The following table provides information regarding all compensation paid to non-employee directors of our Company during the fiscal year ended June 30, 2018

 

Name		Fees Earnedor Paid inCash			All Other Compensation (1)						Total
Gary V. Cantrell (2)		$	45,000				$	101,000					$	146,000
Carl C. Dockery (2)		$	45,000				$	101,000					$	146,000
John A. Donofrio Jr (2)		$	45,000				$	101,000					$	146,000
Michael Macaluso (2)		$	25,000				$	101,000					$	126,000

 

(2) As of June 30, 2018, the number of restricted shares held by each non-employee director was as follows: 2,663 restricted shares for Mr. Cantrell; 2,663 restricted shares for Mr. Dockery; 2,663 restricted shares for Mr. Donofrio; and 2,663 restricted shares for Mr. Macaluso.

 

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 of Directors 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.

 

 

Summary Compensation Table

 

The following table sets forth all cash compensation earned, as well as certain other compensation paid or accrued for the years ended June 30, 2018 and 2017 to each of the following named executive officers.

 

							Change in Pension Value and
						Non-EquityIncentive	Nonqualified Deferred
				Stock	Option	Plan	Compensation	All Other
Name and Principal Position	Year	Salary ($)	Bonus ($)	Award ($)	Award ($)(1)	Compensation($)	Earnings($)	Compensation($)	Total($)
(a)	(b)	(c)	(d)	(e)	(f)	(g)	(h)	(i)	(j)
Named Executive Officers
Joshua R. Disbrow
Chief Executive Officer	2018	303,000	-	303,000	-	-	-	-	606,000
since December 2012	2017	250,000	-	614,000	189,000	-	-	-	1,053,000
Jarrett T. Disbrow
Chief Operating Officer, Secretary	2018	250,000	-	202,000	-	-	-	-	452,000
and Treasurer	2017	250,000	-	533,000	189,000	-	-	-	972,000
David A. Green (2)
Chief Financial Officer	2018	135,000	-	152,000	-	-	-	-	287,000
since December 2017	2017	-	-	-	-	-	-	-	-
Gregory A. Gould (3)
Chief Financial Officer	2018	96,000	-	-	-	-	-	-	96,000
2017		10,000	-	533,000	79,000	-	-	-	622,000

 

 

 

 

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 Aytu 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 the most beneficial to our Company and our shareholders. No interest is paid on amounts reimbursed to the executives.

 

In July 2016, our Board of Directors approved a common stock option repricing program whereby previously granted and unexercised options held by our then current employees, consultants and directors with exercise prices above $120.00 per share were repriced on a one-for-one basis to $64.60 per share which represented the per share fair value of our common stock as of the date of the repricing. There was no other modification to the vesting schedule of the previously issued options. As a result, 15,803 unexercised options originally granted to purchase common stock at prices ranging from $134.40 to $362.40 per share were repriced under this program.

 

In March 2017, our Board of Directors approved a common stock option repricing program whereby all previously granted and unexercised options were repriced on a one-for-one basis to $16.40 per share which represented the closing price of our common stock as of the date of the repricing. There was no other modification to the vesting schedule of the previously issued options. As a result, 36,834 unexercised options originally granted to purchase common stock at prices ranging from $64.60 to $1,051.20 per share were repriced under this program.

 

Outstanding Equity Awards

 

The following table contains certain information concerning outstanding equity awards for the named executive officers as of June 30, 2018.

 

		Option Awards																		Stock Awards
Name		Number of Securities Underlying Unexercised Options Exercisable (#)				Number of Securities Underlying Unexercised Options Unexercisable (#)				Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)				Option Exercise Price ($)				Option Expiration Date		Number of Shares or Units of Stock That Have Not Vested (#)				Market Value of Shares or Units of Stock That Have Not Vested ($) (1)				Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)				Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
Named Executive Officers
Joshua R. Disbrow			84				42				-			$	328.00			11/11/2025			7,975				2,074				-				-
Joshua R. Disbrow			50				100				-			$	328.00			7/7/2026			-				-				-				-
Jarrett T. Disbrow			83				42				-			$	328.00			11/11/2025			5,413				1,407				-				-
Jarrett T. Disbrow			50				100				-			$	328.00			7/7/2026			-				-				-				-
David A. Green			-				-				-			$	-						3,750				975				-				-
Gregory A. Gould			53				-				-			$	328.00			11/15/2019			-				-				-				-
Gregory A. Gould			21				-				-			$	328.00			11/15/2019			-				-				-				-

 

 

Employment Agreements

 

We have entered into an employment agreement with each of Joshua Disbrow and Jarrett Disbrow in connection with their employment as our Chief Executive Officer and Chief Operating Officer, respectively. Each agreement is for a term of 24 months beginning on April 16, 2017, subject to termination by us with or without Cause or as a result of officer’s disability, or by the officer with or without Good Reason (as discussed below). Each executive is entitled to receive $250,000 in annual salary subject to increases based upon recommendation from the compensation committee, plus a discretionary performance bonus with a target of 125% of his base salary. Each executive is also eligible to participate in the benefit plans maintained by us from time to time, subject to the terms and conditions of such plans.

 

We entered into an employment agreement with David Green, effective December 18, 2017, to serve as our Chief Financial Officer. The agreement is subject to termination by us with or without Cause (as defined below) or as a result of Mr. Green’s disability, or by Mr. Green with or without Good Reason (as defined below). Mr. Green is entitled to receive $250,000 in annual salary, plus a discretionary performance bonus with a target of 50% of his base salary, based on his individual achievements and company performance objectives established by the board or the compensation committee in consultation with Mr. Green. Mr. Green is also eligible to participate in the benefit plans maintained by us from time to time, subject to the terms and conditions of such plans.

 

Payments Provided Upon Termination for Good Reason or Without Cause

 

Pursuant to the employment agreements, in the event the officer’s 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 a lump sum payment equal to two times his base salary in effect at the date of termination, as well as continued participation in the health and welfare plans for up to two years. All vested stock options shall remain exercisable from the date of termination until the expiration date of the applicable award. So long as a Change in Control is not in effect, then all options which are unvested at the date of termination Without Cause or for Good Reason shall be accelerated as of the date of termination such that the number of option shares equal to 1/24th the number of option shares multiplied by the number of full months of such officer’s employment shall be deemed vested and immediately exercisable by the officer. Any unvested options over and above the foregoing shall be cancelled and of no further force or effect, and shall not be exercisable by such officer.

 

“Good Reason” with respect to the agreements means, without the officer’s written consent, there is:

 

● a material reduction in the officer’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 the officer’s responsibilities or authority);

 

● a material reduction of the level of the officer’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 certain specified amounts); or

 

● a material change in the principal geographic location at which the officer must perform his services.

 

“Cause” with respect to the agreements means:

 

● 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 a misdemeanor;

 

● willful malfeasance or willful misconduct by the officer in connection with his employment;

 

 

● willful and deliberate violation of any of our policies;

 

● unintended but material breach of any written policy applicable to all employees adopted by us which is not cured to the reasonable satisfaction of the board;

 

● unauthorized use or disclosure of any proprietary information or trade secrets of us or any other party as to which the officer owes an obligation of nondisclosure as a result of the officer’s relationship with us;

 

● willful and deliberate breach of his obligations under the employment agreement; or

 

● any other material breach by officer of any of his obligations which is not cured to the reasonable satisfaction of the board.

 

The severance benefits described above are contingent on each officer executing a general release of claims.

 

Payments Provided Upon a Change in Control

 

Pursuant to the employment agreements, in the event 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.

 

“Change in Control” means: the occurrence of any of the following events:

 

● the acquisition by any individual, entity, or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (the “Acquiring Person”), other than us, or any of our Subsidiaries, of beneficial ownership (within the meaning of Rule 13d-3- promulgated under the Exchange Act) of 50% or more of the combined voting power or economic interests of the then outstanding voting securities of us entitled to vote generally in the election of directors (excluding any issuance of securities by us in a transaction or series of transactions made principally for bona fide equity financing purposes); or

 

● the acquisition of us by another entity by means of any transaction or series of related transactions to which we are party (including, without limitation, any stock acquisition, reorganization, merger or consolidation but excluding any issuance of securities by us in a transaction or series of transactions made principally for bona fide equity financing purposes) other than a transaction or series of related transactions in which the holders of the voting securities of us outstanding immediately prior to such transaction or series of related transactions retain, immediately after such transaction or series of related transactions, as a result of shares in us held by such holders prior to such transaction or series of related transactions, at least a majority of the total voting power represented by the outstanding voting securities of us or such other surviving or resulting entity (or if we or such other surviving or resulting entity is a wholly-owned subsidiary immediately following such acquisition, its parent); or

 

● the sale or other disposition of all or substantially all of the assets of us in one transaction or series of related transactions.

 

Our only obligation to Joshua Disbrow and Jarrett Disbrow had a Change in Control occurred as of June 30, 2018, would have been the acceleration of the vesting of all options held by them at that date. On June 30, 2018, the closing price of our common stock was below the exercise price for all of the options held by Joshua Disbrow and Jarrett Disbrow and therefore there would have been no economic benefit to them upon the acceleration of vesting of those options.

 

David A. Green’s employment agreement may be terminated by the Company with or without Cause, as defined in the employment agreement, or as a result of employee’s Disability, as defined in the employment agreement, or by Mr. Green with or without Good Reason, as defined in the employment agreement. Pursuant to the terms of the employment agreement, if the Company ends the term for Cause, if Mr. Green resigns for reasons other than Good Reason, or if Mr. Green dies while employed by the Company, he will be entitled to his Accrued Compensation, as defined in the employment agreement. In the event the Company terminates Mr. Green’s employment without Cause, or because of Disability, or Mr. Green terminates employment with Good Reason, he shall be entitled to his Accrued Compensation, as defined in the employment agreement, and a lump sum equal to 100% of this base salary as well as continued participation in our health and welfare plans for up to twelve months. In addition, Mr. Green’s restricted shares shall vest in accordance with the terms of the restricted stock agreement.

 

The employment agreement further provides that, upon the occurrence of a Change of Control, as defined therein, all stock options, restricted stock and other stock-based grants issued to Mr. Green shall immediately and irrevocably vest and become exercisable upon the occurrence of a Change of Control.

 

 

STOCKHOLDER COMMUNICATIONS

 

Stockholders may send any communications regarding Company business to the Board in care of our Corporate Secretary at our principal executive offices located at 373 Inverness Parkway, Suite 206, Englewood, Colorado 80112. The Secretary will forward all such communications to the addressee.

 

AUDITOR MATTERS

 

Our Audit Committee has reviewed and discussed with management our audited financial statements for the fiscal year ended June 30, 2018, which were audited by EKS&H LLLP, our prior independent registered public accounting firm. Our Audit Committee discussed with EKS&H LLLP the matters required to be discussed pursuant to Auditing Standards 16, as amended (AICPA, Professional Standards, Vol. 1 AU Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. Our Audit Committee received the written disclosures and letter from the independent registered public accounting firm required by applicable requirements of the PCAOB regarding the independent registered public accounting firm’s communications with our Audit Committee concerning independence, and discussed with the independent registered public accounting firm the independent registered public accounting firm’s independence. Our Audit Committee also considered whether the provision of services other than the audit of our financial statements for the fiscal year ended June 30, 2018 were compatible with maintaining EKS&H LLLP’s independence.

 

Based on the review and discussions referred to in the foregoing paragraph, our Audit Committee approved the inclusion of the audited financial statements in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018 for filing with the SEC.

 

DEADLINE FOR STOCKHOLDER PROPOSALS FOR THE 2020 ANNUAL MEETING

 

Under our bylaws, stockholder proposals to be considered at our 2020 Annual Meeting must be received by us not less than 90 days nor more than 120 days prior to the first anniversary of the prior year’s annual meeting. However, 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, or if no annual meeting was held in the prior year, 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. Under SEC Rule 14a-8, in order for a stockholder proposal to be included in our proxy solicitation materials for our 2020 Annual Meeting of Stockholders, it must be delivered to our Corporate Secretary at our principal executive offices by November 2, 2019; provided, however, that if the date of the 2020 Annual Meeting is more than 30 days before or after the anniversary date of the 2019 annual meeting, notice by the stockholder must be delivered a reasonable time before the company begins to print and send its proxy materials. All submissions must comply with all of the requirements of our bylaws and Rule 14a-8 of the Exchange Act. Proposals should be mailed to David Green, Corporate Secretary, Aytu BioScience, Inc., 373 Inverness Parkway, Suite 206, Englewood, Colorado 80112.

 

COSTS OF PROXY SOLICITATION

 

Our directors, officers and employees may solicit proxies in person, by telephone, or by other means of communication. We will not pay our directors, officers and employees any additional compensation for soliciting proxies. In addition, we have engaged The Proxy Advisory Group, LLC to assist in the solicitation of proxies and provide related advice proxy process advice and informational support, for a services fee, plus the reimbursement of customary disbursements, which are not expected to exceed $15,000 in total.

 

DELIVERY OF DOCUMENTS TO STOCKHOLDERS SHARING AN ADDRESS

 

The SEC has adopted rules that permit companies to deliver a single copy of proxy materials to multiple stockholders sharing an address unless a company has received contrary instructions from one or more of the stockholders at that address. Upon request, we will promptly deliver a separate copy of proxy materials to one or more stockholders at a shared address to which a single copy of proxy materials was delivered. Stockholders may request a separate copy of proxy materials by contacting us either by calling (720) 437-6580 or by mailing a request to 373 Inverness Parkway, Suite 206, Englewood, Colorado 80112. Stockholders at a shared address who receive multiple copies of proxy materials may request to receive a single copy of proxy materials in the future in the same manner as described above.

 

 

ANNUAL REPORT ON FORM 10-K

 

Our Annual Report on Form 10-K for the fiscal year ended June 30, 2018 as filed with the SEC is accessible free of charge on its website at www.sec.gov. It contains audited financial statements covering the fiscal years ended June 30, 2018 and 2017. You can request a copy of our Annual Report on Form 10-K free of charge by calling (720) 437-6580 or by mailing a request to our Corporate Secretary, 373 Inverness Parkway, Suite 206, Englewood, Colorado 80112. Please include your contact information with the request.

 

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 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 were timely filed during fiscal 2018.

 

 

Appendix A

 

EXCHANGE AGREEMENT

 

 

 

Appendix B

 

AUDITOR LETTER

 

 

 

  

ANNUAL MEETING OF SHAREHOLDERS OF

AYTU BIOSCIENCE, INC.

April 12, 2019

 

PROXY VOTING INSTRUCTION

 

INTERNET - Access “www.proxyvote.com” and follow the on-screen instructions. Have your proxy card available when you access the web page.
TELEPHONE - Call toll-free 1-800-579-1639 in the United States from any touch-tone telephone and follow the instructions. Have your proxy card available when you call.		COMPANY NUMBER
Vote online/phone until 11:59 PM EDT the day before the meeting.		ACCOUNT NUMBER
MAIL - Sign, date and mail your proxy card in the envelope provided as soon as possible.
IN PERSON - You may vote your shares in person by attending the Annual Meeting.

 

IMPORTANT NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL FOR THE ANNUAL MEETING:   The Notice of Annual Meeting of Stockholders and Proxy Statement, and Annual Report on Form 10-K are available at www.proxyvote.com.

↓  Please detach along perforated line and mail in the envelope provided IF you are not voting via telephone or the Internet. ↓

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE NOMINEES IN PROPOSAL 1 AND “FOR” PROPOSALS 2, 3, AND 4.   PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE  ☒

 

1.	The election as director of the nominees listed below.

 

NOMINEES:	FOR	WITHHOLD
o    Joshua R. Disbrow	☐	☐
o    Gary V. Cantrell	☐	☐
o    Carl C. Dockery	☐	☐
o    John A. Donofrio Jr.	☐	☐
o    Michael Macaluso	☐	☐
o    Ketan B. Mehta	☐	☐

 

2.	The closing of the Exchange Transactions contemplated by the Exchange Agreement between the Company and Armistice Capital Master Fund Ltd., pursuant to which the Company will exchange the Promissory Note, dated November 29, 2018, issued by the Company to Armistice in the principal amount of $5,000,000 for: 3,120,064 shares of common stock of the Company, 2,751,148 shares of Series E Convertible Preferred Stock of the Company, and a Common Stock Purchase Warrant exercisable for 4,403,409 shares of common stock of the Company.		FOR ☐	AGAINST ☐	ABSTAIN ☐
3.	The ratification of Plante & Moran, PLLC as our independent registered public accounting firm for the fiscal year ending June 30, 2019.		FOR ☐	AGAINST ☐	ABSTAIN ☐
4.	The adjournment of the Annual Meeting, if necessary, to continue to solicit votes for the Exchange Agreement Proposal.		FOR ☐	AGAINST ☐	ABSTAIN ☐
The undersigned acknowledges receipt from the Company before the execution of this proxy of the Notice of Annual Meeting of Stockholders, a Proxy Statement for the Annual Meeting, the 2018 Annual Report and Annual Report on Form 10-K.

To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. ☐

 

Signature of Shareholder

Date:

Signature of Shareholder

Date:

 

Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.

 

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