Veru Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Subsequent Events

Subsequent Events

12 Months Ended

Sep. 30, 2016

Note 14.Subsequent Events

On October 31, 2016, the Company completed a merger transaction (the APP Merger) with Aspen Park Pharmaceuticals, Inc. (APP), pursuant to an Amended and Restated Agreement and Plan of Merger, dated as of October 31, 2016 (the Amended Merger Agreement), among the Company, Blue Hen Acquisition, Inc. and APP. Consummation of the APP Merger did not require the current approval of FHC's shareholders.

Under the terms of the Amended Merger Agreement, the outstanding shares of APP common stock and preferred stock were converted into the right to receive in the aggregate 2,000,000 shares of the Company's common stock and 546,756 shares of the Company's Class A Convertible Preferred Stock - Series 4 (the Series 4 Preferred Stock).

The terms of the Series 4 Preferred Stock include the following:

Each share of Series 4 Preferred Stock will automatically convert into 40 shares of the Company's common stock upon receipt by the Company of approval by the affirmative vote of the Company's shareholders by the required vote under the Wisconsin Business Corporation Law and the NASDAQ listing rules, as applicable, of (i) an amendment to the Company's Amended and Restated Articles of Incorporation to increase the total number of authorized shares of the Company's common stock by a sufficient amount to permit such conversion and (ii) the conversion of the Series 4 Preferred Stock pursuant to applicable NASDAQ rules.

Upon a Liquidation Event, the holders of the Series 4 Preferred Stock will be entitled to a liquidation preference equal to the greater of (a) $1.00 per share (or $546,756 in the aggregate for all of the shares of Series 4 Preferred Stock), or (b) the amount holders would have received if the Series 4 Preferred Stock had converted to the Company's common stock. A "Liquidation Event" includes any voluntary or involuntary liquidation, dissolution or winding up of the Company and certain transactions involving an acquisition of the Company (which are referred to as Fundamental Changes).

The Series 4 Preferred Stock is redeemable on the first to occur of (i) the 20th anniversary of the date of original issuance or (ii) a Fundamental Change, at a price equal to $1.00 per share, unless converted into the Company's common stock prior to such redemption.

The Series 4 Preferred Stock is senior to all existing and future classes of the Company's capital stock upon a Liquidation Event, and no senior or additional pari passu preferred stock may be issued without the consent of the holders of a majority of the outstanding shares of Series 4 Preferred Stock.

The Series 4 Preferred Stock participates in dividends paid to holders of the Company's common stock on an as converted basis.

The Series 4 Preferred Stock has one vote per share and will generally vote with the Company's common stock on a one share to one share basis

After giving effect to the conversion of the Series 4 Preferred Stock to the Company's common stock, which is wholly dependent upon future shareholder approval as described above, the former APP stockholders will own 23,870,249 shares of the Company's common stock in total, constituting approximately 45% of the outstanding shares of the Company's common stock as of October 31, 2016.

The total estimated purchase price of approximately $22,676,737 is based on the closing price of the Company's common stock of $0.95 per share on October 31, 2016 and the issuance to the APP stockholders of a total of 23,870,249 shares of the Company's common stock (assuming conversion of the Series 4 Preferred Stock).

The Company is currently in the process of determining the fair value of the assets acquired and liabilities assumed in the business combination.

The amounts of pro forma, unaudited net revenues and net income (loss) of the combined entity had the acquisition date been October 1, 2013 are as follows:


Period		Net revenues		Net income (loss)
October 1, 2013 - September 30, 2014*	$	24,490,586	$	2,388,785
October 1, 2014 – September 30, 2015	$	32,621,548	$	3,028,101
October 1, 2015 – September 30, 2016	$	22,143,411	$	(2,434,976)

*Includes the results for APP from the date of inception, June 9, 2014 through September 30, 2014.

In connection with the closing of the APP Merger, the Company issued a warrant to purchase up to 2,585,379 shares of the Company's common stock to Torreya Capital, the Company's financial advisor (the Financial Advisor Warrant). The Financial Advisor Warrant has a five-year term, a cashless exercise feature and a strike price equal to $1.93 per share, the average price of the Company's common stock for the ten-day period preceding the original announcement of the APP Merger on April 6, 2016. The fair value of the Financial Advisor Warrant is $723,906 based on the average closing price of the Company's common stock for the five days prior to October 31, 2016 of $1.02. The Financial Advisor Warrant was vested upon issuance.

In connection with the closing of the APP Merger, vesting was accelerated as to restricted stock and other stock awards covering a total of 221,549 shares held by certain members of the Company's board of directors and certain employees. The fair value of these awards is $210,472 based on the closing price of the Company’s common stock on October 31, 2016 of $0.95.

In connection with the closing of the APP Merger, the Company issued stock awards covering a total of 760,000 shares to a member of the Company's board of directors and a consultant. One-half of these stock awards consist of restricted stock and stock options which vest on the first anniversary of the grant date and the other half of these stock awards consist of restricted stock units and stock appreciation rights that vest on the second anniversary of the grant date. The restricted stock units and stock appreciation rights will be settled in the Company's common stock if, prior to the vesting date, the Company receives shareholder approval under the NASDAQ listing rules to (i) increase the number of authorized shares under the 2008 Stock Incentive Plan sufficient to issue such shares or (ii) adopt a new plan under which such shares would be issued. If such approval is not received by the vesting date, such awards will be settled in cash based on the fair market value of the Company's common stock on the vesting date in the case of the restricted stock units and on the exercise date in the case of the stock appreciation rights. The fair value of these awards is approximately $722,000 and they have a weighted average life of 5.75 years.

APP signed a lease for approximately 2,600 sq. ft. of office space in Miami, Florida with an effective date of November 1, 2016 and a three-year term ending November 1, 2019, with two renewal options for the Company to extend the term for a period of three years each. The lease requires monthly payments of $9,240, with a 4% annual increase, plus sales taxes.

In connection with the APP Merger, two complaints have been filed against the Company and its directors alleging breach of fiduciary duty and/or wasting of corporate assets. The Company intends to vigorously defend these lawsuits.