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TABLE OF CONTENTS
TABLE OF CONTENTS

As filed with the Securities and Exchange Commission on October 1, 2018.

Registration No. 333-227357


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



Amendment No. 1
to

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



Osmotica Pharmaceuticals plc
(Exact name of registrant as specified in its charter)

Ireland
(State or other jurisdiction of
incorporation or organization)
  2834
(Primary Standard Industrial
Classification Code Number)
  Not Applicable
(I.R.S. Employer
Identification Number)

400 Crossing Boulevard
Bridgewater, NJ 08807
(908) 809-1300

(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)



Brian Markison
Chief Executive Officer
400 Crossing Boulevard
Bridgewater, NJ 08807
(908) 809-1300

(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies to:

Craig E. Marcus
Ropes & Gray LLP
Prudential Tower
800 Boylston Street
Boston, MA 02199
(617) 951-7000

 

Marc. D. Jaffe
Ian D. Schuman
Latham & Watkins LLP
885 Third Avenue
New York, NY 10022-4834
(212) 906-1200



Approximate date of commencement of proposed sale to public:
As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.     o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer  o   Accelerated filer  o   Non-accelerated filer  ý   Smaller reporting company  ý

Emerging growth company  ý

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act.  ý



CALCULATION OF REGISTRATION FEE

               
 
Title of Each Class of Securities
to be Registered

  Amount to be
Registered(1)

  Proposed Maximum
Offering Price
Per Share

  Proposed Maximum
Aggregate Offering
Price(2)

  Amount of
Registration Fee(3)

 

Ordinary Shares, nominal value $0.01 per share

  9,545,000   $16.00   $152,720,000   $18,840

 

(1)
Includes 1,245,000 ordinary shares issuable upon exercise of the underwriters' option to purchase additional ordinary shares.

(2)
Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a) of the Securities Act of 1933, as amended, based upon an estimate of the maximum aggregate offering price.

(3)
$12,450 was previously paid.



The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion, dated October 1, 2018

PROSPECTUS

8,300,000 Shares

LOGO

Osmotica Pharmaceuticals plc

Ordinary Shares



This is the initial public offering of ordinary shares of Osmotica Pharmaceuticals plc. Osmotica Pharmaceuticals plc is offering 8,300,000 ordinary shares to be sold in the offering.



Prior to this offering, there has been no public market for our ordinary shares. The initial public offering price is expected to be between $14.00 and $16.00 per share. We have applied to list our ordinary shares on the Nasdaq Global Market under the symbol "OSMT."

We are an "emerging growth company" as defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, and will be subject to reduced public company reporting requirements. See "Prospectus Summary — Implications of Being an Emerging Growth Company."

Following this offering, we will be a "controlled company" within the meaning of the corporate governance standards of the Nasdaq Stock Market. See "Management — Board Structure and Committee Composition."



Investing in our ordinary shares involves risk. See "Risk Factors" beginning on page 14 to read about factors you should consider before buying our ordinary shares.


 
  Per Share   Total  

Initial public offering price

  $                $               

Underwriting discounts and commissions(1)

  $                $               

Proceeds, before expenses, to us

  $                $               

(1)
See "Underwriting" for additional information regarding underwriter compensation.

To the extent that the underwriters sell more than 8,300,000 ordinary shares, the underwriters have the option for a period of 30 days from the date of this prospectus to purchase up to an additional 1,245,000 ordinary shares from us at the initial public offering price less the underwriting discount.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver our ordinary shares on or about                        , 2018.



Jefferies   Barclays   RBC Capital Markets   Wells Fargo Securities

   

                                     , 2018


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TABLE OF CONTENTS

 
   
 

PROSPECTUS SUMMARY

    1  

RISK FACTORS

    14  

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

    66  

USE OF PROCEEDS

    68  

DIVIDEND POLICY

    69  

CAPITALIZATION

    70  

DILUTION

    72  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

    74  

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    77  

BUSINESS

    110  

MANAGEMENT

    147  

EXECUTIVE AND DIRECTOR COMPENSATION

    153  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

    166  

PRINCIPAL SHAREHOLDERS

    168  

DESCRIPTION OF CERTAIN INDEBTEDNESS

    170  

DESCRIPTION OF SHARE CAPITAL

    173  

SHARES ELIGIBLE FOR FUTURE SALE

    195  

MATERIAL TAX CONSIDERATIONS

    197  

UNDERWRITING

    206  

LEGAL MATTERS

    212  

EXPERTS

    212  

ENFORCEMENT OF CIVIL LIABILITIES

    213  

WHERE YOU CAN FIND MORE INFORMATION

    213  

INDEX TO FINANCIAL STATEMENTS

    F-1  

Neither we nor any of the underwriters has authorized any person to provide you with any information or represent anything about us or this offering that is not contained in this prospectus or in any free writing prospectus we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our ordinary shares and the information in any free writing prospectus that we may provide you in connection with this offering is accurate only as of the date of that free writing prospectus. Our business, financial condition, results of operations and future growth prospects may have changed since those dates.

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INDUSTRY TERMS

The following is a glossary of certain industry terms used throughout this prospectus:


INDUSTRY AND MARKET DATA

Certain market share, pricing and other industry information used throughout this prospectus is based on independent industry publications and surveys, reports by research firms, including IQVIA Holdings Inc., or IQVIA, public filings, other published independent sources and internal company sources. Some industry information is also based on our good faith estimates, which are derived from management's knowledge of,

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and experience in, our industry and the sources referred to above as well as information obtained from our customers, distributors, suppliers, trade and business organizations and other contacts in our industry. We believe these data to be accurate as of the date of this prospectus. However, this information may prove to be inaccurate because this information cannot always be verified with complete certainty due to the limitations on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties. Industry publications, reports and surveys generally state that the information contained therein has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. In addition, our estimates of addressable markets are based, in part, on these market data and our actual market opportunities may be materially less than these estimates.


TRADEMARKS AND TRADE NAMES

We own or have rights to trademarks or trade names that we use in conjunction with the operation of our business. In addition, our name, logo and website name and address are our service marks or trademarks. Each trademark, trade name or service mark by any other company appearing in this prospectus belongs to its holder. The trade names and trademarks that we use include ConZip®, Divigel®, Lorzone®, Ontinua™, Osmolex ER™, Osmodex® and OB Complete®. We also own or have the rights to copyrights that protect the content of our products. Solely for convenience, the trademarks, service marks and trade names referred to in this prospectus are listed without the ™, SM , ® and © symbols, but we will assert, to the fullest extent under applicable law, our rights to these trademarks, service marks, trade names and copyrights.


THE BUSINESS COMBINATION

On February 3, 2016, we consummated a series of transactions, which we refer to as the "Business Combination," to reorganize and combine the businesses of Osmotica Holdings Corp Limited and Vertical/Trigen Holdings, LLC, or Vertical/Trigen, under a new holding company, Osmotica Holdings S.C.Sp., a special limited partnership organized under the laws of Luxembourg, pursuant to the Business Combination Agreement, dated December 3, 2015, among Osmotica Holdings Corp Limited, the shareholders of Osmotica Holdings Corp Limited party thereto, Altchem Limited, Vertical/Trigen, the shareholders of Vertical/Trigen party thereto, Avista Capital Partners III GP, LP and Osmotica Holdings S.C.Sp.


THE REORGANIZATION

On April 30, 2018, Osmotica Holdings S.C.Sp. acquired Lilydale Limited, an Irish private company with limited liability that was organized in Ireland on July 13, 2017, and renamed such entity Osmotica Pharmaceuticals Limited effective May 1, 2018. On July 31, 2018, Osmotica Pharmaceuticals Limited re-registered under the Irish Companies Act of 2014 as a public limited company and was renamed Osmotica Pharmaceuticals plc. Immediately prior to this offering and prior to the commencement of trading of our ordinary shares on the Nasdaq Global Market, we will undertake a series of restructuring transactions that will result in Osmotica Pharmaceuticals plc becoming the direct parent company of Osmotica Holdings S.C.Sp., with each holder of common units of Osmotica Holdings S.C.Sp. receiving approximately 42.84 ordinary shares of Osmotica Pharmaceuticals plc in exchange for each such common unit. In addition, each holder of an option to purchase common units of Osmotica Holdings S.C.Sp. will receive an option to purchase the number of ordinary shares of Osmotica Pharmaceuticals plc determined by multiplying the number of units underlying such option by approximately 42.84 (rounded down to the nearest whole share) and dividing the exercise price per unit for such option by approximately 42.84 (rounded up to the nearest whole cent). We refer to these transactions as the "Reorganization" throughout this prospectus. Prior to the Reorganization, Osmotica Pharmaceuticals plc had no material assets and conducted no operations (other

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than activities incidental to its formation, the Reorganization and this offering). Upon the completion of the Reorganization, the historical consolidated financial statements of Osmotica Holdings S.C.Sp. included in this prospectus will become the historical financial statements of Osmotica Pharmaceuticals plc. Except as otherwise indicated, all information contained in this prospectus gives effect to the Reorganization.


PRESENTATION OF FINANCIAL INFORMATION

This prospectus includes audited consolidated financial statements of Osmotica Holdings S.C.Sp. as of and for the years ended December 31, 2017 and 2016 and unaudited condensed consolidated financial statements of Osmotica Holdings S.C.Sp. as of and for the six months ended June 30, 2018 and 2017, each prepared in accordance with accounting principles generally accepted in the United States, or GAAP, except for the omission of comparative information as of and for the year ended December 31, 2015. In accordance with GAAP, Vertical/Trigen was the accounting acquirer in the Business Combination and, as such, is treated as our predecessor and therefore the financial information presented through February 2, 2016 only includes the operating results of Vertical/Trigen. The historical financial information presented in this prospectus subsequent to February 2, 2016 is of Osmotica Holdings S.C.Sp., which includes the operating results of both Vertical/Trigen and Osmotica Holdings Corp Limited.

In addition, this prospectus includes audited financial statements of Osmotica Pharmaceuticals Limited (formerly known as Lilydale Limited) which consist of a balance sheet as of March 31, 2018 and statements of changes in equity for the period July 13, 2017 (date of incorporation) through December 31, 2017 and unaudited condensed financial statements which consist of an unaudited condensed balance sheet as of June 30, 2018 and an unaudited condensed statement of changes in equity and unaudited condensed statement of cash flows for the six months in the period ended June 30, 2018. We acquired Lilydale Limited on April 30, 2018 and renamed it, effective May 1, 2018, Osmotica Pharmaceuticals Limited for purposes of facilitating this offering. On July 31, 2018, Osmotica Pharmaceuticals Limited re-registered under the Irish Companies Act of 2014 as a public limited company and was renamed Osmotica Pharmaceuticals plc. Prior to consummation of the Reorganization, Osmotica Pharmaceuticals plc had no material assets and conducted no operations other than activities incidental to its formation, the Reorganization and this offering. Upon consummation of the Reorganization, the historical financial statements of Osmotica Holdings S.C.Sp. included in this prospectus will become the historical financial statements of Osmotica Pharmaceuticals plc.


FOR INVESTORS OUTSIDE THE UNITED STATES

We and the underwriters are offering to sell, and seeking offers to buy, our ordinary shares only in jurisdictions where offers and sales are permitted. Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of our ordinary shares and the distribution of this prospectus outside of the United States.

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PROSPECTUS SUMMARY

This summary highlights information appearing elsewhere in this prospectus. This summary is not complete and does not contain all of the information that you should consider before investing in our ordinary shares. You should carefully read the entire prospectus, including the historical financial statements and related notes included elsewhere in this prospectus and the sections entitled "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements," before deciding whether to invest in our ordinary shares. Unless otherwise indicated or the context otherwise requires, references to "we," "us," "our," "Osmotica" or the "company" refer to (i) prior to the completion of the Reorganization, Osmotica Holdings S.C.Sp. and its consolidated subsidiaries, including from and after April 30, 2018, Osmotica Pharmaceuticals plc, and (ii) following the completion of the Reorganization, Osmotica Pharmaceuticals plc and its consolidated subsidiaries, including Osmotica Holdings S.C.Sp. All information in this prospectus assumes no exercise of the underwriters' option to purchase additional shares, unless otherwise noted.

Our Company

We are a fully integrated biopharmaceutical company focused on the development and commercialization of specialty products that target markets with underserved patient populations. In 2017, we generated total revenues of $245.7 million across our existing portfolio of promoted specialty neurology and women's health products, as well as our non-promoted products, which are primarily complex formulations of generic drugs. We plan to expand our presence selectively into adjacent diseases and therapeutic areas, such as multiple sclerosis and ophthalmology, for which we currently have two NDA candidates in Phase III clinical trials: Ontinua ER for muscle spasticity in multiple sclerosis patients, and RVL-1201 for blepharoptosis, or droopy eyelid. Many of our products use our proprietary osmotic-release drug delivery system, Osmodex, which we believe offers advantages over alternative extended-release, or ER, technologies.

Our core competencies span drug development, manufacturing and commercialization. Our specialized neurology and women's health sales teams support the ongoing commercialization of our existing promoted product portfolio as well as the launch of new products. As of June 30, 2018, we actively promoted five products: M-72 (methylphenidate hydrochloride extended-release tablets, 72 mg), Lorzone (chlorzoxazone scored tablets) and ConZip (tramadol hydrochloride extended-release capsules) in specialty neurology; and OB Complete, our family of prescription prenatal dietary supplements, and Divigel (estradiol gel, 0.1%) in women's health. We most recently launched M-72 in the second quarter of 2018, and we expect to launch Osmolex ER (amantadine extended-release tablets), which was approved by the FDA on February 16, 2018, in the second half of 2018. We also sell a portfolio consisting of approximately 35 non-promoted products, highlighted by methylphenidate ER (methylphenidate hydrochloride extended-release tablets), which has generated strong cash flow. The cash flow from these non-promoted products has contributed to our robust investments in research and development and business development activities. Many of our existing products benefit from several potential barriers to entry, including intellectual property protection, formulation and manufacturing complexities, data exclusivity, as well as DEA regulation and quotas for active pharmaceutical ingredients, or API. Certain of our key products, particularly those that incorporate our proprietary Osmodex drug delivery system, are or are expected to be manufactured in our Marietta, Georgia facility.

We are focused on progressing our pipeline, which is highlighted by two Phase III candidates under clinical development — Ontinua ER (arbaclofen extended-release tablets) and RVL-1201 (oxymetazoline hydrochloride ophthalmic solution, 0.1%). We developed Ontinua ER using our proprietary Osmodex drug delivery system and believe this formulation will provide an efficacious and safe treatment for muscle spasticity in multiple sclerosis patients. Ontinua ER has been designated by the FDA as an Orphan Drug in this indication. We are also exploring opportunities for Ontinua ER in additional indications, such as opioid and alcohol use disorders. We acquired the rights to RVL-1201 in 2017 and are conducting a second Phase III clinical trial of RVL-1201 for blepharoptosis, or droopy eyelid. If approved, RVL-1201 would be

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the first non-surgical treatment option approved by the FDA for droopy eyelid. We plan to invest selectively in expanding our product portfolio by leveraging both our proprietary Osmodex drug delivery system to develop differentiated products as well as our management team's operating experience to pursue external business development opportunities.

Led by our Chief Executive Officer, Brian Markison, our management team has a proven track record of value creation in the pharmaceutical industry. For the year ended December 31, 2017 and the six months ended June 30, 2018, we generated total revenues of $245.7 million and $131.7 million, net loss of $45.2 million and net income of $1.4 million and adjusted EBITDA of $99.1 million and $55.1 million, respectively. Additional information regarding adjusted EBITDA, including a reconciliation of adjusted EBITDA to net income (loss), is included in " — Summary Financial Data."

Our Strengths

We believe our principal competitive strengths include:

Diversified Portfolio of Pharmaceutical Products.     We sell an attractive and diversified portfolio of five promoted products and approximately 35 non-promoted products. Through our specialized sales teams we promote a portfolio of specialty neurology and women's health products that we believe are differentiated from competing products and provide meaningful benefits to patients due to their formulation or pharmacokinetic profiles. In addition, we believe that our promoted products are protected by a combination of patent protection, data exclusivity and our proprietary formulation and manufacturing know-how. Our key non-promoted products are comprised of complex formulations of generic drugs that incorporate our proprietary Osmodex drug delivery system.

Efficient Research and Development Organization Generating a Targeted Pipeline.     We have a history of developing commercially successful pharmaceutical products. As of June 30, 2018, we employed 99 professionals with extensive regulatory and drug development experience in our research and development organization. We also had 37 U.S. patents, 125 patents outside the United States and 28 pending patent applications, the last of which expires in 2037. Our pipeline is highlighted by two NDA candidates in Phase III clinical trials: Ontinua ER, which we are evaluating for the alleviation of signs and symptoms of spasticity resulting from multiple sclerosis, particularly for the relief of flexor spasms and concomitant pain, clonus and muscular rigidity; and RVL-1201, which we are studying for the treatment of blepharoptosis. We expect to receive the data from our Phase III clinical trial of Ontinua ER by the middle of 2019, and, if positive, we would expect to submit this information to complete our NDA by the end of 2019. We believe Ontinua ER's formulation will provide an efficacious and safe treatment for muscle spasticity in multiple sclerosis patients. For RVL-1201, we expect to receive the data from our second Phase III clinical trial by early 2019, and, if positive, we expect to submit an NDA by mid-2019. If approved, RVL-1201 would be the first non-surgical treatment option approved by the FDA for blepharoptosis.

Demonstrated Commercialization Capabilities.     We have built a robust infrastructure for the commercialization of our pharmaceutical products. Our sales force is comprised of two dedicated teams that totaled 162 professionals as of June 30, 2018. With our specialized sales teams, we target approximately 18,000 physicians across the specialty neurology and women's health therapeutic areas. Our non-promoted products are supported by a team with extensive experience commercializing generic products in attractive markets.

Experience Driving Patient Access in Order to Facilitate Penetration of Key Markets.     We support patients' access to our medications through careful research and a deep understanding of the changing reimbursement landscape. We have developed robust capabilities across the market access continuum underscored by successful payor contracting strategies and supplemental patient assistance programs. Patient access is central to the commercialization strategy for our recent and near-term product launches.

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We expect that our pricing of these products will facilitate strong managed-care coverage and reimbursement, which we believe will improve patient access to our products.

Product Portfolio and Pipeline That Benefit from Multiple Potential Barriers to Entry.     Many of our existing products benefit from several potential barriers to entry, including intellectual property protection, formulation and manufacturing complexities, data exclusivity, as well as DEA regulation and quotas for API. Our proprietary Osmodex drug delivery system uses osmotic pressure to provide a controlled drug release and is adaptable to many different combinations of immediate-release, extended-release and controlled- or delayed-release formulations that contain one or more drugs. We seek to identify and develop drug candidates that are well-suited to our proprietary Osmodex drug delivery system, which we believe can deliver a differentiated and favorable pharmacokinetic profile and may provide meaningful benefits to patients. We believe that third parties attempting to compete with our products that use our proprietary Osmodex drug delivery system may face difficulties in developing a comparable product. Likewise, we believe that formulation complexities and manufacturing challenges limit the number of viable competitors in the markets for our key generic products.

Strong Cash Flow from Existing Product Portfolio Enhances Research and Development Investment and Opportunistic Business Development Activities.     Our current commercial success and historical cash flow generation allow us to invest in our pipeline to support the next stage of our growth. Additionally, we opportunistically pursue strategic acquisitions and business development initiatives to augment our internal development pipeline.

Experienced and Accomplished Management Team with a Proven Track Record.     Our management team brings a wealth of experience navigating changes in the pharmaceutical industry and delivering financial success. Led by our Chief Executive Officer, Brian Markison, our management team possesses expertise in many areas of the pharmaceutical industry, including drug development, manufacturing, commercial operations and finance.

Our Strategy

Our goal is to become a leading biopharmaceutical company by developing and commercializing drugs with significant market opportunities, meaningful potential barriers to entry and long product life cycles. Our strategy to achieve this goal is focused on the following:

Target Specialty Therapeutic Markets.     We intend to continue developing innovative products targeting specialty markets with underserved patient populations that we believe we can commercialize efficiently. We may expand into additional specialty markets where we believe there are attractive opportunities to use our expertise and proprietary Osmodex drug delivery system to develop and commercialize differentiated products.

Grow Our Existing Product Sales.     We plan to leverage our existing sales force to grow our promoted product portfolio and support the recent launch of M-72 and the targeted launch of Osmolex ER in the second half of 2018. We anticipate opportunistically expanding our sales force to support future growth and focus on products, such as M-72 and Osmolex ER, where we believe there is an attractive market. We intend to support our non-promoted products through our national account team that manages relationships with major drug-buying consortia, pharmaceutical wholesalers and retailers in the United States.

Successfully Develop Our Late-Stage Product Candidates.     We are focused on advancing the development of our late-stage clinical programs to further diversify our revenue base and sustain our future growth. We believe Ontinua ER represents an attractive product candidate with an addressable multiple sclerosis spasticity market of up to $3.5 billion in the United States. If successfully developed and approved, we believe that RVL-1201 would become the first pharmacological treatment for blepharoptosis in the United States and would represent an important therapy in the continuum of care for patients with mild or

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moderate blepharoptosis. Our research and development efforts also include activities related to seeking additional indications for Ontinua ER.

Expand Our Pipeline by Leveraging Our Proprietary Technology to Develop Differentiated Products.     We plan to expand our pipeline of product candidates through the application of our technology, research infrastructure and development expertise. Our research and development efforts are focused on identifying commercially viable products that are well suited to benefit from our proprietary Osmodex drug delivery system. Our technology is designed to produce an extended-release formulation with a differentiated pharmacokinetic profile that we believe can, in certain circumstances, meaningfully improve upon the efficacy or side effect profiles of currently approved therapies. We plan to continue to apply our drug development criteria to make capital efficient investments in promising product candidates.

Opportunistically Acquire or In-License Rights to Clinically Differentiated Products, Pipeline Candidates or Technologies.     We seek to selectively acquire or in-license approved products and late-stage product candidates that complement our existing product portfolio, pipeline, technology or commercial infrastructure. Our management team has a history of successfully executing and integrating product and company acquisitions.

Our Technology

Osmodex: Our Proprietary Drug Delivery System

Our technology allows us to manufacture tablets with one or more active drugs, and in combinations of immediate-release, controlled-release, delayed-release and extended-release, or ER. We believe that our proprietary Osmodex drug delivery system is well-suited to address certain limitations of existing therapies that have less than optimal efficacy or unfavorable side effect profiles as a result of formulation, pharmacokinetic profiles or other complexities. However, whether our proprietary Osmodex drug delivery system will suitably be paired with a given API is not certain or predictable. Each successful pairing that we have achieved in the past was the result of rigorous research, development and innovation. With that approach, our research and development team has led the successful clinical development of approved NDAs incorporating our proprietary Osmodex drug delivery system, including Allegra D (pseudoephedrine and H1 antagonist), venlafaxine extended-release tablets (VERT), Khedezla (desvenlafaxine extended-release tablets) and Osmolex ER.

We believe that brands using osmotic extended-release technology can benefit from longer life cycles as compared to brands delivered in conventional extended-release dosage forms due to the complexities of mimicking extended-release profiles of products using osmotic technologies. Moreover, we believe there are only a limited number of competitors with experience using osmotic technology. Given these dynamics, we estimate, based on market research, that osmotic extended-release brands have generally retained higher market share following loss of exclusivity as compared to other ER brands. We further estimate that generic versions of osmotic extended-release brands have tended to exhibit greater price stability as compared to generic versions of other extended-release branded formulations, as pricing declines over time.

Our Portfolio

As of June 30, 2018, we sell a diverse portfolio consisting of five promoted products and approximately 35 non-promoted products, several of which incorporate our proprietary Osmodex drug delivery system. We recently launched M-72 and received FDA approval for Osmolex ER, which we expect to launch in the second half of 2018. We also have a robust development pipeline that is highlighted by two NDA candidates in Phase III clinical trials, one of which we believe has the potential for indication expansion over time. Our non-promoted product portfolio includes methylphenidate ER and VERT as well as smaller volume ANDAs and prescription dietary supplements. Our non-promoted pipeline includes 17 products in various stages of development.

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Many of our existing products benefit from several potential barriers to entry, including intellectual property protection, formulation and manufacturing complexities, data exclusivity, as well as DEA regulation and quotas for API. The following table shows our promoted and non-promoted product portfolio.

Promoted Products
  Indication   Osmodex
Technology
  U.S. Regulatory
Status
Specialty Neurology            

M-72

  ADHD in patients aged 13 to 65   Yes   Approved

Osmolex ER

  Parkinson's and drug-induced extrapyramidal reactions in adults   Yes   Approved

Lorzone

  Muscle spasms   No   Approved

ConZip

  Pain   No   Approved

Ontinua ER

  Multiple sclerosis spasticity   Yes   Phase III

  Opioid use disorder and alcohol use disorder   Yes   Phase II Ready

Women's Health

 

 

 

 

 

 

Divigel

  Menopause   No   Approved

OB Complete

  Various dietary needs during prenatal, pregnancy and postnatal periods   No   Dietary Supplement
Ophthalmology            

RVL-1201

  Blepharoptosis (droopy eyelid)   No   Phase III

 

Non-Promoted Products
  Indication   Osmodex
Technology
  U.S. Regulatory
Status

Methylphenidate ER

  ADHD   Yes   Approved

Venlafaxine ER tablets (VERT)

  Major Depressive Disorder and Social Anxiety Disorder   Yes   Approved

Hydromorphone ER

  Pain   Yes   Approved

Nifedipine ER*

  Hypertension   Yes   Approved

Sodium Benzoate / Sodium Phenylacetate

  Hyperammonemia   No   Approved

Oxybutynin ER*

  Overactive bladder   Yes   Approved

Prescription Prenatal Vitamins

  Nutritional requirements during pregnancy   No   Dietary Supplement

Osmodex ANDAs

  Various   Yes   In Development (4)

Other ANDAs

  Various   No   Filed (9)
In Development (4)
Approved (1)

*
Out-licensed ANDAs with a commercial partner.

Reorganization and Our Structure

On April 30, 2018, Osmotica Holdings S.C.Sp. acquired Lilydale Limited, an Irish private company with limited liability that was organized in Ireland on July 13, 2017, and renamed such entity Osmotica Pharmaceuticals Limited, effective May 1, 2018. On July 31, 2018, Osmotica Pharmaceuticals Limited re-registered under the Irish Companies Act of 2014 as a public limited company and was renamed Osmotica Pharmaceuticals plc. In addition, immediately prior to this offering and prior to the commencement of trading of our ordinary shares on the Nasdaq Global Market, we will undertake a series of restructuring transactions that will result in Osmotica Pharmaceuticals plc becoming the direct parent company of Osmotica Holdings S.C.Sp., with each holder of common units of Osmotica Holdings S.C.Sp. receiving approximately 42.84 ordinary shares of Osmotica Pharmaceuticals plc in exchange for each such common unit. In addition, each holder of an option to purchase common units of Osmotica Holdings S.C.Sp. will receive an option to purchase the number of ordinary shares of Osmotica Pharmaceuticals plc determined by multiplying the number of units underlying such option by approximately 42.84 (rounded down to the nearest whole share) and dividing the exercise price per unit for such option by approximately 42.84 (rounded up to the nearest whole cent). We refer to these transactions as the "Reorganization" throughout this prospectus. Until the Reorganization, Osmotica Pharmaceuticals plc will not conduct any operations

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(other than activities incidental to its formation, the Reorganization and this offering). Upon the completion of the Reorganization, the historical consolidated financial statements of Osmotica Holdings S.C.Sp. included in this prospectus will become the historical financial statements of Osmotica Pharmaceuticals plc. Except as otherwise indicated, all information contained in this prospectus gives effect to the Reorganization.

Risk Factors

An investment in our ordinary shares involves a high degree of risk. Any of the facts set forth under "Risk Factors" may limit our ability to successfully execute on our business strategy. You should carefully consider all of the information set forth in this prospectus and, in particular, should evaluate the specific factors set forth under the heading "Risk Factors," beginning on page 14 of this prospectus, prior to making an investment in our ordinary shares. These risks include, among others, the following:

    §
    we may not be able to successfully develop or commercialize new products or do so on a timely or cost-effective basis;

    §
    we depend on a limited number of products and our business could be materially adversely affected if one or more of our key products do not perform as well as expected;

    §
    our profitability depends on our major customers, and if our relationships with them do not continue as expected, our business, prospects and results of operations could materially suffer;

    §
    we are, and will continue to be in the future, a party to legal proceedings that could result in adverse outcomes;

    §
    as of June 30, 2018, we had total outstanding indebtedness of approximately $324.2 million (excluding original issue discount or upfront payments), and we had unused commitments of $50.0 million, under our senior secured credit facilities. Our substantial debt could adversely affect our liquidity and our ability to raise additional capital to fund operations and could limit our ability to pursue our growth strategy or react to changes in the economy or our industry;

    §
    our competitors and other third parties may allege that we are infringing their intellectual property, forcing us to expend substantial resources in resulting litigation, and any unfavorable outcome of such litigation could have a material adverse effect on our business;

    §
    we may experience failures of or delays in clinical trials which could jeopardize or delay our ability to obtain regulatory approval and commence product sales;

    §
    we face intense competition from both brand and generic companies which could limit our growth and adversely affect our financial results;

    §
    we are subject to extensive governmental regulation and we face significant uncertainties and potentially significant costs associated with our efforts to comply with applicable regulations;

    §
    we may not be able to develop or maintain our sales capabilities or effectively market or sell our products;

    §
    manufacturing or quality control problems may damage our reputation, require costly remedial activities or otherwise negatively impact our business;

    §
    our profitability depends on coverage and reimbursement by third-party payors, and healthcare reform and other future legislation may lead to reductions in coverage or reimbursement levels; and

    §
    we will be a "controlled company" within the meaning of the rules of the Nasdaq Stock Market and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements and you will not have the same protections afforded to shareholders of companies that are subject to such requirements. In addition, upon completion of this offering, investment funds affiliated with Avista Capital Partners, or Avista, and affiliates of Altchem Limited, or Altchem, will continue to have significant influence over us and will be able to strongly influence or effectively control our business and affairs, including the election of all members of our board of directors, which could limit your ability to influence the outcome of key transactions, including a change of control.

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Our Principal Shareholders

Following the closing of this offering, Avista and Altchem together will continue to own a majority of our outstanding ordinary shares. We expect that following this offering Avista will own approximately 38.0% of our outstanding ordinary shares, or 37.1% if the underwriters exercise their option to purchase additional shares in full, and Altchem will own approximately 41.9% of our outstanding ordinary shares, or 40.9% if the underwriters exercise their option to purchase additional shares in full. As a result, Avista and Altchem, who we refer to as our Sponsors, will be able to exert significant voting influence over fundamental and significant corporate matters and transactions. See "Risk Factors — Risks related to our ordinary shares and this offering — The Sponsors will continue to have significant influence over us after this offering, including control over decisions that require the approval of shareholders, which could limit your ability to influence the outcome of matters submitted to shareholders for a vote." See also "Principal Shareholders."

Founded in 2005, Avista Capital Partners is a leading New York-based private equity firm with approximately $4 billion invested in more than 30 growth-oriented healthcare businesses. Avista Capital Partners targets businesses with strong management teams, stable cash flows and robust growth prospects and utilizes a proactive, hands-on approach to create value in its portfolio companies. Avista Capital Partners' operating executives and advisors are an integral part of the team, providing strategic insight, operational oversight and senior counsel, that help drive growth and performance to create long-term value and sustainable businesses.

Altchem Limited is a holding company organized under the laws of Cyprus. Since its formation in 2011 by an Argentine family, Altchem Limited held a controlling interest in Osmotica Holdings Corp Limited until the Business Combination. With more than 30 years of experience in the pharmaceutical industry, Altchem Limited's founders have held interests in pharmaceutical companies in several regions of the world.

Implications of Being an Emerging Growth Company

As a company with less than $1.07 billion in total annual gross revenues during our most recently completed fiscal year, we qualify as an "emerging growth company" as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include:

    §
    reduced disclosure about our executive compensation arrangements;

    §
    no non-binding shareholder advisory votes on executive compensation;

    §
    exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting; and

    §
    reduced disclosure of financial information in this prospectus, including only two years of audited financial information and two years of selected financial information.

We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.07 billion in total annual gross revenues as of the end of any fiscal year, if we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission, or SEC, or if we issue more than $1 billion of non-convertible debt during a three-year period.

The JOBS Act permits an emerging growth company to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to "opt out" of this provision, and this decision is irrevocable.

Corporate Information

Our principal executive offices are located at 400 Crossing Boulevard, Bridgewater, New Jersey 08807, and our registered office in Ireland is 25-28 North Wall Quay, Dublin 1, Ireland and our telephone number is (908) 809-1300. Our website address is www.osmotica.com. The information that appears on, or that can be accessed through, our website is not part of, and is not incorporated into, this prospectus, and you should not rely on any such information in making the decision whether to purchase our ordinary shares.

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THE OFFERING

Ordinary shares offered by us

  8,300,000 shares (or 9,545,000 shares if the underwriters exercise the option to purchase additional shares in full).

Underwriters' option to purchase additional shares

 

We have granted the underwriters a 30-day option from the date of this prospectus to purchase up to an additional 1,245,000 shares.

Ordinary shares to be outstanding after this offering

 

51,157,139 shares (or 52,402,139 shares if the underwriters exercise the option to purchase additional shares in full). See "Description of Share Capital."

Use of proceeds

 

We expect to receive net proceeds, after deducting underwriting discounts and commissions and estimated expenses payable by us, of approximately $111.3 million (or approximately $128.7 million if the underwriters exercise their option to purchase additional shares in full), based on an assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover of this prospectus.

 

We intend to use the net proceeds from the sale of our ordinary shares in this offering to repay $100.0 million in aggregate principal amount of indebtedness under our senior secured credit facilities, to pay fees and expenses associated with this offering and for working capital and other general corporate purposes. See "Use of Proceeds."

Dividend policy

 

Our board of directors does not currently intend to pay dividends on our ordinary shares. See "Dividend Policy."

Principal shareholders

 

Upon completion of this offering, Avista and Altchem will continue to hold a controlling interest in us. As a result, we will be a "controlled company" within the meaning of the corporate governance standards of the Nasdaq Stock Market. See "Management — Board Structure and Committee Composition."

Risk factors

 

Investing in our ordinary shares involves a high degree of risk. You should read carefully the "Risk Factors" section of this prospectus, beginning on page 14, for a discussion of factors that you should consider before deciding whether to invest in our ordinary shares.

Proposed stock exchange symbol

 

"OSMT."

Except as otherwise indicated, the number of our ordinary shares to be outstanding after this offering is based on 42,857,139 shares outstanding as of September 30, 2018, after giving effect to the Reorganization. Except as otherwise indicated, the number of our ordinary shares to be outstanding after this offering excludes:

    §
    3,015,572 ordinary shares issuable upon exercise of options issued and outstanding as of September 30, 2018 under the Amended and Restated Osmotica Pharmaceuticals plc 2016 Equity Incentive Plan, or the 2016 Plan, at a weighted-average exercise price of $14.96 per share; and

    §
    4,100,000 ordinary shares reserved for issuance under the Osmotica Pharmaceuticals plc 2018 Incentive Plan, or the 2018 Plan.

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SUMMARY FINANCIAL DATA

The following table sets forth our summary financial data as of the dates and for the periods indicated. The statement of operations data for the six months ended June 30, 2018 and 2017 and the consolidated balance sheet data as of June 30, 2018 presented below have been derived from the unaudited condensed consolidated financial statements of Osmotica Holdings S.C.Sp. included elsewhere in this prospectus. The statement of operations data for the years ended December 31, 2017 and 2016 and the balance sheet data as of December 31, 2017 presented below have been derived from the audited consolidated financial statements of Osmotica Holdings S.C.Sp. included elsewhere in this prospectus. Immediately prior to this offering, we will undertake a series of restructuring transactions that will result in Osmotica Pharmaceuticals plc becoming the direct parent company of Osmotica Holdings S.C.Sp., with all holders of equity interests in Osmotica Holdings S.C.Sp. becoming securityholders of Osmotica Pharmaceuticals plc. Prior to the Reorganization, Osmotica Pharmaceuticals plc had no material assets and conducted no operations (other than activities incidental to its formation, the Reorganization and this offering). Upon the completion of the Reorganization, the historical consolidated financial statements of Osmotica Holdings S.C.Sp. included in this prospectus will become the historical financial statements of Osmotica Pharmaceuticals plc. See "The Reorganization."

This summary financial data should be read in conjunction with the disclosures set forth under "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes thereto appearing elsewhere in this prospectus. Certain amounts have been subject to immaterial rounding adjustments for consistency of presentation within the following tables and, as a result, do not match the corresponding amounts in our consolidated financial statements included elsewhere in this prospectus.

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  Years ended December 31  
 
  Six months ended June 30,  
 
   
  2016 (1)
(restated)
 
 
  2018   2017   2017  
 
  (in thousands, except share and per share data)
 

Revenues

                         

Net product sales

  $ 130,820   $ 108,225   $ 237,671   $ 170,522  

Royalty revenue

    752     6,207     6,449     40,918  

Licensing and contract revenue

    88     1,243     1,629     7,019  

Total revenues

    131,660     115,675     245,749     218,459  

Cost of goods sold

    67,138     55,900     125,188     125,616  

Gross profit

    64,522     59,775     120,561     92,843  

Selling, general and administrative expenses

    33,839     28,042     56,955     65,958  

Acquisition-related costs

                8,398  

Research and development expenses

    19,141     11,695     42,688     29,061  

Impairment of intangible assets

        41,700     72,520     21,475  

Impairment of fixed assets

            466      

Total operating expenses

    52,980     81,437     172,629     124,892  

Operating income (loss)

    11,542     (21,662 )   (52,068 )   (32,049 )

Interest expense and amortization of debt discount

    (10,084 )   (14,419 )   (29,052 )   (20,187 )

Other non-operating (loss) income, net

    447     1,282     (4,522 )   169  

Total other non-operating expenses, net          

    (9,637 )   (13,137 )   (33,574 )   (20,018 )

Income (loss) before income taxes

    1,905     (34,799 )   (85,642 )   (52,067 )

Income tax (expense) benefit

    (490 )   4,739     40,487     10,246  

Net income (loss)

  $ 1,415   $ (30,060 ) $ (45,155 ) $ (41,821 )

Net income (loss) per share:

                         

Basic

  $ 1.41   $ (30.05 ) $ (45.14 ) $ (41.81 )

Diluted

  $ 1.32   $ (30.05 ) $ (45.14 ) $ (41.81 )

Weighted-average ordinary shares:

                         

Basic

    1,000,515     1,000,315     1,000,367     1,000,159  

Diluted

    1,070,613     1,000,315     1,000,367     1,000,159  

Pro forma net income (loss) per share (2) :

                         

Basic

  $ 0.09         $ (0.86 )      

Diluted

  $ 0.08         $ (0.86 )      

Pro forma weighted-average ordinary shares (2) :

                         

Basic

    42,857,139           42,850,799        

Diluted

    45,859,792           42,850,799        

Other Financial Data

                         

Adjusted EBITDA (3)

  $ 55,136   $ 48,153   $ 99,132   $ 43,081  

 


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  As of June 30, 2018  
 
  Actual   Pro forma (4)   Pro forma
as
adjusted (4)
 
 
  (dollars in thousands)
 

Consolidated balance sheet data

                   

Cash and cash equivalents

  $ 28,408   $ 28,408   $ 39,693  

Total assets

    858,300     858,300     869,585  

Total long-term debt, current and non-current, net (5)

    318,037     318,037     219,939  

Capital lease obligations, current and non-current

    287     287     287  

Total liabilities

    438,708     438,708     340,157  

Total equity

  $ 419,592   $ 419,592   $ 529,428  

(1)
The historical financial information presented in this prospectus subsequent to February 2, 2016 is of Osmotica Holdings S.C.Sp., which includes the operating results of Vertical/Trigen and Osmotica Holdings Corp Limited. For the period beginning January 1, 2016 to February 2, 2016, the historical financial information presented in this prospectus reflects the operating results of Vertical/Trigen, our predecessor, only. The historical financial information for the year ended December 31, 2016 has been derived from consolidated financial statements that have been restated to reflect corrections primarily related to business combinations involving Osmotica Holdings Corp Limited and its subsidiaries. See Note 1, Organization and Nature of Operations to our consolidated financial statements included elsewhere in this prospectus. Our financial results reflect the termination of our license agreement with UCB, Inc., or UCB, and the resulting reacquisition of the marketing and distribution rights for VERT on November 10, 2016. As a result, during 2016, most of our revenue from VERT was derived from royalties received pursuant to that license agreement. Following the reacquisition of the marketing and distribution rights, we recognized revenue and associated expenses from net product sales of VERT.

(2)
Pro forma net income (loss) assumes $100.0 million of the net offering proceeds are used to redeem a portion of our term loans based on an assumed initial public offering price of $15.00 per share (the midpoint of the price range set forth on the cover of this prospectus) and assumes a reduction of interest expense, net of tax, of approximately $2.1 million for the six months ended June 30, 2018 and $7.6 million for the year ended December 31, 2017 related to such redemption, assuming that the offering and the related application of net proceeds was completed on January 1, 2017. Pro forma net loss per ordinary share and number of ordinary shares gives effect to the Reorganization as described under "The Reorganization" in the prospectus summary, immediately prior to the consummation of this offering and the sale of 8,300,000 ordinary shares in this offering at an assumed initial public offering price of $15.00 per share (the midpoint of the price range set forth on the cover of this prospectus).


The following is a reconciliation of historical net income (loss) to pro forma net income (loss) for the six months ended June 30, 2018 and for the year ended December 31, 2017:
 
   
  Six months ended
June 30, 2018
  Year ended
December 31, 2017
 

Net income (loss) as reported

  $ 1,415   $ (45,155 )

Management fees (a)

    396     632  

Decrease in interest expense (b)

    2,050     7,591  

Decrease in debt extinguishment expense

        173  

Pro forma net income (loss)

  $ 3,861   $ (36,759 )

 
 

(a)

  Reflects the elimination of the management fees paid to the Sponsors pursuant to the advisory services and monitoring agreement for the periods presented. See "Certain Relationships and Related Party Transactions — Advisory Services and Monitoring Agreement."  

(b)

  Reflects the net adjustment to interest expense resulting from the repayment of $100.0 million in aggregate principal amount of indebtedness under our senior secured credit facilities. As of June 30, 2018, the LIBOR rate margin for the Term A Loan and Term B Loan was 3.75% and 4.25%, respectively. To the extent our total leverage ratio, as defined in our senior secured credit facilities, is equal to or less than 2.00 to 1.00 following the consummation of this offering and the application of the net proceeds therefrom, the LIBOR rate margin on the Term A Loan would be reduced to 3.25%. Our senior secured credit facilities also permit us, at our option, to use the net proceeds of this offering to repay the Term B Loan without making a corresponding prepayment of the Term A Loan, to the extent our total leverage ratio, as defined in our senior secured credit facilities, is equal to or less than 2.00 to 1.00 following the consummation of this offering and the application of the net proceeds therefrom. See "Description of Certain Indebtedness."  
(3)
To supplement our financial information presented in accordance with GAAP, we use adjusted EBITDA to clarify and enhance an understanding of the historical results of our business. We believe that the presentation of adjusted EBITDA enhances an investor's understanding of our financial performance. We further believe that adjusted EBITDA is a useful financial metric to assess our operating performance from period to period by excluding certain items that we believe are not representative of our core business and provides investors with a useful tool for assessing the comparability between periods as a result of the

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    Business Combination. We use adjusted EBITDA for business planning purposes, in assessing our performance and determining the compensation of substantially all of our employees, including our executive officers, and in measuring our performance relative to that of our competitors.


We believe that adjusted EBITDA is commonly used by investors to evaluate our performance and that of our competitors. However, our definition of adjusted EBITDA may vary from that of others in our industry and, as a result, may not be comparable to similarly titled measures of other companies. Adjusted EBITDA as presented in this prospectus is a supplemental measure of our performance that is not required by, or presented in accordance with, GAAP. Adjusted EBITDA should not be considered as an alternative to net loss or any other performance measure derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of our liquidity.


EBITDA consists of net income (loss) attributable to us before interest, taxes, depreciation and amortization. Adjusted EBITDA consists of EBITDA adjusted for (i) non-operating income or expense, and (ii) the impact of certain non-cash, nonrecurring or other items that are included in net income (loss) and EBITDA that we do not consider indicative of our ongoing operating performance. We believe that making such adjustments provides investors meaningful information to understand our operating results and analyze financial and business trends on a period-to-period basis.


In calculating adjusted EBITDA, we add back certain non-cash, nonrecurring and other items and make certain adjustments that are based on assumptions and estimates. In addition, in evaluating our adjusted EBITDA, you should be aware that in the future we may incur expenses similar to those eliminated in this presentation. Our presentation of adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.


Adjusted EBITDA has important limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
§
adjusted EBITDA:
does not reflect the significant interest expense on our debt;
does not reflect changes in, or cash requirements for, our working capital needs;
does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; and
is not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;
§
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements; and
§
other companies in our industry may calculate adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.


Because of these limitations, adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using adjusted EBITDA only supplementally. See the consolidated financial statements included elsewhere in this prospectus for our GAAP results.

The following table provides a reconciliation of our net income (loss) to adjusted EBITDA for the periods presented:


 
   
   
  Years ended
December 31
 
 
  Six months ended
June 30
 
 
   
  2016
(restated)
 
 
  2018   2017   2017  
 
  (in thousands)
 

Net income (loss)

  $ 1,415   $ (30,060 ) $ (45,155 ) $ (41,821 )

Interest expense and amortization of debt discount

    10,084     14,420     29,052     20,187  

Income tax provision (benefit)

    490     (4,739 )   (40,487 )   (10,246 )

Depreciation

    2,192     1,157     3,069     2,115  

Amortization

    38,675     14,013     43,381     21,470  

EBITDA

    52,856     (5,209 ) $ (10,140 ) $ (8,295 )

Impairment of long-lived assets

        41,700     72,986     21,475  

Write-off of acquired RevitaLid IPR&D (a)

            16,372      

Management fees (b)

    520     500     1,000     1,000  

Consulting fees

        276     552     506  

Loss on extinguishment of debt and fees (c)

            5,371      

Acquired inventory step-up in cost of goods sold (d)

        9,175     9,175     9,783  

API inventory disposal (e)

            468      

Legal and contractual settlements and litigation reserves (f)

    332     1,052     1,550     4,200  

Severance expense (g)

    484     81     589     3,205  

Write-off of previously acquired balances (h)

        578     1,209      

Business acquisition and development related costs (i)

                8,915  

Incentive unit liability expense (j)

                1,159  

Other legacy Osmotica expenses (k)

                1,133  

IPO expenses (l)

    944              

Adjusted EBITDA

  $ 55,136   $ 48,153   $ 99,132   $ 43,081  

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    (a)
    Acquired in-process research and development (IPR&D) of RevitaLid, Inc. with no alternative future use expensed as research and development during the year ended December 31, 2017.

    (b)
    Includes quarterly advisory and monitoring fees of $0.25 million payable to affiliates of the Sponsors.

    (c)
    Deferred financing fees of $5.0 million and $0.4 million of third-party fees expensed in connection with entering into an amendment to our senior secured credit facilities on December 21, 2017.

    (d)
    Adjustment related to acquired VERT inventory, which was recorded above the cost that would have otherwise been recognized by us had such inventory been manufactured or purchased in the ordinary course of business, sold and expensed as cost of goods in 2016 and 2017. This adjustment included a one-time non-cash allocation of the purchase price for the reacquisition of marketing and distribution rights for VERT.

    (e)
    One-time disposal of desvenlafaxine inventory.

    (f)
    The $1.6 million and $0.3 million represent litigation and related amounts expensed during the year ended December 31, 2017 and the six month period ended June 30, 2018, respectively, including $0.5 million and $0.3 million related to a settlement of a contract dispute during the year ended December 31, 2017 and the six month period ended June 30, 2018, respectively. The $4.2 million represents a settlement payment related to labeling, marketing and promotion of one of our discontinued prescription prenatal dietary supplements expensed during the year ended December 31, 2016 and the $1.1 million represents related legal fees expensed during the six month period ended June 30, 2017.

    (g)
    Severance of $0.6 million and $0.5 million relate to sales force realignment and related costs expensed during the year ended December 31, 2017 and six months ended June 30, 2018, respectively. $3.2 million of severance was paid during the year ended December 31, 2016 in connection with the Business Combination.

    (h)
    Write-off of balances of certain assets acquired and liabilities assumed in the Business Combination.

    (i)
    Acquisition costs for the Business Combination of $8.4 million and costs for other business development projects of $0.5 million.

    (j)
    Compensation cost related to the equity unit awards granted under the Vertical/Trigen 2013 Equity Incentive Plan, which were replaced with awards under our 2016 Equity Incentive Plan in connection with the Business Combination.

    (k)
    Various one-time expenses incurred by Osmotica Holdings Corp Limited prior to the Business Combination, including $0.4 million of charitable contributions, $0.4 million of limited liability company expenses, $0.2 million of Cyprus board of directors expenses and other expenses.

    (l)
    Incremental non-recurring organizational costs related to this offering, which were expensed as incurred.

(4)
The pro forma balance sheet information as of June 30, 2018 gives effect to the Reorganization. The pro forma as adjusted balance sheet information as of June 30, 2018 gives effect to (a) the Reorganization and (b) the issuance of ordinary shares in the offering at an initial public offering price of $15.00 per share, the midpoint of the range set forth on the cover of this prospectus, and the application of the net proceeds therefrom as described in "Use of Proceeds."

(5)
In connection with the Business Combination, we entered into our senior secured credit facilities providing for a $160.0 million term loan. We amended our senior secured credit facilities in 2016 in conjunction with the reacquisition of the marketing and distribution rights for VERT. Pursuant to the amendment, certain lenders agreed to make an incremental term loan in the aggregate principal amount of $117.5 million, which was added to the principal amount of our outstanding term loan. On December 21, 2017, we amended our senior secured credit facilities to increase the principal amount of the term loan to an aggregate principal amount of $327.5 million, the proceeds of which, together with cash on hand, were used to repay certain indebtedness. Of the aggregate principal amount, $277.5 million was designated as the Term A Loan and $50.0 million was designated as the Term B Loan. Amounts presented are net of deferred financing fees of $6.9 million. See "Description of Certain Indebtedness — Senior Secured Credit Facilities."

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RISK FACTORS

This offering and investing in our ordinary shares involves a high degree of risk. You should carefully consider the risks and uncertainties described below together with all of the other information contained in this prospectus, including our consolidated financial statements and the related notes appearing at the end of this prospectus, before deciding whether to invest in our ordinary shares. We have presented the below risks as "Risks related to our business," "Risks related to our industry," "Risks related to our indebtedness," "Risks related to our ordinary shares and this offering," "Risks related to being an Irish corporation listing ordinary shares" and "Risks related to taxation." If any of the following risks actually occurs, our business, prospects, operating results and financial condition could suffer materially. The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial also may materially and adversely affect our business, prospects, operating results or financial condition. In any such a case, the trading price of our ordinary shares could decline and you could lose all or part of your investment.

Risks related to our business

If we are unable to successfully develop or commercialize new products, or to do so on a timely or cost-effective basis, or to extend life cycles of existing products, our operating results will suffer.

Developing and commercializing a new product is time consuming and costly and is subject to numerous factors that may delay or prevent development and commercialization. Our future results of operations will depend to a significant extent upon our ability to successfully gain FDA approval of and commercialize new products in a timely and cost-effective manner. There are numerous difficulties in developing and commercializing new products, including:

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    the ability to develop products in a timely and cost-effective manner and in compliance with regulatory requirements;

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    the success of the pre-clinical and clinical testing processes to assure that new products are safe and effective or chemically identical and bioequivalent to the branded reference listed drug;

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    the risk that any of our products presently under development, if and when fully developed and tested, will not perform as expected;

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    delays or unanticipated costs, including delays associated with the completion of clinical trials for our branded products;

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    delays associated with FDA registration, listing and approval processes and the ability to obtain in a timely manner, and maintain, required regulatory approvals;

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    legal actions against our generic products brought by brand competitors, and legal challenges to our branded products or branded product intellectual property;

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    the availability, on commercially reasonable terms, of raw materials, including active pharmaceutical ingredients, or API, and other key ingredients;

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    our ability to scale-up manufacturing methods to successfully manufacture commercial quantities of products in compliance with regulatory requirements; and

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    acceptance of our products by physicians, patients, payors and the healthcare community.

As a result of these and other difficulties, products currently in development may or may not receive necessary regulatory approvals on a timely basis or at all and we may not succeed in effectively managing our development costs. Further, if we are required by the FDA or any equivalent foreign regulatory authority to complete clinical trials in addition to those we currently expect to conduct, or to repeat a clinical trial that has already been completed, or if there are any delays in completing preclinical studies, filing an investigational new drug application, or IND, or completing clinical trials, our expenses could increase. This risk exists particularly with respect to the introduction of branded products because of the uncertainties, higher costs and lengthy time frames associated with research and development of such products and the inherent unproven market acceptance of such products.

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In addition, more than 60% of our total revenues in 2017 and nearly 80% of our total revenues in the first six months of 2018 were generated by our generic products. Our future profitability depends, in part, upon our ability to introduce, on a timely basis, new generic products. The timeliness of our product introductions is dependent upon, among other things, the timing of regulatory approval of our products, which to a large extent is outside of our control, as well as the timing of competing products. As additional suppliers introduce comparable generic pharmaceutical products, price competition intensifies, market access narrows and product sales prices and gross profit percentage decline, often significantly and rapidly. Accordingly, our total revenues and future profitability are dependent, in part, upon our ability or the ability of our development partners to file ANDAs with the FDA and gain approvals timely and effectively or to enter into contractual relationships with other parties that have obtained marketing exclusivity. No assurances can be given that we will be able to develop and introduce successful products in the future within the time constraints necessary to be successful. If we or our development partners are unable to continue to timely and effectively file ANDAs with the FDA or to partner with other parties that have obtained marketing exclusivity, our total revenues, gross profit percentage and operating results may decline significantly and our prospects and business may be materially adversely affected.

If any of our products, when acquired or developed and approved, cannot be successfully or timely commercialized, our operating results could be adversely affected. We cannot guarantee that any investment we make in developing products will be recouped, even if we are successful in commercializing those products.

We expend a significant amount of resources on research and development, including milestones on in-licensed products, which may not lead to successful product introductions.

Much of our development effort is focused on technically difficult-to-formulate products or products that require advanced manufacturing technology. We expend resources on research and development primarily to enable us to manufacture and market FDA-approved products in accordance with FDA regulations. Typically, research expenses related to the development of innovative compounds and the filing of NDAs are significantly greater than those expenses associated with ANDAs. We spent $42.7 million and $19.1 million on research and development expenses in 2017 and the first six months of 2018, respectively. We have entered into, and may in the future enter into, agreements that require us to make significant milestone payments upon achievement of various research and development events and regulatory approvals. As we continue to develop and in-license new products, we will likely incur increased research, development and licensing expenses. Because of the inherent risk associated with research and development efforts in our industry, particularly with respect to new drugs, our research and development expenditures may not result in the successful introduction of new FDA-approved products. Also, after we or our development partners submit an ANDA or NDA, the FDA may request that we conduct additional bioequivalence studies for an ANDA or additional clinical trials for an NDA. As a result, we may be unable to reasonably determine the total research and development costs required to develop a particular product. Finally, we cannot be certain that any investment made in developing products will be recovered, even if we are successful in commercializing the product. To the extent that we expend significant resources on research and development efforts and are not ultimately able to introduce successful new products as a result of those efforts or cost-effectively commercialize new products, our business, financial position and results of operations may be materially adversely affected.

Failures of or delays in clinical trials are common and have many causes, and such failures or delays could result in increased costs to us and could prevent or delay our ability to obtain regulatory approval and commence product sales for new products. We may also find it difficult to enroll patients in our clinical trials, which could delay or prevent development of our product candidates.

We may experience failures of or delays in clinical trials of our product candidates. Our planned clinical trials may not begin on time, have an effective design, enroll a sufficient number of patients or be completed on schedule, if at all. Our clinical trials may fail or be delayed for a variety of reasons, including,

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among others: delays in obtaining regulatory approval to commence a trial; delays in reaching agreement with the FDA or equivalent foreign regulatory authorities on final trial design; imposition of a clinical hold for safety reasons or following an inspection of our clinical trial operations or trial sites by the FDA or other regulatory authorities; delays in reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, or failure by such CROs to carry out the clinical trial at each site in accordance with the terms of our agreements with them; delays in obtaining required institutional review board, or IRB, approval at each site; difficulties or delays in having patients complete participation in a trial or return for post-treatment follow-up, or clinical sites electing to terminate their participation in one of our clinical trials, which would likely have a detrimental effect on subject enrollment; time required to add new clinical sites; or delays or failure by us or our contract manufacturers to produce and deliver sufficient supply of clinical trial materials.

In addition, identifying and qualifying patients to participate in clinical trials of our product candidates is critical to our success. The timing of our clinical trials depends on the speed at which we can recruit patients to participate in testing our product candidates as well as completion of required follow-up periods. We may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics or to complete our clinical trials, in a timely manner. Patient enrollment and completion of the trials is affected by factors including: the severity of the disease under investigation; the design of the trial protocol; the size of the patient population; the eligibility criteria for the trial in question; the perceived risks and benefits of the product candidate under trial; the proximity and availability of clinical trial sites for prospective patients; the availability of competing therapies and clinical trials; efforts to facilitate timely enrollment in clinical trials; patient referral practices of physicians; and the ability to monitor patients adequately during and after treatment.

If we are unable to initiate or complete our planned clinical trials or any such clinical trial is delayed for any of the above reasons or other reasons, our development costs may increase, our regulatory approval process could fail or be delayed and our ability to commercialize and commence sales of our product candidates could be materially harmed, which could have a material adverse effect on our business.

The testing required for the regulatory approval of our products is conducted primarily by independent third parties. Any failure by any of these third parties to perform this testing properly and in a timely manner may have an adverse effect upon our ability to obtain regulatory approvals.

Our applications for the regulatory approval of our products, including both internally developed and in-licensed products, incorporate the results of testing and other information that is conducted or gathered primarily by independent third parties (including, for example, manufacturers of raw materials, testing laboratories, CROs or independent research facilities). Our ability to obtain and maintain regulatory approval of the products being tested is dependent, in part, upon the quality of the work performed by these third parties, the quality of the third parties' facilities and the accuracy of the information provided by third parties. Our control over any of these factors may be limited. We rely on these parties for execution of our preclinical studies and clinical trials, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards and our reliance on the CROs does not relieve us of all of our regulatory responsibilities. We and our CROs are required to comply with FDA laws and regulations regarding current good clinical practice, or GCP, which are also required by the Competent Authorities of the Member States of the European Economic Area and comparable foreign regulatory authorities in the form of International Conference on Harmonization, or ICH, guidelines for all of our products in clinical development. Regulatory authorities enforce GCP through periodic inspections of trial sponsors, principal investigators and trial sites.

If we or any of our CROs fail to comply with applicable GCP, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We also rely on contract

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laboratories and other third parties, such as CROs, to conduct or otherwise support our nonclinical laboratory studies properly and on time, which are subject to good laboratory practice, or GLP, requirements. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with applicable GCP and GLP regulations. In addition, our clinical trials must be conducted with products produced under the FDA's Current Good Manufacturing Practice, or cGMP, regulations. While we have agreements governing activities of our CROs, we have limited influence over their actual performance. In addition, portions of the clinical trials for our product candidates may be conducted outside of the United States, which will make it more difficult for us to monitor CROs and perform visits of our clinical trial sites and will force us to rely heavily on CROs to ensure the proper and timely conduct of our clinical trials and compliance with applicable regulations, including GCP and GLP requirements.

If testing of our product candidates is not performed properly, or if the FDA or any equivalent foreign regulatory authority finds that the clinical trials are deficient, we may be required to repeat the clinical trials or to conduct additional clinical trials, which would result in additional expenses and may adversely affect our ability to obtain or maintain regulatory approvals. As a result, our ability to launch or continue selling products could be denied, restricted or delayed.

Our products or product candidates may cause adverse effects or have other properties that could delay or prevent their regulatory approval or limit the scope of any approved package insert or market acceptance, or result in significant negative consequences following marketing approval.

Treatment with our products or product candidates may produce undesirable side effects or adverse reactions or events. Although many of our products or product candidates contain active ingredients that have already been approved, meaning that the side effects arising from the use of the active ingredient or class of drug in our products or product candidates is generally known, our products or product candidates may still cause undesirable or unknown side effects. These could be attributed to the active ingredient or class of drug or to our unique formulation of such products or product candidates, or other potentially harmful characteristics. Such characteristics could cause us, our IRBs, clinical trial sites, the FDA or other regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay, denial or withdrawal of regulatory approval, which may harm our business, financial condition and prospects significantly.

Further, if any of our products cause serious or unexpected side effects after receiving market approval, a number of potentially significant negative consequences could result. For example, regulatory authorities may withdraw their approval of the product or impose restrictions on its distribution, the FDA may require implementation of risk evaluation and mitigation strategies, or REMS, regulatory authorities may require the addition of labeling statements, such as warnings or contraindications, we may be required to change the way the product is administered or conduct additional clinical studies, we could be sued and held liable for harm caused to patients, and our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product or product candidate and could substantially increase the costs of commercializing our products and product candidates.

If our products or product candidates do not produce the effects intended or if they cause undesirable side effects, our business may suffer.

If our products or product candidates do not have the effects intended or cause undesirable side effects, our business may suffer. For example, although many of the ingredients in our current dietary supplement products are vitamins, minerals and other substances for which there is a history of human consumption, they also contain innovative ingredients or combinations of ingredients. These products and the combinations of ingredients could have certain undesirable side effects if not taken as directed or if taken

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by a consumer who has certain medical conditions, such as the potential effect of high doses of folic acid masking pernicious anemia. In addition, our products may not have the effect intended if they are not taken in accordance with applicable instructions, which may include certain dietary restrictions. For example, if a patient switches from using another company's product to one of our products, there may be an actual or perceived lack of efficacy or increase in side effects. This is not uncommon and has been observed, for example, in patients switching between products containing methylphenidate. In this instance, the FDA has the ability to change the designation from AB to BX, or alternatively, to discontinue the product's approval. Furthermore, there can be no assurance that any of the products, even when used as directed, will have the effects intended or will not have harmful side effects in an unforeseen way or on an unforeseen patient population. If any of our products or products we develop or commercialize in the future are shown to be harmful or generate negative publicity from perceived lack of effect or harmful effects, our business, financial condition, results of operations and prospects could be harmed significantly.

If side effects are identified with our marketed products, or if manufacturing problems occur, changes in labeling of products may be required, which could have a material adverse effect on our sales of the affected products. We or regulatory authorities, including the FDA, could decide that changes to the product labeling are needed to ensure the safety and effectiveness of the products. Label changes may be necessary for a number of reasons, including the identification of actual or potential safety or efficacy concerns by regulatory agencies or the discovery of significant problems with a similar product that implicates an entire class of products. Any significant concerns raised about the safety or efficacy of the products could also result in the need to reformulate those products, to conduct additional clinical trials, to make changes to the manufacturing processes, or to seek re-approval of the relevant manufacturing facilities. Significant concerns about the safety and effectiveness of a product could ultimately lead to the revocation of its marketing approval. Under the Food and Drug Administration Amendments Act of 2007, the FDA has broad authority to force drug manufacturers to take any number of actions if previously unknown safety or drug interaction problems arise, including but not limited to, mandating labeling changes to a product based on new safety information (safety labeling changes). Our products, including ConZip, Divigel and VERT, have been subject to safety labeling changes, which we have addressed and incorporated into relevant product labeling. These products and others, including product candidates, may become subject to additional safety labeling changes in the future. New safety issues may require us to, among other things, provide additional warnings or restrictions on product package inserts, even including boxed warnings in the United States or similar warnings outside of the United States, directly alert healthcare providers of new safety information, narrow our approved indications, alter or terminate current or planned trials for additional uses of products, or even remove a product from the market, any of which could have a significant adverse impact on potential sales of the products or require us to expend significant additional funds. The revision of product labeling or the regulatory actions described above could have a material adverse effect on our sales of the affected products and on our business and results of operations.

Our operations in non-U.S. jurisdictions subject us to increased regulatory oversight and regulatory, economic, social and political uncertainties, which could cause a material adverse effect on our business, financial position and results of operations.

We are subject to certain risks associated with our operations in non-U.S. jurisdictions, including Argentina and Hungary, and with having assets and operations located in non-U.S. jurisdictions. Our operations in these jurisdictions may be adversely affected by general economic conditions and economic and fiscal policy, including changes in exchange rates and controls, interest rates and taxation policies and increased government regulation. Certain jurisdictions have, from time to time, experienced instances of civil unrest and hostilities, both internally and with neighboring countries. Rioting, military activity, terrorist attacks, or armed hostilities could cause our operations there to be adversely affected or suspended. We generally do not have insurance for losses and interruptions caused by terrorist attacks, military conflicts and wars. In addition, we operate in countries, including Argentina and Hungary, where there have been reported instances of government corruption and there are circumstances in which anti-bribery laws may conflict with some local customs and practices.

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Our international operations may subject us to heightened scrutiny under the U.S. Foreign Corrupt Practices Act, or FCPA, other federal statutes and regulations, including those established by the Office of Foreign Assets Control, the Irish Criminal Justice (Money Laundering and Terrorist Financing) Acts 2010 and 2013, or the Irish Money Laundering Acts, the U.K. Bribery Act, anti-corruption provisions in the Hungarian Criminal Code, Argentina's recently enacted Law 27.401 and other similar anti-bribery laws, and could subject us to liability under such laws despite our best efforts to comply with such laws and regulations. The FCPA prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The Irish Money Laundering Acts provide for criminal sanctions for engaging in "money laundering offences," which are offenses committed where a person knows or believes that (or is reckless as to whether or not) the property represents the proceeds of criminal conduct and the party is involved in concealing or disguising the true nature, source, location, disposition, movement or ownership of property, or in converting, transferring, handling, acquiring possession or using the property, or removing the property from, or bringing the property into, Ireland. In addition, the U.K. Bribery Act prohibits both domestic and international bribery, as well as bribery across both private and public sectors. An organization that "fails to prevent bribery" by anyone associated with the organization can be charged under the U.K. Bribery Act unless the organization can establish the defense of having implemented "adequate procedures" to prevent bribery. Under these laws and regulations, as well as other anti-corruption laws, anti-money-laundering laws, export control laws, customs laws, sanctions laws and other laws governing our operations, various government agencies may require export licenses, may seek to impose modifications to our business practices, including the cessation of business activities in sanctioned countries or with sanctioned persons or entities and modifications to compliance programs, which may increase our compliance costs, and may subject us to fines, penalties and other sanctions. A violation of these laws or regulations could adversely impact our business, results of operations and financial condition. As a result of our policy to comply with the FCPA, the Irish Money Laundering Acts, the U.K. Bribery Act and similar anti-bribery laws, we may be at a competitive disadvantage to competitors that are not subject to, or do not comply with, such laws and regulations.

We are, and will continue to be in the future, a party to legal proceedings that could result in adverse outcomes.

We are a party to legal proceedings, including matters involving personnel and employment issues, intellectual property claims and other proceedings arising in the ordinary course of business. In addition, there are an increasing number of investigations and proceedings in the health care industry generally that seek recovery under the statutes and regulations identified in "Business — Government Regulation and Approval Process." We evaluate our exposure to these legal proceedings and establish reserves for the estimated liabilities in accordance with GAAP. Assessing and predicting the outcome of these matters involves substantial uncertainties. Unexpected outcomes in these legal proceedings, or changes in our evaluation or predictions and accompanying changes in established reserves, could have a material adverse impact on our financial results. For more information on our material pending litigation, see the risk factor under the caption "— Our competitors or other third parties may allege that we, our suppliers or partners are infringing their intellectual property, forcing us to expend substantial resources in litigation, the outcome of which is uncertain. Any unfavorable outcome of such litigation, including losses related to "at-risk" product launches, could have a material adverse effect on our business, financial position and results of operations" and the section entitled "Business — Legal Proceedings."

Due to our dependence on a limited number of products, our business could be materially adversely affected if one or more of our key products do not perform as well as expected.

We generate a significant portion of our total revenues and gross profit percentage from the sale of a limited number of products. For the year ended December 31, 2017 and the six months ended June 30, 2018, our

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top ten products by product sales accounted for approximately 90% and approximately 97%, respectively, of our total revenues and a significant portion of our gross profit percentage. Any material adverse developments, including increased competition, pricing pressures or supply shortages, with respect to the sale or use of one or more of these products or our failure to successfully introduce new key products, could have a material adverse effect on our revenues and gross profit percentage.

Our operating results are affected by many factors and may fluctuate significantly on a quarterly basis.

Our operating results may vary substantially from quarter to quarter and may be greater or less than those achieved in the immediately preceding period or in the comparable period of the prior year. Factors that may cause quarterly results to vary include, but are not limited to, the following:

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    our ability to create demand in the marketplace for products we promote;

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    the number of new product introductions;

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    losses related to inventory write-offs;

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    marketing exclusivity, if any, which may be obtained on certain new products;

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    the level of competition in the marketplace for certain products;

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    availability of raw materials and finished products from suppliers;

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    our ability to manufacture products at our manufacturing facilities;

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    the scope and outcome of governmental regulatory actions;

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    our dependence on a small number of products for a significant portion of total revenues or income;

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    legal actions asserting intellectual property rights against our products brought by competitors and legal challenges to our intellectual property rights brought against us by our competitors;

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    price erosion and customer consolidation; and

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    significant payments (such as milestones) payable by us under licensing and development agreements to our partners before the related product has received FDA approval.

The profitability of our product sales is also dependent upon the prices we are able to charge for our products, the costs to purchase products from third parties and our ability to manufacture our products in a cost-effective manner. If our total revenues decline or do not grow as anticipated, we may not be able to reduce our operating expenses to offset such declines. Failure to achieve anticipated levels of total revenues could, therefore, significantly harm our business and operating results.

If we determine that our goodwill and other intangible assets have become impaired, we may record significant impairment charges, which would adversely affect our results of operations.

Goodwill and other intangible assets represent a significant portion of our assets. Goodwill is the excess of cost over the fair market value of net assets acquired in business combinations. In the future, goodwill and intangible assets may increase as a result of future acquisitions. We review our goodwill and indefinite lived intangible assets at least annually for impairment. Impairment may result from, among other things, deterioration in the performance of acquired businesses, adverse market conditions and adverse changes in applicable laws or regulations, including changes that restrict the activities of an acquired business. Any impairment of goodwill or other intangible assets would result in a non-cash charge against earnings, which would adversely affect our results of operations. For the year ended December 31, 2017, we recorded a non-cash impairment charge of $72.5 million related to an adjustment to the forecasted operating results for certain of our acquired in-process research and development assets compared to their originally forecasted operating results at the date of acquisition.

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In certain circumstances, we issue price adjustments and other sales allowances to our customers, including providing lower pricing to underinsured or non-insured patients. If our estimates for these price adjustments are incorrect, any reserves which we establish for these programs may be inadequate, and may result in adjustments to these reserves or otherwise have a material adverse effect on our financial position and results of operations.

For some of our products, we enjoy a period of time during which we may be the only party, or one of a small number of parties, marketing and selling a certain product. This might be seen more often with one of our brand products, but may also occur in instances where we are one of a small number of parties selling a generic product. At some point other parties, selling either a competitive brand or generic product, may enter the market and compete for customers and market share resulting in a significant price decline for our drug (in some instances of generic entry, price declines have exceeded 90%). When we experience price declines following a period of marketing exclusivity or semi-exclusivity, or at any time when a competitor enters the market or offers a lower price with respect to a product we are selling, we may decide to lower the price of our product to retain market share. As a result of lowering prices, we may provide price adjustments to our customers for the difference between our new (lower) price and the price at which we previously sold the product which is still held in inventory by our customers, which is known as a shelf stock adjustment. Because the entry of a competitive product is unpredictable, we do not establish reserves for such potential adjustments, and therefore the full effect of such adjustments are not reflected in our operating results until they actually occur. There are also circumstances under which we may decide not to provide price adjustments to certain customers, and consequently, as a matter of business strategy, we may risk a greater level of sale returns of products in the customer's existing inventory and lose future sales volume to competitors rather than reduce our pricing.

We establish reserves for chargebacks, rebates and incentives, other sales allowances and product returns at the time of sale, based on estimates. Separately, these same reserves may be used to support a patient assistance program. A patient assistance program is a program designed to improve patient access to products by reducing barriers to access caused by potentially high out-of-pocket expenses for patients. The program assists under-insured or non-insured patients by helping to defray their out-of-pocket costs, in some cases entirely. Our estimates on the number of participants for the patient assistance program or other similar programs, currently or in the future, may affect the adequacy of our reserves. Although we believe our processes for estimating reserves are adequate, we cannot provide assurances that our reserves will ultimately prove to be adequate. Increases in sales allowances may exceed our estimates for a number of reasons, including unanticipated competition or an unexpected change in one or more of our contractual relationships. We will continue to evaluate the effects of competition and will record a price adjustment reserve if and when we deem it necessary. Any failure to establish adequate reserves with respect to sales allowances may result in a material adverse effect on our financial position and results of operations.

Rebates include mandated discounts under the Medicaid Drug Rebate Program, Medicare Part D Prescription Drug Benefit Program and TRICARE Retail Pharmacy Refunds Program (TRICARE). Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements or statutory requirements with benefit providers. We estimate the allowance for rebates based on statutory discount rates and expected utilization at the time of sale. We adjust the allowance for rebates quarterly to reflect actual experience. If we change the way rebates are applied or calculated, it may impair our ability to accurately accrue for rebates and have a material adverse effect on our financial position and results of operations. See "Risks Related to Our Industry — Our profitability depends on coverage and reimbursement by governmental authorities, health maintenance organizations, or HMOs, MCOs and other third-party payors; healthcare reform and other future legislation creates uncertainty and may lead to reductions in coverage or reimbursement levels."

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We may incur operating losses in the future.

Our net loss was $45.2 million for the year ended December 31, 2017. Our net losses may fluctuate significantly from quarter to quarter and year to year.

We devote significant amounts of financial resources to the manufacture, marketing and commercialization of our approved products, and support of our research and development of our clinical and preclinical programs. We may incur significant expenses in the future. Some of these expenses will be made in connection with our ongoing activities, as we:

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    launch new products into the marketplace, including Osmolex ER and M-72;

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    conduct clinical trials and seek regulatory approval for Ontinua ER and RVL-1201;

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    continue development of our pipeline product candidates;

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    conduct preclinical studies for product candidates;

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    incur litigation expenses related to Osmolex ER;

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    add personnel to support our marketing, commercialization and sales of approved products, and continue clinical and preclinical product development efforts;

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    continue our research and development efforts for new product opportunities, including business development and acquisitions; and

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    operate as a public company.

To become profitable, we must succeed in developing or acquiring products, obtaining regulatory approval for them, and manufacturing, marketing and selling those products for which we may obtain regulatory approval. Even if we achieve profitability for any period in the future, we may not be able to sustain profitability in subsequent periods. Our failure to become profitable would depress our market value and could impair our ability to raise capital, expand our business, discover or develop other products or continue our operations. A decline in the value of our company could cause you to lose all or part of your investment.

Our profitability depends on our major customers. If these relationships do not continue as expected, our business, financial condition, prospects and results of operations could materially suffer.

As of June 30, 2018, we had approximately 33 customers, some of which are part of larger buying groups. Our three largest customers accounted for approximately 92% of our total revenues for the year ended December 31, 2017, as follows: Cardinal Health, Inc. (37%); McKesson Corporation (32%); and AmerisourceBergen Corporation (23%). The loss of any one or more of these or any other major customer or the substantial reduction in orders from any one or more of our major customers could have a material adverse effect upon our business, prospects, future operating results and financial condition.

We may discontinue the manufacture and distribution of certain existing products, which may adversely impact our business, results of operations and financial condition.

We continually evaluate the performance of our products, and may determine that it is in our best interest to discontinue the manufacture and distribution of certain of our products for various reasons, including commercial, regulatory, strategic or other reasons. We cannot guarantee that we have correctly forecasted, or will correctly forecast in the future, the appropriate products to discontinue or that our decision to discontinue various products is prudent if conditions, including market conditions, change. In addition, we cannot assure you that discontinuing one or more products will reduce our operating expenses or will not cause us to incur material charges associated with such a decision. Furthermore, discontinuing one or more existing products entails various risks, including, in the event that we decide to sell the discontinued product, the risk that we will not be able to find a purchaser for such products or that the purchase price obtained will not be equal to at least the book value of the net assets for such products. Other risks include managing the expectations of, and maintaining good relations with, our customers who previously purchased products that we subsequently discontinued, which could prevent us from selling other products to them in

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the future. Moreover, we may incur other significant liabilities and costs associated with discontinuing one or more of our products, which could have a material adverse effect on our business, results of operations and financial condition.

We face intense competition from both brand and generic companies, including companies that sell branded generics or authorized generics, which could significantly limit our growth and materially adversely affect our financial results.

The pharmaceutical industry is highly competitive. The principal competitive factors in the pharmaceutical industry include:

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    introduction of other brand or generic drug manufacturers' products in direct competition with our products;

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    introduction of authorized generic products in direct competition with our products, particularly during exclusivity periods;

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    ability of generic competitors to quickly enter the market after the expiration of patents or exclusivity periods, diminishing the amount and duration of significant profits;

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    consolidation among distribution outlets through mergers and acquisitions and the formation of buying groups;

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    the willingness of our customers, including wholesale and retail customers, to switch among products of different pharmaceutical manufacturers;

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    pricing pressures by competitors and customers;

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    a company's reputation as a manufacturer and distributor of quality products;

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    a company's level of service (including maintaining sufficient inventory levels for timely deliveries);

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    product appearance and labeling; and

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    a company's breadth of product offerings.

We face, and will continue to face, competition from pharmaceutical, biopharmaceutical, biotechnology and dietary supplement companies developing similar products and technologies. Many of our competitors have longer operating histories and greater financial, research and development, marketing and other resources than we do. Consequently, many of our competitors may be able to develop products or processes competitive with, or superior to, our own. Furthermore, we may not be able to differentiate our products from those of our competitors, to successfully develop or introduce new products, on a timely basis or at all, that are less costly than those of our competitors, or to offer payment and other commercial terms to customers as favorable as those offered by our competitors. The markets in which we compete and intend to compete are undergoing, and are expected to continue to undergo, rapid and significant change. We expect competition to intensify as technological advances and consolidations continue. New developments by other manufacturers and distributors could render our products uncompetitive or obsolete.

We also face price competition generally as other manufacturers enter the market. Any such price competition may be especially pronounced where our competitors source their products from jurisdictions where production costs may be lower than our production costs (sometimes significantly), especially lower-cost non-U.S. jurisdictions. Any of these factors, in turn, could result in reductions in our sales prices and gross profit percentage. This price competition has led to an increase in customer demands for downward price adjustments by pharmaceutical distributors. There can be no assurance that we will be able to compete successfully in the industry or that we will be able to develop and implement any new or additional strategies successfully.

Some of our products, including Osmolex ER, VERT and Divigel, are reference listed drugs. Manufacturers may seek approval of generic versions of our reference listed drugs through the submission of ANDAs. In order to obtain approval of an ANDA, a generic manufacturer generally must show that its product has the same active ingredient(s), dosage form, strength, route of administration, conditions of use and labeling as

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the reference listed drug, and that the generic version is bioequivalent to the reference listed drug, meaning that it is chemically identical and is absorbed in the body at the same rate and to the same extent. An ANDA applicant need not conduct its own clinical trials to demonstrate the safety or effectiveness of its generic product, but instead may rely on the prior findings of safety and effectiveness for the reference listed drug. As a result, generic products may be significantly less costly to bring to market than reference listed drugs, and companies that produce generic products are generally able to offer them at lower prices. Moreover, many states allow or require substitution of a therapeutically equivalent generic drug at the pharmacy level even if a reference listed drug is prescribed. Thus, following the introduction of a generic drug, a significant percentage of the market share of a reference listed drug may be lost to the generic product. Competition from generic versions of our products could negatively impact our future total revenues, profitability and cash flows.

Competition in the generic drug industry has also increased due to the proliferation of authorized generic pharmaceutical products. Authorized generics are generic pharmaceutical products that are introduced by brand companies, either directly or through third parties, under the brand's NDA approval for its own branded drug. Authorized generics, which have already been approved for marketing under the brand's NDA, are not prohibited from sale during the 180-day marketing exclusivity period granted to the first-to-file ANDA applicant. The sale of authorized generics adversely impacts the market share of a generic product that has been granted 180 days of marketing exclusivity. This is a significant source of competition for companies that have been granted 180 days of marketing exclusivity, because an authorized generic can materially decrease the profits that such a company could receive as an otherwise exclusive marketer of a product. Branded drug product companies may also reduce the price of their branded drug products to compete directly with generic drug products entering the market, which would similarly have the effect of reducing gross profit percentage. Such actions have the effect of reducing the potential market share and profitability of generic products and may inhibit the development and introduction of generic pharmaceutical products corresponding to certain branded drugs.

As our competitors introduce their own generic equivalents of our generic pharmaceutical products, our revenues and gross profit percentage from such products generally decline, often rapidly.

Revenues and gross profit percentage derived from generic pharmaceutical products often follow a pattern based on regulatory and competitive factors that we believe are unique to the generic pharmaceutical industry. As the patent for a brand name product or the statutory marketing exclusivity period (if any) expires, the first generic manufacturer to receive regulatory approval for a generic equivalent of the product often is able to capture a substantial share of the market. However, as other generic manufacturers receive regulatory approvals for their own generic versions, that market share and the price of that product will typically decline depending on several factors, including the number of competitors, the price of the branded product and the pricing strategy of the new competitors. We cannot provide assurance that we will be able to continue to develop such products or that the number of competitors with such products will not increase to such an extent that we may stop marketing a product for which we previously obtained approval, which may have a material adverse impact on our total revenues and gross profit percentage.

Our branded pharmaceutical expenditures may not result in commercially successful products.

Commercializing branded products is more costly than generic products. We have made significant investments in the development, launch and commercialization of branded products. This has led to increased infrastructure costs. We cannot be certain that these business expenditures will result in the successful development or launch of branded products or will improve the long-term profitability of our business. Just as our generic products take market share from the corresponding branded products, we will confront the same competitive pressures from other generic pharmaceutical companies that may seek to introduce generic versions of our branded products. Generic products generally are sold at a significantly lower cost than the branded version, and, where available, may be required or encouraged in preference to the branded version under third-party reimbursement programs, or may be required by law to be substituted

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for branded versions by pharmacies. Competition from generic equivalents, accordingly, could have an adverse effect on our branded products. While we have endeavored (with our relevant development and manufacturing partners, as applicable) to protect our branded assets by incorporating specialized manufacturing processes and by securing regulatory exclusivities and intellectual property protections, such exclusivities and protections are subject to expiry and to legal challenges.

We continue to consider product or business acquisitions or licensing arrangements to expand our product line. The success of our branded products will be based largely on the successful commercialization of our existing products, the identification of products for acquisition or future development and the acquisition or in-licensing of new product opportunities. Our current and future investments in acquisition or license arrangements may not lead to expected, adequate or any returns on investment. We also may not be able to execute future license or acquisition agreements on reasonable or favorable terms in order to continue to grow or sustain our branded products. In addition, we cannot be certain that our branded product expenditures will result in commercially successful launches of these products or will improve the long-term profitability of our branded products. Any future commercialization efforts that do not meet expectations could result in a write-down of assets related to the relevant products.

A business interruption at our manufacturing facility in Marietta, Georgia, our warehouses in Sayreville, New Jersey and Tampa, Florida or at facilities operated by third parties that we rely on could have a material adverse effect on our business, financial condition and results of operations.

We produce all of the products that we manufacture at our manufacturing facility in Marietta, Georgia, and our inventory passes through our warehouses in Sayreville, New Jersey and Tampa, Florida. These facilities, or the facilities of third parties that we rely on for the development, supply, marketing or distribution of raw materials or finished products, could be subject to earthquakes, power shortages, telecommunications failures, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or business interruptions. A significant disruption at any of these facilities, even on a short-term basis, could impair our ability to produce and ship products to the market on a timely basis, which could have a material adverse effect on our business, financial condition and results of operations.

We may experience declines in the sales volume and prices of our products as a result of the continuing trend of consolidation of certain customer groups, which could have a material adverse effect on our business, financial position and results of operations.

Our ability to successfully commercialize any generic or branded product depends in large part upon the acceptance of the product by third parties, including pharmacies, government formularies, other retailers, physicians and patients. Therefore, our success will depend in large part on market acceptance of our products. We make a significant amount of our sales to a relatively small number of drug wholesalers and retail drug chains. These customers represent an essential part of the distribution chain of our pharmaceutical products. Drug wholesalers and retail drug chains have undergone, and are continuing to undergo, significant consolidation. This consolidation may result in these groups gaining additional purchasing leverage and consequently increasing the product pricing pressures facing our business. Additionally, the emergence of large buying groups representing independent retail pharmacies and other drug distributors, and the prevalence and influence of managed care organizations, or MCOs, and similar institutions, potentially enable those groups to demand larger price discounts on our products. For example, there has been a recent trend of large wholesalers and retailer customers forming partnerships, such as the alliance between Walgreens and AmerisourceBergen Corporation, the alliance between Rite Aid and McKesson Drug Company and the alliance between CVS and Cardinal Health. The result of these developments may have a material adverse effect on our business, financial condition and results of operations.

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We depend to a large extent on third-party suppliers and distributors for the raw materials for our products, particularly the chemical compounds comprising the API used in our products, as well as suppliers and distributors for certain finished goods. A prolonged interruption in the supply of such products could have a material adverse effect on our business, financial position and results of operations.

We purchase raw materials, including API, and finished goods from both U.S. and non-U.S. companies. If we experience supply interruptions or delays, we may have to obtain substitute materials or products, which in turn would require us to obtain amended or additional regulatory approvals, subjecting us to additional expenditures of significant time and resources. We may source raw materials or API from a single source, which increases the risk to our business if supply from that source is interrupted. For example, Orion Corporation is our only supplier of Divigel, Nephron Pharmaceuticals Corporation is our only supplier of RVL-1201 and Mallinckrodt LLC is our only supplier of the API used in methylphenidate ER (including M-72). We also contract with third parties to distribute finished products, including Pernix Therapeutics Holdings, Inc. for Khedezla and Lannett Company, Inc. for oxybutynin ER and nifedipine ER.

Further, third parties with whom we have agreements may allege that we have failed to perform our obligations under such agreements and we may become involved in lawsuits or other proceedings related to such agreements. For example, we have been engaged in discussions with Albion Laboratories, Inc. and Pernix Therapeutics Holdings, Inc. regarding potential disputes over the fulfillment of obligations under agreements for the supply of raw materials and distribution of finished products, respectively. If any dispute with a third-party supplier or distributor were determined adversely to us, it could have a material adverse effect on our business, financial position and results of operations.

In addition, changes in our raw material suppliers, including suppliers of API, could result in significant delays in production, higher raw material costs and loss of sales and customers, because regulatory authorities must generally approve raw material sources for pharmaceutical products, which may be time consuming. Any significant supply interruption could have a material adverse effect on our business, research and development programs, financial condition, prospects and results of operations. Because the federal drug approval application process requires specification of raw material suppliers, if raw materials from a specified supplier were to become unavailable, FDA approval of a new supplier may be required. A delay in the manufacture and marketing of the drug involved while a new supplier becomes approved by the FDA and its manufacturing process is determined to meet FDA standards could, depending on the particular product, have a material adverse effect on our results of operations and financial condition. Generally, we attempt to mitigate the potential effects of any such situation by providing for, where economically and otherwise feasible, two or more suppliers of raw materials for the drugs that we manufacture. In addition, we may attempt to enter into a contract with a raw material supplier in an effort to ensure adequate supply for certain of our products.

We depend on third-party agreements for a portion of our product offerings and product candidates, including certain key products, and any failure to maintain these arrangements or enter into similar arrangements with new partners could result in a material adverse effect.

We have broadened our product offering by entering into a variety of third-party agreements covering a combination of joint development, supply, marketing and distribution of products. For example, we have entered into an agreement with Mallinckrodt LLC for the development and supply of API used in methylphenidate ER (including M-72) products that we manufacture at our manufacturing facility in Marietta, Georgia. For the year ended December 31, 2017, 82% of our total revenues were generated from products manufactured under contract or under license. We cannot provide assurance that the development, manufacturing or supply efforts of our contractual partners will continue to be successful, that we will be able to maintain or renew such agreements or that we will be able to enter into new agreements for additional products. These third parties may also exercise their rights to terminate these agreements or may fail to perform their obligations as required under these agreements. Alternatives for some of these agreements may not be easily available.

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Any alteration to or termination of our current distribution and marketing agreements, any failure to enter into new and similar agreements, any disputes regarding our agreements with third parties, whether or not such disputes result in litigation, any failure to fulfill obligations by a third party, or any other interruption of our product supply under the distribution and marketing agreements, could materially adversely affect our business, financial condition, prospects and results of operations.

If we are unable to develop or maintain our sales capabilities, we may not be able to effectively market or sell our products.

For the year ended December 31, 2017 and the six months ended June 30, 2018, we spent $33.1 million and $19.4 million, respectively, on sales and marketing. As we gain approval and launch new products, we will invest in expanding our sales and marketing organization into new areas such as Parkinson's disease, multiple sclerosis and ophthalmology. We face a number of risks in developing or maintaining internal sales and marketing capabilities, including:

    §
    not being able to attract talented and qualified personnel to build an effective marketing or sales force capability;

    §
    the cost of establishing a marketing and sales force capability may not be justified in light of the total revenues generated from our products; and

    §
    our direct sales and marketing efforts may not be successful.

If we are unable to establish or maintain adequate sales and marketing capabilities or are unable to do so in a timely manner, our ability to generate revenues and profits from our products will be limited and this could have a material adverse effect on our business, financial position and results of operations.

Our future success depends on our ability to attract and retain key employees and consultants.

Our future success depends, to a substantial degree, upon the continued service of the key members of our management team. The loss of the services of key members of our management team, including Brian Markison, Tina deVries, Andrew Einhorn and James Schaub, or their inability to perform services on our behalf could have a material adverse effect on our business, financial condition, prospects and results of operations. Our success also depends, to a large extent, upon the contributions of our sales, marketing, scientific and quality assurance staff. We compete for qualified personnel against other brand and generic pharmaceutical manufacturers that may offer more favorable employment opportunities. If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we could experience constraints that would adversely affect our ability to sell and market our products effectively and to support our research and development programs. In particular, sales and marketing efforts depend on the ability to attract and retain skilled and experienced sales, marketing and quality assurance representatives. Although we believe that we have been successful in attracting and retaining skilled personnel in all areas of our business, we cannot provide assurance that we can continue to attract, train and retain such personnel. Any failure in this regard could limit our ability to generate sales and develop or acquire new products.

Any acquisitions we may undertake in the future involve numerous risks, including the risks that we may be unable to integrate the acquired products or businesses successfully and that we may assume liabilities that could adversely affect us.

We may acquire products or businesses. For example, in October 2017, we acquired the rights to RVL-1201. Acquisitions involve numerous risks, including operational risks associated with the integration of acquired businesses or products. These risks include, but are not limited to:

    §
    difficulties in achieving identified revenue synergies, growth opportunities, operating synergies and cost savings;

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    difficulties in assimilating the personnel, operations and products of an acquired company, and the potential loss of key employees;

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    §
    difficulties in consolidating information technology platforms, business applications and corporate infrastructure;

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    difficulties in integrating our corporate culture with local customs and cultures;

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    possible overlap between our products or customers and those of an acquired entity that may create conflicts in relationships or other commitments detrimental to the integrated businesses;

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    difficulties in obtaining approval from governmental authorities such as the Federal Trade Commission, or FTC;

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    our inability to achieve expected total revenues and gross profit percentage for any products we may acquire;

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    possible contingent liability that includes, among others, known or unknown environmental, patent or product liability claims;

    §
    the diversion of management's attention from other business concerns; and

    §
    risks and challenges of entering or operating in markets in which we have limited or no prior experience, including the unanticipated effects of export controls, exchange rate fluctuations, foreign legal and regulatory requirements, and political and economic conditions.

In addition, non-U.S. acquisitions involve numerous additional risks, including those related to the potential absence or inadequacy of policies and procedures sufficient to assure compliance by a non-U.S. entity with U.S. regulatory and legal requirements. There can be no assurance that we will not be subject to liability arising from conduct which occurred prior to our acquisition of any entity.

We incur significant transaction costs associated with our acquisitions, including substantial fees for investment bankers, attorneys, and accountants. Any acquisition could result in our assumption of unknown or unexpected, and potentially material, liabilities. Additionally, in any acquisition agreement, the negotiated representations, warranties and agreements of the selling parties may not entirely protect us, and liabilities resulting from any breaches may not be subject to indemnification by the suing parties and could exceed negotiated indemnity limitations. These factors could impair our growth and ability to compete, divert resources from other potentially more profitable endeavors, or otherwise cause a material adverse effect on our business, financial condition and results of operations.

The financial statements of the companies we have acquired or may acquire in the future are prepared by management of such companies and are not independently verified by our management. In addition, any pro forma financial statements prepared by us to give effect to such acquisitions may not accurately reflect the results of operations of such companies that would have been achieved had the acquisition of such entities been completed at the beginning of the applicable financial reporting periods. Finally, we cannot guarantee that we will continue to acquire businesses at valuations consistent with our prior acquisitions or that we will complete acquisitions at all.

We may make acquisitions of, or investments in, complementary businesses or products, which may be on terms that may not turn out to be commercially advantageous, may require additional debt or equity financing, and may involve numerous risks, including those set forth above.

We regularly review the potential acquisition of technologies, products, product rights and complementary businesses and are currently evaluating, and intend to continue to evaluate, potential product and company acquisitions and other business development opportunities. We may choose to enter into such transactions at any time. Nonetheless, we cannot provide assurance that we will be able to identify suitable acquisition or investment candidates. To the extent that we do identify candidates that we believe to be suitable, we cannot provide assurance that we will be able to reach an agreement with the selling party or parties, that the terms we may agree to will be commercially advantageous to us, or that we will be able to successfully consummate such investments or acquisitions even after definitive documents have been signed. If we make any acquisitions or investments, we may finance such acquisitions or investments through our cash reserves, debt financing (such as borrowings available to us under our senior secured credit facilities,

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including our revolving credit facility), which may increase our leverage, or by issuing additional equity securities, which could dilute the holdings of our then-existing shareholders. If we require financing, we cannot provide assurance that we will be able to obtain any required financing when needed on acceptable terms or at all.

The use of legal, regulatory and legislative strategies by brand competitors, including authorized generics and citizen's petitions, as well as the potential impact of proposed legislation, may increase our costs associated with the introduction or marketing of our generic products, delay or prevent such introduction or significantly reduce the profit potential of our products.

Brand drug companies often pursue strategies that may serve to prevent or delay competition from generic alternatives to their branded products. These strategies include, but are not limited to:

    §
    marketing an authorized generic version of a branded product at the same time that we introduce a generic equivalent of that product, directly or through agreement with a generic competitor;

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    filing citizen petitions with the FDA that may limit generic competition and result in delays of our product approvals;

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    using REMS-related distribution restrictions or other means of limiting access to their branded products to prevent us from obtaining product samples needed to conduct bioequivalence testing required for ANDA approval, thereby delaying or preventing us from obtaining FDA approval of a generic version of such branded products;

    §
    seeking to secure patent protection of certain "Elements to Assure Safe Use" of a REMS program, which are required medical interventions or other actions healthcare professionals need to execute prior to prescribing or dispensing the drug to the patient, in an attempt to prevent the generic company's ability to avoid infringement of the patents in question or secure approval;

    §
    seeking to establish regulatory and legal obstacles that would make it more difficult to demonstrate a generic product's bioequivalence or "sameness" to the related branded product;

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    initiating legislative and administrative efforts in various states to limit the substitution of generic versions of branded products for the corresponding branded products;

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    filing suits for patent infringement that automatically delay FDA approval of generic products;

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    introducing "next-generation" products prior to the expiration of market exclusivity for their branded product, which often materially reduces the demand for the generic product for which we may be seeking FDA approval;

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    obtaining extensions of market exclusivity by conducting clinical trials of branded drugs in pediatric populations or by other methods;

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    persuading the FDA to withdraw the approval of branded drugs for which the patents are about to expire, thus allowing the brand company to develop and launch new patented products serving as substitutes for the withdrawn products;

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    seeking to obtain new patents on drugs for which patent protection is about to expire;

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    filing patent applications that are more complex and costly to challenge;

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    seeking temporary restraining orders and injunctions against selling a generic equivalent of their branded product based on alleged misappropriation of trade secrets or breach of confidentiality obligations;

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    seeking temporary restraining orders and injunctions against a generic company that has received final FDA approval for a product and is attempting to launch an at risk product prior to resolution of related patent litigation;

    §
    reducing the marketing of the branded product to healthcare providers, thereby reducing the branded drug's commercial exposure and market size, which in turn adversely affects the market potential of the equivalent generic product; and

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    §
    converting branded prescription drugs that are facing potential generic competition to over-the-counter products, thereby potentially blocking the sale of generic prescription drugs under the operation of the Durham-Humphrey amendments to the U.S. Federal Food, Drug, and Cosmetic Act, or FDCA, or significantly impeding the growth of the generic prescription market for the drugs.

The FDCA provides for an additional six months of marketing exclusivity attached to another period of exclusivity, such as a five-year period of exclusivity granted to the first applicant to obtain approval of an NDA for a new chemical entity or if a sponsor conducts pediatric clinical trials in response to a written request from the FDA. Some companies have lobbied Congress for amendments to the Hatch-Waxman legislation that would give them additional advantages over generic competitors. For example, although the term of a company's drug patent can be extended to reflect a portion of the time an NDA is under regulatory review, some companies have proposed extending the patent term by a full year for each year spent in clinical trials, rather than the one-half year that is currently permitted. If proposals like these were to become effective, our entry into the market and our ability to generate revenues associated with new generic products may be delayed, reduced or eliminated, which could have a material adverse effect on our business, prospects and financial position.

We depend on our ability to protect our intellectual property and proprietary rights. We may not be able to keep our intellectual property and proprietary rights confidential and protect such rights.

Our success depends on our ability to protect and defend the intellectual property rights associated with our current and future products. If we fail to protect our intellectual property adequately, competitors may manufacture and market products similar to, or that may be confused with, our products, and our generic competitors may obtain regulatory approval to make and distribute generic versions of our branded products. We cannot be certain that patents will be issued with respect to any of our patent applications or that any existing or future patents issued to or licensed by us will provide competitive advantages for our products or will not be challenged, invalidated, circumvented or held unenforceable in proceedings commenced by our competitors or other third parties. Furthermore, our patent rights may not prevent or limit our present and future competitors from developing, making, importing, using or commercializing products that are functionally similar to our products. Some of our products, including some of our promoted products, are not protected by patents at all.

The patent position of companies in the pharmaceutical industry generally involves complex legal and factual questions, and has been and remains the subject of significant litigation in recent years. Legal standards relating to scope and validity of patent claims are evolving and may differ in various countries. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Any patents we have obtained, or may obtain in the future, may be challenged, invalidated or circumvented. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time consuming and unsuccessful.

In addition to the above limitations, our patent protection outside the United States may be further limited. Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States could be less extensive than those in the United States. We generally select to pursue patent protection in only a limited number of jurisdictions outside of the United States. Even where we wish to pursue protection, we may not be able to obtain patent protection for certain technology outside the United States. In addition, the laws of some countries do not protect intellectual property rights to the same extent as federal and state laws in the United States, even in jurisdictions where we do pursue patent protection. The laws of certain non-U.S. countries do not protect proprietary rights to the same extent or in the same manner as the U.S., and therefore we may encounter additional problems in protecting and defending our

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intellectual property in certain non-U.S. jurisdictions. Many companies have encountered significant problems in protecting and defending intellectual property rights in non-U.S. jurisdictions.

Proceedings to enforce patent rights, whether in the U.S. or in non-U.S. jurisdictions, could: result in substantial costs and divert our efforts and attention from other aspects of our business; put our patents at risk of being invalidated or interpreted narrowly; put our patent applications at risk of not issuing; and provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded to us, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage.

We also rely particularly on trade secrets, unpatented know-how and proprietary expertise and continuing innovation to develop and maintain our competitive position. We generally enter into confidentiality agreements with licensees, suppliers, employees, consultants and other parties. This is done in part because not all of our products are protected by patents. We cannot provide assurance that these agreements will not be breached. We also cannot be certain that we will have recourse to adequate remedies in the event of a breach. Disputes may arise concerning the ownership of intellectual property or the applicability of confidentiality agreements. We cannot be sure that our trade secrets and proprietary technology will not be independently developed or otherwise become known by our competitors or, if patents are not issued with respect to internally developed products, that we will be able to maintain the confidentiality of information relating to these products. Efforts to enforce our intellectual property rights can be costly, time-consuming and ultimately unsuccessful. Any failure to adequately prevent disclosure of our know-how, trade secrets and other propriety information could have a material adverse impact on our business and our prospects.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance and annuity fees on any issued patent are due to be paid to the U.S. Patent and Trademark office, or the USPTO, and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse may, in many cases, be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly prepare and submit formal documents. If we or our licensors fail to maintain the patents and patent applications covering our products or product candidates, our competitors might be able to enter the market, which would harm our business, prospects and financial position.

Our competitors or other third parties may allege that we, our suppliers or partners are infringing their intellectual property, forcing us to expend substantial resources in litigation, the outcome of which is uncertain. Any unfavorable outcome of such litigation, including losses related to "at-risk" product launches, could have a material adverse effect on our business, financial position and results of operations.

Companies that produce branded products routinely bring litigation against entities selling or seeking regulatory approval to manufacture and market generic or other copies of their branded products, or products related to their branded products or technologies. These companies or other patent holders, including patent holders who do not have related products, may allege patent infringement or other violations of intellectual property rights. Patent holders may also bring patent infringement suits against companies that are currently marketing and selling an approved product, including an approved generic

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product. Litigation often involves significant expense and can delay or prevent introduction or sale of our generic or other products. For example, a certain period of delay may be statutorily prescribed, or a court could grant a patent holder injunctive relief for the period of the litigation. If third party patents are held valid, enforceable and infringed by our products, we may, unless we could obtain a license from the patent holder, need to delay selling our corresponding product, pay damages, and, if we are already selling our product, cease selling and potentially destroy existing product stock. These risks apply to our branded products as well as our generic products. Third parties, including our competitors, may allege that one of our branded products violates their patent rights, which would expose us to the same risks. A license may not be available from the patent holder on commercially reasonable terms, or at all. If available, we may choose to take a license under a third party's patent rights to resolve a dispute, even in the absence of a finding by a court that a patent is valid, enforceable and infringed.

There may be situations in which we may make business and legal judgments to manufacture, market or sell products that are subject to claims of alleged patent infringement prior to final resolution of those claims by the courts, based upon our belief that such patents are invalid, unenforceable, or are not infringed by our manufacturing, marketing and sale of such products. This is referred to in the pharmaceutical industry as an "at-risk" launch. The risk involved in an at-risk launch can be substantial because, if a patent holder ultimately prevails against us, the remedies available to such holder may include, among other things, permanent injunctive relief preventing the sale of the product and damages measured as a reasonable royalty or by the profits lost by the patent holder, which can be significantly higher than the profits we make from selling our product. We could face substantial damages from adverse court decisions in such matters. We could also be at risk for the value of such inventory that we are unable to market or sell.

Upon receipt of approval for Osmolex ER from the FDA, we filed a declaratory judgment action against Adamas Pharmaceuticals, Inc. and Adamas LLC, which we collectively refer to as Adamas, on February 16, 2018 in the U.S. District Court for the District of Delaware seeking a declaratory judgment that Osmolex ER does not infringe, directly or indirectly, any valid and enforceable claim of any of the 11 patents enumerated in our complaint. On September 20, 2018, Adamas filed an amended answer with counterclaims alleging infringement of certain patents included in our complaint and requesting that the court grant Adamas damages, injunctive relief and attorneys' fees. Adamas commercializes a different amantadine product, an extended-release capsule marketed and sold as Gocovri™. We intend to vigorously defend our rights to commercialize Osmolex ER free and clear of any of these patents. However, this litigation is at a very early stage. If Adamas counterclaims for infringement and we do not prevail, we could be subject to liability for damages, potentially including lost profits damages or reasonable royalties, and also injunctive relief, as discussed above, and the other risks associated with patent litigation, which could have an adverse effect on our business, financial position and results of operations. For more information on our material pending litigation, see "Business — Legal Proceedings."

If we fail to comply with our obligations in the agreements under which we license rights from third parties, or if the license agreements are terminated for other reasons, we could lose license rights that are important to our business.

We are a party to a number of licenses that are important to our business and expect to enter into additional licenses in the future. Our existing license agreements impose, and we expect that future license agreements will impose, on us various development, regulatory and commercial diligence obligations, payment of milestones or royalties and other obligations. Additionally, existing or future license agreements may include a sublicense from a third party that is not the original licensor of the intellectual property at issue. Under such an agreement, we must rely on our licensor to comply with their obligations under the primary license agreements under which such third party obtained rights in the applicable intellectual property, where we may have no relationship with the original licensor of such rights. If our licensors fail to comply with their obligations under these upstream license agreements, the original third-party licensor may

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have the right to terminate the original license, which may terminate our sublicense. If this were to occur, we would no longer have rights to the applicable intellectual property unless we are able to secure our own direct license with the owner of the relevant rights, which we may not be able to do at a reasonable cost, on reasonable terms or at all, and this may impact our ability to continue to develop or commercialize our products incorporating the relevant intellectual property. If we fail to comply with our obligations under our license agreements, or we are subject to a bankruptcy or insolvency, the licensor may have the right to terminate the license. In the event that any of our existing or future important licenses were to be terminated by the licensor, we would likely need to cease further development and commercialization of the related program or be required to spend significant time and resources to modify the program to not use the rights under the terminated license. In the case of marketed products that depend upon a license agreement, we could be required to cease our commercialization activities, including sale of the affected product.

Disputes may arise between us and any of our licensors regarding intellectual property subject to such agreements, including:

    §
    the scope of rights granted under the agreement and other interpretation-related issues;

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    whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the agreement;

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    our right to sublicense patent and other rights to third parties;

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    our diligence obligations with respect to the use of the licensed intellectual property, and what activities satisfy those diligence obligations;

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    the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us, should any such joint creation occur;

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    our right to transfer or assign the license; and

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    the effects of termination.

These or other disputes over intellectual property that we have licensed or acquired may prevent or impair our ability to maintain our current arrangements on acceptable terms, or may impair the value of the arrangement to us. Any such dispute, or termination of a necessary license, could have a material adverse effect on our business, financial condition and results of operations.

We may be subject to claims by third parties asserting that we or our employees have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.

We may be subject to claims that our employees or we have inadvertently or otherwise used intellectual property, including trade secrets or other proprietary information, of any such employee's former employer. We may also in the future be subject to claims that we have caused an employee to breach the terms of his or her non-competition or non-solicitation agreement. Litigation may be necessary to defend against these potential claims.

In addition, while it is our policy to require our employees and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, such employees and contractors may breach the agreement and claim the developed intellectual property as their own.

If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. A court could prohibit us from using technologies or features that are essential to our products if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of the former employers. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and could be a distraction to our management team. In addition, any litigation or threat thereof may adversely

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affect our ability to hire employees or contract with independent service providers. Moreover, a loss of key personnel or their work product could hamper or prevent our ability to commercialize our products.

We may be subject to claims challenging the inventorship or ownership of our owned or in-licensed patent rights and other intellectual property.

We generally enter into confidentiality and intellectual property assignment agreements with our employees and consultants. However, these agreements may be breached and may not effectively assign intellectual property rights to us. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership of inventions. The owners of intellectual property in-licensed to us could also face such claims. If we or our licensors fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we or our licensors are successful in defending against such claims, litigation could result in substantial costs and be a distraction to our management team and other employees.

Any trademarks we may obtain may be infringed or successfully challenged, resulting in harm to our business.

We rely on trademarks as one means to distinguish our products and product candidates from the products of our competitors. Our trademark applications may not result in registered trademarks. Third parties may oppose our trademark applications or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in substantial cost, loss of brand recognition and could require us to devote resources to advertising and marketing new brands. Our competitors may infringe our trademarks, and we may not have adequate resources to enforce our trademarks. Even if we are successful in defending the use of our trademarks or preventing third parties from infringing our trademarks, resolution of such disputes may result in substantial costs.

We are increasingly dependent on information technology, and our systems and infrastructure face certain risks, including cybersecurity and data leakage risks.

Significant disruptions to our information technology systems or breaches of information security could adversely affect our business. In the ordinary course of business, we collect, store and transmit large amounts of confidential information, and it is critical that we do so in a secure manner to maintain the confidentiality and integrity of such confidential information. The size and complexity of our information technology systems, and those of our third-party vendors with whom we contract, make such systems potentially vulnerable to service interruptions and security breaches from inadvertent or intentional actions by our employees, partners or vendors, from attacks by malicious third parties, or from intentional or accidental physical damage to our systems infrastructure maintained by us or by third parties. Maintaining the secrecy of this confidential, proprietary, or trade secret information is important to our competitive business position. While we have taken steps to protect such information and invested in information technology, there can be no assurance that our efforts will prevent service interruptions or security breaches in our systems or the unauthorized or inadvertent wrongful use or disclosure of confidential information that could adversely affect our business operations or result in the loss, dissemination, or misuse of critical or sensitive information. A breach of our security measures or the accidental loss, inadvertent disclosure, unapproved dissemination, misappropriation or misuse of trade secrets, proprietary information, or other confidential information, whether as a result of theft, hacking, fraud, trickery or other forms of deception, or for any other reason, could enable others to produce competing products, use our proprietary technology or information, or adversely affect our business or financial condition. Further, any such interruption, security breach, loss or disclosure of confidential information, could result in financial, legal, business, and reputational harm to us and could have a material adverse effect on our business, financial position, results of operations or cash flow.

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Risks related to our industry

Our profitability depends on coverage and reimbursement by governmental authorities, HMOs, MCOs and other third-party payors; healthcare reform and other future legislation creates uncertainty and may lead to reductions in coverage or reimbursement levels.

We have obtained from governmental payors, private health insurers and other third-party payors such as MCOs, agreements to cover and reimburse certain of our products and related treatments at varying levels. However, there is no assurance that any drug that we market will be covered by any third-party payor, or that, once a coverage determination has been made, the third-party payor will offer an adequate reimbursement level for our product. Third-party payors may limit coverage to specific products on an approved formulary, which might not include all of the approved products for a particular indication. In determining whether to approve reimbursement for our products and at what level, we expect that third-party payors will consider factors that include the efficacy, cost effectiveness and safety of our products, as well as the availability of other treatments including other generic prescription drugs and over-the-counter alternatives. Further, in order to obtain and maintain acceptable reimbursement levels and access for patients at copay levels that are reasonable and customary, we may face increasing pressure to offer discounts or rebates from list prices or discounts to a greater number of third-party payors or other unfavorable pricing modifications. Obtaining and maintaining favorable reimbursement can be a time consuming and expensive process, and there is no guarantee that we will be able to negotiate or continue to negotiate pricing terms with third-party payors at levels that are profitable to us, or at all. Additionally, any reimbursement granted may not be maintained, or limits on reimbursement available from third-party payors may reduce the demand for, or negatively affect the price of those products, and could significantly harm our business, results of operations, financial condition and cash flows.

In particular, there is no assurance that drug plans participating under the Medicare Part D program will offer our products, or of the terms of any such coverage, or that covered drugs will be reimbursed at amounts that reflect current or historical levels. For the year ended December 31, 2017, $2.4 million, or 0.4%, of our total revenues was attributable to sales under drug plans participating in the Medicare Part D program. The Medicare Part D Prescription Drug Benefit, which went into effect January 1, 2006, established a voluntary outpatient prescription drug benefit for Medicare beneficiaries (primarily the elderly over 65 and the disabled). These beneficiaries may enroll in private drug plans. There are multiple types of Part D plans and numerous plan sponsors, each with its own formulary and product access requirements. The plans have considerable discretion in establishing formularies and tiered co-pay structures and in placing prior authorization and other restrictions on the utilization of specific products. In addition, Part D plan sponsors are permitted and encouraged to negotiate rebates with manufacturers. The Medicare Part D program is administered by the Centers for Medicare & Medicaid Services, or CMS, within the Department of Health and Human Services, or HHS.

Since Medicare Part D was first established in 2006, CMS has issued extensive regulations and other sub-regulatory guidance documents implementing the Medicare Part D benefit, and the HHS Office of Inspector General, or OIG, has issued regulations and other guidance in connection with the Medicare Part D program. The federal government may continue to issue guidance and regulations regarding the obligations of Part D sponsors and their subcontractors that affect program coverage of pharmaceutical products or their reimbursement levels. In addition, participating drug plans may establish drug formularies that exclude coverage of specific drugs, and payment levels for drugs negotiated with Part D drug plans may be lower than reimbursement levels available through private health plans or other payors. Moreover, beneficiary co-insurance requirements could influence which products are recommended by physicians and selected by patients.

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There is no assurance that Medicaid programs will continue to offer coverage, and adequate reimbursement levels, for our pharmaceutical products. Most state Medicaid programs have established preferred drug lists, and the process, criteria and timeframe for obtaining placement on the preferred drug list varies from state to state. Under the Medicaid drug rebate program, a manufacturer must pay a rebate for Medicaid utilization of a product. The rebate for single source products (including authorized generics) is based on the greater of (i) a specified percentage of the product's average manufacturer price or (ii) the difference between the product's average manufacturer price and the best price offered by the manufacturer. The rebate for multiple source products is a specified percentage of the product's average manufacturer price. In addition, many states have established supplemental rebate programs as a condition for including a drug product on a preferred drug list. The profitability of our products may depend on the extent to which they appear on the preferred drug lists of a significant number of state Medicaid programs and the amount of the rebates that must be paid to such states. In addition, there is significant fiscal pressure on the Medicaid program, and legislative action to lower the pharmaceutical costs of the program are possible. Such legislative action could materially adversely affect our anticipated total revenues and results of operations.

In addition, third-party payors are increasingly challenging pricing of pharmaceutical products, and imposing controls to manage costs. The trend toward managed healthcare in the United States, the growth of organizations such as HMOs and MCOs, and legislative proposals to reform healthcare and government insurance programs could significantly influence the purchase of pharmaceutical products, resulting in lower prices and a reduction in product demand. The Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the ACA, was signed into law in March 2010. A number of provisions of the ACA continue to have a negative impact on the price of our products sold to U.S. government entities. As examples, the legislation includes measures that (i) significantly increase Medicaid rebates through both the expansion of the program and significant increases in rebates; (ii) substantially expand the Public Health System (340B) program to allow other entities to purchase prescription drugs at substantial discounts; (iii) extend the Medicaid rebate rate to a significant portion of Managed Medicaid enrollees; (iv) apply a discount to Medicare Part D beneficiary spending in the coverage gap for branded and authorized generic prescription drugs (which discount was recently increased effective in 2019); and (v) levy a significant excise tax on the industry to fund the healthcare reform. Such cost containment measures and healthcare reform may affect our ability to sell our products and could have a material adverse effect on our business, results of operations and financial condition.

Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, led to aggregate reductions of Medicare payments to providers of 2% per fiscal year. These reductions went into effect in April 2013 and, due to subsequent legislative amendments to the statute will remain in effect through 2027 unless additional action is taken by Congress. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover "without fault" overpayments to providers from three to five years.

With enactment of the Tax Cuts and Jobs Act of 2017, which was signed by President Trump on December 22, 2017, Congress removed the tax penalty applicable to the "individual mandate," which requires Americans to carry a minimal level of health insurance. Starting in 2019, the tax penalty for not carrying such insurance is zero. According to the Congressional Budget Office, the removal of the tax penalty will cause 13 million fewer Americans to be insured in 2027 and premiums in insurance markets may rise. Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain ACA-mandated fees, including the so-called "Cadillac" tax on certain high cost employer-sponsored insurance plans, the annual

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fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. Further, the Bipartisan Budget Act of 2018, among other things, amends the ACA, effective January 1, 2019, to increase from 50 percent to 70 percent the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare drug plans, commonly referred to as the "donut hole." Further, each chamber of the Congress has put forth multiple bills designed to repeal or repeal and replace portions of the ACA. Although none of these measures has been enacted by Congress to date, Congress may consider other legislation to repeal and replace elements of the ACA.

The Trump Administration has also taken executive actions to undermine or delay implementation of the ACA. In January 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. In October 2017, the President signed a second Executive Order allowing for the use of association health plans and short-term health insurance, which may provide fewer health benefits than the plans sold through the ACA exchanges. At the same time, the Administration announced that it will discontinue the payment of cost-sharing reduction, or CSR, payments to insurance companies until Congress approves the appropriation of funds for such CSR payments. The loss of the CSR payments is expected to increase premiums on certain policies issued by qualified health plans under the ACA. Future healthcare legislation could also have a significant impact on our business. There is uncertainty with respect to the impact these changes, if any, may have, and any changes likely will take time to unfold. Any additional federal healthcare reform measures adopted in the future could limit the amounts that federal and state governments will pay for healthcare products and services, and, in turn, could significantly reduce the projected value of certain development projects and reduce our profitability. Due to the uncertainties regarding the outcome of future healthcare reform initiatives and their enactment and implementation, we cannot predict which, if any, of the future reform proposals will be adopted or the effect such adoption may have on us.

There has been heightened public pressure and government scrutiny over pharmaceutical pricing practices, which may negatively impact our ability to generate revenues from our products, which could result in material adverse effects to our business, financial position and results of operations.

There has been heightened governmental scrutiny recently over pharmaceutical pricing practices in light of the rising cost of prescription drugs. Such scrutiny has resulted in several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing; review the relationship between pricing and manufacturer patient assistance programs, reduce the costs of drugs under Medicare, and reform government program reimbursement methodologies for drug products. At the federal level, the Trump Administration's budget proposal for fiscal year 2019 contains further drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. While any proposed measures will require authorization through additional legislation to become effective, Congress and the Trump Administration have each indicated an intent to continue to seek new legislative or administrative measures to control drug costs. At the state level, legislatures have become increasingly active in passing, or seeking to pass, legislation and regulations designed to control pharmaceutical and biological product pricing, including laws establishing maximum drug reimbursement rates for governmental or other payors within a state, laws limiting consumer copayment obligations, transparency and disclosure measures related to drug price increases and laws seeking to encourage drug importation from other countries and bulk purchasing. Reductions in reimbursement levels may negatively impact the prices we receive or the frequency with which our products are prescribed or administered. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction

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in payments from private payors. Any downward pricing pressure on the price of certain of our products arising from social or political pressure to lower the cost of pharmaceutical products could have a material adverse impact on our business, results of operations and financial condition.

There has also been increasing U.S. federal and state enforcement interest with respect to drug pricing. For instance, the U.S. Department of Justice, or DOJ, issued subpoenas to pharmaceutical companies, seeking information about the sales, marketing and pricing of certain generic drugs. In addition to the effects of any investigations or claims brought against us, our business, results of operations and financial condition could also be adversely affected if any such inquiries, of us or of other pharmaceutical companies or the industry more generally, were to result in legislative or regulatory proposals that limit our ability to increase the prices of our products.

Certain prescription product coding databases may choose to reclassify prescription dietary supplements as non-prescription, or over-the-counter, which may result in limited or no insurance coverage for these products and a decrease in utilization of such products

Many private and government insurance plans refer to product listing databases to determine whether or not a product is a prescription product, a non-prescription, or over-the-counter product or a medical food product. How a product is listed in these databases impacts whether or not a product is covered by insurance, or whether it receives limited coverage, as many providers may choose not to cover over-the-counter products. For example, on May 15, 2017, First Databank, a prescription coding database, announced that starting in June 2017 it would classify all dietary supplements as non-prescription. Several companies have sued First Databank, in an effort to prevent or delay the implementation of the reclassification. On April 9, 2018, First Databank announced that it is proceeding with a reclassification of non-prenatal dietary supplements to non-prescription which may affect some of our products. First Databank has temporarily delayed implementing this reclassification for prenatal dietary supplements. If First Databank or other listing databases were to re-classify all dietary supplements, including prenatal dietary supplements, as non-prescription or over-the-counter, this could prevent insurance coverage for our prescription prenatal dietary supplements and negatively impact our future total revenues, profitability and cash flows.

We are subject to extensive governmental regulation and we face significant uncertainties and potentially significant costs associated with our efforts to comply with applicable regulations. Any non-compliance may result in fines or other sanctions, including debarment, product seizures, product recalls, injunctive actions and criminal prosecutions, which could result in material adverse effects to our business, financial position and results of operations.

The pharmaceutical industry operates in a highly regulated environment subject to the actions of courts and governmental agencies that influence the ability of a company to successfully operate its business and is subject to regulation by various governmental authorities at the federal, state and local levels with respect to the development, manufacture, labeling, sale, distribution, marketing, advertising and promotion of pharmaceutical products. As a pharmaceutical manufacturer and distributor, we are subject to extensive regulation by the federal government, principally the FDA and the Drug Enforcement Administration, or DEA, as well as by state governments.

The FDCA, the Controlled Substances Act, the Generic Drug Enforcement Act of 1992, or the Generic Drug Act, and other federal, state and local statutes and regulations govern the testing, manufacture, safety, labeling, storage, disposal, tracking, recordkeeping, approval, advertising and promotion (including to the healthcare community) of our products. If we, our products, the manufacturing facilities for our products, our CROs, or other persons or entities working on our behalf fail to comply with applicable regulatory requirements either before or after marketing approval, a regulatory agency, such as the FDA, may, depending on the stage of product development and approval, revoke, withdraw, or suspend approvals of previously approved products for cause, debar companies and individuals from participating in the drug-approval process, request or in certain circumstances mandate recalls of allegedly violative products, seize

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allegedly violative products, issue Warning Letters or Untitled Letters, mandate modifications to promotional materials or require the provision of corrective information to healthcare practitioners, amend and update labels or package inserts, suspend or terminate any ongoing clinical trials, refuse to approve pending applications or supplements to applications filed, refuse to allow entry into government contracts, obtain injunctions to close manufacturing plants allegedly not operating in conformity with FDA's cGMP requirements, stop shipments of allegedly violative products, impose fines perhaps significant in amount, require entry into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance and other sanctions imposed by courts or regulatory bodies, including criminal prosecutions. If we or a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions relative to that product or the manufacturing facility, including requiring product recall, notice to physicians, withdrawal of the product from the market or suspension of manufacturing. From time to time, we have voluntarily recalled our products and may do so in the future. For example, we have three active recalls of methylphenidate ER to the wholesale level. These recalls were each based on a complaint that indicated that a bottle had contained one tablet with the incorrect dosage strength. Our investigation revealed that the incorrect tablets were likely introduced at the first coating step of the manufacturing process and determined that the issue poses no potential risk to patients. In addition, in August 2017, we initiated a recall to the retail level of the prescription dietary supplement product, Zatean pN DHA. We initiated the recall because the product labeling listed an incorrect food coloring as one of the excipient ingredients. The recall is ongoing, and we do not have any reports of adverse reactions associated with the use of the affected product.

Because of the chemical ingredients of pharmaceutical products and the nature of the manufacturing process, the pharmaceutical industry is subject to extensive environmental laws and regulation and the risk of incurring liability for damages and the costs of remedying environmental problems. These requirements include regulation of the handling, manufacture, transportation, storage, use and disposal of materials, including the discharge of hazardous materials and pollutants into the environment. In the normal course of our business, we are exposed to risks relating to possible releases of hazardous substances into the environment, which could cause environmental or property damage or personal injuries, and which could result in (i) our noncompliance with such environmental and occupational health and safety laws and regulations and (ii) regulatory enforcement actions or claims for personal injury and property damage against us. If an unapproved or illegal environmental discharge or accident occurred or if we were to discover contamination caused by prior operations, including by prior owners and operators of properties we acquire, then we could be liable for cleanup, damages or fines, which could have a material adverse effect on our business, financial position, results of operations and cash flow. In the future, we may be required to increase expenditures in order to remedy environmental problems or comply with changes in applicable environmental laws and regulations. We could also become a party to environmental remediation investigations and activities. These obligations may relate to sites that we currently or in the future may own or lease, sites that we formerly owned or operated, or sites where waste from our operations was disposed. Additionally, if we fail to comply with environmental regulations to use, discharge or dispose of hazardous materials appropriately or otherwise to comply with the provisions of our operating licenses, the licenses could be revoked, and we could be subject to criminal sanctions or substantial civil liability or be required to suspend or modify our manufacturing operations. We currently operate in Florida, Georgia, New Jersey and North Carolina, and in overseas jurisdictions including Argentina and Hungary, and we are required to comply with the laws and regulations of those states or overseas jurisdictions in addition to any federal laws and regulations. We may in the future establish or acquire operations in other jurisdictions subject to equally or more stringent laws and regulations. Stricter environmental, safety and health laws and enforcement policies could result in substantial costs and liabilities to us, and could subject our handling, manufacture, use, reuse or disposal of substances or pollutants to more rigorous scrutiny than is currently

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the case. Consequently, compliance with these laws could result in significant capital expenditures, as well as other costs and liabilities, which could materially adversely affect us.

As part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, companies are now required to file with the FTC, and the DOJ certain types of agreements entered into between brand and generic pharmaceutical companies related to the settlement of patent litigation or the manufacture, marketing and sale of generic versions of branded drugs. This requirement could affect the manner in which generic drug manufacturers resolve intellectual property litigation and other disputes with brand pharmaceutical companies and could result generally in an increase in private-party litigation against pharmaceutical companies or additional investigations or proceedings by the FTC or other governmental authorities. The potential for FTC investigations and litigation and private-party lawsuits associated with arrangements between brand and generic drug manufacturers could adversely affect our business. In recent years, the FTC has expressed its intention to take aggressive action to challenge settlements that include an alleged payment from the brand company to the generic company (so-called "pay for delay" patent litigation settlements) and to call on legislators to pass stronger laws prohibiting such settlements. In 2013, the U.S. Supreme Court held that certain of such settlements could violate anti-trust laws and must be evaluated under a "rule of reason" standard of review.

We are subject to the effects of changes in statutes, regulations and interpretative guidance that may adversely affect our business and that could require us to devote increased time and resources to our compliance efforts, which may not be successful. For example, the FDA has proposed revisions to regulations governing generic drugs with respect to both when and how a labeling change would be required, which could have negative consequences for our business. The proposed revisions could create a regulatory framework whereby multiple, different labeling, including different warnings, could simultaneously exist in the marketplace for multiple generic versions of a drug, which could adversely affect our customers' acceptance of our generic products or could place our products at a competitive disadvantage. Moreover, the proposed revisions could expose us to substantial new tort liability costs, which could cause us to withdraw or decline to pursue certain products. These or any other changes in statutes, regulations or interpretative guidance could have a material adverse effect on our business, financial condition, prospects and results of operations.

We also cannot predict the likelihood, nature or extent of adverse government regulation that may arise from pending or future legislation or administrative action, either in the United States or abroad. Namely, the Trump Administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, the FDA's ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. It is difficult to predict how these executive actions, including the Executive Orders, will be implemented, and the extent to which they will affect the FDA's ability to exercise its regulatory authority. If these executive actions impose constraints on the FDA's ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted, and if we are not able to achieve and maintain regulatory compliance, we may not be permitted to market our products or product candidates, which would adversely affect our ability to generate revenues and achieve or maintain profitability.

These risks, along with others, have the potential to materially and adversely affect our business, financial position, results of operations and prospects. Although we have developed compliance programs to address the regulatory environment, there is no guarantee that these programs will meet regulatory agency standards now or in the future. Additionally, despite our efforts at compliance, there is no guarantee that we may not be deemed to be deficient in some manner in the future. If we are deemed to be deficient in any significant way, our business, financial position and results of operations could be materially affected.

The manufacture, packaging, labeling, advertising, promotion, distribution and sale of our dietary supplements are also subject to regulation by numerous national and local governmental agencies, including

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the FDA and FTC. Failure to comply with regulatory requirements pertaining to any of our products, including prescription drugs and dietary supplements, may result in various types of penalties or fines. These include injunctions, product withdrawals, recalls, product seizures, fines and criminal prosecutions. Individual U.S. states also regulate dietary supplements. A state may seek to interpret claims or products presumptively valid under federal law as illegal under that state's regulations. Any or all of these requirements could have a material adverse effect on us. In addition, the FDA's policies may change and additional government regulations could impose more stringent product labeling and post-marketing testing and other requirements. For example, the FDA has stated that there is no specific upper limit on the amount of folic acid permitted in dietary supplements. If the FDA were to regulate products with higher amounts of folic acid as drugs, it may require us to stop marketing and selling certain dietary supplement products. There can be no assurance that the regulatory environment in which we operate will not change or that such regulatory environment, or any specific action taken against us, will not result in a material adverse effect on us.

The drug regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable and typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate's clinical development and may vary among jurisdictions.

Our product candidates could fail to receive regulatory approval for many reasons. For example:

    §
    the FDA or comparable foreign regulatory authorities may disagree that our product candidates meet the criteria for the NDA or ANDA regulatory pathway or foreign regulatory pathways;

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    we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective or chemically identical and bioequivalent to its branded reference product for its proposed indication;

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    the results of any clinical trials we conduct may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;

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    we may be unable to demonstrate that a product candidate's clinical and other benefits outweigh its safety risks;

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    the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third party manufacturers with which we contract for clinical and commercial supplies; and

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    the approval policies or regulations of the FDA or comparable foreign regulatory authorities may change significantly in a manner rendering our clinical data insufficient for approval.

This lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market certain of our product candidates, which would harm our business, results of operations and prospects significantly. In addition, even if we obtain approval for our product candidates, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request or may grant approval contingent on the performance of costly post-marketing clinical trials or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could harm the commercial prospects for our product candidates.

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product or product candidate and could substantially increase the costs of commercializing our products and product candidates.

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If we are found to have improperly promoted our products, we may be subject to restrictions on the sale or marketing of our products and significant fines, penalties and sanctions, and our image and reputation within the industry and marketplace could be harmed.

The FDA and other regulatory agencies, including regulatory authorities outside the United States, strictly regulate the marketing and promotional claims that are made about drug products. In particular, promotion for a product must be balanced, truthful, non-misleading and consistent with its labeling approved by the FDA or by regulatory agencies in other countries. We cannot prevent physicians from prescribing our products for indications or uses that are inconsistent with the approved package insert. If, however, we are found to have promoted such unapproved uses prior to the FDA's approval for an additional indication, we may, among other consequences, receive Untitled or Warning Letters and become subject to significant liability, which would materially harm our business. Both the U.S. federal government and foreign regulatory authorities have levied significant civil and criminal fines against companies and individuals for alleged improper promotion and have entered into settlement agreements with pharmaceutical companies to limit inappropriate promotional activities. If we become the target of such an investigation or prosecution based on our marketing and promotional practices, we could face similar sanctions, which would materially harm our business. In addition, management's attention could be diverted from our business operations, significant legal expenses could be incurred and our reputation could be damaged.

Our business operations and current and future relationships with investigators, healthcare professionals, third-party payors, patient organizations and customers are subject to applicable healthcare regulatory laws, which could expose us to penalties.

Our business operations and current and future arrangements with investigators, healthcare professionals, third-party payors, patient organizations and customers subject us and our customers to broadly applicable fraud and abuse and other healthcare laws and regulations. These laws constrain the business or financial arrangements and relationships through which we conduct our operations, including how we research, market, sell and distribute our products and product candidates, if approved. Such laws include:

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    the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or providing any remuneration (including any kickback, bribe, or certain rebates), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, lease, order or arrangement for, any good, facility, item or service, for which payment may be made, in whole or in part, under U.S. federal and state healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

    §
    the U.S. federal civil and criminal false claims, including the civil False Claims Act, which prohibit, among other things, including through civil whistleblower or qui tam actions, individuals or entities from knowingly presenting, or causing to be presented, to the U.S. federal government, claims for payment or approval that are false or fraudulent, knowingly making, using or causing to be made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government. In addition, the government may assert that a claim including items and services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;

    §
    the U.S. federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal statutes which prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for, healthcare benefits, items or services. Similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

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    §
    HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 or HITECH and its implementing regulations, which imposes certain obligations, with respect to safeguarding the privacy, security and transmission of individually identifiable health information without appropriate authorization by covered entities subject to the rule, such as certain health plans, healthcare clearinghouses and healthcare providers as well as the covered entities' business associates, independent contractors of a covered entity that perform certain services involving the use or disclosure of individually identifiable health information;

    §
    the federal civil monetary penalties statute, which prohibits, among other things, the offering or giving of remuneration to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary's selection of a particular supplier of items or services reimbursable by a federal or state governmental program;

    §
    the FDCA, which prohibits, among other things, the adulteration or misbranding of drugs;

    §
    the "Federal Sunshine Law," or Open Payments, and its implementing regulations, which require certain manufacturers of drugs and medical supplies that are reimbursable under Medicare, Medicaid, or the Children's Health Insurance Program, with specific exceptions, to report annually to the government information related to certain payments and other transfers of value to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members;

    §
    federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers;

    §
    analogous U.S. state laws and regulations, including: state anti-kickback and false claims laws, which may apply to our business practices, including but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by any third-party payor, including private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry's voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws and regulations that require drug manufacturers to file reports relating to pricing sales, shipping and marketing information, which includes tracking gifts and other remuneration and items of value provided to healthcare professionals and entities; state and local laws that require the registration of pharmaceutical sales representatives and reporting to certain states the shipment of opioid products into those states; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts; and

    §
    similar healthcare laws and regulations in the European Union, or the EU, and other jurisdictions, including reporting requirements detailing interactions with and payments to healthcare providers.

Ensuring that our internal operations and business arrangements with third parties comply with applicable healthcare laws and regulations involves substantial costs. It is possible that governmental authorities will conclude that our business practices, including our arrangements with physicians and other healthcare providers do not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that may apply to us, we may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, exclusion from government-funded healthcare programs, such as Medicare and Medicaid or similar programs in other countries or jurisdictions, integrity oversight and reporting obligations to resolve allegations of non-compliance, disgorgement, individual imprisonment, contractual damages, reputational harm, diminished profits and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we do business are found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs and imprisonment, which could affect our ability to operate our

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business. Further, defending against any such actions can be costly, time-consuming and may require significant personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired. To the extent our patient assistance programs are found to be inconsistent with applicable laws, we may be required to restructure or discontinue such programs, or be subject to other significant penalties.

We are subject to various laws protecting the confidentiality of certain patient health information, and our failure to comply could result in penalties and reputational damage.

Numerous countries in which we operate, manufacture and sell our products have, or are developing, laws protecting data privacy and the confidentiality of certain patient health information. EU member states and other jurisdictions have adopted data protection laws and regulations, which impose significant compliance obligations. For example, the EU General Data Protection Regulation, or the GDPR, which came into force on May 25, 2018, introduced new data protection requirements in the EU and substantial fines for breaches of the data protection rules. The GDPR imposes strict obligations and restrictions on controllers and processors of personal data including, for example, expanded disclosures about how personal data is to be used, increased requirements pertaining to health data and pseudonymised (i.e., key-coded) data, mandatory data breach notification requirements and expanded rights for individuals over their personal data. This could affect our ability to collect, analyze and transfer personal data, including health data from clinical trials and adverse event reporting, or could cause our costs to increase, and harm our business and financial condition.

While the GDPR, as a directly effective regulation, was designed to harmonize data protection law across the EU, it does permit member states to legislate in many areas (particularly with regard to the processing of genetic, biometric or health data), meaning that inconsistencies between different member states will still arise. EU member states have their own regimes on medical confidentiality and national and EU-level guidance on implementation and compliance practices is often updated or otherwise revised, which adds to the complexity of processing personal data in the EU.

European data protection law generally prohibits the transfer of personal data to countries outside of the EU that are not considered by the European Commission to provide an adequate level of data protection, unless there are specific frameworks or mechanisms in place or very narrow legal exceptions (such as consent) apply. However, the Privacy Shield framework (which permits transfers of personal data from the EU to the U.S.) is under review and there is currently litigation challenging other EU mechanisms for adequate data transfers (e.g. the standard contractual clauses). It is uncertain whether the Privacy Shield framework or the standard contractual clauses will be invalidated by the European courts. We could be impacted by changes in law as a result of a future review of these transfer mechanisms by European regulators under the GDPR, as well as current challenges to these mechanisms in the European courts.

In recent years, U.S. and European regulators have expressed concern over electronic marketing and the use of third-party cookies, web beacons and similar technology for online behavioral advertising. In the EU, informed consent is required for the placement of a cookie on a user's device. The current EU laws that cover the use of cookies and similar technology and marketing online or by electronic means are under reform. A draft of the new ePrivacy Regulation is currently going through the European legislative process. Unlike the current ePrivacy Directive, the draft ePrivacy Regulation will be directly implemented into the laws of each of the EU member states, without the need for further enactment. When implemented, it is expected to alter rules on third-party cookies, web beacons and similar technology for online behavioral advertising and to impose stricter requirements on companies using these tools. The current provisions of the draft ePrivacy Regulation also extend the strict opt-in marketing rules to business-to-business communications and significantly increase penalties.

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Our reporting and payment obligations under the Medicaid rebate program and other governmental purchasing and rebate programs are complex and may involve subjective decisions. Any determination that we have failed to comply with those obligations could subject us to penalties and sanctions, which could have a material adverse effect.

The regulations regarding reporting and payment obligations with respect to Medicaid reimbursement and rebates and other governmental programs are complex. Many government and third-party payors, including Medicare, Medicaid, HMOs and others, reimburse doctors and others for the purchase of certain prescription drugs based on a drug's average wholesale price, or AWP. In the past several years, state and federal government agencies have conducted ongoing investigations of manufacturers' reporting practices with respect to AWP, in which the agencies have suggested that reporting of inflated AWPs by manufacturers have led to excessive payments for prescription drugs. We can give no assurance that we will be able to settle any future actions that may be brought against us on terms that we deem reasonable, or that such settlements or adverse judgments, if entered, will not exceed the amount of any reserve. Accordingly, such actions could adversely affect us and may have a material adverse effect on our business, results of operations, financial condition and cash flows.

Our calculations and methodologies related to government pricing reporting are subject to review and challenge by the applicable governmental agencies, and it is possible that such reviews could result in material changes. In addition, because our processes for these calculations and the judgments involved in making these calculations involve, and will continue to involve, subjective decisions and complex methodologies, these calculations are subject to the risk of errors. Any governmental agencies that have commenced (or that may commence) an investigation of our company could impose, based on a claim of violation of fraud and false claims laws or otherwise, civil or criminal sanctions, including fines, penalties and possible exclusion from federal health care programs (including Medicaid and Medicare). Some of the applicable laws may impose liability even in the absence of specific intent to defraud. Furthermore, should there be ambiguity with regard to how to properly calculate and report payments, and even in the absence of any such ambiguity, a governmental authority may take a position contrary to a position that we have taken and may impose civil or criminal sanctions on us. Any such penalties, sanctions, or exclusion from federal health care programs could have a material adverse effect on our business, financial position and results of operations. From time to time we conduct routine reviews of our government pricing calculations. These reviews may have an impact on government price reporting and rebate calculations used to comply with various government regulations regarding reporting and payment obligations.

Increased scrutiny around the abuse of opioids, including law enforcement concerns over diversion and legislative and regulatory efforts to combat abuse, could impact some of our pharmaceutical products, and could reduce the demand and increase the cost, burden and liability associated with the commercialization of opioids.

Law enforcement and regulatory agencies may apply policies that seek to limit the availability of opioids. Such efforts may affect our opioid products, such as tramadol extended-release capsules and hydromorphone ER (hydromorphone hydrochloride extended-release tablets). For the year ended December 31, 2017, our opioid products represented 3% of our total revenues. Aggressive enforcement, unfavorable publicity regarding, for example, the use or misuse of opioid drugs or the limitations of abuse-deterrent formulations, litigation, public inquiries or investigations related to the abuse, sales, marketing, distribution or storage of our products could harm our reputation. Such negative publicity could reduce the potential size of the market for our drugs and decrease the total revenues we are able to generate from sales. In addition, efforts by the FDA and other regulatory bodies to combat the abuse of opioids may negatively impact the market for our products. The FDA continues to evaluate extended-release and abuse-deterrent opioids in the post-market setting. We expect that the FDA will continue to scrutinize the impact of abuse-deterrent opioids and in the future could impose further restrictions to products currently on the market, which may include changing labeling, imposing additional prescribing restrictions, or seeking a product's removal from the market, which could have an adverse effect on our financial performance.

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In addition, some states, including the Commonwealths of Massachusetts and Virginia and the States of New York, Ohio, Arizona, Maine, New Hampshire, Vermont, Rhode Island, Colorado, Wisconsin, Alabama, South Carolina, Washington and New Jersey, have either recently enacted, intend to enact, or have pending legislation or regulations designed to, among other things, limit the duration and quantity of initial prescriptions of immediate-release forms of opiates, mandate the use by prescribers of prescription drug databases and mandate prescriber education. The attorneys general from the substantial majority of states have announced a joint investigation into the marketing and sales practices of drug companies that market opioid pain medications. At the state and local level, a number of states and cities have brought separate lawsuits against various pharmaceutical companies marketing and selling opioid pain medications, alleging misleading or otherwise improper promotion of opioid drugs to physicians and consumers. On March 15, 2018, a coalition of local governments in Arkansas, comprised of 75 counties and 15 cities, jointly filed a lawsuit in the Circuit Court of Crittenden County, Arkansas against more than 60 defendants, including us. The summons and complaint that we received on April 30, 2018 claimed that we and the other defendants, including prescription opioid manufacturers, distributors and retailers, and several physicians, were negligent and violated public nuisance law as well as various Arkansas controlled substance laws as a result of alleged opioid sales and marketing practices. The lawsuit sought damages and restitution for past and prospective spending related to opioid use, as well as punitive and treble damages. On July 17, 2018, the court entered an order in the Arkansas litigation voluntarily dismissing us from the lawsuit without prejudice. If similar lawsuits are filed against us in the future, we may be subject to excessive litigation or settlement costs, negative publicity, diversion of management time and attention, decreased sales or removal of one or more of our opioid products from the market, which could have a material adverse effect on our business, results of operations and financial condition.

In March 2017, President Trump announced the creation of a commission, through the Office of National Drug Control Policy, to make recommendations to the President on how to best combat opioid addiction and abuse. In August 2017, the commission issued a preliminary report calling on President Trump to officially declare the crisis of opioid abuse a national emergency. On October 26, 2017, President Trump declared the opioid crisis a "national public health emergency." The commission's final report was released in early November 2017. In July 2017, the Pharmaceutical Care Management Association, a trade association representing pharmacy benefit managers, wrote a letter to the commissioner of FDA in which it expressed support for, among other things, the CDC guidelines and a seven-day limit on the supply of opioids for acute pain. In September 2017, CVS Pharmacy announced that it would only fill first time opioid prescriptions for acute pain for a seven day supply. These and other similar initiatives and actions, whether taken by governmental authorities or other industry stakeholders, may result in the reduced prescribing and use of opioids, including our opioid products, which could adversely affect our ability to commercialize our opioid products, and in turn adversely affect our business, financial condition and results of operations.

Some of our products, including methylphenidate ER, are stimulant products and face intense competition from existing or future stimulant products and also have the potential for misuse, which could reduce the demand and increase the cost, burden and liability associated with the commercialization of such products.

Some of our products and product candidates are stimulants, including methylphenidate ER. The markets for methylphenidate ER and other stimulants to treat attention deficit hyperactivity disorder, or ADHD, are well developed and populated with established drugs marketed by large pharmaceutical, biotechnology and generic drug companies. There have also been efforts to develop stimulant products that are less prone to abuse, and such products may compete with our products. Our competitors may succeed in developing, acquiring or licensing, on an exclusive basis or otherwise, drug products or drug delivery technologies that are more effective, less costly or less prone to abuse than our stimulant products, or any product candidate that we may develop. In addition, because of the potential for abuse of stimulant products, regulatory agencies may develop and apply policies that seek to limit the abuse of such stimulant products. If our competitors develop and market stimulant products that are more effective, safer or less expensive than our product or future product candidates, if any, or if abuse of our stimulant products result in increased liability or reduced demand for such products, this could impact our ability to generate revenues from such stimulant products and will adversely affect our business and financial condition.

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In addition, for some methylphenidate ER products when a patient switches from one medication to another, there may be an actual or perceived lack of efficacy or increase in side effects. For example, this could happen if a patient starts taking our methylphenidate ER product instead of the branded product. These lack of efficacy reports are submitted to the FDA and may result in the FDA reviewing previously submitted data, or generating data on its own, to confirm whether or not our product is therapeutically equivalent to the reference listed drug. If the FDA finds that our product is not therapeutically equivalent to the reference listed drug, FDA could change the designation of the product from AB to BX rated and request that we remove the product from the market. Either result would adversely affect our business and financial condition.

The DEA limits production of some of our products and limits the availability of certain of our products' active ingredients. Procurement and production quotas set by the DEA may not be sufficient to allow us to complete clinical trials or to meet commercial demand, and may result in clinical delays.

The DEA regulates chemical compounds as Schedule I, II, III, IV or V substances, with Schedule I substances considered to present the highest risk of substance abuse and Schedule V substances the lowest risk. Methylphenidate included in our methylphenidate ER and M-72 products and hydromorphone included in our hydromorphone ER product are listed as Schedule II drugs and tramadol hydrochloride included in our ConZip product is listed as a Schedule IV drug by the DEA under the Controlled Substances Act. The manufacture, shipment, storage, sale and use of Schedule II drugs are subject to a high degree of regulation. For example, Schedule II drug prescriptions generally must be signed by a physician and may not be refilled without a new prescription. Substances in Schedule IV are considered to have a lower potential for abuse relative to substances in Schedule II. A prescription for controlled substances in Schedule IV may be issued by a practitioner through oral communication, in writing, or by facsimile to the pharmacist, and may be refilled if so authorized on the prescription or by call-in. In the future, our other potential products may also be listed by the DEA as controlled substances.

Furthermore, the DEA limits the availability of the active ingredients in certain of our current drug products and sets a quota on the production of these products. We, or our contract manufacturing organizations, must annually apply to the DEA for procurement and production quotas in order to obtain these substances and produce our products. As a result, our procurement and production quotas may not be sufficient to meet commercial demand or to complete clinical trials, which may result in delays in clinical trials or inability to meet commercial demand. Moreover, the DEA may adjust these quotas from time to time during the year. Any delay or refusal by the DEA to establish or modify our quotas for controlled substances could delay or stop clinical trials or product launches, or could cause trade inventory disruptions, which could have a material adverse effect on our business, financial position, results of operations and cash flows.

Litigation is common in our industry, can be protracted and expensive, and could delay or prevent entry of our products into the market, which could have a material adverse effect on our business.

Litigation concerning intellectual property rights in the pharmaceutical industry can be protracted and expensive. Pharmaceutical companies with patented branded products regularly sue companies that file applications to produce generic equivalents of their patented branded products for alleged patent infringement or other violations of intellectual property rights, which are expensive to defend and may delay or prevent the entry of such generic products into the market. Generally, a generic drug may not be marketed until the applicable patent(s) on the brand name drug expire or are held to be invalid, unenforceable or not infringed by the generic product at issue. When we or our development partners submit an ANDA to the FDA for approval of a generic drug, we or our development partners must certify either (i) that there is no patent listed with the FDA as covering the relevant branded product, (ii) that any patent listed as covering the branded product has expired, (iii) that the patent listed as covering the branded product will expire prior to the marketing of the generic product, in which case the ANDA will not be finally approved by the FDA until the expiration of such patent or (iv) that any patent listed as covering the branded drug is invalid or will not be infringed by the manufacture, sale or use of the generic product for which the ANDA is submitted, which we refer to as a "Paragraph IV" certification. Whenever we file an

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ANDA with a Paragraph IV certification, there is a high likelihood that a brand pharmaceutical company will sue us for alleged patent infringement or other violations of intellectual property rights. Also, competing pharmaceutical companies may file lawsuits against us alleging patent infringement or other violations of intellectual property rights or may file declaratory judgment actions against us alleging non-infringement, invalidity, or unenforceability of our own patents. Because substantially all of our current business involves the development and marketing of products that are subject to potential claims of patent infringement by third parties or, with respect to our own branded products, are subject to third-party challenges, the threat of litigation, the outcome of which is inherently uncertain, is always present. Such litigation is often costly and time consuming and could result in a substantial delay in, or prevent, the introduction or marketing of our products, which could have a material adverse effect on our business, financial condition, prospects and results of operations.

We are susceptible to product liability claims that may not be covered by insurance, which, if successful, could require us to pay substantial sums.

Like all pharmaceutical companies, we face the risk of loss resulting from, and the adverse publicity associated with, product liability lawsuits, whether or not such claims are valid. We likely cannot avoid such claims. Unanticipated side effects or unfavorable publicity concerning any of our products would likely have an adverse effect on our ability to achieve acceptance by prescribing physicians, managed care providers, pharmacies and other retailers, customers, patients and clinical trial participants. Even unsuccessful product liability claims could require us to spend money on litigation, divert management's time, damage our reputation and impair the marketability of our products. In addition, although we believe that we have adequate product liability insurance coverage, we cannot be certain that our insurance will, in fact, be sufficient to cover such claims or that we will be able to obtain or maintain adequate insurance coverage in the future at acceptable prices. A successful product liability claim that is excluded from coverage or exceeds our policy limits could require us to pay substantial sums. In addition, insurance coverage for product liability may become prohibitively expensive in the future or, with respect to certain high-risk products, may not be available at all. For example, some product liability insurance carriers exclude some of our products from coverage, such as hydromorphone ER and ConZip, due to restrictions on covering certain controlled substances, including opioids. As a result we may not be able to maintain adequate product liability insurance coverage to mitigate the risk of large claims, or we may be required to maintain a larger self-insured retention than we would otherwise choose.

Manufacturing or quality control problems may damage our reputation for quality production, require costly remedial activities and negatively impact our business, results of operations and financial condition.

As a pharmaceutical company, we are subject to substantial regulation by various governmental authorities. For instance, we must comply with requirements of the FDA and other healthcare regulators with respect to the manufacture of pharmaceutical products. We must register our facilities, whether located in the United States or elsewhere, with the FDA as well as regulators outside the United States. Also, our products, including our investigational products, must be made in a manner consistent with applicable cGMP regulations, or similar standards in each territory in which we manufacture. The failure of one of our facilities, or a facility of one of our third-party suppliers, to comply with applicable laws and regulations may lead to breach of representations made to our customers or to regulatory or government action against us related to products made in that facility.

In addition, the FDA and other agencies periodically inspect our manufacturing facilities. Following an inspection, an agency may issue a notice listing conditions that are believed to violate cGMP or other regulations, or a Warning Letter for violations of "regulatory significance" that may result in enforcement action if not promptly and adequately corrected. We have in the past received Warning Letters from the FDA regarding certain operations. In May 2017, the FDA issued a Warning Letter to us for violation of post-marketing adverse drug experience reporting requirements, specifically for (i) failing to develop written procedures for the surveillance, receipt, evaluation, and reporting of post-marketing adverse drug experiences, and (ii) failing to submit periodic adverse drug experience reports annually. This Warning Letter

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was based on an October-November 2016 FDA inspection. We have been providing periodic updates to FDA outlining our corrective steps taken in response to this Warning Letter. In July 2018, the FDA conducted an inspection of our pharmacovigilance function as follow up to the May 10, 2017 Warning Letter. We have responded to the single observation on the FDA Form 483. In addition, in August 2017, the FDA issued a Warning Letter to Cipher Pharmaceuticals Inc., the manufacturer for ConZip, for which we hold the exclusive license to market, sell and distribute. The FDA determined that a piece of promotional material for ConZip was false and misleading because it omitted important risk information. On November 30, 2017, the FDA issued a letter to Cipher Pharmaceuticals Inc. acknowledging Cipher Pharmaceuticals Inc.'s corrective actions as sufficient and concluding that the matter is considered closed. We remain committed to continuing to improve our quality control and manufacturing practices; however, we cannot be assured that the FDA will continue to be satisfied with our quality control and manufacturing systems and standards. Failure to comply strictly with these regulations and requirements may damage our reputation and lead to financial penalties, compliance expenditures, the recall or seizure of products, total or partial suspension of production or distribution, withdrawal or suspension of the applicable regulator's review of our submissions, enforcement actions, injunctions and criminal prosecution. Further, other federal agencies, our customers and partners in our development, manufacturing, collaboration and other partnership agreements with respect to our products and services may take any such FDA observations or Warning Letters into account when considering the award of contracts or the continuation or extension of such partnership agreements. The delay and cost of remedial actions, or obtaining approval to manufacture at a different facility, could negatively impact our business. Any failure by us to comply with applicable laws and regulations or any actions by the FDA and other agencies as described above could have a material adverse effect on our business, financial position and results of operations.

The illegal distribution and sale by third parties of counterfeit versions of our products or of stolen products could have a negative impact on our reputation and a material adverse effect on our business, results of operations and financial condition.

Third parties could illegally distribute and sell counterfeit versions of our products, which do not meet the rigorous manufacturing and testing standards that our products undergo. Counterfeit products are frequently unsafe or ineffective, and can be life-threatening. Counterfeit medicines may contain harmful substances, the wrong dose of the API or no API at all. However, to distributors and users, counterfeit products may be visually indistinguishable from the authentic version.

Reports of adverse reactions to counterfeit drugs or increased levels of counterfeiting could materially affect patient confidence in the authentic product. It is possible that adverse events caused by unsafe counterfeit products will mistakenly be attributed to the authentic product. In addition, thefts of inventory at warehouses, plants or while in-transit, which are not properly stored and which are sold through unauthorized channels could adversely impact patient safety, our reputation and our business.

Public loss of confidence in the integrity of our pharmaceutical products as a result of counterfeiting or theft could have a material adverse effect on our reputation, business, results of operations and financial condition.

Our employees and independent contractors, including consultants, vendors and any third parties we may engage in connection with development and commercialization may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could harm our business.

Misconduct by our employees and independent contractors, including consultants, vendors and any third parties we may engage in connection with development and commercialization, could include intentional, reckless or negligent conduct or unauthorized activities that violate: (i) the laws and regulations of the FDA and other similar regulatory authorities, including those laws that require the reporting of true, complete and accurate information to such authorities; (ii) manufacturing standards; (iii) data privacy, security, fraud and abuse and other healthcare laws and regulations; or (iv) laws that require the reporting of true,

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complete and accurate financial information and data. Specifically, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws could also involve the improper use or misrepresentation of information obtained in the course of clinical trials, creation of fraudulent data in preclinical studies or clinical trials or illegal misappropriation of drug product, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with such laws or regulations. Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations.

Risks related to our indebtedness

Our operating subsidiaries' substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from meeting obligations on our indebtedness.

We currently have a substantial amount of indebtedness. As of June 30, 2018, our total indebtedness was $324.2 million (excluding original issue discount or upfront payments), with unused commitments of $50.0 million under the senior secured credit facilities. Upon completion of this offering and after giving effect to the use of proceeds described in this prospectus, we expect to have total indebtedness of $224.2 million (excluding original issue discount or upfront payments). We may also incur significant additional indebtedness in the future.

Subject to the limits contained in our senior secured credit facilities, we may be able to incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to this high level of debt could intensify. Specifically, the high level of debt could have important consequences, including, but not limited to:

    §
    making it more difficult for us to satisfy our obligations with respect to our debt;
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    requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes;
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    limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements;
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    increasing our vulnerability to general adverse economic and industry conditions;
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    exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under the senior secured credit facilities, which are at variable rates of interest;
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    limiting our flexibility in planning for and reacting to changes in the industry in which we compete;
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    placing us at a disadvantage compared to other, less leveraged competitors; and
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    increasing our cost of borrowing.

The terms of the Credit Agreement restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.

The Credit Agreement contains a number of restrictive covenants that impose significant operating and financial restrictions on our operating subsidiaries and may limit our ability to engage in acts that may be in our long-term best interest, including restrictions on our ability to:

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    incur additional indebtedness;
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    pay dividends or make other distributions or repurchase or redeem our share capital;

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    §
    prepay, redeem or repurchase certain debt;
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    make loans and investments;
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    sell assets or enter into sale and lease-back transactions;
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    incur liens;
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    enter into transactions with affiliates;
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    alter the businesses we conduct;
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    enter into agreements restricting our subsidiaries' ability to pay dividends;
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    consolidate, merge or sell all or substantially all of our assets;
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    amend or modify the organizational documents of our operating subsidiaries;
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    amend or modify certain indebtedness of our operating subsidiaries;
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    change our fiscal year; and
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    enter into certain derivative transactions.

In addition, the restrictive covenants in the Credit Agreement require us to comply with certain financial covenants. As of the end of each fiscal quarter, commencing with the fiscal quarter ending March 31, 2018, our operating subsidiaries must (i) maintain a Total Leverage Ratio (as defined in the Credit Agreement) no greater than 4.75:1.00, which shall be reduced to 4.50:1.00 for the fiscal quarter ending March 31, 2020 and each subsequent fiscal quarter and (ii) maintain a Consolidated Fixed Charge Coverage Ratio not less than 1.25:1.00. Our ability to meet these financial ratios can be affected by events beyond our control.

A breach of the covenants under the Credit Agreement could result in an event of default under the Credit Agreement. Such an event of default may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies which could have a material adverse effect on our business, operations and financial results. In addition, an event of default under the Credit Agreement would permit the lenders under the senior secured credit facilities to terminate all commitments to extend further credit under that facility. Furthermore, if we were unable to repay the amounts due and payable under the senior secured credit facilities, those lenders could proceed against the collateral granted to them to secure that indebtedness which could force us into bankruptcy or liquidation. In the event our lenders accelerate the repayment of the borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness. Any acceleration of amounts due under the Credit Agreement or the exercise by the applicable lenders of their rights under the related security documents would likely have a material adverse effect on us. As a result of these restrictions, we may be:

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    limited in how we conduct our business;
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    unable to raise additional debt or equity financing to operate during general economic or business downturns; or
    §
    unable to compete effectively or to take advantage of new business opportunities. These restrictions may affect our ability to grow in accordance with our strategy.

We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The Credit Agreement restricts our ability to dispose of assets and use

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the proceeds from those dispositions and also restricts our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations when due.

Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our financial position and results of operations and our ability to satisfy our obligations, including our indebtedness.

If we cannot make scheduled payments on our debt, we will be in default and, as a result:

    §
    our debt holders could declare all outstanding principal and interest to be due and payable;
    §
    the lenders under the senior secured credit facilities could terminate their commitments to loan us money and foreclose against the assets securing the borrowings; and
    §
    we could be forced into bankruptcy or liquidation.

We will require a significant amount of cash to service our indebtedness. The ability to generate cash or refinance our indebtedness as it becomes due depends on many factors, some of which are beyond our control.

Our ability to make scheduled payments on, or to refinance our respective obligations under, our indebtedness and to fund planned capital expenditures and other corporate expenses will depend on the ability of our subsidiaries to make distributions, dividends or advances to us, which in turn will depend on our subsidiaries' future operating performance and on economic, financial, competitive, legislative, regulatory and other factors and any legal and regulatory restrictions on the payment of distributions and dividends to which they may be subject. Many of these factors are beyond our control. We cannot be certain that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to satisfy our respective obligations under our indebtedness or to fund our other needs. In order for us to satisfy our obligations under our indebtedness and fund planned capital expenditures, we must continue to execute our business strategy. If we are unable to do so, we may need to reduce or delay our planned capital expenditures or refinance all or a portion of our indebtedness on or before maturity. Significant delays in our planned capital expenditures may materially and adversely affect our future revenue prospects. In addition, we cannot assure our creditors that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.

We are a holding company with nominal net worth and will depend on dividends and distributions from our subsidiaries, which are restricted from paying dividends and distributions to us pursuant to the terms of our existing indebtedness and may be restricted pursuant to the terms of future indebtedness, which as a result may restrict us from paying dividends to you.

We are a holding company with nominal net worth. We do not have any material assets or conduct any business operations other than our investments in our subsidiaries. Our business operations are conducted primarily out of our indirect operating subsidiaries, Vertical Pharmaceuticals, LLC, Trigen Laboratories, LLC and Osmotica Pharmaceutical US LLC. As a result, notwithstanding any restrictions on payment of dividends under our existing indebtedness, our ability to pay dividends, if any, will be dependent upon cash dividends and distributions or other transfers from our subsidiaries. Payments to us by our subsidiaries will be contingent upon their respective earnings and subject to any limitations on the ability of such entities to make payments or other distributions to us. The Credit Agreement restricts our subsidiaries from paying dividends and making distributions to its direct or indirect equity holders unless there are available exceptions thereunder. If we are not able to meet such available exceptions that would allow our subsidiaries to pay a dividend or make a distribution to us, and which would then allow us to pay a dividend to you, then we will need to obtain a waiver from the lenders under the senior secured credit facilities.

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Despite our current level of indebtedness, we and our subsidiaries may still be able to incur substantially more debt. This could further exacerbate the risks to our financial condition described above.

We and our subsidiaries may be able to incur significant additional indebtedness in the future. Although the Credit Agreement contains restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness. If new debt is added to our current debt levels, the related risks that we and the guarantors now face could intensify.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

Borrowings under the senior secured credit facilities are at variable rates of interest and expose us to interest rate risk. Historically, we have elected that Borrowings under the senior secured credit facilities bear interest based upon the London Inter-Bank Offered Rate, or LIBOR. The senior secured credit facilities include a LIBOR floor of 1.00%. The interest period can be set at one, two, three or six months (or, to the extent available to all relevant lenders, twelve months or a shorter period) as selected by us in accordance with the terms of the senior secured credit facilities. An increase of 1.00% in LIBOR would result in a $3.2 million increase in our annual interest expense associated with the senior secured credit facilities.

Risks related to our ordinary shares and this offering

We are eligible to be treated as an "emerging growth company," as defined in the JOBS Act, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our ordinary shares less attractive to investors.

We are an emerging growth company, as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, (i) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, (ii) reduced disclosure obligations regarding executive compensation in this prospectus and our periodic reports and proxy statements and (iii) exemptions from the requirements of holding a non-binding advisory vote on executive compensation. In addition, as an emerging growth company, we are only required to provide two years of audited financial statements and two years of selected financial data in this prospectus.

We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our ordinary shares held by non-affiliates exceeds $700.0 million as of any June 30 before that time or if we have total annual gross revenues of $1.07 billion or more during any fiscal year before that time, in which cases, we would no longer be an emerging growth company as of the following December 31 or, if we issue more than $1.0 billion in non-convertible debt during any three-year period before that time, we would cease to be an emerging growth company immediately. In addition, we qualify as a "smaller reporting company," which allows us to take advantage of many of the same exemptions from disclosure requirements, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our ordinary shares less attractive because we may rely on these exemptions. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares and our share price may be more volatile. When these exemptions cease to apply, we expect to incur additional expenses and devote increased management effort toward ensuring compliance with them, and we cannot predict or estimate the amount or timing of such additional costs.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to

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the same new or revised accounting standards as other public companies that are not emerging growth companies.

The Sponsors will continue to have significant influence over us after this offering, including control over decisions that require the approval of shareholders, which could limit your ability to influence the outcome of matters submitted to shareholders for a vote.

We are currently controlled, and after this offering is completed will continue to be controlled, by the Sponsors. Upon completion of this offering, investment funds affiliated with the Sponsors will beneficially own approximately 79.9% of our outstanding ordinary shares (or 78.0% if the underwriters exercise in full their option to purchase additional shares). For as long as the Sponsors own or control at least a majority of our outstanding voting power, they will have the ability to exercise substantial control over all corporate actions requiring shareholder approval, irrespective of how our other shareholders may vote, including the election and removal of directors and the size of our board of directors, any amendment to our Memorandum and Articles of Association, the approval of any merger or other significant corporate transaction, including a sale of substantially all of our assets. Even if their ownership falls below 50%, they will continue to be able to strongly influence or effectively control our decisions so long as they continue to hold a significant portion of our ordinary shares. In addition, each of the Sponsors will have a contractual right to nominate two directors for so long as such Sponsor owns at least 20% of our outstanding ordinary shares, and one director for so long as such Sponsor owns less than 20% but more than 10% of our outstanding ordinary shares.

Additionally, the Sponsors' interests may not align with the interests of our other shareholders. Avista and Altchem are in the business of making investments in companies and may acquire and hold interests in businesses that compete directly or indirectly with us. The Sponsors may also pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.

Upon the listing of our shares, we will be a "controlled company" within the meaning of the rules of the Nasdaq Stock Market and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements; you will not have the same protections afforded to shareholders of companies that are subject to such requirements.

Because the Sponsors will continue to control a majority of the voting power of our outstanding ordinary shares after completion of this offering, we will be a "controlled company" within the meaning of the corporate governance standards of the Nasdaq Global Market. Under these rules, a company of which more than 50% of the voting power for the election of directors is held by an individual, group or another company is a "controlled company" and may elect not to comply with certain corporate governance requirements, including the requirements that, within one year of the date of the listing of our ordinary shares:

    §
    we have a board of directors that is composed of a majority of "independent directors," as defined under the rules of the Nasdaq Stock Market;
    §
    we have a compensation committee that is composed entirely of independent directors; and
    §
    we have a nominating and corporate governance committee that is composed entirely of independent directors.

Following this offering, we intend to utilize all of these exemptions. Accordingly, for so long as we are a "controlled company," you will not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of the Nasdaq Stock Market. Our status as a controlled company could make our ordinary shares less attractive to some investors or otherwise harm our share price.

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Our directors who have relationships with Avista or Altchem may have conflicts of interest with respect to matters involving our company.

Following this offering, two of our six directors will be affiliated with Avista and two directors will be affiliated with Altchem. In addition, our Chief Executive Officer, Brian Markison, serves as an operating executive at Avista Capital Partners. Our directors have fiduciary duties to us and, in addition, will have duties to Avista or Altchem, as applicable. As a result, these directors may face real or apparent conflicts of interest with respect to matters affecting both us and Avista or Altchem, as applicable, whose interests, in some circumstances, may be adverse to ours.

If you purchase our ordinary shares in this offering, you will suffer immediate and substantial dilution of your investment.

The initial public offering price of our ordinary shares is substantially higher than the net tangible book deficit per ordinary share. Therefore, if you purchase our ordinary shares in this offering, you will pay a price per share that substantially exceeds our net tangible book deficit per share after this offering.

Based on an assumed initial public offering price of $15.00 per share, the midpoint of the range set forth on the cover page of this prospectus, you will experience immediate dilution of $18.41 per share, representing the difference between our pro forma net tangible book deficit per share after giving effect to this offering and the initial public offering price. For more information, see "Dilution."

Your percentage ownership in us may be diluted in the future, which could reduce your influence over matters on which shareholders vote.

In the future, your percentage ownership in us may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including equity awards that we may grant to directors, officers and employees. From time to time, we may issue additional options or other share based awards to our directors, officers and employees under our benefits plans.

Pursuant to our Articles of Association, our board of directors has the authority, without action or vote of our shareholders, to issue all or any part of our authorized but unissued ordinary shares, and one or more classes or series of preferred shares having such powers, preferences and relative, participating, optional and other special rights, including preferences over our ordinary shares respecting dividends and distributions, as our board of directors generally may determine. The terms of one or more classes or series of preferred shares could dilute the voting power or reduce the value of our ordinary shares. For example, our board of directors could grant the holders of preferred shares the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences our board of directors could assign to holders of preferred shares could affect the residual value of our ordinary shares.

Issuances of ordinary shares or voting preferred shares in the manner outlined above may reduce your influence over matters on which our shareholders vote.

An active, liquid trading market for our ordinary shares may not develop, which may limit your ability to sell your shares.

Prior to this offering, there was no public market for our ordinary shares. Although we intend to list our ordinary shares on the Nasdaq Global Market under the symbol "OSMT," an active trading market for our shares may never develop or be sustained following this offering. The initial public offering price will be determined by negotiations between us and the underwriters and may not be indicative of market prices of our ordinary shares that will prevail in the open market after the offering. A public trading market having the desirable characteristics of depth, liquidity and orderliness depends upon the existence of willing buyers and sellers at any given time, such existence being dependent upon the individual decisions of buyers and sellers over which neither we nor any market maker has control. The failure of an active and liquid trading market to develop and continue would likely have a material adverse effect on the value of our ordinary shares. The market price of our ordinary shares may decline below the initial public offering price, and you

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may not be able to sell our ordinary shares at or above the price you paid in this offering, or at all. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.

As a public company, we will become subject to additional laws, regulations and stock exchange listing standards, which will impose additional costs on us and may strain our resources and divert our management's attention.

Prior to this offering, we operated our company on a private basis. After this offering, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the listing requirements of the Nasdaq Stock Market and other applicable securities laws and regulations. Compliance with these laws and regulations will increase our legal and financial compliance costs and make some activities more difficult, time-consuming or costly. In connection with preparation for providing this attestation, our independent auditors may identify deficiencies or weaknesses in our controls. We also expect that being a public company and being subject to new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors may therefore strain our resources, divert management's attention and affect our ability to attract and retain qualified board members.

We have identified a material weakness in our internal control over financial reporting. If we fail to maintain effective internal control over financial reporting and effective disclosure controls and procedures, we may not be able to accurately report our financial results in a timely manner or prevent fraud, which may adversely affect investor confidence in our company.

We are not currently required to comply with the rules of the SEC implementing Section 404 of the Sarbanes-Oxley Act and therefore are not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a public company, we will be required to comply with the SEC's rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which will require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of internal control over financial reporting. Although we will be required to disclose changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting on a quarterly basis, we will not be required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 until our second annual report required to be filed with the SEC.

To comply with the requirements of being a public company, we may need to undertake various actions to develop, implement and test additional processes and other controls, including compliance training for our directors, officers and employees, hiring of additional finance, accounting and other personnel and modifications to our existing accounting systems, any of which could entail substantial cost or take a significant period of time to complete. Testing and maintaining internal controls can divert our management's attention from other matters related to the operation of our business. In addition, when evaluating our internal control over financial reporting, we may identify material weaknesses that we may not be able to remediate resulting in our management being unable to assert that our internal control over financial reporting is effective.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

In connection with the preparation of our audited consolidated financial statements as of and for the years ended December 31, 2017 and 2016, we identified a material weakness in our internal control over financial reporting. This material weakness related to our failure to maintain an effective control environment around our period-end financial closing and reporting process. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Internal Controls and Procedures."

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Maintaining effective internal control over financial reporting is necessary for us to produce reliable financial reports and is important to help prevent financial fraud. If we are unable to maintain adequate internal controls, our business and operating results could be harmed. If we fail to complete the remediation of this material weakness in our internal control, or after having remediated such material weakness, thereafter fail to maintain the adequacy of our internal control over financial reporting or our disclosure controls and procedures, we could be subjected to regulatory scrutiny, civil or criminal penalties or stockholder litigation, the defense of any of which could cause the diversion of management's attention and resources, we could incur significant legal and other expenses, and we could be required to pay damages to settle such actions if any such actions were not resolved in our favor. Moreover, we may be the subject of negative publicity focusing on this material weakness and we may be subject to negative reactions from stockholders and others with whom we do business. Further, we may not be able to remediate the material weakness in a timely manner and our management may be required to devote significant time and expense to remediate the material weakness. Continued or future failure to maintain adequate internal control over financial reporting could also result in financial statements that do not accurately reflect our financial condition or results of operations, which could result in the need to restate previously issued financial statements. There can be no assurance that we will not conclude in the future that this material weakness continues to exist or that we will not identify any significant deficiencies or other material weaknesses that will impair our ability to report our financial condition and results of operations accurately or on a timely basis. In addition, if we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an unqualified opinion as to the effectiveness of our internal control over financial reporting in future periods, investors may lose confidence in the accuracy and completeness of our financial reports. In the event that any of the foregoing occurs, the market price of our ordinary shares could be negatively affected.

We have identified errors in our financial statements for the years ended December 31, 2016 and December 31, 2017 related to our accounting for certain aspects of the Business Combination, which required us to restate those financial statements. If we identify errors in our financial reporting in the future, we may be required to restate previously issued financial statements and any such restatement may subject us to regulatory penalties and could cause investors to lose confidence in the accuracy and completeness of our financial statements, which could cause the price of our ordinary shares to decline.

In connection with the preparation of the prospectus for this offering, we identified errors in our financial statements for the years ended December 31, 2016 and December 31, 2017 related to our accounting for certain aspects of the Business Combination. The required adjustments to address these errors led to restatements of those financial statements. If we are required to restate any of our financial statements in the future due to our inability to adequately remedy the issues that gave rise to these restatements or for any other reason, we may be subject to regulatory penalties and investors could lose confidence in the accuracy and completeness of our financial statements, which could cause our share price to decline.

Registration of the beneficial interests in our shares will subject us and the holders of such beneficial interests to certain risks.

We will enter into a Depository Agreement, or DTC Agreement, with the Depository Trust Company, or DTC, in connection with the proposed listing and trading of our shares on the Nasdaq Global Market. In accordance with the DTC Agreement, following completion of the initial public offering of our shares, DTC's nominee, Cede & Co., will be registered as the legal owner of certain of our ordinary shares in the Irish shareholder register that we are required to maintain pursuant to the Companies Act 2014 of Ireland, or the Irish Companies Act. Under the DTC Agreement, DTC will credit the beneficial interests in those ordinary shares in book entry form to its participants. Accordingly, while the ordinary shares issued in accordance with Irish law will be listed on the Nasdaq Global Market and traded on the Nasdaq Global Market, it will be the beneficial interests in such ordinary shares that are settled and held in DTC. In accordance with market practice and system requirements of the Nasdaq Global Market, the ordinary shares will be listed

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and traded on the Nasdaq Global Market under the category of "Common Share." In respect of beneficial interests in ordinary shares held in DTC, such beneficial ownership would not necessarily be recognized by an Irish court. As such, investors holding beneficial interests in our ordinary shares within DTC may have no direct rights against us and our officers and directors and may be required to obtain the cooperation of DTC in order to assert claims against us and our officers and directors, and to look solely to DTC for the payment of any dividends, for exercise of voting rights attaching to the underlying ordinary shares and for all other rights arising in respect of the underlying ordinary shares. We cannot guarantee that DTC will be able to execute its obligations under the DTC Agreement, including that the beneficial owners of the ordinary shares within DTC will receive notice of general meetings in time to instruct DTC to either effect registration of their ordinary shares or otherwise vote their ordinary shares in the manner desired by such beneficial owners. Any such failure may, inter alia, limit the access for, delay or prevent, such beneficial shareholders being able to exercise the rights attaching to the underlying ordinary shares.

DTC will have certain termination rights under the DTC Agreement. In the event that the DTC Agreement is terminated, we will use our reasonable best efforts to enter into a replacement agreement for purposes of permitting the uninterrupted registration of our ordinary shares on the Nasdaq Global Market. There can be no assurance, however, that it would be possible to enter into such new agreements on substantially the same terms as the DTC Agreement or at all. A termination of the DTC Agreement could, therefore, have a material and adverse effect on us and the beneficial shareholders holding their ordinary shares within DTC. The DTC Agreement limits DTC's liability for any loss suffered by us. DTC disclaims any liability for any loss attributable to circumstances beyond DTC's control, including, but not limited to, errors committed by others. DTC is liable for direct losses incurred as a result of events within DTC's control. Thus, we may not be able to recover our entire loss if DTC does not perform its obligations under the DTC Agreement.

Our share price may be volatile, and the market price of our ordinary shares after this offering may drop below the price you pay.

Our share price is likely to fluctuate in the future as a publicly traded company. In addition, securities markets worldwide have experienced, and are likely to continue to experience, significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could subject the market price of our shares to wide price fluctuations regardless of our operating performance. We and the underwriters will negotiate to determine the initial public offering price. You may not be able to resell your shares at or above the initial public offering price or at all. The trading price of our shares may fluctuate in response to various factors, including:

    §
    market conditions in the broader stock market;

    §
    actual or anticipated fluctuations in our quarterly financial and operating results;

    §
    introduction of new products or services by us or our competitors;

    §
    issuance of new or changed securities analysts' reports or recommendations;

    §
    results of operations that vary from expectations of securities analysts and investors;

    §
    results of operations that vary from those of our competitors;

    §
    guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance;

    §
    strategic actions by us or our competitors;

    §
    announcement by us, our competitors or our vendors of significant contracts or acquisitions;

    §
    sales, or anticipated sales, of large blocks of our shares;

    §
    additions or departures of key personnel;

    §
    regulatory, legal or political developments;

    §
    public response to press releases or other public announcements by us or third parties, including our filings with the SEC;

    §
    litigation and governmental investigations;

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    §
    changing economic conditions;

    §
    changes in accounting principles;

    §
    default under agreements governing our indebtedness;

    §
    exchange rate fluctuations; and

    §
    other events or factors, including those from natural disasters, war, acts of terrorism or responses to these events.

These and other factors, many of which are beyond our control, may cause our market price and demand for our shares to fluctuate substantially. Fluctuations in our share price could limit or prevent investors from readily selling their shares and may otherwise negatively affect the market price and liquidity of our shares. In addition, in the past, when the market price of shares have been volatile, holders of those shares have sometimes instituted securities class action litigation against the company that issued the shares. If any of our shareholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation.

A significant portion of our total outstanding ordinary shares are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our ordinary shares to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our ordinary shares in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our ordinary shares. After this offering, we will have 51,157,139 ordinary shares outstanding based on the number of ordinary shares outstanding as of September 30, 2018. This includes shares that we are selling in this offering, which may be resold in the public market immediately, and assumes no exercises of outstanding options. Substantially all of the shares that are not being sold in this offering will be subject to a 180-day lock-up period provided under agreements executed in connection with this offering. These shares will, however, be able to be resold after the expiration of the lock-up agreement as described in the "Shares Eligible for Future Sale" section of this prospectus. We also intend to file a Form S-8 under the Securities Act, to register all of our ordinary shares that we may issue under our equity compensation plans. In addition, Avista and Altchem have certain demand registration rights that could require us in the future to file registration statements in connection with sales of our shares by them. For more information, see "Certain Relationships and Related Party Transactions — Shareholders' Agreement." Such sales could be significant. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements described in the "Underwriting" section of this prospectus. As restrictions on resale end, the market price of our shares could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them.

Since we have no current plans to pay regular cash dividends on our ordinary shares following this offering, you may not receive any return on investment unless you sell our ordinary shares for a price greater than that which you paid for it.

We do not anticipate paying any regular cash dividends on our ordinary shares following this offering. Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our board of directors may deem relevant. Our ability to pay dividends is, and may be, limited by covenants of existing and any future outstanding indebtedness we or our subsidiaries incur. In addition, our ability to pay cash dividends may be limited by Irish law, as discussed under the risk factor titled "The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation and these differences may make our ordinary shares less attractive to investors." Therefore, any return on investment in our ordinary shares is solely dependent upon the appreciation of the price of our ordinary shares on the open market, which may not occur. For more information, see "Dividend Policy."

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If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our shares or if our results of operations do not meet their expectations, our share price and trading volume could decline.

The trading market for our shares will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these analysts. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline. Moreover, if one or more of the analysts who covers us downgrades our ordinary shares, or if our results of operations do not meet their expectations, our share price could decline.

Risks related to being an Irish corporation listing ordinary shares

Provisions contained in our Articles of Association, as well as provisions of Irish law, could impair a takeover attempt, limit attempts by our shareholders to replace or remove our current directors and management team, and limit the market price of our ordinary shares.

Our Articles of Association that will come into effect immediately prior to the completion of this offering, together with certain provisions of the Irish Companies Act could have the effect of delaying or preventing changes in control or changes in our management without the consent of our board of directors.

There are a number of approaches for acquiring an Irish public limited company, including a court-approved scheme of arrangement under the Irish Companies Act, through a tender offer by a third party, by way of a merger with a company incorporated in the European Economic Area, or EEA, under the European Communities (Cross-Border Mergers) Regulations 2008 (as amended) and by way of a merger with a company incorporated in Ireland under the Irish Companies Act. Each method requires shareholder approval or acceptance and different thresholds apply.

The Irish Takeover Panel Act 1997 and the Irish Takeover Rules 2013 made thereunder, or the Irish Takeover Rules, will govern a takeover or attempted takeover of our company by means of a court-approved scheme of arrangement or a tender offer. The Irish Takeover Rules contain detailed provisions for takeovers, including as to disclosure, process, dealing and timetable. The Irish Takeover Rules could discourage an investor from acquiring 30% or more of our outstanding ordinary shares unless such investor was prepared to make a bid to acquire all outstanding ordinary shares.

Our Articles of Association will contain provisions that may delay or prevent a change of control, discourage bids at a premium over the market price of our ordinary shares and adversely affect the market price of our ordinary shares and the voting and other rights of the holders of our ordinary shares. These provisions include:

    §
    permitting our board of directors to issue preference shares without shareholder approval, with such rights, preferences and privileges as they may designate;

    §
    provisions that allow our board of directors to adopt a shareholder rights plan upon such terms and conditions as it deems expedient and in our best interests;

    §
    establishing an advance notice procedure for shareholder proposals to be brought before shareholder meetings, including proposed nominations of persons for election to our board of directors;

    §
    the ability of our board of directors to fill vacancies on our board in certain circumstances; and

    §
    imposing particular approval and other requirements in relation to certain business combinations.

These provisions do not make us immune from takeovers. However, these provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management team by making it more difficult for shareholders to replace members of our board of directors, which is responsible for appointing the members of our management.

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Our board of directors may be limited by the Irish Takeover Rules in its ability to defend an unsolicited takeover attempt.

Following the authorization for trading of our ordinary shares on the Nasdaq Global Market, we will become subject to the Irish Takeover Panel Act 1997 and the Irish Takeover Rules. Under the Irish Takeover Rules, our board of directors is not permitted to take any action that might frustrate an offer for our ordinary shares once our board of directors has received an approach that may lead to an offer or has reason to believe that such an offer is or may be imminent, subject to certain exceptions. Potentially frustrating actions, such as (i) the issue of shares, options, restricted share units or convertible securities, (ii) material acquisitions or disposals, (iii) entering into contracts other than in the ordinary course of business or (iv) any action, other than seeking alternative offers, which may result in frustration of an offer, are prohibited during the course of an offer or at any earlier time during which our board of directors has reason to believe an offer is or may be imminent. These provisions may give our board of directors less ability to control negotiations with hostile offerors than would be the case for a corporation incorporated in a jurisdiction of the United States.

The operation of the Irish Takeover Rules may affect the ability of certain parties to acquire our ordinary shares.

Under the Irish Takeover Rules, if an acquisition of ordinary shares were to increase the aggregate holding of the acquirer and its concert parties to ordinary shares that represent 30% or more of the voting rights of a company, the acquirer and, in certain circumstances, its concert parties would be required (except with the consent of the Irish Takeover Panel) to make an offer for the outstanding ordinary shares at a price not less than the highest price paid for the ordinary shares by the acquirer or its concert parties during the previous 12 months. This requirement would also be triggered by an acquisition of ordinary shares by a person holding (together with its concert parties) ordinary shares that represent between 30% and 50% of the voting rights in the company if the effect of such acquisition were to increase that person's percentage of the voting rights by 0.05% within a 12-month period. Following the authorization for trading of our ordinary shares on the Nasdaq Global Market, under the Irish Takeover Rules, certain separate concert parties will be presumed to be acting in concert. Our board of directors and their relevant family members, related trusts and "controlled companies" are presumed to be acting in concert with any corporate shareholder who holds 20% or more of the company. The application of these presumptions may result in restrictions upon the ability of any of the concert parties and members of our board of directors to acquire more of our securities, including under the terms of any executive incentive arrangements. Following the listing of our ordinary shares on the Nasdaq Global Market, we may consult with the Irish Takeover Panel with respect to the application of this presumption and the restrictions on the ability to acquire further securities, although we are unable to provide any assurance as to whether the Irish Takeover Panel will overrule this presumption. For a description of certain takeover provisions applicable to us, see "Description of Share Capital — Irish Takeover Rules and Substantial Acquisition Rules."

Our Articles of Association designate the courts of Ireland for all actions and proceedings, other than those relating to U.S. securities law, which could limit our shareholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees and will require shareholders to pursue certain claims outside the United States.

Our Articles of Association provide that, unless our board of directors or one of its duly authorized committees approves the selection of an alternate forum and to the fullest extent permitted by applicable law, the courts of Ireland shall be the exclusive forum for all actions or proceedings, other than those related to U.S. securities law, but including (i) any derivative action or proceeding brought on behalf of us, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or employees to us or our shareholders, (iii) any action asserting a claim against us arising pursuant to any provision of Irish law or our Articles of Association and (iv) any action to interpret, apply, enforce or determine the validity of our Articles of Association. Any person or entity purchasing or otherwise acquiring any interest in our shares shall be deemed to have notice of and to have consented to the provisions of our

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Articles of Association and waived any argument relating to the inconvenience of the forums described above. As a result, certain shareholder actions and proceedings may only be brought in Ireland and our shareholders would not have access to any U.S. courts with respect to such actions. This choice of forum provision may limit a shareholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our Articles of Association inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.

Irish law differs from the laws in effect in the United States and U.S. investors may have difficulty enforcing civil liabilities against us, our directors or members of senior management named in this prospectus.

A number of our directors named in this prospectus are non-residents of the United States, and all or a substantial portion of their assets are located outside the United States. As a result, it may not be possible to serve process on these directors, or us, in the United States or to enforce court judgments obtained in the United States against these individuals or us in Ireland based on the civil liability provisions of the U.S. federal or state securities laws. In addition, there is some uncertainty as to whether the courts of Ireland would recognize or enforce judgments of U.S. courts obtained against us or our directors based on the civil liabilities provisions of the U.S. federal or state securities laws or hear actions against us or those persons based on those laws. The United States currently does not have a treaty with Ireland providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any U.S. federal or state court based on civil liability, whether or not based solely on U.S. federal or state securities laws, would not automatically be enforceable in Ireland. A judgment obtained against us will be enforced by the courts of Ireland if the following general requirements are met:

    §
    U.S. courts must have had jurisdiction in relation to the particular defendant according to Irish conflict of law rules (the submission to jurisdiction by the defendant would satisfy this rule); and

    §
    the judgment must be final and conclusive and the decree must be final and unalterable in the court which pronounces it.

A judgment can be final and conclusive even if it is subject to appeal or even if an appeal is pending. But where the effect of lodging an appeal under the applicable law is to stay execution of the judgment, it is possible that in the meantime the judgment may not be actionable in Ireland. It remains to be determined whether a final judgment given in default of appearance is final and conclusive. Irish courts may also refuse to enforce a judgment of the U.S. courts that meets the above requirements for one of the following reasons:

    §
    the judgment is not for a definite sum of money;

    §
    the judgment was obtained by fraud;

    §
    the enforcement of the judgment in Ireland would be contrary to natural or constitutional justice;

    §
    the judgment is contrary to Irish public policy or involves certain U.S. laws that will not be enforced in Ireland; or

    §
    jurisdiction cannot be obtained by the Irish courts over the judgment debtors in the enforcement proceedings by personal service in Ireland or outside Ireland under Order 11 of the Irish Superior Courts Rules.

As an Irish company, we are principally governed by Irish law, which differs in some material respects from laws generally applicable to U.S. corporations and shareholders, including, among others, differences relating to interested director and officer transactions and shareholder lawsuits. Likewise, the duties of directors and officers of an Irish company generally are owed to the company only. Shareholders of Irish companies generally do not have a personal right of action against directors or other officers of the company

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and may exercise such rights of action on behalf of the company only in limited circumstances. Accordingly, holders of our ordinary shares may have more difficulty protecting their interests than would holders of shares of a corporation incorporated in a jurisdiction of the United States.

The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation and these differences may make our ordinary shares less attractive to investors.

We are incorporated under Irish law and, therefore, certain of the rights of holders of our shares are governed by Irish law, including the provisions of the Irish Companies Act, and by our Articles of Association. These rights differ in certain respects from the rights of shareholders in typical U.S. corporations and these differences may make our ordinary shares less attractive to investors. The principal differences include the following:

    §
    under Irish law, dividends may only be declared if we have, on an individual entity basis, profits available for distribution, within the meaning of the Irish Companies Act. In addition, no distribution or dividend may be paid or made by us unless our net assets are equal to, or exceed, the aggregate of our called up share capital plus non-distributable reserves and the distribution does not reduce our net assets below such aggregate;

    §
    under Irish law, each shareholder generally has preemptive rights to subscribe on a proportionate basis to any issuance of shares. Preemption rights may be disapplied under Irish law for renewable five-year periods by Irish companies by way of a provision in such companies' articles of association or a special resolution of their shareholders, which is an option we will avail ourselves of prior to the completion of this offering;

    §
    under Irish law, certain matters require the approval of holders of 75% of the votes cast at a general meeting of our shareholders, including amendments to our Articles of Association, which may limit our flexibility to manage our capital structure;

    §
    under Irish law, a bidder seeking to acquire us would need, on a tender offer, to receive shareholder acceptance in respect of 80% of our outstanding shares. If this 80% threshold is not achieved in the offer, under Irish law, the bidder cannot complete a "second step merger" to obtain 100% control of us. Accordingly, tender of 80% of our outstanding shares will likely be a condition in a tender offer to acquire us, not 50% as is more common in tender offers for corporations organized under U.S. law; and

    §
    under Irish law, shareholders may be required to disclose information regarding their equity interests upon our request, and the failure to provide the required information could result in the loss or restriction of rights attaching to the shares, including prohibitions on the transfer of the shares, as well as restrictions on voting, dividends and other payments.

For further information with respect to your rights as a holder of our ordinary shares, see the section of this prospectus titled "Description of Share Capital."

Risks related to taxation

Changes in our effective tax rate may reduce our net income in future periods.

We cannot give any assurance as to what our effective tax rate will be because of, among other things, uncertainty regarding the tax policies of the jurisdictions in which we operate and the varying applications of statutes, regulations and related interpretations.

A number of factors may increase our future effective tax rates, including: the jurisdictions in which profits are determined to be earned and taxed (which may vary depending on our taxable presence in such jurisdictions as may be determined by tax authorities in such jurisdictions); the resolution of issues arising from tax audits that may be undertaken by various tax authorities; changes in the valuation of our deferred tax assets and liabilities due to changes in applicable tax legislation; increases in expenses that are not deductible for tax purposes, including transaction costs and impairments of goodwill in connection with acquisitions; changes in available tax credits; changes in share-based compensation; changes in tax laws or

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the interpretation of such tax laws (including in respect of new U.S. tax legislation passed last year); changes to currently applicable tax treaties, including those resulting in a loss of treaty benefits; changes in generally accepted accounting principles; and challenges to the transfer pricing policies related to our structure undertaken by various tax authorities. Currently, jurisdictions within the Organization for Economic Co-Operation and Development, or the OECD, are reviewing OECD proposals relating to base erosion and profit shifting. Our effective tax rate could be affected to the extent that countries adopt such OECD proposals.

Recently enacted U.S. tax legislation has significantly changed the U.S. federal income taxation of corporations and multinational consolidated groups, including by reducing the U.S. corporate income tax rate, limiting interest deduction, adopting elements of a territorial international tax system and introducing new anti-base erosion provisions. Many of these changes are effective immediately, without any transition periods or grandfathering for existing transactions and may affect our actual effective tax rate. The legislation is unclear in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementing regulations by the U.S. Department of Treasury and the Internal Revenue Service, any of which could lessen or increase certain adverse impacts of the legislation. Further, it is reasonable to expect that non-U.S. taxing authorities will be reviewing current law for potential modifications in reaction to the implementations of the new U.S. tax legislation.

It is possible that in the future, whether as a result of a change in law or the practice of any relevant tax authority or as a result of any change in the conduct of our affairs, we could become, or be regarded as having become tax resident in a jurisdiction other than Ireland. Should we cease to be an Irish tax resident, we may be subject to a charge of Irish capital gains tax as a result of a deemed disposal of our assets. Our actual effective tax rate may vary from our expectation and that variance may be material. Additionally, the tax laws of Ireland and other jurisdictions in which we operate could change in the future, and such changes could cause a material adverse change in our effective tax rate.

If our tax rates or tax expenses were to increase as described above, such increases could cause a material and adverse change in our worldwide effective tax rate and we may have to take action, at potentially significant expense, to seek to mitigate the effect of such changes. In addition, any amendments to the current double taxation treaties between Ireland and other jurisdictions could subject us to increased taxation. Any such amendments to double taxation treaties or increases in taxation based on examinations by taxing authorities, if such increases are ultimately sustained, could result in increased charges, financial loss, including penalties, and reputational damage and materially and adversely affect our results, financial condition and prospects.

If we are a passive foreign investment company, U.S. investors in our ordinary shares could be subject to adverse U.S. federal income tax consequences.

The rules governing passive foreign investment companies, or PFICs, can have adverse effects for U.S. federal income tax purposes. We would be classified as a PFIC for any taxable year in which either: (i) at least 75% of our gross income is classified as "passive income" for purposes of the PFIC rules, or (ii) at least 50% of the fair market value of our assets (determined on the basis of a quarterly average) is attributable to assets that produce or are held for the production of "passive income." For this purpose, we will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation we own, directly or indirectly, 25% or more (by value) of its stock. As discussed in " — Material Tax Considerations — Material U.S. Federal Income Tax Considerations," we do not believe that we are currently a PFIC, and we do not anticipate becoming a PFIC for the 2018 taxable year, however such a determination cannot be made until following the end of such taxable year. Notwithstanding the foregoing, the determination of whether we are a PFIC must be made annually after the close of each taxable year, depends on the particular facts and circumstances (such as the valuation of our assets, including goodwill and other intangible assets) and may also be affected by the interpretation and application of the PFIC rules. The fair market value of our assets is expected to depend, in part, upon (a)

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the market price of our ordinary shares and (b) the composition of our income and assets, which will be affected by how, and how quickly, we spend any cash that is raised in any financing transaction, including this offering. In light of the foregoing, no assurance can be provided that we are not a PFIC for the current taxable year or that we will not become a PFIC for any future taxable year.

If we are a PFIC, U.S. holders of our ordinary shares would be subject to adverse U.S. federal income tax consequences, such as ineligibility for any preferred tax rates on capital gains or on actual or deemed dividends, interest charges on certain taxes treated as deferred, and additional reporting requirements under U.S. federal income tax laws and regulations. Whether or not U.S. holders of our ordinary shares make timely qualified electing fund, or QEF, elections, if we provide the necessary information to U.S. holders to make such elections, or mark-to-market elections may affect the U.S. federal income tax consequences to U.S. holders with respect to the acquisition, ownership and disposition of our ordinary shares and any distributions such U.S. holders may receive. Investors should consult their own tax advisors regarding all aspects of the application of the PFIC rules to our ordinary shares.

U.S. holders of 10% or more of the voting power or value of our ordinary shares may be subject to U.S. federal income taxation at ordinary income tax rates on undistributed earnings and profits.

There is a risk that we will be classified as a "controlled foreign corporation," or CFC, for U.S. federal income tax purposes. We will generally be classified as a CFC if more than 50% of our outstanding shares, measured by reference to voting power or value, are owned (directly, indirectly or by attribution) by "U.S. Shareholders." For this purpose, a "U.S. Shareholder" is any U.S. person that owns directly, indirectly or by attribution, 10% or more of the total voting power or total value of our outstanding shares. If we are classified as a CFC, a U.S. Shareholder may be subject to U.S. income taxation at ordinary income tax rates on its proportionate share of our undistributed earnings and profits attributable to "subpart F income" or undistributed earnings and profits invested in certain U.S. property and may also be subject to tax at ordinary income tax rates on any gain realized on a sale of ordinary shares, to the extent of our current and accumulated earnings and profits attributable to such shares. U.S. Shareholders of a CFC are also required to include in gross income for a taxable year, at a reduced effective tax rate, its proportionate share of certain non-U.S. active business income of a CFC not included in a CFC's "subpart F income," or "global intangible low-taxed income," to the extent such "global intangible low-taxed income" is in excess of 10% of the adjusted U.S. federal income tax basis of depreciable tangible assets used in the CFC's trade or business (reduced by a U.S. Shareholder's allocable net interest expense). Foreign taxes paid by a CFC attributable to the CFC's "subpart F income" and "global intangible low-taxed income" and any corresponding foreign tax credits may affect the amount of income includible in a U.S. Shareholder's gross income for U.S. tax purposes. Even if we are not classified as a CFC, certain of our non-U.S. subsidiaries could be treated as CFCs due to the application of certain new attribution rules that currently apply in determining CFC status. If certain non-U.S. subsidiaries are classified as CFCs, any U.S. Shareholder may be required to report annually and include in its U.S. taxable income its pro rata share of "subpart F income," "global intangible low-taxed income" and investments in U.S. property attributable to those non-U.S. subsidiaries. The CFC rules are complex and U.S. Shareholders and U.S. holders of our ordinary shares are urged to consult their own tax advisors regarding the possible application of the CFC, "subpart F income," and "global intangible low-taxed income" rules (including applicable direct and indirect attribution rules) to them based on their particular circumstances.

A future transfer of your ordinary shares, other than one effected by means of the transfer of book entry interests in DTC, may be subject to Irish stamp duty.

Transfers of ordinary shares effected by means of the transfer of book entry interests in the DTC should not be subject to Irish stamp duty where ordinary shares are traded through DTC, either directly or through brokers that hold such shares on behalf of customers through DTC. However, if you hold your ordinary shares as of record rather than beneficially through DTC, any transfer of your ordinary shares could be subject to Irish stamp duty (currently at the rate of 1% of the higher of the price paid or the market value of the shares acquired). Payment of Irish stamp duty is generally a legal obligation of the transferee. The potential for stamp duty to arise could adversely affect the price of our ordinary shares. For more information, see "Material Tax Considerations — Material Irish Tax Considerations — Stamp Duty."

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, including the sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," contains forward-looking statements. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations and financial position, business strategy and plans and our objectives for future operations, are forward-looking statements. The words "believe," "may," "will," "should," "estimate," "continue," "anticipate," "intend," "expect" and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short- and long-term business operations and objectives and financial needs. Examples of forward-looking statements include, among others, statements we make regarding: our intentions, beliefs or current expectations concerning, among other things, future operations; future financial performance, trends and events, particularly relating to sales of current products and the development, approval and introduction of new products; FDA and other regulatory applications, approvals and actions; the continuation of historical trends; our ability to operate our business under our new capital and operating structure; and the sufficiency of our cash balances and cash generated from operating and financing activities for future liquidity and capital resource needs.

We may not achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place significant reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Important factors that could cause actual results and events to differ materially from those indicated in the forward-looking statements include the following:

    §
    if we are unable to successfully develop or commercialize new products, or do so on a timely or cost effective basis, our operating results will suffer;

    §
    due to our dependence on a limited number of products, our business could be materially adversely affected if one or more of our key products do not perform as well as expected;

    §
    failures of or delays in clinical trials could result in increased costs to us and could jeopardize or delay our ability to obtain regulatory approval and commence product sales for new products;

    §
    we are, and will continue to be in the future, a party to legal proceedings that could result in adverse outcomes;

    §
    as of June 30, 2018, we had total outstanding debt of approximately $324.2 million (excluding original issue discount or upfront payments), and we had unused commitments of $50.0 million under our senior secured credit facilities. Our substantial debt could adversely affect our liquidity and our ability to raise additional capital to fund operations and could limit our ability to pursue our growth strategy or react to changes in the economy or our industry;

    §
    we face intense competition from both brand and generic companies, which could significantly limit our growth and materially adversely affect our financial results;

    §
    a business interruption at our manufacturing facility, our warehouses or at facilities operated by third parties that we rely on could have a material adverse effect on our business;

    §
    our profitability depends on our major customers, and if our relationships with them do not continue as expected, our business, prospects and results of operations could materially suffer;

    §
    if we are unable to develop or maintain our sales capabilities, we may not be able to effectively market or sell our products;

    §
    our competitors and other third parties may allege that we are infringing their intellectual property, forcing us to expend substantial resources in resulting litigation, and any unfavorable outcome of such litigation could have a material adverse effect on our business;

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    §
    our profitability depends on coverage and reimbursement by governmental authorities and other third-party payors and healthcare reform and other future legislation creates uncertainty and may lead to reductions in coverage or reimbursement levels;

    §
    we are subject to extensive governmental regulation and we face significant uncertainties and potentially significant costs associated with our efforts to comply with applicable regulations;

    §
    our products or product candidates may cause adverse side effects that could delay or prevent their regulatory approval, or result in significant negative consequences following regulatory approval;

    §
    manufacturing or quality control problems may damage our reputation, require costly remedial activities or otherwise negatively impact our business; and

    §
    other factors that are described in "Risk Factors," beginning on page 14 of this prospectus.

The forward-looking statements included in this prospectus are made only as of the date hereof. You should not rely upon forward-looking statements as predictions of future events. We cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Except as required by applicable law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.

You should read this prospectus with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

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USE OF PROCEEDS

We estimate that the net proceeds we will receive from the sale of our ordinary shares in this offering, after deducting underwriting discounts and commissions and estimated expenses payable by us, will be approximately $111.3 million (or $128.7 million if the underwriters exercise their option to purchase additional shares in full). This estimate assumes an initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover of this prospectus.

We intend to use $100.0 million of the net proceeds from the sale of our ordinary shares in this offering to repay a portion of our Term A Loan and repay in full our Term B Loan. Currently, the Term A Loan and the Term B Loan bear interest at rates of 5.99% and 6.49%, respectively, per annum and mature on December 21, 2022. See "Description of Certain Indebtedness" for a description of our senior secured credit facilities. We intend to use any remaining net proceeds for working capital and other general corporate purposes.

A $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $7.7 million (or approximately $8.9 million if the underwriters exercise their option to purchase additional shares in full), assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and, after deducting underwriting discounts and commissions and estimated expenses payable by us. An increase (decrease) of 1.0 million in the number of shares offered by us in this offering, would increase (decrease) the net proceeds to us from this offering by approximately $14.0 million (or approximately $16.0 million if the underwriters exercise their option to purchase additional shares in full), assuming the initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated expenses payable by us. The information above is illustrative only, and will change based on the actual initial public offering price and other terms of this offering determined at pricing.

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DIVIDEND POLICY

Our board of directors does not currently intend to pay regular dividends on our ordinary shares. However, we expect to reevaluate our dividend policy on a regular basis following this offering and may, subject to compliance with the covenants contained in the agreements governing our indebtedness, applicable law and other considerations, determine to pay dividends in the future. See "Description of Share Capital."

Any determination to pay dividends in the future would be subject to compliance with applicable laws, including the Irish Companies Act, which requires Irish companies to have profits available for distribution equal to or greater than the amount of the proposed dividend.

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of June 30, 2018 on (i) an actual basis, (ii) a pro forma basis to give effect to the issuance of 42,857,139 ordinary shares of Osmotica Pharmaceuticals plc as described under "The Reorganization" and (iii) a pro forma as adjusted basis to give effect to (a) the issuance of 42,857,139 ordinary shares of Osmotica Pharmaceuticals plc as described under "The Reorganization" and (b) the sale by us of 8,300,000 ordinary shares in this offering, at an assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover of this prospectus, and the application of the net proceeds therefrom, as described under "Use of Proceeds," after deducting estimated underwriting discounts and commissions and estimated expenses payable by us.

The following table should be read in conjunction with "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the related notes included elsewhere in this prospectus.

 
  As of June 30, 2018  
 
  Actual   Pro Forma   Pro Forma
As Adjusted (1)
 
 
  (in thousands)
 

Cash and cash equivalents

  $ 28,408   $ 28,408   $ 39,693  

Long-term indebtedness

   
 
   
 
   
 
 

Senior secured credit facility

                   

Term A Loan

  $ 273,657   $ 273,657   $ 223,407  

Term B Loan

    49,750     49,750      

Total senior secured credit facilities

  $ 323,407   $ 323,407   $ 223,407  

Deferred financing fees

    (6,150 )   (6,150 )   (4,248 )

Total senior secured credit facilities, net of deferred financing fees

  $ 317,257   $ 317,257   $ 219,159  

Current portion

    (6,724 )   (6,724 )   (5,779 )

Senior secured credit facilities — long-term portion

  $ 310,533   $ 310,533   $ 213,380  

Note payable — insurance financing

    780     780     780  

Total long-term indebtedness

  $ 311,313   $ 311,313   $ 214,160  

Capital lease obligations

   
287
   
287
   
287
 

Current portion

    (110 )   (110 )   (110 )

Capital lease obligations — long-term-portion

  $ 177   $ 177   $ 177  

Total long-term debt, net of deferred financing fees

  $ 311,490   $ 311,490   $ 214,337  

Equity

                   

Partners' capital

  $ 421,316   $   $  

Ordinary shares ($0.01 nominal value, 400,000,000 shares authorized; 42,857,139 shares issued and outstanding)

        429     512  

Additional paid-in capital

        420,887     530,640  

Retained earnings

             

Accumulated other comprehensive loss

    (1,724 )   (1,724 )   (1,724 )

Total equity

  $ 419,592   $ 419,592   $ 529,428  

Total capitalization

  $ 737,916   $ 737,916   $ 749,654  

(1)
As of June 30, 2018, the LIBOR rate margin for the Term A Loan and Term B Loan was 3.75% and 4.25%, respectively. To the extent our total leverage ratio, as defined in our senior secured credit facilities, is equal to or less than 2.00 to 1.00 following the consummation of this offering and the

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    application of the net proceeds therefrom, the LIBOR rate margin on the Term A Loan would be reduced to 3.25%. Our senior secured credit facilities also permit us, at our option, to use the net proceeds of this offering to repay the Term B Loan without making a corresponding prepayment of the Term A Loan, to the extent our total leverage ratio, as defined in our senior secured credit facilities, is equal to or less than 2.00 to 1.00 following the consummation of this offering and the application of the net proceeds therefrom. See "Description of Certain Indebtedness — Senior Secured Credit Facilities."

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DILUTION

If you invest in our ordinary shares, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share and the net tangible book value per share after this offering. Dilution results from the fact that the initial public offering price per share is substantially in excess of the book value per share attributable to the existing shareholders for the presently outstanding ordinary shares. We calculate net tangible book value per share by dividing the net tangible book value (total consolidated tangible assets less total consolidated liabilities) by the number of outstanding ordinary shares.

Our net tangible book value at June 30, 2018 was approximately $(286.1) million, or $(6.68) per share. Dilution in net tangible book value per share represents the difference between the amount per share that you pay in this offering and the net tangible book value per share immediately after this offering.

After giving effect to the receipt of the estimated net proceeds from our sale of shares in this offering, assuming an initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover of this prospectus, and the application of the estimated net proceeds therefrom as described under "Use of Proceeds," our pro forma net tangible book value at June 30, 2018 would have been approximately $(174.4) million, or $(3.41) per share. This represents an immediate increase in net tangible book value per share of $3.27 to existing shareholders and an immediate decrease in net tangible book value per share of $18.41 to you. The following table illustrates this dilution per share.


Assumed initial public offering price per share

        $ 15.00  

Net tangible book value per share at June 30, 2018

  $ (6.68 )      

Increase per share attributable to new investors in this offering

    3.27        

Pro forma net tangible book value per share after this offering

          (3.41 )

Dilution per share to new investors

        $ 18.41  

If the underwriters exercise their option to purchase additional shares in full, the pro forma net tangible book value per share after giving effect to this offering would be $(3.00) per share. This represents an increase in pro forma net tangible book value of $3.68 per share to existing shareholders and dilution in pro forma net tangible book value of $18.00 per share to you.

A $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per share, which is the midpoint of the price range set forth on the cover of this prospectus, would increase (decrease) our pro forma net tangible book value after giving effect to this offering by $7.7 million, or by $0.15 per share, assuming no change to the number of our ordinary shares offered by us as set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.

The following table sets forth, as of June 30, 2018, the number of our ordinary shares purchased from us, the total consideration paid to us and the average price per share paid by existing shareholders and to be paid by new investors purchasing shares in this offering, before deducting underwriting discounts and commissions and estimated offering expenses payable by us.

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  Shares Purchased   Total Consideration   Average Price  
 
  Number   Percent   Amount   Percent   Per Share  

Existing shareholders

    42,857,139     84 % $ 175,023,917 (1)   58 % $ 4.08  

New investors

    8,300,000     16     124,500,000     42     15.00  

Total

    51,157,139     100 %   299,523,917     100 %            

(1)
Represents the cash investments made in (1) Osmotica Holdings Corp Limited prior to the Business Combination, (2) Vertical/Trigen Holdings, LLC in connection with the investments by Avista in that business since 2013, and (3) Osmotica Holdings S.C.Sp. in connection with the Business Combination or thereafter and prior to this offering. In addition, as part of the Business Combination certain shareholders contributed equity interests in Vertical/Trigen Holdings, LLC in exchange for units of Osmotica Holdings S.C.Sp. These equity interests in Vertical/Trigen Holdings, LLC were acquired by such shareholders in 2013 in connection with the combination of the two businesses that formed Vertical/Trigen Holdings, LLC and no cash consideration was paid directly for such equity interests. For purposes of this table the value that was attributed to such contributed equity interests in the Business Combination has been excluded from the "Total Consideration" amount for existing shareholders because such amount was not a cash investment in the Company, Osmotica Holdings Corp Limited or Vertical/Trigen Holdings, LLC. See "The Business Combination" and "The Reorganization."

The number of ordinary shares to be outstanding after this offering is based on 42,857,139 ordinary shares outstanding as of June 30, 2018 and excludes the following:

    §
    3,015,572 ordinary shares issuable upon exercise of equity options issued and outstanding under the 2016 Plan at a weighted-average exercise price of $14.96 per share; and

    §
    4,100,000 ordinary shares reserved for issuance under the 2018 Plan.

To the extent any outstanding options or other equity awards are exercised or become vested or any additional options or other equity awards are granted and exercised or become vested or other issuances of our ordinary shares are made, there may be further economic dilution to new investors.

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following tables set forth our selected historical consolidated financial data as of and for the periods indicated. The statement of operations data for the six months ended June 30, 2018 and 2017 and the balance sheet data as of June 30, 2018 presented below have been derived from the unaudited condensed consolidated financial statements of Osmotica Holdings S.C.Sp. included elsewhere in this prospectus. The consolidated statement of operations data for the years ended December 31, 2017 and 2016 and the consolidated balance sheet data as of December 31, 2017 and 2016 were derived from the audited consolidated financial statements of Osmotica Holdings S.C.Sp. included elsewhere in this prospectus. Immediately prior to this offering, we will undertake a series of restructuring transactions that will result in Osmotica Pharmaceuticals plc becoming the direct parent company of Osmotica Holdings S.C.Sp., with all holders of equity interests in Osmotica Holdings S.C.Sp. becoming securityholders of Osmotica Pharmaceuticals plc. Prior to the Reorganization, Osmotica Pharmaceuticals plc had no material assets and conducted no operations (other than activities incidental to its formation, the Reorganization and this offering). Upon the completion of the Reorganization, the historical consolidated financial statements of Osmotica Holdings S.C.Sp. included in this prospectus will become the historical financial statements of Osmotica Pharmaceuticals plc. See "The Reorganization."

The selected historical consolidated financial data set forth below should be read in conjunction with the disclosures set forth under "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus. Certain amounts have been subject to immaterial rounding adjustments for consistency of presentation within the following tables and, as a result, do not match the corresponding amounts in our consolidated financial statements included elsewhere in this prospectus.

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  Years ended December 31  
 
  Six months ended June 30,  
 
   
  2016 (1)
(restated)
 
 
  2018   2017   2017  
 
  (in thousands, except share
and per share data)

 

Revenues

                         

Net product sales

  $ 130,820   $ 108,225   $ 237,671   $ 170,522  

Royalty revenue

    752     6,207     6,449     40,918  

Licensing and contract revenue

    88     1,243     1,629     7,019  

Total revenues

    131,660     115,675     245,749     218,459  

Cost of goods sold

    67,138     55,900     125,188     125,616  

Gross profit

    64,522     59,775     120,561     92,843  

Selling, general and administrative expenses

    33,839     28,042     56,955     65,958  

Acquisition-related costs

                8,398  

Research and development expenses

    19,141     11,695     42,688     29,061  

Impairment of intangible assets

        41,700     72,520     21,475  

Impairment of fixed assets

            466      

Total operating expenses

    52,980     81,437     172,629     124,892  

Operating income (loss)

    11,542     (21,662 )   (52,068 )   (32,049 )

Interest expense and amortization of debt discount

    (10,084 )   (14,419 )   (29,052 )   (20,187 )

Other non-operating (loss) income, net

    447     1,282     (4,522 )   169  

Total other non-operating expenses, net

    (9,637 )   (13,137 )   (33,574 )   (20,018 )

Income (loss) before income taxes

    1,905     (34,799 )   (85,642 )   (52,067 )

Income tax (expense) benefit

    (490 )   4,739     40,487     10,246  

Net income (loss)

  $ 1,415   $ (30,060 ) $ (45,155 ) $ (41,821 )

Net income (loss) per share

                         

Basic

  $ 1.41   $ (30.05 ) $ (45.14 ) $ (41.81 )

Diluted

  $ 1.32   $ (30.05 ) $ (45.14 ) $ (41.81 )

Weighted-average ordinary shares

                         

Basic

    1,000,515     1,000,315     1,000,367     1,000,159  

Diluted

    1,070,613     1,000,315     1,000,367     1,000,159  


 
  As of June 30   As of December 31  
 
  2017
(in thousands)
(restated)
  2016
(restated)
 
 
  2018  

Consolidated balance sheet data

                   

Cash and cash equivalents

  $ 28,408   $ 34,743   $ 19,559  

Total assets

    858,300     885,699     978,500  

Total long-term debt, current and non-current, net (1)(2)

    318,037     320,606     332,993  

Capital lease obligations, current and non-current

    287     81     195  

Total liabilities

    438,708     466,429     513,295  

Total partners' capital

  $ 419,592   $ 419,270   $ 465,205  

(1)
The historical financial information presented in this prospectus subsequent to February 2, 2016 is of Osmotica Holdings S.C.Sp., which includes the operating results of Vertical/Trigen and Osmotica Holdings Corp Limited. For the period beginning January 1, 2016 to February 2, 2016, the historical financial information presented in this prospectus reflects the operating results of Vertical/Trigen, our predecessor, only. The historical financial information for the year ended December 31, 2016 has been derived from consolidated financial statements that have been restated to reflect corrections primarily related to business combinations involving Osmotica Holdings Corp Limited and its subsidiaries. See Note 1,

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    Organization and Nature of Operations to our consolidated financial statements included elsewhere in this prospectus. Our financial results reflect the termination of our license agreement with UCB and the resulting reacquisition of the marketing and distribution rights for VERT on November 10, 2016. As a result, during 2016, most of our revenue from VERT was derived from royalties received pursuant to that license agreement. Following the reacquisition of the marketing and distribution rights, we recognized revenue and associated expenses from net product sales of VERT.

(2)
In connection with the Business Combination, we (i) entered into our senior secured credit facilities providing for a $160.0 million term loan, (ii) issued $40.0 million of senior subordinated notes due 2023, and (iii) issued $25.0 million of junior subordinated payment-in-kind promissory notes due 2024. We amended our senior secured credit facilities in 2016 in conjunction with the reacquisition of the marketing and distribution rights for VERT. Pursuant to the amendment, certain lenders agreed to make an incremental term loan in the aggregate principal amount of $117.5 million, which was added to the principal amount of our outstanding term loan. As of December 31, 2016, $4.2 million of accrued and unpaid interest on the junior subordinated payment-in-kind promissory notes was included in our total long-term debt. On December 21, 2017, we (i) repaid all amounts outstanding under the senior subordinated notes and junior subordinated payment-in-kind promissory notes and (ii) amended our senior secured credit facilities to increase the principal amount of the term loan to an aggregate principal amount of $327.5 million. Of the aggregate principal amount, $277.5 million was designated as the Term A Loan and $50.0 million was designated as the Term B Loan. Amounts presented are net of deferred financing fees of $6.9 million and $8.6 million as of December 31, 2017 and 2016, respectively. See "Description of Certain Indebtedness — Senior Secured Credit Facilities."

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The statements in the discussion and analysis regarding industry outlook, our expectations regarding the performance of our business and the forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements." Our actual results may differ materially from those contained in or implied by any forward-looking statements. You should read the following discussion together with the sections entitled "Risk Factors," "Prospectus Summary — Summary Historical Financial and Other Data," "Prospectus Summary — Selected Historical Consolidated Financial Data," "Business" and the historical audited and unaudited consolidated financial statements, including the related notes, appearing elsewhere in this prospectus. This discussion and analysis is based upon the historical financial statements of Osmotica Holdings S.C.Sp. included in this prospectus. Prior to the Reorganization, Osmotica Pharmaceuticals plc had no material assets and conducted no operations other than activities incidental to its formation, the Reorganization and this offering. All references to years, unless otherwise noted, refer to our fiscal years, which end on December 31.

Overview

We are a fully integrated biopharmaceutical company focused on the development and commercialization of specialty products that target markets with underserved patient populations. In 2017, we generated total revenues of $245.7 million across our existing portfolio of promoted specialty neurology and women's health products, as well as our non-promoted products, which are primarily complex formulations of generic drugs. We recently received regulatory approval from the FDA for M-72 (methylphenidate hydrochloride extended-release tablets, 72 mg) for the treatment of ADHD in patients aged 13 to 65, as well as Osmolex ER (amantadine extended-release tablets) for the treatment of Parkinson's disease and drug-induced extrapyramidal reactions, which are involuntary muscle movements caused by certain medications, in adults. We launched M-72 in the second quarter of 2018 and are preparing to launch Osmolex ER in the second half of 2018. In addition, we have a late-stage development pipeline highlighted by two NDA candidates in Phase III clinical trials: Ontinua ER (arbaclofen extended-release tablets) for muscle spasticity in multiple sclerosis patients and RVL-1201 (oxymetazoline hydrochloride ophthalmic solution, 0.1%) for the treatment of blepharoptosis, or droopy eyelid. Many of our products use our proprietary osmotic-release drug delivery system, Osmodex, which we believe offers advantages over alternative extended-release, or ER, technologies.

Our core competencies span drug development, manufacturing and commercialization. Our specialized neurology and women's health sales teams support the ongoing commercialization of our existing promoted product portfolio as well as the launch of new products. As of June 30, 2018, we actively promoted five products: M-72, Lorzone (chlorzoxazone scored tablets) and ConZip (tramadol hydrochloride extended-release capsules) in specialty neurology; and OB Complete, our family of prescription prenatal dietary supplements, and Divigel (estradiol gel, 0.1%) in women's health. We most recently launched M-72 in the second quarter of 2018, and we expect to launch Osmolex ER, which was approved by the FDA on February 16, 2018, in the second half of 2018. We also sell a portfolio consisting of approximately 35 non-promoted products, which has generated strong cash flow. The cash flow from these non-promoted products has contributed to our robust investments in research and development and business development activities. Many of our existing products benefit from several potential barriers to entry, including intellectual property protection, formulation and manufacturing complexities, data exclusivity, as well as DEA regulation and quotas for active pharmaceutical ingredients, or API. Certain of our key products, particularly those that incorporate our proprietary Osmodex drug delivery system, are or are expected to be manufactured in our Marietta, Georgia facility.

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We are focused on progressing our pipeline, which is highlighted by two Phase III candidates under clinical development — Ontinua ER and RVL-1201. We developed Ontinua ER using our proprietary Osmodex drug delivery system and believe this formulation will provide an efficacious and safe treatment for muscle spasticity in multiple sclerosis patients. Ontinua ER has been designated by the FDA as an Orphan Drug in this indication. We are also exploring opportunities for Ontinua ER in additional indications, such as opioid and alcohol use disorders. We acquired the rights to RVL-1201 in 2017 and are conducting a second Phase III clinical trial of RVL-1201 for droopy eyelid. If approved, RVL-1201 would be the first non-surgical treatment option approved by the FDA for droopy eyelid. We plan to invest selectively in expanding our product portfolio by leveraging both our proprietary Osmodex drug delivery system to develop differentiated products as well as our management team's operating experience to pursue external business development opportunities.

Financial Operations Overview

Recent Transactions

Business Combination

On February 3, 2016, we consummated a series of transactions, which we refer to as the Business Combination, to reorganize and combine the businesses of Osmotica Holdings Corp Limited and Vertical/Trigen under a new holding company, Osmotica Holdings S.C.Sp. In accordance with U.S. generally accepted accounting principles, Vertical/Trigen was the accounting acquirer in the Business Combination and, as such, is treated as our predecessor and therefore the financial information presented through February 2, 2016 only includes the operating results of Vertical/Trigen. The historical financial information presented in this prospectus subsequent to February 2, 2016 is of Osmotica Holdings S.C.Sp., which includes the operating results of Vertical/Trigen and Osmotica Holdings Corp Limited.

Re-Acquisition of VERT Marketing and Distribution Rights

On November 10, 2016, we terminated certain licensing, supply, and other agreements that were entered into by Osmotica Holdings Corp Limited prior to the Business Combination. Prior to November 10, 2016, we earned royalties on sales of VERT by UCB. In this transaction, we reacquired the marketing and distribution rights to VERT and also acquired inventory of finished VERT together with rights and title to certain marketing and advertising materials. Concurrently, UCB entered into a two-year non-compete agreement with respect to the commercialization of competing products. The transaction was accounted for as an asset acquisition. The historical financial information presented in this prospectus includes all sales, costs and expenses from VERT subsequent to November 10, 2016.

RevitaLid Acquisition

On October 24, 2017, we entered into a stock purchase agreement to acquire the outstanding stock of RevitaLid, Inc., or RevitaLid. RevitaLid is the owner of RVL-1201, an ophthalmic product that treats blepharoptosis, which had been licensed from one of the sellers in the transaction. Osmotica obtained all rights under the license agreement and expects to undertake the future development and commercialization of RVL-1201, which includes conducting clinical trials and filing an NDA with the FDA. The transaction was accounted for as an asset acquisition of acquired in-process research and development, or IPR&D, and because there was no alternative future use for the acquired asset, the purchase price, including net deferred tax assets and liabilities, was expensed and included in research and development expenses.

Segment Information

We currently operate in one business segment focused on the development and commercialization of pharmaceutical products that target markets with underserved patient populations. We are not organized by market and are managed and operated as one business. We also do not operate any separate lines of business or separate business entities with respect to our products. A single management team reports to our chief operating decision maker who comprehensively manages our entire business. Accordingly, we do not accumulate discrete financial information with respect to separate service lines and do not have

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separately reportable segments. See Note 2, Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this prospectus.

Components of Results of Operations

Revenues

Our revenues consist of product sales, royalty revenues and licensing and contract revenue.

Net product sales   —  Our revenues consist primarily of product sales of our promoted products, principally Lorzone, Divigel and the OB Complete family of prescription prenatal dietary supplements, and our non-promoted products, principally VERT and methylphenidate ER. We ship product to a customer pursuant to a purchase order, which in certain cases is pursuant to a master agreement with that customer, and we invoice the customer upon shipment. For these sales we recognize revenue when title and risk of loss has passed to the customer, which is typically upon delivery to the customer and when estimated provisions for revenue reserves are reasonably determinable. The amount of revenue we recognize is equal to the selling price, adjusted for our estimates of a number of significant sales deductions.

Royalty revenue   —  Royalties are recognized as earned in accordance with contract terms when they can be reasonably estimated and collectability is reasonably assured. Our commercial partners are obligated to report their net product sales and the resulting royalty payments.

Licensing and contract revenue   —  We recognize revenue from a contractual arrangement when product is shipped to our commercial partners. Licensing revenue is recognized in the period in which the product subject to the arrangement is sold or services are rendered. Sales deductions, such as returns on product sales, government program rebates, price adjustments and prompt pay discounts associated with licensing revenue, are generally the responsibility of our commercial partners and we do not record any payments. Licensing and contract revenues are shown net of costs in situations where it has been determined that we are an agent in the relationship.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of personnel expenses, including salaries and benefits for employees in executive, finance, accounting, business development, legal and human resource functions. General and administrative expenses also include corporate facility costs, including rent, utilities, legal fees related to corporate matters and fees for accounting and other consulting services. After the completion of this offering, we expect to incur additional general and administrative expenses as a public company, including costs associated with the preparation of our SEC filings, increased legal and accounting costs, investor relations costs, incremental director and officer liability insurance costs, as well as costs related to compliance with the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Research and Development

Costs for research and development are charged as incurred and include employee-related expenses (including salaries and benefits, travel and expenses incurred under agreements with CROs, contract manufacturing organizations and service providers that assist in conducting clinical and preclinical studies), costs associated with preclinical activities and development activities and costs associated with regulatory operations.

Costs for certain development activities, such as clinical studies, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or information provided to us by our vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the patterns of costs incurred, and are reflected in our consolidated financial statements as prepaid expenses or accrued expenses as applicable.

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Results of Operations

Comparison of Six Months Ended June 30, 2018 and 2017

Financial Operations Overview

The following table presents revenues and expenses for the six months ended June 30, 2018 and 2017 (dollars in thousands):


 
  Six Months Ended
June 30,
   
 
 
  2018   2017   % Change  

Net product sales

  $ 130,820   $ 108,225     21 %

Royalty revenue

    752     6,207     (88 )%

Licensing and contract revenue

    88     1,243     (93 )%

Total Revenue

    131,660     115,675     14 %

Cost of goods sold (inclusive of amortization of intangibles of $38,475 and $13,813 for 2018 and 2017, respectively)

    67,138     55,900     20 %

Gross profit

  $ 64,522   $ 59,775     8 %

Gross profit percentage

    49 %   52 %      

Selling, general and administrative expenses

    33,839     28,042     21 %

Research and development expenses

    19,141     11,695     64 %

Impairment of intangible assets

        41,700     NM  

Total operating expenses

    52,980     81,437     (35 )%

Interest expense and amortization of debt discount

    (10,084 )   (14,419 )   (30 )%

Other non-operating income, net

    447     1,282     (65 )%

Total other non-operating expenses, net

    (9,637 )   (13,137 )   27 %

Income (loss) before income taxes

    1,905     (34,799 )   (105 )%

Income tax (expense) benefit

    (490 )   4,739     NM  

Net income (loss)

  $ 1,415   $ (30,060 )   (105 )%

NM—Not meaningful

Revenue

The following table presents total revenues for the six months ended June 30, 2018 and 2017 (dollars in thousands):


 
  Six Months Ended June 30,    
 
 
  2018   2017   % Change  

Venlafaxine ER

  $ 34,484   $ 61,644     (44 )%

Methylphenidate ER

    67,326     0     NM  

Lorzone

    8,212     10,933     (25 )%

Divigel

    9,933     8,700     14 %

OB Complete

    5,101     5,406     (6 )%

Other

    5,764     21,542     (73 )%

Net product sales

    130,820     108,225     21 %

Royalty revenue

    752     6,207     (88 )%

Licensing and contract revenue

    88     1,243     (93 )%

Total revenues

  $ 131,660   $ 115,675     14 %

NM—Not meaningful

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Total Revenues.     Total revenues increased by $16.0 million to $131.7 million for the six months ended June 30, 2018, as compared to $115.7 million for the six months ended June 30, 2017.

Net Product Sales.     Net product sales increased by $22.6 million to $130.8 million for the six months ended June 30, 2018, as compared to $108.2 million for the six months ended June 30, 2017, primarily due to methylphenidate ER, which was approved and launched in the third quarter of 2017. Product sales from VERT decreased by 44% for the six months ended June 30, 2018, reflecting a greater proportion of sales from our lower priced authorized generic product, which accounted for substantially all VERT unit volume as compared to 86% during the six months ended June 30, 2017. Currently, two companies sell competing dosage strengths of VERT. We expect that these competing products as well as any new generic product launches in the future will affect our sales of VERT for the remainder of 2018 and future years.

Product sales from Lorzone declined 25% for the six months ended June 30, 2018, reflecting lower sales volume partially offset by price increases instituted in early 2018. Product sales from Divigel increased by 14%, driven primarily by an increase in market share from 39% for the six months ended June 30, 2017 to 43% for the six months ended June 30, 2018 calculated based on prescription data derived from IQVIA, reflecting targeted promotional activities and strong patient access. Product sales from the OB Complete family of prescription prenatal dietary supplements decreased by 6% due to the discontinuation of our OB Complete Gold prenatal vitamin line during 2017. Other non-promoted product sales decreased by 73%, primarily due to lower sales of aripiprazole as a result of the termination of a marketing and distribution relationship with the ANDA holder for this product in the second quarter of 2017. This relationship also included a portfolio of other products along with aripiprazole.

Royalty Revenue.     Royalty revenue decreased by $5.4 million for the six months ended June 30, 2018 primarily due to supply issues on products out-licensed and manufactured by our partners and new contract pricing during the period.

Licensing and Contract Revenue.     Licensing and contract revenue decreased by $1.2 million in 2018 primarily due to the discontinuation in April 2017 of promotional activities for Monistat, a women's health product, on behalf of a third party, and a decline in sales on other contract revenue products.

Cost of Goods Sold and Gross Profit Percentage

The following table presents a breakdown of total cost of goods sold for the six months ended June 30, 2018 and 2017 (dollars in thousands):


 
  Six Months Ended
June 30,
   
 
 
  2018   2017   % Change  

Amortization of intangible assets

  $ 38,475   $ 13,813     179 %

Depreciaton expense

    1,278     1,157     89 %

Royalty expense

    7,036     18,414     (62 )%

Other cost of goods sold

    20,349     22,516     (14 )%

Total cost of goods sold

  $ 67,138   $ 55,900     20 %

Cost of goods sold increased $11.2 million in the six months ended June 30, 2018 to $67.1 million as compared to $55.9 million in the six months ended June 30, 2017. The increase was primarily driven by a $24.7 million increase in amortization of intangible assets largely attributable to methylphenidate ER which was transferred to definite-lived intangible assets, following its approval and launch in the third quarter of 2017. The increase in depreciation expense reflects $2.2 million and $5.7 million of additions to property, plant and equipment during the six months ended June 30, 2018 and 2017, respectively. Royalty expense

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decreased by $11.4 million primarily reflecting the termination of the distribution and marketing arrangement with the ANDA holder for a portfolio of products, including aripiprazole, for which we paid a significant royalty rate on our net sales. The $2.2 million decrease in other cost of goods sold is mostly due to product mix.

Gross profit percentage decreased to 49% for the six months ended June 30, 2018 as compared with 52% for the six months ended June 30, 2017 primarily due to the increase in amortization expense for methylphenidate ER, product mix and the gross profit effects of the cost of goods sold described above. Excluding amortization and depreciation, our gross profit percentage increased to 79% for the six months ended June 30, 2018 as compared with 65% for the six months ended June 30, 2017, primarily as a result of the termination in the second quarter of 2017 of the distribution and marketing relationship with the ANDA holder for a portfolio of products, including aripiprazole, for which we paid a significant royalty rate on net sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $5.8 million in the six months ended June 30, 2018 to $33.8 million as compared to $28.0 million in the six months ended June 30, 2017. Selling, general and administrative expenses increased primarily due to the following incremental expenses incurred by us during the six months ended June 30, 2018: $0.9 million of expenses related to our initial public offering, $0.3 million for legal settlements, $0.5 million for severance expenses due to restructuring of our sales force, expenses related to the launch of M72 and Osmolex ER and additions of headcount, including our sales force.

Research and Development

Research and development expenses increased by $7.4 million in the six months ended June 30, 2018 to $19.1 million as compared to $11.7 million in the six months ended June 30, 2017. The increase was largely attributable to clinical trial costs of Ontinua ER and RVL-1201, each of which are in Phase III clinical trials, together with additional headcount.

The following table summarizes our research and development expenses incurred for the periods indicated (dollars in thousands):


 
  Six Months Ended
June 30,
   
 
 
  2018   2017   % Change  

Osmolex ER

  $ 629,286   $ 2,717,746     (77 )%

Ontinua ER

    7,375,207     2,427,455     204 %

Other

    11,136,588     6,549,521     70 %

Total

  $ 19,141,080   $ 11,694,722     64 %

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Impairment of Intangible Assets

Impairment of intangible assets of $41.7 million during the six months ended June 30, 2017 relates to certain of our In-Process R&D. The following table details the impairment charges for such period (in thousands):


 
  Six Months Ended June 30, 2017
Asset/Asset Group   Impairment
Charge
  Reason For Impairment

In-Process R&D

         

Ontinua ER

  $ 23,100   Delay in commencement of Phase III Trial

Generic Product "A"

    18,600   Delay in finalizing formulation development

Total Impairment Charges for six months ended June 30, 2017

 
$

41,700
   

Interest Expense and Amortization of Debt Discount

Interest expense and amortization of debt discount decreased by $4.3 million in the six months ended June 30, 2018 to $10.1 million as compared to $14.4 million in the six months ended June 30, 2017. The decrease in borrowing costs reflects lower costs associated with a refinancing concluded in December 2017 which refinanced our LIBOR-based term loan, senior subordinated note and junior subordinated PIK note borrowings.

Other Non-operating Income, net

Other non-operating income was $0.4 million and $1.3 million for the six months ended June 30, 2018 and 2017, respectively.

Income Tax Expense

During the six months ended June 30, 2018, we recognized income tax expense of $0.5 million on $1.9 million of income before income tax, compared to $4.7 million of income tax benefit on $34.8 million of loss before income tax during the comparable 2017 period.

The income tax expense was based on the applicable federal and state tax rates for those periods. For periods with income before provision for income taxes, favorable tax items result in a decrease in the effective tax rate, while unfavorable tax items result in an increase in the effective tax rate. For periods with a loss before benefit from income taxes, favorable tax items result in an increase in the effective tax rate, while unfavorable tax items result in a decrease in the effective tax rate.

The income tax expense (benefit) for the six months ending June 30, 2018 and for the same period in 2017 reflect significant differences in the usual relationship of income tax expense (benefit) to the income (loss) before income taxes. The primary cause of this, as well as the change in the effective income tax rate period over period, relates to the following items: the decrease in the U.S. statutory income tax rate to 21% from 34% for the six months ended June 30, 2018 and for the same period in 2017, respectively; a disproportionate change in the income tax rate for the six months ended June 30, 2018 as a result of credits from research and development when compared to the income (loss) before income taxes; and the fact that in both periods there are ordinary losses in certain foreign tax jurisdictions that we operate in where no tax benefit is expected to be recognized, which subsequently requires that these jurisdictions not be included in the calculation of the interim annual effective income tax rate. In addition, during the six months ended June 30, 2018 there was a discrete item of expense included in the income tax provision related to a decrease in the Argentinian statutory rate as a result of a change in applicable law.

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Comparison of Years Ended December 31, 2017 and 2016

Financial Operations Overview

The following table presents revenues and expenses for the years ended December 31, 2017 and 2016 (dollars in thousands):


 
  2017   2016 (1)
(restated)
  % Change  

Net product sales

  $ 237,671   $ 170,522     39 %

Royalty revenue

    6,449     40,918     (84 )%

Licensing and contract revenue

    1,629     7,019     (77 )%

Total Revenues

  $ 245,749   $ 218,459     12 %

Cost of goods sold (inclusive of amortization of intangibles of $43,381 and $21,470 for 2017 and 2016, respectively)

    125,188     125,616     NM  

Gross profit

  $ 120,561   $ 92,843     30 %

Gross profit percentage

    49 %   42 %      

Selling, general and administrative expenses

    56,955     65,958     (14 )%

Acquisition related costs

        8,398     NM  

Research and development expenses

    42,688     29,062     47 %

Impairment of intangible assets

    72,520     21,474     238 %

Impairment of fixed assets

    466         NM  

Total operating expenses

  $ 172,629   $ 124,892     41 %

Interest expense and amortization of debt discount

    (29,052 )   (20,187 )   44 %

Other non-operating (loss) income, net

    (4,522 )   169     NM
 

Total other non-operating expenses, net

  $ (33,574 ) $ (20,018 )   68 %

Income tax benefit

    40,487     10,246     295 %

Net loss

  $ (45,155 ) $ (41,821 )   NM  

NM—Not meaningful

(1)
The historical financial information presented in this prospectus subsequent to February 2, 2016 is of Osmotica Holdings S.C.Sp., which includes the operating results of Vertical/Trigen and Osmotica Holdings Corp Limited. For the period beginning January 1, 2016 to February 2, 2016, the historical financial information presented in this prospectus reflects the operating results of Vertical/Trigen, our predecessor, only. Our financial results reflect the termination of our license agreement with UCB and the resulting reacquisition of the marketing and distribution rights for VERT on November 10, 2016. As a result, during 2016, most of our revenue from VERT was derived from royalties received pursuant to that license agreement. Following the reacquisition of the marketing and distribution rights, we recognized revenue and associated expenses from net product sales of VERT.

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Revenue

The following table presents total revenues for the years ended December 31, 2017 and 2016 (dollars in thousands):


 
  2017   2016   % Change  

Venlafaxine ER

  $ 96,054   $ 25,572     276 %

Methylphenidate ER

    43,711         NM  

Lorzone

    22,276     29,001     (23 )%

Divigel

    18,542     15,849     17 %

OB Complete

    10,446     12,761     (18 )%

Other

    46,642     87,339     (47 )%

Net product sales

  $ 237,671   $ 170,522     39 %

Royalty revenue

    6,449     40,918     (84 )%

Licensing and contract revenue

    1,629     7,019     (77 )%

Total revenues

  $ 245,749   $ 218,459     12 %

NM—Not meaningful

Total Revenues.     Total revenues increased by $27.2 million to $245.7 million for the year ended December 31, 2017, as compared to $218.5 million for the year ended December 31, 2016.

Net Product Sales.     Net product sales increased by $67.2 million to $237.7 million for the year ended December 31, 2017, as compared to $170.5 million for the year ended December 31, 2016. Product sales from VERT increased by 276% in 2017, reflecting a full year of sales following the termination of our license agreement with UCB in November 2016, and the resulting reacquisition of the product's marketing and distribution rights, as we recognized revenues prior to the reacquisition of the marketing and distribution rights in the form of royalties and subsequently as revenue from net product sales of VERT. During the first quarter of 2017, generic forms of two venlafaxine dosage strengths were launched by a competitor. This development contributed to a 29% decline in 2017 VERT unit volume relative to UCB's unit volume through the closing of the reacquisition of VERT marketing and distribution rights in November 2016 and our unit volume for the remainder of 2016, and the proportion of VERT units sold as our authorized generic product in 2017 increased to 90% of total VERT unit sales from 86% in 2016 (including UCB's sale of units prior to our reacquisition of VERT marketing and distribution rights in November 2016 and our sales of units for the remainder of the year). We expect that the competitor products launched in the first quarter of 2017 as well as any new generic product launches in the future will continue to affect our sales of VERT in 2018 and future years. Our ANDA for methylphenidate ER was approved and the product was launched in the third quarter of 2017. Product sales from Lorzone declined 23% in 2017, reflecting lower sales volume driven primarily by challenges associated with patient access, partially offset by price increases instituted in early 2017. Product sales from Divigel increased by 17%, driven primarily by an increase in market share from 37% at year-end 2016 to 40% at year-end 2017 calculated based on prescription data derived from IQVIA, reflecting targeted promotional activities and strong patient access. Product sales from the OB Complete family of prescription prenatal dietary supplements decreased by 18% due to the discontinuation of our OB Complete Gold prenatal vitamin line during 2017. Other non-promoted product sales decreased 47%, primarily due to lower sales of aripiprazole as a result of the termination of a marketing and distribution relationship with the ANDA holder for this product in the second quarter of 2017. This relationship also included a portfolio of other products along with aripiprazole. The termination of this marketing and distribution relationship had only a modest impact on our gross profit percentage and net loss in 2017, due to the significant royalty rates payable by us and declining sales volumes.

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Royalty Revenue.     Royalty revenue decreased by $34.5 million in 2017 primarily due to the termination of the license and the resulting reacquisition of marketing and distribution rights for VERT.

Licensing and Contract Revenue.     Licensing and contract revenue decreased by $5.4 million in 2017 primarily due to the discontinuation in April 2017 of promotional activities for Monistat®, a women's health product, on behalf of a third party.

Cost of Goods Sold and Gross Profit Percentage

During the years ended December 31, 2017 and 2016, we incurred certain charges impacting the comparability of total cost of goods sold, such as expenses related to the launch of methylphenidate ER, the termination of the license and resulting reacquisition of marketing and distribution rights for VERT, and the termination of the marketing and distribution relationship for a portfolio of products, including aripiprazole. The following table presents a breakdown of total cost of goods sold for the years ended December 31, 2017 and 2016 (dollars in thousands):


 
  2017   2016   % Change  

Amortization of intangible assets

  $ 43,381   $ 21,470     102 %

Depreciation expense

    1,978     886     123 %

Royalty expense

    31,386     75,137     (58 )%

Other cost of goods sold — products

    48,443     28,123     72 %

Cost of goods sold

  $ 125,188   $ 125,616     NM  

NM—Not meaningful

Cost of goods sold decreased $0.4 million in the year ended December 31, 2017 to $125.2 million as compared to $125.6 million in the year ended December 31, 2016. The increase in amortization of intangible assets was primarily attributable to the addition to definite-lived intangible assets including: (i) $93.7 million of a definite-lived distribution right intangible asset associated with the reacquisition of VERT distribution rights in November 2016 and (ii) $264.1 million of IPR&D transferred to definite-lived intangible assets related to methylphenidate ER, which was approved and launched in the third quarter of 2017. The higher balances of definite-lived intangibles assets resulted in an increase in amortization of intangible assets. The increase in depreciation expense reflects the completion of certain phases of a construction project in our manufacturing facility in Marietta, Georgia during 2016, and $6.9 million of additions to property, plant and equipment in 2017. Royalty expense decreased by $43.8 million primarily reflecting the termination of the distribution and marketing arrangement with the ANDA holder for a portfolio of products, including aripiprazole, for which we paid a significant royalty rate on our net sales. The increase in other cost of goods sold — products reflects the increase in total revenues as well as minimum purchase obligations under our API supply contract for methylphenidate ER.

Gross profit percentage increased to 49% in 2017 as compared with 42% in 2016 primarily due to product mix and the gross profit effects of the cost of goods sold described above. Excluding amortization and depreciation, our gross profit percentage increased to 68% in 2017 as compared with 53% in 2016, primarily as a result of the termination of the distribution and marketing relationship with the ANDA holder for a portfolio of products, including aripiprazole, which reduced royalty expense, offset by an increase in product costs, including API for methylphenidate ER.

Selling, General and Administrative Expenses

Selling, general and administrative expenses declined $9.0 million in the year ended December 31, 2017 to $57.0 million as compared to $66.0 million in the year ended December 31, 2016. Selling, general and administrative expenses decreased primarily as a result of the decrease in bad debt expense of $3.2 million in 2017 as compared with 2016, $3.2 million of severance paid during the year ended December 31,

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2016 in connection with the Business Combination, and $1.9 million of legal expenses incurred in connection with the reacquisition of marketing and distribution rights for VERT during the year ended December 31, 2016, partially offset by an increase in the number of employees in 2017.

Acquisition-related costs

We incurred $8.4 million of acquisition-related costs during the year ended December 31, 2016 in connection with the Business Combination. This amount includes a $7.0 million advisory fee paid to an affiliate of Avista and approximately $1.4 million of other expenses, primarily consisting of legal fees.

Research and Development

Research and development expenses increased by $13.6 million in the year ended December 31, 2017 to $42.7 million as compared to $29.1 million in the year ended December 31, 2016. The increase included $16.4 million resulting from expensing acquired IPR&D with no alternative future use related to the asset acquisition of RevitaLid during the year ended December 31, 2017 and an increase of $6.6 million related to other generic products in development. The increase was partially offset by lower spending on clinical trials, primarily on Osmolex ER, which completed its Phase III clinical trial during the year ended December 31, 2016.

The following table summarizes our research and development expenses incurred for the periods indicated (dollars in thousands):


 
  Year Ended
December 31,
   
 
 
  2017   2016   % Change  

Osmolex ER

  $ 3,235   $ 11,922     (73 )%

Ontinua ER

    5,976     6,611     (10 )%

RVL-1201

    16,372         NM  

Other

    17,105     10,528     62 %

Total

  $ 42,688   $ 29,061     47 %

NM
— Not meaningful

Impairment of Intangible Assets

Impairment of intangible assets increased by $51.1 million in the year ended December 31, 2017 to $72.5 million as compared to $21.5 million in the year ended December 31, 2016.

During the fourth quarter of 2017, we performed an evaluation of the carrying value of our acquired intangible assets. After completing the valuations, we determined that the net present value of the intangible assets had decreased below the net book value and therefore impaired the intangible assets.

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Product rights, developed technologies and IPR&D had been impaired by $7.1 million, $8.8 million and $56.6 million, respectively. The following table details the 2017 impairment charges (in thousands):


Asset/Asset Group
  Impairment
Charge
  Reason for Impairment

Product Rights

         

Hydromorphone ER

  $ 6,567 (1) Sales underperforming expectations due to competition

Other Product Rights

    561 (1) Discontinued products/lower sales expectations

  $ 7,128    

Developed Technologies

   
 
 

 

Oxybutinin License Royalty

    8,767   Revenue underperforming expectations due to new generic market entrant

In-Process R&D

   
 
 

 

Ontinua ER

    23,100   Delay in commencement of Phase III trial

Osmolex ER

    8,900   Delay in approval date and product launch

Generic Product "A"

    18,600   Delay in finalizing formulation development

Other Generic Products in Development

    6,025 (1) Discontinued products/lower sales expectations post launch

  $ 56,625    

Total 2017 Impairment Charges

 
$

72,520
   

(1)
— Assets were fully impaired as of December 31, 2017

During the year ended December 31, 2016, our IPR&D was impaired by $0.6 million.

During the fourth quarter of 2016, we launched hydromorphone ER, which treats moderate to severe pain. Due to the competitive nature of the market for this product, we determined that the undiscounted cash flows for the hydromorphone product rights were below its carrying value. Accordingly, we estimated the present value of the product's future cash flows, which resulted in a $17.4 million impairment expense.

During 2014, we acquired the rights to market, sell and distribute a women's prenatal vitamin. During 2015, we failed to meet release-testing specifications for the product. We were unable to remedy the issue in 2016 and accordingly discontinued the product in 2016, resulting in an impairment of product rights of the remaining value of $2.8 million at December 31, 2016.

In the third quarter of 2016, we entered into an asset purchase agreement with Trygg Pharma AS and its parent company, Trygg Pharma Group AS, to acquire the rights and certain assets related to Omtryg, a product indicated as an adjunct to diet to reduce triglyceride levels and approved by the FDA to be sold and marketed as a pharmaceutical drug in the United States under an NDA. During the third quarter of 2016, we performed an evaluation of the carrying value of the Trygg Pharma AS assets acquired based on changes in the U.S. regulatory environment and the related impact on the commercial opportunity for the Omtryg product. We made a strategic decision not to introduce the product due to limited market opportunities and accordingly wrote-off the intangible asset product rights, resulting in an impairment of intangible assets of $0.7 million at December 31, 2016.

Impairment of Fixed Assets

Fixed asset impairment for the year ended December 31, 2017 was $0.5 million due to the fair market value for laser equipment being lower than its carrying value.

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Interest Expense and Amortization of Debt Discount

Interest expense and amortization of debt discount increased by $8.9 million in the year ended December 31, 2017 to $29.1 million as compared to $20.2 million in the year ended December 31, 2016. This increase was due to the higher debt levels in 2017 as a result of borrowings under our senior secured credit facilities, reflecting the incremental $117.5 million funded in November 2016 to fund the reacquisition of marketing and distribution rights for VERT, and expenses related to subsequent amendments to our senior secured credit facilities as more fully described in Note 9. Financing Arrangements to our consolidated financial statements included elsewhere in this prospectus. Additionally, the increase in borrowing costs reflects higher interest rates on our LIBOR-based term loan and senior subordinated note borrowings in 2017. Further, during the year ended December 31, 2017, we incurred approximately $1.0 million in additional interest expense on our PIK notes.

Other Non-operating Loss (Income), net

Other non-operating loss increased to $4.5 million for the year ended December 31, 2017 as compared to $0.2 million of other non-operating income in the year ended December 31, 2016. On December 21, 2017 we amended our senior secured credit facilities to increase the principal amount of by $59.0 million. Proceeds from these incremental borrowings were used to fully repay our senior subordinated notes and PIK notes. Other non-operating loss included $4.9 million of debt extinguishment costs, offset by interest and other miscellaneous income.

Income Tax Benefit


 
  Year Ended
December 31,
 
 
  2017   2016
(restated)
 
 
  (dollars in thousands)
 

Income tax benefit

  $ 40,487   $ 10,246  

Effective tax rate

    47.3 %   19.7 %

Income tax benefit increased by $30.2 million in the year ended December 31, 2017 to $40.5 million as compared to $10.2 million in the year ended December 31, 2016.

The income tax benefit was based on the applicable federal and state tax rates for those periods. For periods with income before provision for income taxes, favorable tax items result in a decrease in the effective tax rate, while unfavorable tax items result in an increase in the effective tax rate. For periods with a loss before benefit from income taxes, favorable tax items result in an increase in the effective tax rate, while unfavorable tax items result in a decrease in the effective tax rate.

The income tax benefit for the year ended December 31, 2017 reflects an effective tax rate of 47.3%. We incurred a loss for this period before a benefit for income tax. The difference between the notional U.S. statutory federal income tax rate and our effective tax rate was increased by favorable rate items such as the adjustment in the valuation of our net deferred tax liabilities as of December 31, 2017 to reflect the reduced U.S. statutory federal income tax rate resulting from tax reform enacted by the Tax Cuts and Jobs Act of 2017. Our effective tax rate also increased due to a favorable adjustment related to credits from research and development activity. The effective tax rate was decreased by unfavorable items such as the net differences in tax effects of foreign income and the increase in the valuation allowance.

The income tax benefit for the year ended December 31, 2016 reflects an effective tax rate of 19.7%. Similar to the year ended December 31, 2017, we incurred a loss before a benefit for income tax. As such, the difference between the notional U.S. statutory federal income tax rate and our effective rate was increased by favorable rate items, primarily those related to credits from research and development. The effective tax rate was decreased by unfavorable rate items consisting of the net differences in tax effects of foreign income, the increase in the valuation allowance and the adjustment in valuation for certain foreign tax assets related to a reduction in statutory rates.

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The increase between the effective rate for the year ended December 31, 2017 of 47.3% and the effective rate for the year ended December 31, 2016 of 19.7% is primarily the result of the decrease in the valuation of our net deferred tax liabilities as of December 31, 2017 to reflect the reduction in the U.S. federal statutory income tax rate as a result of tax reform.

Liquidity and Capital Resources

Our principal sources of liquidity are cash generated from operations and amounts available to be drawn under the Revolver (as defined below under the heading " — Senior Secured Credit Facilities — Revolving Credit Facility"). Our primary uses of cash are to fund operating expenses, product development costs, capital expenditures, debt service payments, as well as strategic business and product acquisitions.

As of June 30, 2018, we had cash and cash equivalents of $28.4 million and borrowing availability under the Revolver of $50.0 million. We also had $323.4 million aggregate principal amount borrowed under our term loans and $0.8 million under our note payable from insurance financing. During the six months ended June 30, 2018 we used $0.05 million of cash for operations, and during the six months ended June 30, 2017, we generated cash flows from operations of $39.0 million. During the year ended December 31, 2017, we generated cash flows from operations of $57.8 million, while during the year ended December 31, 2016 we had $44.8 million of negative cash flow from operations. We expect to generate positive cash flow from operations in the future through sales of our existing products, launches of approved products currently in our development pipeline and sales derived from in-licenses or acquisitions of other products.

As of June 30, 2018, the interest rate was 5.84% and 6.34% for our Term A Loan and Term B Loan, respectively. As of December 31, 2017, the interest rate was 5.25% and 5.75% for our Term A Loan and Term B Loan, respectively.

At June 30, 2018, there were no outstanding borrowings or outstanding letters of credit under the Revolver. Availability under the Revolver as of June 30, 2018, was $50.0 million.

On February 3, 2016, we completed the Business Combination. The transaction combined the robust research and development capabilities and early-stage development expertise of Osmotica with the strong, established commercialization and distribution capabilities of Vertical/Trigen. On November 10, 2016, we terminated the marketing and distribution rights license agreement for VERT with UCB, in exchange for a cash payment of $115.5 million, thereby reacquiring the rights to sell VERT.

During 2017, we benefited from the inclusion of a full year's operating results from sales of VERT, as compared to royalty revenue on such sales for most of 2016. We also benefited from the commercial launch of methylphenidate ER in September 2017. Both products compete in generic markets for which future competition may erode profitability over time. During 2017, we made significant investments in research and development, including the acquired IPR&D of RevitaLid with no alternative future use, which was expensed as acquired IPR&D during the year. In 2016, we significantly expanded and upgraded our commercial manufacturing capabilities in our facility in Marietta, Georgia.

We believe that our existing cash balances, cash we expect to generate from operations of our existing product portfolio, our near-term product launches and our product pipeline, as well as funds available under the Revolver, will be sufficient to fund our operations and to meet our existing obligations for at least the next 12 months from the date that the consolidated financial statements were issued.

The adequacy of our cash resources depends on many assumptions, including primarily our assumptions with respect to product sales and expenses, as well as other factors, such as successful development and launching of new products and strategic product or business acquisitions. Our assumptions may prove to be wrong or other factors may adversely affect our business, and as a result we could exhaust or significantly decrease our available cash resources, and we may not be able to generate sufficient cash to service our

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debt obligations which could, among other things, force us to raise additional funds or force us to reduce our expenses, either of which could have a material adverse effect on our business.

To continue to grow our business over the longer term, we plan to commit substantial resources to internal product development, clinical trials of product candidates, expansion of our commercial, manufacturing and other operations and product acquisitions and in-licensing. We have evaluated and expect to continue to evaluate a wide array of strategic transactions as part of our plan to acquire or in-license and develop additional products and product candidates to augment our internal development pipeline. Strategic transaction opportunities that we pursue could materially affect our liquidity and capital resources and may require us to incur additional indebtedness, seek equity capital or both. In addition, we may pursue development, acquisition or in-licensing of approved or development products in new or existing therapeutic areas or continue the expansion of our existing operations. Accordingly, we expect to continue to opportunistically seek access to additional capital to license or acquire additional products, product candidates or companies to expand our operations, or for general corporate purposes. Strategic transactions may require us to raise additional capital through one or more public or private debt or equity financings or could be structured as a collaboration or partnering arrangement. Any equity financing would be dilutive to our shareholders, and the consent of the lenders under our senior secured credit facilities could be required for certain financings.

Cash Flows

The following table provides information regarding our cash flows for the periods indicated (in thousands):


 
  Six months ended
June 30,
   
  Year Ended December 31,  
 
   
  2017
restated
  2016
restated
   
 
 
  2018   2017   Change   Change  

Net cash provided by (used in) operating activities

  $ (54 ) $ 38,988   $ (39,042 ) $ 57,837   $ (44,791 ) $ 102,628  

Net cash used in investing activities

    (2,181 )   (5,708 )   3,527     (19,395 )   (453,463 )   434,068  

Net cash (used in) provided by financing activities

    (3,370 )   (14,073 )   10,703     (23,314 )   420,516     (443,830 )

Effect on cash of changes in exchange rate

    (730 )   (21 )   (709 )   57     (316 )   373  

Net increase (decrease) in cash and cash equivalents

  $ (6,335 ) $ 19,186   $ (25,521 ) $ 15,185   $ (78,054 ) $ 93,239  

Net cash provided by (used in) operating activities

Cash flows from operating activities are primarily driven by earnings from operations (excluding the impact of non-cash items), the timing of cash receipts and disbursements related to accounts receivable and payable and the timing of inventory transactions and changes in other working capital amounts. Non-cash items were $28.1 million and $46.7 million for the six months ended June 30, 2018 and 2017, respectively, and include depreciation and amortization expense, impairment of intangible assets, recovery of bad debt, change in fair value of contingent consideration and deferred income tax benefit.

The decrease in cash provided by operating activities in the six months ended June 30, 2018, as compared to the six months ended June 30, 2017, was significantly impacted by changes in working capital (excluding the impact of non-cash items), primarily as a result of the increased revenues, lower reserves, increased spending on research and development and higher selling, general and administrative expenses, offset by higher earnings from operations.

Net cash outflow related to working capital was $29.5 million for the six months ended June 30, 2018 as compared with the net cash inflow of $24.4 million for the six months ended June 30, 2017. The net cash outflow during 2018 is largely driven by methylphenidate ER, which was launched late in the third quarter

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of 2017. During the six months ended June 30, 2018, accounts receivable was a $23.1 million use of funds reflecting the timing of payments received from product sales, including methylphenidate ER, which was launched in September 2017, and lower reserves for chargebacks and commercial rebates. Inventories were also a use of funds of $9.1 million primarily due to methylphenidate ER inventories to meet customer demand. Prepaid expenses and other current assets were a $14.8 million source of funds reflecting upfront payments to clinical research organizations for our Phase III clinical trials and prepayment of taxes. Accounts payable, accrued expenses and other current liabilities were a $5.4 million and $6.7 million use of funds, respectively, reflecting decreases in trade accounts payable and accrued expenses.

During the six months ended June 30, 2017, accounts receivable represented a source of funds of $29.5 million due to the winding down of a marketing and distribution relationship with the ANDA holder for aripiprazole and other products. Inventories represented a source of funds of $2.1 million due to lower levels of product on hand. Prepaid and other assets represented a $4.0 million use of funds. Trade accounts payable, due to the winding down of aripiprazole mentioned above, represented a use of funds of $11.6 million. Accrued expenses and other current liabilities represented a source of funds of $8.2 million.

Non-cash items were $103.8 million and $43.4 million for the years ended December 31, 2017 and 2016, respectively, and include depreciation and amortization expense, impairments of long-lived assets, expensed IPR&D, bad debt expense and deferred income tax benefit.

The increase in cash provided by operating activities in the year ended December 31, 2017, as compared to the year ended December 31, 2016, was significantly impacted by higher earnings from operations (excluding the impact of non-cash items) and changes in working capital, primarily as a result of the Business Combination, which was completed on February 3, 2016, and the termination of the license and resulting reacquisition of marketing and distribution rights for VERT that we completed on November 10, 2016. Additionally, earnings from operations (excluding the impact of non-cash items) and changes in working capital were affected by our launch of methylphenidate ER in September 2017. This increase in 2017 was partially offset by a payment of $2.0 million for the interest portion of a contingent consideration obligation of $10.5 million and the $9.3 million payment of interest on our PIK notes that were repaid on December 21, 2017.

Net cash inflow related to working capital was $10.4 million in 2017 as compared with the net cash outflow of $46.7 million in 2016, a change of $56.7 million. During 2017, accounts receivable was a $5.3 million cash source reflecting the timing of payments received from methylphenidate ER, which was launched in September 2017. Inventories were also lower primarily due to methylphenidate ER inventories worked down pending receipt of DEA quota for additional API. Accrued expenses and other current liabilities were a $13.8 million source of funds in 2017, reflecting increases in chargeback, rebate, allowance and return accruals from higher sales volumes of methylphenidate ER. Prepaid assets increased during 2017 reflecting upfront payments to clinical research organizations for our Phase III clinical trials and prepayment of taxes.

During 2016, accrued liabilities and other current liabilities were a use of funds of approximately $25.5 million, reflecting a reduction in accrued chargebacks, rebates and allowances due to a large product return from a wholesale customer and a price reduction on aripiprazole, which faced increased generic competition during 2016. Accounts receivable also represented a use of funds of $12.5 million due to shelf-stock adjustments related to the price decrease on aripiprazole. Inventories represented a source of funds of $12.5 million due to lower levels of product on hand, while prepaid assets and trade accounts payable each represented a use of funds totaling approximately $19.7 million.

Net cash used in investing activities

Our uses of cash in investing activities during the six months ended June 30, 2018 and 2017 reflected purchases of property, plant and equipment and were $2.2 million and $5.7 million, respectively. These

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expenditures reflected the completion of the expansion of a construction project for our Marietta, Georgia manufacturing facility, and the purchase of other property, plant and equipment.

Our primary uses of cash in investing activities in 2017 were $6.9 million for the purchase of property, plant and equipment and $12.5 million for the purchase of RevitaLid assets, inclusive of license rights to related intellectual property.

Our primary uses of cash in investing activities in 2016 were the $321.0 million payment in connection with the Business Combination and the reacquisition of VERT marketing and distribution rights and associated VERT inventory for $115.5 million. In addition, in 2016 we paid $13.9 million, primarily for the purchase of property, plant and equipment to expand manufacturing capabilities at our facility in Marietta, Georgia. During 2016, we paid $2.0 million for the purchase of intangible assets and $1.0 million for the rights and certain assets related to the acquisition of Omtryg.

Net cash (used in) provided by financing activities

Net cash used in financing activities during the six months ended June 30, 2018 primarily related to the $4.1 million repayment of term loans, partially offset by $0.8 million net proceeds from insurance financing loans.

Net cash used in financing activities during the six months ended June 30, 2017 related to the $2.9 million repayment of term loans, $8.5 million payment for contingent consideration and a $2.5 million distribution to partners.

Net cash used in financing activities in 2017 primarily related to the $14.9 million net repayment associated with a refinancing and amendment of our senior and subordinated debt with lower cost term loans, and associated financing fees. In addition, we paid a $10.5 million contingent consideration obligation, of which $8.5 million was accounted for as cash used for financing activities related to the 2014 in-license of a portfolio of women's health products, including Divigel.

Net cash provided by financing activities in 2016 primarily related to the $342.5 million borrowings under the term loan, senior subordinated notes and PIK notes issued in connection with the Business Combination, and additional term loan borrowings in connection with the reacquisition of marketing and distribution rights for VERT, offset by $3.7 million in term loan repayments and $13.5 million of debt issuance costs related to the term loan financing. In addition, in connection with the Business Combination, there were $96.9 million of net partners' contributions.

Senior Secured Credit Facilities

Term Loan Facility

Concurrently with the closing of the Business Combination, we entered into a $160.0 million term loan under our senior secured credit facilities between us as borrower, CIT Bank, N.A., as administrative agent and certain other lenders. The term loan is secured by certain of our assets, excluding certain intangibles and foreign property.

The senior secured credit facilities required quarterly principal repayments equal to 0.625% of the initial aggregate principal balance of the term loan beginning on the last day of the first full fiscal quarter following the closing of the senior secured credit facility, with final payment of the remaining principal balance due at maturity six years from the date of closing. At our election, interest accrued at the prime rate/federal funds effective rate (for an ABR loan), or the LIBOR rate (for a LIBOR loan), plus a margin of 4.00% for an ABR loan and 5.00% for a LIBOR loan. As of December 31, 2016, the interest rate on our term loan was 6.00%.

On November 10, 2016, we amended the senior secured credit facilities in conjunction with the reacquisition of the marketing and distribution rights for VERT. Pursuant to the amendment, CIT Bank, N.A. and certain other lenders agreed to provide an incremental term loan in the aggregate principal amount of

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$117.5 million, which was added to the principal amount of the original term loan. There were no other modifications to the senior secured credit facilities.

On April 28, 2017, we further amended the senior secured credit facilities to extend the due date of our annual financial statements for the first fiscal year ending thereafter. Furthermore, on December 21, 2017, we amended the senior secured credit facilities to increase the principal amount of the term loan to an aggregate principal amount of $327.5 million. Of the aggregate principal amount, $277.5 million was provided under a term loan facility, or Term A Loan, and $50.0 million was provided under a Term B loan facility, or Term B Loan.

The amended senior secured credit facilities require quarterly principal repayments of 0.6925% of the original principal amount of the Term A Loan and 0.25% of the original principal amount of the Term B Loan, with final payment of the remaining principal balance due at maturity five years from the date of closing of the third amendment to the senior secured credit facilities.

We may make voluntary prepayments of principal of the Term A Loan and Term B Loan at any time without payment of a premium. Following the consummation of this offering, we may make voluntary prepayments of principal of the Term B Loan without making a corresponding prepayment of the Term A Loan so long as, after giving effect to such prepayment, our total leverage ratio (as described below) would not exceed 2.00 to 1.00 on pro forma basis. Commencing with the year ending on December 31, 2018, we are required to make mandatory prepayments of the Term A Loan and Term B Loan with (1) 50% of excess cash flows, net of voluntary prepayments, provided that such mandatory prepayment is reduced to 25% or 0% of excess cash flow if our total leverage ratio calculated on a pro forma basis is less than or equal to 2.25:1.00 or 1.50:1.00, respectively, (2) net cash proceeds in excess of $2.5 million from asset sales, and (3) casualty proceeds and condemnation awards in excess of $2.5 million.

At our election, for the Term A Loan, interest accrues on ABR Loans or LIBOR Loans at the applicable rate per annum plus a margin as set forth below under the caption "ABR Margin" or "LIBOR Rate Margin" in Category 1. Following the consummation of this offering, the "ABR Margin" or "LIBOR Rate Margin" will be based upon the total leverage ratio as of the last day of the most recently ended fiscal quarter as follows:


Total Leverage Ratio
  LIBOR Rate Margin   ABR Margin    
Category 1
Greater than 2.00 to 1.00
  3.75%   2.75%    
Category 2
Equal to or less than 2.00 to 1.00
  3.25%   2.25%    

For the Term B Loan, interest accrues on any ABR Loan at the base rate plus 3.25% per annum and on any LIBOR Rate Loan at the LIBOR rate plus 4.25% per annum. As of June 30, 2018, the interest rate was 5.84% and 6.34% for our Term A Loan and Term B Loan, respectively. As of December 31, 2017, the interest rate was 5.25% for Term A Loan and 5.75% for Term B Loan.

The senior secured credit facilities contain covenants that require us to deliver quarterly and annual financial statements along with certain supplementary financial information and schedules and ratios. The senior secured credit facilities also contain covenants that limit our ability to, among other things: incur additional indebtedness; incur liens; make investments; make payments on certain indebtedness; dispose of assets; enter into merger transactions and make distributions. In addition, the total leverage ratio as of the end of any fiscal quarter may not exceed 4.75:1.00 until March 31, 2020, at which time the total leverage ratio may not exceed 4.50:1.00. The total leverage ratio is the ratio, as of any date of determination, of (a) consolidated total debt, net of unrestricted cash and cash equivalents as of such date to

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(b) consolidated adjusted earnings before income taxes, depreciation and amortization, or consolidated EBITDA, as defined under the senior secured credit facilities, for the test period then most recently ended for which financial statements have been delivered. In addition, the fixed charge coverage ratio as of the end of any fiscal quarter to fall below 1.25:1.00 beginning on March 31, 2018 through the final maturity date. The fixed charge coverage ratio, as of the date of determination, is the ratio of (x) consolidated EBITDA, as defined under the senior secured credit facilities, net of capital expenditures and cash taxes paid to (y) interest payments, scheduled principal payments, restricted payments and management fees paid to related parties. We obtained a two-week waiver from the lenders under the senior secured credit facilities to permit us to deliver our 2017 audited financial statements by April 16, 2018 rather than April 2, 2018. We did not incur a fee as a condition to that waiver. We were in compliance with all covenants under the senior secured credit facilities as of June 30, 2018.

Revolving Credit Facility

Concurrently with the closing of the Business Combination, we entered into a revolving credit facility, or the Revolver, in an aggregate amount of $30.0 million as part of our senior secured credit facilities, as discussed above.

On December 21, 2017, we amended the Revolver to increase the revolving credit commitments to $50.0 million.

The total amount available under the Revolver includes a swingline loan subfacility and letter of credit subfacility in an aggregate principal amount at any time outstanding not to exceed the lesser of (x) in the case of each of the swingline loan facility and the letter of credit facility, $5 million, and (y) the total revolving commitment, based on certain terms and conditions of the senior secured credit facilities. We will be required to repay the amounts outstanding under the Revolver upon its maturity on December 21, 2022, subject to permitted extensions, and are required to pay interest on the outstanding balance based, at our election, on such loan being an ABR Loan or LIBOR Loan, in which the interest will accrue at the applicable rate per annum plus a margin as set forth below under the caption "ABR Margin" or "LIBOR Rate Margin" in Category 1. Following the consummation of this offering the "ABR Margin" or "LIBOR Rate Margin" will be based upon the total leverage ratio as of the last day of the most recently ended quarter year as follows:


Total Leverage Ratio
  LIBOR Rate Margin   ABR Margin    
Category 1
Greater than 2.00 to 1.00
  3.75%   2.75%    
Category 2
Equal to or less than 2.00 to 1.00
  3.25%   2.25%    

At December 31, 2017 and 2016, there were no outstanding borrowings or outstanding letters of credit under the Revolver. Availability under the Revolver as of December 31, 2017, was $50.0 million.

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Contractual Obligations

The following table lists our contractual obligations as of December 31, 2017.


 
  Payments due by period (in thousands)  
 
  Total   Less than 1
year
  1 - 3 years   3 - 5 years   More than 5
years
 

Long-term debt obligations (1)

  $ 327,500   $ 8,187   $ 16,374   $ 302,939   $  

Interest expense (2)

    84,180     18,181     34,083     31,916      

Capital lease obligations (3)

    83     83              

Operating lease obligations (4)

    2,445     853     928     664      

Purchase obligations (5)

    16,000     4,000     8,000     4,000      

Royalty obligations (6)

    10,021     1,375     2,563     2,000     4,083  

Total

  $ 440,229   $ 32,679   $ 61,948   $ 341,519   $ 4,083  

(1)
Includes minimum cash payments related to $327.5 million in principal amount associated with our term loans. The senior secured credit facilities require quarterly principal repayments of 0.6925% of the original principal amount of the Term A Loan and 0.25% of the original principal amount of the Term B Loan, with final payment of the remaining principal balance due on December 21, 2022.

(2)
These amounts represent future cash interest payments related to our existing debt obligations based on variable interest rates specified in the senior secured credit facilities. Payments related to variable debt are based on applicable rates at December 31, 2017 plus the specified margin in the senior secured credit facilities for each period presented. As of December 31, 2017, the interest rate was 5.25% for Term A Loan and 5.75% for Term B Loan.

(3)
Includes minimum cash payments related to certain fixed assets, primarily office equipment.

(4)
Includes minimum cash payments related to our leased offices and warehouse facilities under non-cancelable leases in New Jersey, Florida, North Carolina, as well as in Argentina and Hungary.

(5)
Includes obligations to purchase API with minimum required annual amounts.

(6)
Includes obligations to make minimum annual royalty payments.

Our liability for unrecognized tax benefits has been excluded from the above contractual obligations table as the nature and timing of future payments, if any, cannot be reasonably estimated. As of December 31, 2017, our liability for unrecognized tax benefits was $0.9 million (excluding interest and penalties). We do not anticipate that the amount of our liability for unrecognized tax benefits will significantly change in the next 12 months.

Critical Accounting Estimates

The significant accounting policies and bases of presentation are described in Note 2, Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this prospectus.

Summary of Significant Accounting Policies.     The preparation of our consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and the related disclosures in the notes thereto. Some of these estimates can be subjective and complex. Although we believe that our estimates and assumptions are reasonable, there may be other reasonable estimates or assumptions that differ significantly from ours. Further, our estimates and assumptions are based upon information available at the time they were made. Actual results could differ from those estimates.

In order to understand our consolidated financial statements, it is important to understand our critical accounting estimates. We consider an accounting estimate to be critical if: (i) the accounting estimate

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requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made and (ii) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition, results of operations or cash flows. We believe the following accounting policies and estimates to be critical:

Revenue Recognition

Upon adoption of Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (ASC Topic 606) on January 1, 2018, we recognize revenue as described below. The implementation of the new revenue recognition standard did not have a material impact on our consolidated financial statements. The information presented for the periods prior to January 1, 2018 has not been restated and is reported under ASC Topic 605.

Product Sales   —  Revenue is recognized at the point in time when our performance obligations with our customers have been satisfied. At contract inception, we determine if the contract is within the scope of ASC Topic 606 and then evaluates the contract using the following five steps: (1) identify the contract with the customer; (2) identify the performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue at the point in time when the entity satisfies a performance obligation.

Revenue is recorded at the transaction price, which is the amount of consideration we expect to receive in exchange for transferring products to a customer. We considered the unit of account for each purchase order that contains more than one product. Because all products in a given purchase order are generally delivered at the same time and the method of revenue recognition is the same for each, there is no need to separate an individual order into separate performance obligations. In the event that we fulfilled an order only partially because a requested item is on backorder, the portion of the purchase order covering the item is generally cancelled, and the customer has the option to submit a new one for the backordered item. We determine the transaction price based on fixed consideration in our contractual agreements, which includes estimates of variable consideration, and the transaction price is allocated entirely to the performance obligation to provide pharmaceutical products. In determining the transaction price, a significant financing component does not exist since the timing from when we deliver product to when the customers pay for the product is less than one year and the customers do not pay for product in advance of the transfer of the product.

We record product sales net of any variable consideration, which includes estimated chargebacks, commercial rebates, discounts and allowances and doubtful accounts. We utilize the expected value method to estimate all elements of variable consideration included in the transaction. The variable consideration is recorded as a reduction of revenue at the time revenues are recognized. We will only recognize revenue to the extent that it is probable that a significant revenue reversal will not occur in a future period. These estimates may differ from actual consideration amount received and we will re-assess these estimates each reporting period to reflect known changes in factors.

Royalty Revenue   —  For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (a) when the related sales occur, or (b) when the performance obligation to which some or all the royalty has been allocated has been satisfied (or partially satisfied).

Licensing and Contract Revenue   —  We have arrangements with commercial partners that allow for the purchase of product from us by the commercial partner for purposes of sub-distribution. We recognize revenue from an arrangement when control of such product is transferred to the commercial partner, which is typically upon delivery. In these situations the performance obligation is satisfied when product is delivered to our commercial partner. Licensing revenue is recognized in the period in which the product subject to the sublicensing arrangement is sold. Sales deductions, such as returns on product sales,

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government program rebates, price adjustments, and prompt pay discounts in regard to licensing revenue is generally the responsibility of our commercial partners and not recorded by us.

Freight   —  We record amounts billed to customers for shipping and handling as revenue, and record shipping and handling expenses related to product sales as cost of goods sold. We account for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated products. When shipping and handling costs are incurred after a customer obtains control of the products, we also have elected to account for these as costs to fulfill the promise and not as a separate performance obligation.

Sales Deductions

Product sales are recorded net of estimated chargebacks, commercial and governmental rebates, discounts, allowances, copay discounts, advertising and promotions and estimated product returns, or collectively, "sales deductions."

Provision for estimated chargebacks, commercial rebates, discounts and allowances and doubtful accounts settled in sales credits at the time of sales are analyzed and adjusted, if necessary, monthly and recorded against gross trade accounts receivable. Estimated product returns, commercial and governmental rebates and customer coupons settled in cash are analyzed and adjusted, if necessary, monthly and recorded as a component of accrued expenses.

Calculating certain of these items involves estimates and judgments based on sales or invoice data, contractual terms, historical utilization rates, new information regarding changes in applicable regulations and guidelines that would impact the amount of the actual rebates, our expectations regarding future utilization rates and estimated customer inventory levels. Amounts accrued for sales deductions are adjusted when trends or significant events indicate that adjustment is appropriate and to reflect actual experience. The most significant items deducted from gross product sales where we exercise judgment are chargebacks, commercial and governmental rebates, product returns, discounts and allowances and advertising and promotions.

Where available, we have relied on information received from our wholesaler customers about the quantities of inventory held, including the information received pursuant to days of sales outstanding, which we have not independently verified. For other customers, we have estimated inventory held based on buying patterns. In addition, we have evaluated market conditions for products primarily through the analysis of wholesaler and other third party sell-through, as well as internally-generated information, to assess factors that could impact expected product demand at December 31, 2017 and June 30, 2018. We believe that the estimated level of inventory held by our customers is within a reasonable range as compared to both: (i) historical amounts and (ii) expected demand for each respective product at December 31, 2017 and June 30, 2018.

If the assumptions we use to calculate our allowances for sales deductions do not appropriately reflect future activity, our financial position, results of operations and cash flows could be materially impacted.

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The following table presents the activity and ending balances for our product sales provisions for the six months ended June 30, 2018 and for the years ended December 31, 2017 and 2016 (in thousands):


 
  Chargebacks   Commercial
Rebates
  Government
Rebates
  Product
Returns
  Discounts and
Allowances
  Total  

Balance at January 1, 2016

  $ 58,724   $ 29,417   $ 6,556   $ 26,863   $ 4,690   $ 126,250  

Provision

    332,075     115,934     9,957     9,236     18,162     485,364  

Charges Processed

    (366,301 )   (114,779 )   (10,027 )   (5,758 )   (19,220 )   (516,085 )

Reclassification

    (187 )   (19 )                 (206 )

Balance at December 31, 2016

  $ 24,311   $ 30,553   $ 6,486   $ 30,341   $ 3,632   $ 95,323  

Provision

    202,367     134,526     26,007     26,300     15,387     404,587  

Charges Processed

    (194,336 )   (125,845 )   (18,342 )   (13,341 )   (15,534 )   (367,398 )

Balance at December 31, 2017

  $ 32,342   $ 39,234   $ 14,151   $ 43,300   $ 3,485   $ 132,512  

Provision

    173,426     123,388     10,343     11,561     10,442     329,160  

Charges Processed

    (178,216 )   (137,590 )   (14,347 )   (9,421 )   (10,769 )   (350,343 )

Balance June 30, 2018

  $ 27,552   $ 25,032   $ 10,147   $ 45,440   $ 3,158   $ 111,329  

Total items deducted from gross product sales were $329.2 million, or 71.1% as a percentage of gross product sales, during the six months ended June 30, 2018. Total items deducted from gross product sales were $404.6 million and $485.4 million, or 61.2% and 75.1% as a percentage of gross product sales, in 2017 and 2016, respectively.

Chargebacks   —  We enter into contractual agreements with certain third parties such as retailers, hospitals and group-purchasing organizations, or GPOs, to sell certain products at predetermined prices. Most of the parties have elected to have these contracts administered through wholesalers that buy the product from us and subsequently sell it to these third parties. When a wholesaler sells products to one of these third parties that are subject to a contractual price agreement, the difference between the price paid to us by the wholesaler and the price under the specific contract is charged back to us by the wholesaler. Utilizing this information, we estimate a chargeback percentage for each product and record an allowance for chargebacks as a reduction to gross sales when we record our sale of the products. We reduce the chargeback allowance when a chargeback request from a wholesaler is processed. Our provision for chargebacks is fully reserved for at the time when sales revenues are recognized.

We obtain product inventory reports from major wholesalers to aid in analyzing the reasonableness of the chargeback allowance and to monitor whether wholesaler inventory levels do not significantly exceed customer demand. We assess the reasonableness of our chargeback allowance by applying a product chargeback percentage that is based on a combination of historical activity and current price and mix expectations to the quantities of inventory on hand at the wholesalers according to wholesaler inventory reports. In addition, we estimate the percentage of gross sales that were generated through direct and indirect sales channels and the percentage of contract compared to non-contract revenue in the period, as these each affect the estimated reserve calculation. In accordance with our accounting policy, we estimate the percentage amount of wholesaler inventory that will ultimately be sold to third parties that are subject to contractual price agreements based on a trend of such sales through wholesalers. We use this percentage

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estimate until historical trends indicate that a revision should be made. On an ongoing basis, we evaluate our actual chargeback rate experience, and new trends are factored into our estimates each quarter as market conditions change.

Events that could materially alter chargebacks include: changes in product pricing as a result of competitive market dynamics or negotiations with customers, changes in demand for specific products due to external factors such as competitor supply position or consumer preferences, customer shifts in buying patterns from direct to indirect through wholesalers, which could either individually or in aggregate increase or decrease the chargebacks depending on the direction and trend of the change(s).

Chargebacks were $173.4 million, or 37.5% as a percentage of gross product sales, for the six months ended June 30, 2018. Chargebacks were $202.4 million and $332.1 million, or 30.6% and 51.3% as a percentage of gross product sales, for the years ended December 31, 2017 and 2016, respectively. Chargebacks as a percentage of gross product sales increased in 2018 as compared with 2017, but decreased in 2017 as compared to 2016 primarily due to a change in product mix and pricing. We expect that chargebacks will continue to significantly impact our reported net product sales. Chargebacks as a percentage of gross product sales are not expected to change materially for the remainder of 2018.

Commercial Rebates   —  We maintain an allowance for commercial rebates that we have in place with certain customers. Commercial rebates vary by product and by volume purchased by each eligible customer. We track sales by product number for each eligible customer and then apply the applicable commercial rebate percentage, using both historical trends and actual experience to estimate our commercial rebates. We reduce gross sales and increase the commercial rebates allowance by the estimated rebate amount when we sell our products to eligible customers. We reduce the commercial rebate allowance when we process a customer request for a rebate. At each month end, we analyze the allowance for commercial rebates against actual rebates processed and make necessary adjustments as appropriate. Our provision for commercial rebates is fully reserved for at the time sales revenues are recognized.

The allowance for commercial rebates takes into consideration price adjustments which are credits issued to reflect increases or decreases in the invoice or contract prices of our products. In the case of a price decrease, a shelf-stock adjustment credit is given for product remaining in customer's inventories at the time of the price reduction. Contractual price protection results in a similar credit when the invoice or contract prices of our products increase, effectively allowing customers to purchase products at previous prices for a specified period of time. Amounts recorded for estimated shelf-stock adjustments and price protections are based upon specified terms with direct customers, estimated changes in market prices, and estimates of inventory held by customers. We regularly monitor these and other factors and evaluate the reserve as additional information becomes available.

We ensure that commercial rebates are reasonable through review of contractual obligations, review of historical trends and evaluation of recent activity. Furthermore, other events that could materially alter commercial rebates include: changes in product pricing as a result of competitive market dynamics or negotiations with customers, changes in demand for specific products due to external factors such as competitor supply position or consumer preferences, customer shifts in buying patterns from direct to indirect through wholesalers, which could either individually or in aggregate increase or decrease the commercial rebates depending on the direction and velocity of the change(s).

Commercial rebates were $123.4 million, or 26.7% as a percentage of gross product sales, for the six months ended June 30, 2018. Commercial rebates were $134.5 million and $115.9 million, or 20.4% and 17.9% as a percentage of gross product sales, for the years ended December 31, 2017 and 2016, respectively. Commercial rebates as a percentage of gross product sales increased in 2018 as compared to 2017 and in 2017 compared to 2016 primarily due to the change in product mix and customer contracts. We expect that commercial rebates will continue to significantly impact our reported net sales. However,

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commercial rebates as a percentage of gross product sales are not expected to change materially for the remainder of 2018.

Government Program Rebates   —  Federal law requires that a pharmaceutical distributor, as a condition of having federal funds being made available to the states for the manufacturer's drugs under Medicaid and Medicare Part B, must enter into a rebate agreement to pay rebates to state Medicaid programs for the distributor's covered outpatient drugs that are dispensed to Medicaid beneficiaries and paid for by a state Medicaid program under a fee-for-service arrangement. CMS is responsible for administering the Medicaid rebate agreements between the federal government and pharmaceutical manufacturers. Rebates are also due on the utilization of Medicaid managed care organizations, or MMCOs. We also pay rebates to MCOs for the reimbursement of a portion of the sales price of prescriptions filled that are covered by the respective plans. The liability for Medicaid, Medicare and other government program rebates is settled in cash and is estimated based on historical and current rebate redemption and utilization rates contractually submitted by each state's program administrator and assumptions regarding future government program utilization for each product sold, and accordingly recorded as a reduction of product sales. Medicaid rebates are typically billed up to 180 days after the product is shipped, but can be as much as 270 days after the quarter in which the product is dispensed to the Medicaid participant. In addition to the estimates mentioned above, our calculation also requires other estimates, such as estimates of sales mix, to determine which sales are subject to rebates and the amount of such rebates. Periodically, we adjust the Medicaid rebate provision based on actual claims paid. Due to the delay in billing, adjustments to actual claims paid may incorporate revisions of this provision for several periods. Because Medicaid pricing programs involve particularly difficult interpretations of complex statutes and regulatory guidance, our estimates could differ from actual experience.

Government program rebates were $10.3 million, or 2.2% as a percentage of gross product sales, for the six months ended June 30, 2018. Government program rebates were $26.0 million and $10.0 million, or 3.9% and 1.5% as a percentage of gross product sales, during the years ended December 31, 2017 and 2016, respectively. Government program rebates as a percentage of gross product sales increased in 2017 compared to 2016 primarily due to the shift in product mix, primarily impacted by launch of methylphenidate ER and a full year of sales of VERT. Government program rebates as a percentage of gross product sales are not expected to change materially for the remainder of 2018.

Product Returns   —  Certain of our products are sold with the customer having the right to return the product within specified periods. Estimated return accruals are made at the time of sale based upon historical experience. Our return policy generally allows customers to receive credit for expired products within six months prior to expiration and within one year after expiration. Our provision for returns consists of our estimates for future product returns.

Historical factors such as one-time recall events as well as pending new developments such as comparable product approvals or significant pricing movement that may impact the expected level of returns are taken into account monthly to determine the appropriate accrued expense. As part of the evaluation of the liability required, we consider actual returns to date that are in process, the expected impact of any product recalls and the amount of wholesaler's inventory to assess the magnitude of unconsumed product that may result in product returns to us in the future. The product returns level can be impacted by factors such as overall market demand and market competition and availability for substitute products which can increase or decrease the pull through for sales of our products and ultimately impact the level of product returns. In determining our estimates for returns and allowances, we are required to make certain assumptions regarding the timing of the introduction of new products. In addition, we make certain assumptions with respect to the extent and pattern of decline associated with generic competition. To make these assessments, we utilize market data for similar products as analogs for our estimations. We use our best judgment to formulate these assumptions based on past experience and information available to us at the time. We continually reassess and make the appropriate changes to our estimates and assumptions as new

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information becomes available to us. Product returns are fully reserved for at the time when sales revenues are recognized.

Our estimate for returns may be impacted by a number of factors, but the principal factor relates to the level of inventory in the distribution channel. When we are aware of an increase in the level of inventory of our products in the distribution channel, we consider the reasons for the increase to determine whether we believe the increase is temporary or other-than-temporary. Increases in inventory levels assessed as temporary will not result in an adjustment to our provision for returns. Some of the factors that may be an indication that an increase in inventory levels will be temporary include:

    §
    recently implemented or announced price increases for our products; and

    §
    new product launches or expanded indications for our existing products.

Conversely, other-than-temporary increases in inventory levels may be an indication that future product returns could be higher than originally anticipated and, accordingly, we may need to adjust our provision for returns. Some of the factors that may be an indication that an increase in inventory levels will be other-than-temporary include:

    §
    declining sales trends based on prescription demand;

    §
    recent regulatory approvals to shorten the shelf life of our products, which could result in a period of higher returns;

    §
    slow moving or obsolete product still in the distribution channel;

    §
    introduction of new product(s) or generic competition;

    §
    increasing price competition from generic competitors; and

    §
    changes to the National Drug Codes, or NDCs, of our products, which could result in a period of higher returns related to product with the old NDC, as our customers generally permit only one NDC per product for identification and tracking within their inventory systems.

We ensure that product returns are reasonable through inspection of historical trends and evaluation of recent activity. Furthermore, other events that could materially alter product returns include: acquisitions and integration activities that consolidate dissimilar contract terms and could impact the return rate as typically we purchase smaller entities with less contracting power and integrate those product sales to our contracts; and consumer demand shifts by products, which could either increase or decrease the product returns depending on the product or products specifically demanded and ultimately returned.

Product returns were $11.6 million, or 2.5% as a percentage of gross product sales, for the six months ended June 30, 2018. Product returns were $26.3 million and $9.2 million, or 4.0% and 1.4% as a percentage of gross product sales, during the years ended December 31, 2017 and 2016, respectively. Product returns as a percentage of gross product sales increased in 2017 as compared to 2016 primarily due to the change in product mix and pricing and product recalls. Product returns as a percentage of gross product sales are not expected to change materially for the remainder of 2018.

Promotions and Co-Pay Discount Cards   —  From time to time we authorize various retailers to run in-store promotional sales of our products. We accrue an estimate of the dollar amount expected to be owed back to the retailer. Additionally, we provide consumer co-pay discount cards, administered through outside agents to provide discounted products when redeemed. Upon release of the cards into the market, we record an estimate of the dollar value of co-pay discounts expected to be utilized taking into consideration historical experience.

Advertising and promotions were $2.6 million, or 0.6% as a percentage of gross product sales, for the six months ended June 30, 2018. Promotions and co-pay discount cards are included in advertising and promotions, which were $4.4 million and $4.9 million, or 0.7% and 0.8% as a percentage of gross product sales, during the years ended December 31, 2017 and 2016, respectively. Advertising and promotions as a

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percentage of gross product sales did not change materially in during the periods presented and are not expected to change materially for the remainder of 2018.

Discounts and allowances were $10.4 million, or 2.3% as a percentage of gross product sales, for the six months ended June 30, 2018. Discounts and allowances were $15.4 million and $18.2 million, or 2.3% and 2.8% as a percentage of gross product sales, during the years ended December 31, 2017 and 2016, respectively. Discounts and allowances as a percentage of gross product sales did not change materially during the periods presented and are not expected to change materially for the remainder of 2018.

Valuation of long-lived assets

As of June 30, 2018, our combined long-lived assets balance, including property, plant and equipment and finite-lived intangible assets, is $487.1 million.

Long-lived assets, other than goodwill and other indefinite-lived intangibles, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows derived from such assets. Factors that we consider in deciding when to perform an impairment review include significant changes in our forecasted projections for the asset or asset group for reasons including, but not limited to, significant under-performance of a product in relation to expectations, significant changes or planned changes in our use of the assets, significant negative industry or economic trends, and new or competing products that enter the marketplace. The impairment test is based on a comparison of the undiscounted cash flows expected to be generated from the use of the asset group.

Our long-lived intangible assets, which consist of distribution rights, product rights, tradenames and developed technology, are initially recorded at fair value upon acquisition. To the extent they are deemed to have finite lives, they are then amortized over their estimated useful lives using either the straight-line method or based on the expected pattern of cash flows. Factors giving rise to our initial estimate of useful lives are subject to change. Significant changes to any of these factors may result in a reduction in the useful life of the asset and an acceleration of related amortization expense, which could cause our operating income, net income and net income per share to decrease.

Recoverability of an asset that will continue to be used in our operations is measured by comparing the carrying amount of the asset to the forecasted undiscounted future cash flows related to the asset. In the event the carrying amount of the asset exceeds its undiscounted future cash flows and the carrying amount is not considered recoverable, impairment may exist. If impairment is indicated, the asset is written down by the amount by which the carrying value of the asset exceeds the related fair value of the asset with the related impairment charge recognized within the statements of operations. Our reviews of long-lived assets during the two years ended December 31, 2017 and 2016 resulted in certain impairment charges. The majority of these charges related to finite-lived intangible assets, which are described in Note 7, Goodwill and Other Intangible Assets, to our consolidated financial statements included elsewhere in this prospectus.

These impairment charges were generally based on fair value estimates determined using either discounted cash flow models or preliminary offers from prospective buyers. The discounted cash flow models include assumptions related to product revenue, growth rates and operating margin. These assumptions are based on management's annual and ongoing budgeting, forecasting and planning processes and represent our best estimate of future product cash flows. These estimates are subject to the economic environment in which we operate, demand for the products and competitor actions. The use of different assumptions would have increased or decreased our estimated discounted future cash flows and the resulting estimated fair values of these assets, causing increases or decreases in the resulting asset impairment charges. Events giving rise to impairment are an inherent risk in the pharmaceutical industry and cannot be predicted.

We recorded impairment charges of $15.9 million and $20.9 million, regarding definite-lived intangible assets for the years ended December 31, 2017 and 2016, respectively.

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Goodwill and indefinite-lived intangible assets

Goodwill and indefinite-lived intangible assets are assessed for impairment on an annual basis as of October 1st of each year or more frequently if events or changes in circumstances indicate that the asset might be impaired.

Goodwill Impairment Assessment   —  We are organized in one reporting unit and evaluate goodwill for our company as a whole. Under the authoritative guidance issued by the Financial Accounting Standards Board, or FASB, we have the option to first assess the qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test. If we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the goodwill impairment test is performed. As further described in Note 2, Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this prospectus, effective January 1, 2017, we early adopted Accounting Standards Update (ASU) No. 2017-04 "Intangibles — Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment" (ASU 2017-04). Subsequent to adoption, we perform our goodwill impairment tests by comparing the fair value and carrying amount of our reporting unit. Any goodwill impairment charges we recognize for our reporting unit are equal to the lesser of (i) the total goodwill allocated to that reporting unit and (ii) the amount by which that reporting unit's carrying amount exceeds its fair value.

The goodwill impairment test requires us to estimate the fair value of the reporting unit and to compare the fair value of the reporting unit with its carrying amount. If the carrying value exceeds its fair value, an impairment charge is recorded for the difference. If the carrying value recorded is less than the fair value calculated then no impairment loss is recognized. The fair value of our reporting unit is determined using an income approach that utilizes a discounted cash flow model or, where appropriate, the market approach, or a combination thereof. The discounted cash flow models are dependent upon our estimates of future cash flows and other factors. Our estimates of future cash flows are based on a comprehensive product by product forecast over a five-year period and involve assumptions concerning (i) future operating performance, including future sales, long-term growth rates, operating margins, variations in the amounts, allocation and timing of cash flows and the probability of achieving the estimated cash flows and (ii) future economic conditions, all which may differ from actual future cash flows.

Assumptions related to future operating performance are based on management's annual and ongoing budgeting, forecasting and planning processes and represent our best estimate of the future results of our operations as of a point in time. These estimates are subject to many assumptions, such as the economic environments in which we operate, demand for the products and competitor actions. Estimated future cash flows are discounted to present value using a market participant, weighted average cost of capital. The financial and credit market volatility directly impacts certain inputs and assumptions used to develop the weighted average cost of capital such as the risk-free interest rate, industry beta, debt interest rate and our market capital structure. These assumptions are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy. The use of different inputs and assumptions could increase or decrease our estimated discounted future cash flows, the resulting estimated fair values and the amounts of related goodwill impairments, if any. The discount rates applied to the estimated cash flows for our October 1, 2017 and 2016 annual goodwill impairment test were 9.0% and 8.5%, respectively, depending on the overall risk associated with the particular asset and other market factors. We believe the discount rates and other inputs and assumptions are consistent with those that a market participant would use.

Based on the quantitative goodwill impairment assessment performed, we determined that there was no impairment of goodwill for the years ended December 31, 2017 or 2016. An increase of 50 basis points to our assumed discount rate used in our goodwill assessment would not have changed the results of our analyses.

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IPR&D Intangible Asset Impairment Assessment   —  IPR&D, which are indefinite-lived intangible assets representing the value assigned to acquired Research and Development, or R&D, projects that principally represent rights to develop and sell a product that we have acquired which has not yet been completed or approved. These assets are subject to impairment testing until completion or abandonment of each project. The fair value of our indefinite-lived intangible assets is determined using an income approach that utilizes a discounted cash flow model and requires the development of significant estimates and assumptions involving the determination of estimated net cash flows for each year for each project or product (including net revenues, cost of sales, R&D costs, selling and marketing costs and other costs which may be allocated), the appropriate discount rate to select in order to measure the risk inherent in each future cash flow stream, the assessment of each asset's life cycle, the potential regulatory and commercial success risks, and competitive trends impacting each asset and related cash flow stream as well as other factors. The discount rates applied to the estimated cash flows for our October 1, 2017 and 2016 indefinite-lived intangible asset impairment test were 9.0% and 8.5%, respectively. The major risks and uncertainties associated with the timely and successful completion of the IPR&D projects include legal risk, market risk and regulatory risk. If applicable, upon abandonment of the IPR&D product, the assets are reduced to zero. Upon approval of the products in development for sale and placement into service, the associated IPR&D intangible assets are transferred to Product Rights amortizing intangible assets. The useful life of an amortizing asset generally is determined by identifying the period in which substantially all of the cash flows are expected to be generated.

If the fair value of the IPR&D is less than its carrying amount, an impairment loss is recognized for the difference. Based on results of the impairment assessment performed, we recognized impairment charges to IPR&D of $41.7 million for the six months ended June 30, 2017 and $56.6 million for the year ended December 31, 2017.

Income Taxes

Income taxes are recorded under the asset and liability method of accounting. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.

Deferred income tax assets are reduced, as is necessary, by a valuation allowance when we determine it is more-likely-than-not that some or all of the tax benefits will not be realizable in the future. Realization of the deferred tax assets is dependent on a variety of factors, some of which are subjective in nature, including the generation of future taxable income, the amount and timing of which are uncertain. In evaluating the ability to recover the deferred tax assets, we consider all available positive and negative evidence, including cumulative income in recent fiscal years, the forecast of future taxable income exclusive of certain reversing temporary differences and significant risks and uncertainties related to our business. In determining future taxable income, management is responsible for assumptions utilized including, but not limited to, the amount of U.S. federal, state and international pre-tax operating income, the reversal of certain temporary differences, carryforward periods available to us for tax reporting purposes, the implementation of feasible and prudent tax planning strategies and other relevant factors. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates that we are using to manage the underlying business. We assess the need for a valuation allowance each reporting period, and would record any material changes that may result from such assessment to income tax expense in that period.

We account for uncertain tax positions in accordance with ASC 740-10, Accounting for Uncertainty in Income Taxes. We assess all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position's sustainability and is measured at the largest amount of benefit that has a greater than fifty percent

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likelihood of being realized upon ultimate resolution. The evaluation of unrecognized tax benefits is based on factors that include, but are not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position. We evaluate unrecognized tax benefits and adjust the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertain positions. The liabilities for unrecognized tax benefits can be relieved only if the contingency becomes legally extinguished through either payment to the taxing authority or the expiration of the statute of limitations, the recognition of the benefits associated with the position meet the more-likely-than-not threshold or the liability becomes effectively settled through the examination process. We consider matters to be effectively settled once the taxing authority has completed all of its required or expected examination procedures, including all appeals and administrative reviews. We also accrue for potential interest and penalties related to unrecognized tax benefits in income tax provision (benefit).

The most significant tax jurisdictions are Ireland, the United States, Argentina and Hungary. Significant estimates are required in determining the provision for income taxes. Some of these estimates are based on management's interpretations of jurisdiction-specific tax laws or regulations and the likelihood of settlement related to tax audit issues. Various internal and external factors may have favorable or unfavorable effects on the future effective income tax rate. These factors include, but are not limited to, changes in tax laws, regulations or rates, changing interpretations of existing tax laws or regulations, changes in estimates of prior years' items, changes in the international organization, likelihood of settlement, and changes in overall levels of income before taxes.

As of December 31, 2017, we had a U.S. federal net operating loss of $4.4 million. This loss is subject to limitation under IRC Section 382 related to the 2017 change in ownership of RevitaLid. The net operating loss is expected to be utilized in full prior to its expiration, and therefore, no valuation allowance has been recorded against it. We also had losses in certain foreign and state tax jurisdictions of $90.2 million and $1.0 million, respectively. As the losses in the foreign jurisdictions have been deemed more-likely-than-not to expire unused, a full valuation allowance has been recorded against these net operating losses. The net operating losses will begin to expire in 2022. At December 31, 2017, we had total tax credit carryovers of $9.1 million. These credit carryovers are expected to be fully realized prior to their expiration, beginning in 2036. The estimates discussed above have not changed significantly during the six months ended June 30, 2018.

We make an evaluation at the end of each reporting period as to whether or not some or all of the undistributed earnings of our subsidiaries are indefinitely reinvested. While we have concluded in the past that some of such undistributed earnings are indefinitely reinvested, facts and circumstances may change in the future. Changes in facts and circumstances may include a change in the estimated capital needs of our subsidiaries, or a change in our corporate liquidity requirements. Such changes could result in our management determining that some or all of such undistributed earnings are no longer indefinitely reinvested. In that event, we would be required to adjust our income tax provision in the period we determined that the earnings will no longer be indefinitely reinvested outside the relevant tax jurisdiction.

For the six months ended June 30, 2018, we have not recorded any measurement period adjustments to the provisional estimates recorded as of December 31, 2017 in accordance with the SEC's Staff Accounting Bulletin No. 118, or SAB 118. We will continue to analyze the impact of the U.S. Tax Cuts and Jobs Act under SAB 118 and will record adjustments to provisional amounts as such analyses are refined.

Share-based Compensation

Prior to the consummation of this offering, our employees were eligible to receive awards from the 2016 Plan (as defined in Note 11, Incentive Plans to our consolidated financial statements included elsewhere in this prospectus).

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Prior to the completion of this offering, the compensation committee of the board of directors is expected to consider and make recommendations to the board of directors regarding an equity-based incentive compensation plan that would take effect upon the completion of this offering. Therefore, upon the consummation of this offering, employees will be eligible to receive awards from the new 2018 Plan.

Our stock-based compensation cost will be measured at the grant date based on the fair value of the award and will be recognized as expense over the requisite service period, which will generally represent the vesting period. We will use the Black Scholes valuation model for estimating the fair value on the date of grant of stock options. The fair value of stock option awards will be affected by our valuation assumptions, including the estimated fair value of our ordinary shares, the volatility of equity comparables, the expected term of the options, the risk-free interest rate, expected dividends and other objective and subjective variables. For valuations after the consummation of this offering, our board of directors (or its compensation committee) will generally determine the fair value of each share of underlying ordinary shares based on the closing price of our ordinary shares as reported on the date of grant.

Recently Issued Accounting Standards

For a discussion of recent accounting pronouncements, please see Note 2, Summary of Significant Accounting Policies to our consolidated financial statements and Note 2, Basis of Presentation and Summary of Significant Accounting Policies to our interim unaudited condensed consolidated financial statements included elsewhere in this prospectus.

Internal Controls and Procedures

In connection with the preparation of our audited financial statements as of and for the years ended December 31, 2017 and 2016, we identified a material weakness in our period-end financial closing process related to our lack of sufficient available resources in our accounting and financial reporting functions with sufficient experience and expertise with respect to the application of GAAP and related financial reporting to ensure that we identified, accumulated and timely prepared and reviewed all required supporting information to establish the completeness and accuracy of our consolidated financial statements and disclosures. Although members of our accounting staff are knowledgeable in the application of GAAP, additional resources are needed to ensure that risks critical to financial reporting matters are reviewed and addressed on a timely basis. These internal control deficiencies were identified as a result of certain post-closing adjustments related to deferred taxes, certain intangible asset impairments, and the classification of certain financial statement line items that were not detected on a timely basis by management or employees in the normal course of performing their assigned functions.

These control deficiencies were considered to be a material weakness because they could have resulted in a misstatement of the aforementioned account balances or disclosures that would result in a material misstatement to the consolidated financial statements that would not have been prevented or detected on a timely basis.

During 2016, we completed the Business Combination and re-acquired the marketing and distribution rights to VERT. As a result of these transactions, we experienced significant growth in the operations and complexity of our financial reporting. In early 2017, we commenced the implementation of an enterprise resource management system to upgrade our financial reporting and internal control structure. The first phase of this implementation was completed by mid-2017, and we are continuing to integrate and improve our enterprise systems throughout the organization. Additionally, beginning late in the third quarter of 2017, we began hiring additional experienced financial staff, including our Chief Financial Officer, and plan to continue to add finance personnel during 2018.

We are committed to the remediation of the material weakness described above, as well as the continued improvement of our internal control over financial reporting. We have identified and implemented, and continue to implement, the actions described below to remediate the underlying causes of the control

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deficiencies that gave rise to the material weakness. As we continue our evaluation and improve our internal control over financial reporting, management may modify the actions described below or identify and take additional measures to address control deficiencies. Until the remediation efforts described below, including any additional measures management identifies as necessary, are completed, the material weakness described above will continue to exist.

To address the material weakness, we are in the process of:

    §
    hiring additional personnel and engaging external consultants who possess the requisite skills in certain technical areas important to our financial reporting;

    §
    assessing the required training needs to provide for the continued development of our finance personnel;

    §
    performing a comprehensive review of current procedures to ensure compliance with our accounting policies and GAAP;

    §
    improving the process of reviewing the consolidation, supporting schedules and related reconciliations in our financial reporting;

    §
    enhancing existing and developing additional monitoring controls to provide reasonable assurance that we maintain sufficient oversight of the performance of internal control over financial reporting responsibilities;

    §
    reassessing our existing framework used to identify and implement corrective actions on a timely, prioritized basis with defined accountability; and

    §
    designing and implementing enhanced controls over the preparation, analysis and review of significant accounts that operate at the appropriate level of precision to prevent or detect a material misstatement of such balances at period end.

While we have implemented plans to remediate the material weakness, we cannot assure you that we will be successful in remediating the material weakness in a timely manner, or at all, which could impair our ability to accurately and timely report our financial position, results of operations or cash flows.

We are not currently required to comply with the SEC's rules implementing Section 404 of the Sarbanes-Oxley Act of 2002 and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a publicly traded corporation, we will be required to comply with the SEC's rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act of 2002, which will require our management to certify financial and other information in our quarterly and annual reports to be filed with the SEC and provide an annual management report on the effectiveness of our internal control over financial reporting. We will not be required to make our first assessment of our internal control over financial reporting until the year following our first annual report required to be filed with the SEC. However, we will evaluate our internal controls on a quarterly basis prior to making the first assessment of our internal control over financial reporting.

Further, our independent registered public accounting firm is not yet required to formally attest to the effectiveness of our internal control over financial reporting and will not be required to do so for as long as we are an "emerging growth company" pursuant to the provisions of the JOBS Act. See "Prospectus Summary — Implications of Being Emerging Growth Company."

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to various market risks, which may result in potential losses arising from adverse changes in market rates, such as interest rates and foreign exchange rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes and do not believe we are exposed to material market risk with respect to our cash and cash equivalents.

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Through the operation of our subsidiaries based in Argentina and Hungary, we are exposed to foreign exchange rate risks. In addition to the operations of our foreign subsidiaries, we also contract with vendors that are located outside the United States, and in some cases make payments denominated in foreign currencies. We are subject to fluctuations in foreign currency rates in connection with these arrangements. We do not currently hedge our foreign currency exchange rate risk. As of December 31, 2017, our liabilities denominated in foreign currencies were not material.

We are exposed to fluctuations in interest rates on our senior secured credit facilities. An increase in interest rates could have a material impact on our cash flow. As of December 31, 2017, a 100 basis point increase in assumed interest rates for our variable interest credit facilities would have an annual impact of approximately $3.2 million on interest expense.

As of December 31, 2017, we had cash and cash equivalents of $34.7 million. We do not engage in any hedging activities against changes in interest rates. Because of the short-term maturities of our cash and cash equivalents, we do not believe that an immediate 10% increase in interest rates would have a significant impact on the realized value of our investments.

Inflation generally affects us by increasing our cost of labor, API and clinical trials. We do not believe that inflation had a material effect on our business, financial condition or results of operations during the years ended December 31, 2017 and 2016.

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BUSINESS

Our Company

We are a fully integrated biopharmaceutical company focused on the development and commercialization of specialty products that target markets with underserved patient populations. In 2017, we generated total revenues of $245.7 million across our existing portfolio of promoted specialty neurology and women's health products, as well as our non-promoted products, which are primarily complex formulations of generic drugs. We recently received regulatory approval from the FDA for M-72 (methylphenidate hydrochloride extended-release tablets, 72 mg) for the treatment of ADHD in patients aged 13 to 65, as well as Osmolex ER (amantadine extended-release tablets) for the treatment of Parkinson's disease and drug-induced extrapyramidal reactions, which are involuntary muscle movements caused by certain medications, in adults. We launched M-72 in the second quarter of 2018 and are preparing to launch Osmolex ER in the second half of 2018. In addition, we have a late-stage development pipeline highlighted by two NDA candidates in Phase III clinical trials: Ontinua ER (arbaclofen extended-release tablets) for muscle spasticity in multiple sclerosis patients and RVL-1201 (oxymetazoline hydrochloride ophthalmic solution, 0.1%) for the treatment of blepharoptosis, or droopy eyelid. Many of our products use our proprietary osmotic-release drug delivery system, Osmodex, which we believe offers advantages over alternative extended-release, or ER, technologies.

Our core competencies span drug development, manufacturing and commercialization. Our specialized neurology and women's health sales teams support the ongoing commercialization of our existing promoted product portfolio as well as the launch of new products. As of June 30, 2018, we actively promoted five products: M-72, Lorzone (chlorzoxazone scored tablets) and ConZip (tramadol hydrochloride extended-release capsules) in specialty neurology; and OB Complete, our family of prescription prenatal dietary supplements, and Divigel (estradiol gel, 0.1%) in women's health. We most recently launched M-72 in the second quarter of 2018, and we expect to launch Osmolex ER, which was approved by the FDA on February 16, 2018, in the second half of 2018. We also sell a portfolio consisting of approximately 35 non-promoted products, which has generated strong cash flow. The cash flow from these non-promoted products has contributed to our robust investments in research and development and business development activities. Many of our existing products benefit from several potential barriers to entry, including intellectual property protection, formulation and manufacturing complexities, data exclusivity, as well as DEA regulation and quotas for active pharmaceutical ingredients, or API. Certain of our key products, particularly those that incorporate our proprietary Osmodex drug delivery system, are or are expected to be manufactured in our Marietta, Georgia facility.

We are focused on progressing our pipeline, which is highlighted by two Phase III candidates under clinical development — Ontinua ER and RVL-1201. We developed Ontinua ER using our proprietary Osmodex drug delivery system and believe this formulation will provide an efficacious and safe treatment for muscle spasticity in multiple sclerosis patients. Ontinua ER has been designated by the FDA as an Orphan Drug in this indication. We are also exploring opportunities for Ontinua ER in additional indications, such as opioid and alcohol use disorders. We acquired the rights to RVL-1201 in 2017 and are conducting a second Phase III clinical trial of RVL-1201 for droopy eyelid. If approved, RVL-1201 would be the first non-surgical treatment option approved by the FDA for droopy eyelid. We plan to invest selectively in expanding our product portfolio by leveraging both our proprietary Osmodex drug delivery system to develop differentiated products as well as our management team's operating experience to pursue external business development opportunities.

On February 3, 2016, we completed the combination of Vertical/Trigen and Osmotica Holdings Corp Limited. The transaction combined the specialized research and development capabilities and early-stage development expertise of Osmotica with the strong and established commercialization and distribution capabilities of Vertical/Trigen. Led by our Chief Executive Officer, Brian Markison, our management team has a proven track record of value creation in the pharmaceutical industry. For the year ended

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December 31, 2017 and the six months ended June 30, 2018, we generated total revenues of $245.7 million and $131.6 million, net loss of $45.2 million and net income of $1.4 million and adjusted EBITDA of $99.1 million and $55.1 million, respectively. Additional information regarding adjusted EBITDA, including a reconciliation of adjusted EBITDA to net income (loss), is included in "Prospectus Summary — Summary Financial Data."

Our Strengths

We believe our principal competitive strengths include:

Diversified Portfolio of Pharmaceutical Products

We sell an attractive and diversified portfolio of five promoted products and approximately 35 non-promoted products. Through our specialized sales teams we promote a portfolio of specialty neurology and women's health products that we believe are differentiated from competing products and provide meaningful benefits to patients due to their formulation or pharmacokinetic profiles. In addition, we believe that our promoted products are protected by a combination of patent protection, data exclusivity and our proprietary formulation and manufacturing know-how. Our promoted specialty neurology products include M-72, Lorzone and ConZip, and our promoted women's health products include Divigel and the OB Complete family of prescription prenatal dietary supplements. Our key non-promoted products, such as methylphenidate ER (methylphenidate hydrochloride extended-release tablets) and VERT (venlafaxine extended-release tablets), are comprised of complex formulations of generic drugs that incorporate our proprietary Osmodex drug delivery system.

Efficient Research and Development Organization Generating a Targeted Pipeline

We have a history of developing commercially successful pharmaceutical products. As of June 30, 2018, we employed 99 professionals with extensive regulatory and drug development experience in our research and development organization. We also had 37 U.S. patents, 125 patents outside the United States and 28 pending patent applications, the last of which expires in 2037. Our research and development team has successfully developed and received FDA approval for several products, including M-72, Allegra D (pseudoephedrine and H1 antagonist), VERT, Khedezla (desvenlafaxine extended-release tablets) and Osmolex ER. Similarly, our research and development team has generated several approved ANDAs, including methylphenidate ER and hydromorphone ER (hydromorphone hydrochloride extended-release tablets), which are complex formulations that incorporate our proprietary Osmodex drug delivery system.

Our pipeline is highlighted by two NDA candidates in Phase III clinical trials: Ontinua ER, which we are evaluating for the alleviation of signs and symptoms of spasticity resulting from multiple sclerosis, particularly for the relief of flexor spasms and concomitant pain, clonus and muscular rigidity; and RVL-1201, which we are studying for the treatment of blepharoptosis. We expect to receive the data from our Phase III clinical trial of Ontinua ER by the middle of 2019 and, if positive, we would expect to submit this information to complete our NDA by the end of 2019. We developed Ontinua ER using our proprietary Osmodex drug delivery system. We believe this formulation will provide an efficacious and safe treatment for muscle spasticity in multiple sclerosis patients. We are also exploring opportunities for Ontinua ER in additional indications, such as opioid and alcohol use disorders. In 2017, we acquired the rights to RVL-1201 and are conducting a second Phase III clinical trial of RVL-1201 for droopy eyelid. For RVL-1201, we expect to receive the data from our second Phase III clinical trial by early 2019, and, if positive, we expect to submit an NDA by mid-2019. If approved, RVL-1201 would be the first non-surgical treatment option approved by the FDA for blepharoptosis.

Beyond Ontinua ER and RVL-1201, our pipeline includes nine ANDAs pending regulatory approval and eight other products in various stages of development, including four product candidates using our proprietary Osmodex drug delivery system. We believe our pipeline products will continue to support our future growth.

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Demonstrated Commercialization Capabilities

We have built a robust infrastructure for the commercialization of our pharmaceutical products. Our sales force is comprised of two dedicated teams that totaled 162 professionals as of June 30, 2018. With our specialized sales teams, we target approximately 18,000 physicians across the specialty neurology and women's health therapeutic areas. We believe that our successful commercialization of Lorzone, ConZip, Divigel and the OB Complete family of prescription prenatal dietary supplements has provided us with the experience and expertise to execute the launches of M-72 and Osmolex ER. Between 2012 and 2017, our specialty neurology sales team increased the number of prescriptions dispensed of Lorzone, our leading promoted specialty neurology product based on total revenues in 2017, at a compound annual growth rate of 18%. In addition, since our acquisition of Divigel in March 2014, our women's health sales team has increased the number of prescriptions dispensed and expanded our market share in the topical estrogen replacement market from approximately 29% to approximately 40% as of December 2017. Our commercial efforts for our promoted products are also supported by a team of patient and market access specialists. These specialists provide us with a broad understanding of the managed care landscape and patient assistance strategies in order to enhance access to our products.

Our non-promoted products are supported by a team with extensive experience commercializing generic products in attractive markets. We leverage longstanding relationships with drug-buying consortia, pharmaceutical wholesalers, payors, retail pharmacy chains and other key players in the generic drug marketplace, as well as our manufacturing and distribution capabilities to execute on these opportunities.

Experience Driving Patient Access in Order to Facilitate Penetration of Key Markets

We support patients' access to our medications through careful research and a deep understanding of the changing reimbursement landscape. We have developed robust capabilities across the market access continuum underscored by successful payor contracting strategies and supplemental patient assistance programs. For example, Divigel, our leading women's health product based on total revenues in 2017, benefits from a market-leading position in the topical estrogen replacement market with preferred brand status on many formularies. Patient access is central to the commercialization strategy for our recent and near-term product launches. We expect that our pricing of these products will facilitate strong managed-care coverage and reimbursement, which we believe will improve patient access to our products. We plan to continue to emphasize patient access in planning for future launches of our pipeline products.

Product Portfolio and Pipeline That Benefit from Multiple Potential Barriers to Entry

Many of our existing products benefit from several potential barriers to entry, including intellectual property protection, formulation and manufacturing complexities, data exclusivity, as well as DEA regulation and quotas for API. We seek to protect our intellectual property covering our formulations, release profiles and methods of treating patients to further support the competitive position of our product portfolio. Our proprietary Osmodex drug delivery system uses osmotic pressure to provide a controlled drug release and is adaptable to many different combinations of immediate-release, extended-release and controlled- or delayed-release formulations that contain one or more drugs. We seek to identify and develop drug candidates that are well-suited to our proprietary Osmodex drug delivery system, which we believe can deliver a differentiated and favorable pharmacokinetic profile and may provide meaningful benefits to patients. We believe that third parties attempting to compete with our products that use our Osmodex drug delivery system may face difficulties in developing a comparable product. Additionally, some of our products are subject to DEA regulation and quotas for API, which reduces the number of competitors to those with compliant infrastructure and who are able to secure the API volumes necessary to manufacture comparable products.

In the markets for our key generic products, we believe that formulation complexities and manufacturing challenges limit the number of viable competitors. Specifically, we believe that, in many cases, osmotic extended-release brands compete with fewer generic suppliers than typically exist in markets that do not include an osmotic extended-release product. We believe this dynamic is driven, in part, by the fact that osmotic tablets offer release profiles that are often difficult to replicate using traditional compression tablet technology.

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Strong Cash Flow from Existing Product Portfolio Enhances Research and Development Investment and Opportunistic Business Development Activities

Our current commercial success and historical cash flow generation allows us to invest in our pipeline to support the next stage of our growth. Our portfolio of non-promoted products has generated strong cash flows, which along with our prudent capital structure, has enabled us to invest meaningfully in our research and development activities since the Business Combination. Additionally, we opportunistically pursue strategic acquisitions and business development initiatives to augment our internal development pipeline. We believe that total revenues generated from our existing product portfolio as well as our near-term product launches and our pipeline will continue to support our growth.

Experienced and Accomplished Management Team with a Proven Track Record

Our management team brings a wealth of experience navigating changes in the pharmaceutical industry and delivering financial success. Led by our Chief Executive Officer, Brian Markison, our management team has a proven track record of value creation, as well as a successful history of targeting, completing and integrating acquisitions, such as Vertical/Trigen's acquisition of a line of products, including Divigel, from Upsher-Smith Laboratories, Inc. Our management team possesses expertise in many areas of the pharmaceutical industry, including drug development, manufacturing, commercial operations and finance.

Our Strategy

Our goal is to become a leading biopharmaceutical company by developing and commercializing drugs with significant market opportunities, meaningful potential barriers to entry and long product life cycles. Our strategy to achieve this goal is focused on the following:

Target Specialty Therapeutic Markets

We intend to continue developing innovative products targeting specialty markets with underserved patient populations that we believe we can commercialize efficiently. These specialty markets are generally characterized by a relatively small number of physicians who write the majority of prescriptions, enabling efficient market coverage by a targeted sales force. We currently target physicians in the specialty neurology and women's health therapeutic areas and plan to leverage our sales force into adjacent diseases and therapeutic areas, such as multiple sclerosis and ophthalmology, for which we currently have Phase III candidates under clinical development. In addition, we may expand into additional specialty markets where we believe there are attractive opportunities to use our expertise and proprietary Osmodex drug delivery system to develop and commercialize differentiated products.

Grow Our Existing Product Sales

We plan to leverage our existing sales force to grow our promoted product portfolio and support the recent launch of M-72 and the targeted launch of Osmolex ER in the second half of 2018. M-72 is supported by a sales team targeting approximately 5,500 physicians who address a primary market opportunity that included an estimated 750,000 prescriptions of 36-mg methylphenidate ER prescribed twice daily in 2017. We believe there is also potential to grow the patient base for M-72 by focusing on patients currently using the 54-mg dosage who may require a higher dosage. We expect that Osmolex ER will be supported by a dedicated sales team targeting neurologists and movement disorder specialists. We believe the primary market opportunity for Osmolex ER includes patients who received approximately one million amantadine immediate-release prescriptions in 2017. We anticipate opportunistically growing our sales force to support future growth and focus on products, such as M-72 and Osmolex ER, where we believe there is an attractive market. We intend to support our non-promoted products through our national account team that manages relationships with major drug-buying consortia, pharmaceutical wholesalers and retailers in the United States.

Successfully Develop Our Late-Stage Product Candidates

We are focused on advancing the development of our late-stage clinical programs to further diversify our revenue base and sustain our future growth. We believe that both Ontinua ER and RVL-1201 represent significant commercial opportunities in attractive markets.

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Ontinua ER, extended-release arbaclofen, the R-isomer of baclofen, is in Phase III clinical trials for spasticity associated with multiple sclerosis, and has been designated by the FDA as an Orphan Drug in this indication. A 2017 study conducted by the U.S. Multiple Sclerosis Prevalence Workgroup found that approximately 947,000 people suffered from multiple sclerosis in the United States. Another study specifically exploring the prevalence of spasticity in multiple sclerosis patients indicated that approximately 80% of multiple sclerosis patients suffered from some degree of spasticity. Based on our assessment of the addressable patient population as well as a preliminary pricing range that we believe would facilitate favorable patient access, we estimate Ontinua ER's multiple sclerosis spasticity market opportunity to be up to $3.5 billion in the United States.

RVL-1201 is an ophthalmic solution in Phase III clinical trials for the treatment of blepharoptosis. Currently, there are no FDA approved non-invasive therapies in the United States for treatment of this condition, with blepharoplasty surgery as the only approved treatment option. While no robust epidemiological studies exploring the prevalence of blepharoptosis in the United States exist, we believe it is a condition affecting millions of Americans. For example, a study conducted in 1995 in the United Kingdom found some level of blepharoptosis in 12% of a sample set of adults age 50 years and older. If successfully developed and approved, we believe that RVL-1201 would become the first pharmacological treatment for blepharoptosis in the United States and would represent an important therapy in the continuum of care for patients with mild or moderate blepharoptosis.

Our research and development efforts also include activities related to seeking additional indications for Ontinua ER. For example, we intend to explore whether arbaclofen, the active ingredient in Ontinua ER, may have applications in treating opioid use disorder, as well as alcohol use disorder, alcohol withdrawal syndrome and nicotine dependence. We anticipate initiating clinical trials by the end of 2018 in one or more of these other indications.

Expand Our Pipeline by Leveraging Our Proprietary Technology to Develop Differentiated Products

We plan to expand our pipeline of product candidates through the application of our technology, research infrastructure and development expertise. Our research and development efforts are focused on identifying commercially viable products that are well suited to benefit from our proprietary Osmodex drug delivery system. Our technology is designed to produce an extended-release formulation with a differentiated pharmacokinetic profile that we believe can, in certain circumstances, meaningfully improve upon the efficacy or side effect profiles of currently approved therapies. By focusing on known drug compounds with established mechanisms of action, we believe that we will be able to mitigate development risks and reduce the costs and time associated with product development. We plan to continue to apply our drug development criteria to make capital efficient decisions for each of our product candidates. We believe that our vertically integrated capabilities, including our manufacturing infrastructure, enhance our ability to develop our pipeline and support our future growth.

Opportunistically Acquire or In-License Rights to Clinically Differentiated Products, Pipeline Candidates or Technologies

We seek to selectively acquire or in-license approved products and late-stage product candidates that complement our existing product portfolio, pipeline, technology or commercial infrastructure. We are focused on identifying, selecting and pursuing opportunities with attractive risk/reward profiles while using a balanced approach to allocating resources between our commercial and development product portfolio and opportunities for acquisitions and in-licensing of assets for future products. We continually assess our product portfolio and opportunistically identify business development opportunities in an effort to provide ourselves with an appropriate mix of late-stage product candidates and earlier-stage product development opportunities. Our management team has a history of successfully executing and integrating product and company acquisitions that we believe positions us to capitalize on these opportunities.

Our Portfolio

As of June 30, 2018, we sell a diverse portfolio consisting of five promoted products and approximately 35 non-promoted products, several of which incorporate our proprietary Osmodex drug delivery system.

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Our promoted products include specialty neurology drugs such as Lorzone and ConZip for pain management, as well as women's health products such as Divigel for menopause and the OB Complete family of prescription prenatal dietary supplements. We recently launched M-72 and received FDA approval for Osmolex ER. M-72 is indicated for the treatment of ADHD in patients aged 13 to 65, and Osmolex ER is indicated for the treatment of Parkinson's disease and drug-induced extrapyramidal reactions in adults. We also have a robust development pipeline that is highlighted by two NDA candidates in Phase III clinical trials, one of which we believe has the potential for indication expansion over time.

Our non-promoted product portfolio includes methylphenidate ER and VERT as well as smaller volume ANDAs and prescription dietary supplements. Our non-promoted pipeline includes 17 products in various stages of development. The following table shows our promoted and non-promoted product portfolio.

Promoted Products
  Indication   Osmodex
Technology
  U.S. Regulatory
Status
Specialty Neurology            

M-72

  ADHD in patients aged 13 to 65   Yes   Approved

Osmolex ER

  Parkinson's and drug-induced extrapyramidal reactions in adults   Yes   Approved

Lorzone

  Muscle spasms   No   Approved

ConZip

  Pain   No   Approved

Ontinua ER

  Multiple sclerosis spasticity   Yes   Phase III

  Opioid use disorder and alcohol use disorder   Yes   Phase II Ready

Women's Health

 

 

 

 

 

 

Divigel

  Menopause   No   Approved

OB Complete

  Various dietary needs during prenatal, pregnancy and postnatal periods   No   Dietary Supplement
Ophthalmology            

RVL-1201

  Blepharoptosis (droopy eyelid)   No   Phase III

 

Non-Promoted Products
  Indication   Osmodex
Technology
  U.S. Regulatory
Status

Methylphenidate ER

  ADHD   Yes   Approved

Venlafaxine ER Tablets (VERT)

  Major Depressive Disorder and Social Anxiety Disorder   Yes   Approved

Hydromorphone ER

  Pain   Yes   Approved

Nifedipine ER*

  Hypertension   Yes   Approved

Sodium Benzoate / Sodium Phenylacetate

  Hyperammonemia   No   Approved

Oxybutynin ER*

  Overactive bladder   Yes   Approved

Prescription Prenatal Vitamins

  Nutritional requirements during pregnancy   No   Dietary Supplement

Osmodex ANDAs

  Various   Yes   In Development (4)

Other ANDAs

  Various   No   Filed (9)
In Development (4)
Approved (1)

*
Out-licensed ANDAs with a commercial partner.

Operating Capabilities

Sales and Marketing

We maintain scalable infrastructure that includes specialized sales teams and marketing teams that leverage our longstanding relationships with physicians, drug-buying consortia, pharmaceutical wholesalers and retailers. We currently maintain commercial capabilities across two therapeutic areas, specialty neurology and women's health, and have successfully grown our product sales in both of those areas. We have a sales force comprised of two dedicated teams that totaled 162 professionals as of June 30, 2018. We plan to expand our focus to adjacent diseases and therapeutic areas to support the promotion of products currently in our pipeline.

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As of June 30, 2018, we were actively promoting five products: M-72, Lorzone, ConZip, the OB Complete family of prescription prenatal dietary supplements and Divigel. Our internal sales force is divided between specialized sales teams in specialty neurology (promoting M-72, Lorzone and ConZip) and women's health (promoting Divigel and OB Complete), targeting a total of approximately 18,000 physicians as of June 30, 2018. We support our sales force with sales administration and market research services across both therapeutic areas. Our sales representatives actively promote our products by communicating the therapeutic and health benefits and safety profiles of our promoted products to healthcare providers who may prescribe those products to their patients who in turn fill their prescriptions at a pharmacy. Pharmacies place orders, directly or through buying groups, with pharmaceutical wholesalers, to purchase our products.

Marketing of our non-promoted products is primarily directed to pharmaceutical wholesalers, retailers, drug-buying consortia and mail order pharmacies who in turn distribute our products to pharmacies or patients. We maintain a national account team that manages relationships with major pharmaceutical wholesalers and retailers to competitively price our products.

Research and Development

Our research and development team leverages its expertise across a variety of scientific disciplines to formulate product candidates and advance programs through the drug development and approval process and post marketing studies. Scientific staff in Buenos Aires, Argentina, Wilmington, North Carolina, Bridgewater, New Jersey, Marietta, Georgia and Budapest, Hungary use their expertise in our proprietary Osmodex drug delivery system, chemistry and material science to focus on identifying drug compounds for re-formulation to either achieve new therapeutic attributes (e.g., extended release) or indications in the case of branded products, or to achieve bioequivalence in the case of generic products. Additionally, we perform early-stage manufacturing and technology transfer engineering and evaluate any unique intellectual property arising from these activities. If we elect to progress a development candidate forward, scale-up process engineering is performed at our manufacturing plant in Marietta, Georgia. We have capabilities in regulatory affairs, pharmaceutical science, analytical chemistry, preclinical studies, clinical trial design and operations, quality assurance and compliance, medical affairs and pharmacovigilance. We deploy these competencies to advance a product candidate through the drug development process, and develop data and intellectual property to improve our products, support commercialization and extend product life cycles.

As of June 30, 2018, we had 99 employees in our research and development department worldwide. Our staff of research scientists has expertise in the drug development process, from pre-formulation studies and formulation development, to scale-up and manufacturing. The clinical development and medical affairs team assumes product stewardship from pre-clinical testing and first-in-human studies, Phase I, Phase II and Phase III clinical trials through to post-marketing studies, risk management and pharmacovigilance activities. Our research and development team has extensive experience developing and coordinating clinical trial programs and communicating with the FDA throughout the process to ensure proper trial design and an efficient clinical and drug development process. Our team has a successful track record of developing products and receiving FDA approval for NDAs and ANDAs.

Intellectual Property

We have built and continue to develop our intellectual property portfolio for our products and product candidates. We rely on our substantial know-how, technological innovation, patents, trademarks, trade secrets, other intellectual property and in-licensing opportunities to maintain and develop our competitive position. We pursue patent protection in the United States and selected international markets. As of June 30, 2018, we had 37 U.S. patents, 125 patents outside the United States and 28 pending patent applications, the last of which expires in 2037.

Technology

Our proprietary Osmodex drug delivery system incorporates various features that we deploy to modulate drug release and achieve desired pharmacokinetics, including tablet orifice design, immediate-release coatings, barrier coatings, core compositions and laser drilling devices. In addition to our substantial know-how, we employ a layered approach for pursuing patent protection for osmotic and non-osmotic based technologies.

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This includes, wherever possible, seeking broad protection for various aspects of the technology we innovate.

Patent Portfolio

Our patent portfolio includes platform patents and patent applications drawn to osmotic device construction and features that provide various release profiles, including extended-release, immediate-release and controlled-release or dual-release profiles as well as product-specific patents. In addition to composition-based approaches to control the release profiles of active ingredients, our technology employs construction-based features to modulate release profiles. Generally, patent claims in our platform patent filings are not limited to particular drugs. Moreover, some of our patent-protected technologies are not currently deployed in any of our existing products, but may be used in future product candidates. Similarly, our platform technology is not presumed compatible with any given drug (i.e . , API), and any combination of the platform with a given active ingredient will require substantial effort, innovation and investment, the success of which cannot be predicted.

Our product-specific patent filings are based on the application of our technologies to specific APIs or combinations of ingredients. We have product-specific patent filings, including filings directed to Ontinua ER, RVL-1201, methylphenidate ER, Allegra D and Osmolex ER. These patent filings provide coverage for some of our marketed products and product candidates. We also pursue intellectual property directed at novel product features, such as formulations that may release less of the active drug when exposed to alcohol. Our methylphenidate products, including M-72, which is the reference standard for the 72-mg dosage strength, are covered by three U.S. patents that cover the improved property of releasing less methylphenidate when exposed to alcohol than the amount released by the branded product. These patents expire in February 2037. Our product-specific patents are generally directed to the specific formulations, such as formulations based on the release profiles of the active ingredients, and methods of treatment using specified formulations. Our Osmolex ER product is covered by two Orange Book listed U.S. patents, and the patent covering the formulation of Osmolex ER expires in March 2030. We also have two pending patent applications, one relating to the use of Osmolex ER in treating Parkinson's disease and one relating to drug-induced extrapyramidal reactions in adults.

Our products in development are also covered by a robust patent portfolio. Ontinua ER is protected by four issued U.S. patents directed to the product formulation and methods of treating neurological diseases. These issued patents expire in February 2036, and we have additional patent applications pending relating to Ontinua ER. RVL-1201 is covered by two issued U.S. patents related to the treatment of blepharoptosis, which expire in August 2031.

Other Intellectual Property Rights

We own or have rights to use trademarks and tradenames in our business in conjunction with the sale of our products, including Lorzone, OB Complete and Osmolex ER. We also protect certain services or products related to our markets, such as OB Complete Nutrition.

Manufacturing

We manufacture our products through a combination of our in-house manufacturing and our network of contract manufacturing organizations. As of June 30, 2018, we had a workforce of 121 employees at our 85,000 square foot manufacturing and research and development facility in Marietta, Georgia, where we focus on manufacturing products involving oral solid dose technologies. This facility includes approximately 14,000 square feet of manufacturing clean rooms, 8,100 square feet of analytical laboratories, 16,000 square feet of temperature-controlled warehouse space, including two Schedule II controlled substance vaults, and various process laboratories and offices. In addition, our Marietta, Georgia facility is located on 28 acres and, we believe, is well-suited for potential expansion, as needed. Over the last two years we have invested approximately $12.5 million in commercial scale clean rooms and manufacturing equipment for osmotic dosage form products in our Marietta, Georgia facility. At this facility, we have the ability to manufacture from experimental, pilot-scale batches to large-scale commercial batches, which provides us with flexibility in commercial planning and security for our supply chain.

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Our manufacturing technologies include wet and dry granulation, fluid bed drying, dry blending, compression, tablet coating, laser drilling, printing and bottle packaging. We have on-site equipment for each of these processes at bench-scale, pilot scale and commercial scale. Our analytical product and material testing capabilities include sophisticated instrumentation and skilled analysts that enable us to conduct on-site testing and release of finished products, raw materials and packaging components.

Total revenues derived from products that we manufacture, as opposed to contract to third parties, has increased since 2016. In 2017, 18% of our total revenues were attributable to products manufactured by us. However, for the quarter ended June 30, 2018, that percentage increased to 50%, due to the launch of methylphenidate ER. In the future, we expect to continue this trend of increasing the percentage of our total revenues derived from products manufactured by us as we continue to commercialize our pipeline of products, particularly those that incorporate our proprietary Osmodex drug delivery system that we manufacture or intend to manufacture in our Marietta, Georgia facility, such as M-72, Osmolex ER and Ontinua ER.

Our Technology

Osmodex: Our Proprietary Drug Delivery System

Our technology allows us to manufacture tablets with one or more active drugs, and in combinations of immediate-release, controlled-release, delayed-release and extended-release, or ER. As such, we are able to design an osmotic tablet that is capable of delivering an active drug to address a therapeutic need. For example, a tablet may produce an immediate release of a specified dosage of a drug in a short period of time in the morning followed by a controlled extended release of additional amounts of the drug over the following 12 to 16 hours. We believe that our proprietary Osmodex drug delivery system is well-suited to address certain limitations of existing therapies that have less than optimal efficacy or unfavorable side effect profiles as a result of formulation, pharmacokinetic profiles or other complexities. However, whether our proprietary Osmodex drug delivery system will suitably be paired with a given API is not certain or predictable. Each successful pairing that we have achieved in the past was the result of rigorous research, development and innovation. With that approach, our research and development team has led the successful clinical development of approved NDAs for products incorporating our proprietary Osmodex drug delivery system, including Allegra D, VERT, Khedezla and Osmolex ER.

We believe that brands using osmotic extended-release technology can benefit from relatively longer life cycles as compared to brands delivered in conventional extended-release dosage forms due to the complexities of mimicking extended-release profiles of products using osmotic technologies. Moreover, we believe there are only a limited number of competitors with experience using osmotic technology. Given these dynamics, we estimate, based on market research, that osmotic ER brands have generally retained higher market share following loss of exclusivity as compared to other ER brands. We further estimate that generic versions of osmotic ER brands have tended to exhibit greater price stability as compared to generic versions of other extended-release branded formulations, as pricing declines over time.

Portfolio Summary

As of June 30, 2018, we sell a diverse portfolio consisting of five promoted products and approximately 35 non-promoted products, several of which incorporate our proprietary Osmodex drug delivery system.

Our promoted products include specialty neurology drugs M-72 for ADHD and Lorzone and ConZip for pain management, as well as women's health products including Divigel for menopause and the OB Complete family of prescription prenatal dietary supplements. We recently launched M-72 and received FDA approval for Osmolex ER. M-72 is indicated for the treatment of ADHD, in patients aged 13 to 65, and Osmolex ER is indicated for the treatment of Parkinson's disease and drug-induced extrapyramidal reactions in adults.

Our promoted product pipeline is highlighted by two late-stage programs in Phase III clinical trials: Ontinua ER and RVL-1201. We are also exploring additional indications for Ontinua ER with Phase II clinical trials

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in the planning stage. Our non-promoted product portfolio includes methylphenidate ER and VERT as well as several other smaller volume products. Royalty payments for our products are due on net sales based on percentages that range from the mid-single digits to the mid-teens.

Promoted Products

Our promoted product portfolio as of June 30, 2018 is summarized below:

Promoted Products
  Indication   Osmodex
Technology
  U.S. Regulatory
Status
Specialty Neurology            

M-72

  ADHD in patients aged 13 to 65   Yes   Approved

Osmolex ER

  Parkinson's and drug-induced extrapyramidal reactions in adults   Yes   Approved

Lorzone

  Muscle spasms   No   Approved

ConZip

  Pain   No   Approved

Ontinua ER

  Multiple sclerosis spasticity   Yes   Phase III

  Opioid use disorder and alcohol use disorder   Yes   Phase II Ready

Women's Health

 

 

 

 

 

 

Divigel

  Menopause   No   Approved

OB Complete

  Various dietary needs during prenatal, pregnancy and postnatal periods   No   Dietary Supplement
Ophthalmology            

RVL-1201

  Blepharoptosis (droopy eyelid)   No   Phase III

Marketed Products

Specialty Neurology Products

M-72

M-72 was approved by the FDA in July 2017 to treat ADHD in patients aged 13 to 65. ADHD is a chronic condition that affects millions of adolescents and often continues into adulthood, with symptoms such as difficulty sustaining attention, hyperactivity and impulsive behavior. Symptoms may be mild, moderate or severe. The number of diagnosed cases of ADHD in the United States has grown to more than six million children between the ages of 2 and 17 (or approximately 9.4% of that population age group in 2016) according to a study conducted by the Centers for Disease Control and Prevention. In addition, based on diagnostic interview data from the National Comorbidity Survey Replication, it is estimated that 4.4% of adults in the United States between the ages of 18 and 44 have ADHD. Prescription volume in the United States for ADHD therapies grew at a compound annual rate of approximately 4% between 2013 and 2017.

We launched M-72, a novel once-daily dosage of a single 72-mg tablet of extended-release methylphenidate, in the United States in April 2018, and we promote this product through our specialty neurology sales team. Since its launch, over 1,000 health care providers have prescribed M-72 and over 1,000 pharmacists have ordered the product, underscoring its strong patient access. We are the only provider to date of the 72-mg single-dose tablet. We believe that approximately 25% of the three million annual prescriptions for methylphenidate ER 36 mg in 2017 were written with twice-daily dosing totaling 72 mg. Accordingly, we believe there is a significant market opportunity for the convenience of the single daily dose offered by M-72, which studies have shown to be bioequivalent to two 36-mg methylphenidate ER tablets. Further, we believe there is a significant market opportunity for patients using other ADHD medications multiple times per day to switch to a once-daily, single dose treatment regimen. M-72 has been broadly integrated across electronic medical records systems facilitating simple e-prescribing and we believe payor coverage at launch was robust, further supporting access to our medication. M-72 is formulated using our proprietary Osmodex drug delivery system and is manufactured in our Marietta, Georgia facility.

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The competitive landscape for ADHD medications is highly fragmented with numerous branded products as well as generic alternatives. M-72 will compete directly for patients between the ages of 13 and 65 treated with two 36-mg methylphenidate ER daily or who require a higher dose extended-release therapy. While the 36-mg formulation is currently available in generic form, we believe that the convenience of the single-dose 72-mg extended-release tablet may encourage physicians to prescribe (and patients to prefer) M-72 over alternative generic competitors.

As the only approved 72-mg single-dose tablet of methylphenidate in the United States, the FDA has designated M-72 as the reference standard. A reference standard is the drug product selected by the FDA that an applicant seeking approval of an ANDA must use in conducting an in vivo bioequivalence study required for approval. We have obtained patent protection through February 2037 covering certain aspects of the formulation of M-72 that prevent the accelerated release of methylphenidate when exposed to alcohol.

Osmolex ER

Osmolex ER, a once-daily extended-release tablet that uses our proprietary Osmodex drug delivery system, is indicated for the treatment of Parkinson's disease and drug-induced extrapyramidal reactions in adult patients. We received FDA approval in February 2018, and we expect to launch this product in the second half of 2018. Parkinson's disease is a progressive neurodegenerative movement disorder caused by the loss of dopamine-producing brain cells that affects an estimated 676,000 people in the United States. Diagnosis is based on motor symptoms such as twitching or tremors, which are often the most prominent and noticeable manifestations of the condition. Patients are typically treated with a wide range of therapies intended to manage symptoms. Osmolex ER is a once-daily tablet formulation that contains both immediate-release and extended-release amantadine, a commonly prescribed drug for the treatment of Parkinson's disease. There were approximately one million prescriptions of immediate-release amantadine written in 2017, resulting in an estimated market opportunity in the United States of approximately $400 million based on wholesale acquisition cost pricing, and we estimate that approximately 50% of these amantadine prescriptions were written by neurologists or movement disorder specialists. In addition to Parkinson's disease, Osmolex ER is approved for the treatment of patients suffering from motor side effects associated with certain medications, such as anti-psychotics. We estimate that approximately 19% of immediate-release amantadine prescriptions were written by psychiatry specialists from the fourth quarter of 2015 to the third quarter of 2016. We believe that our specialty neurology sales team, which reaches physicians across neurology, movement disorder and psychiatry specialties, is well-positioned to target the key physicians for Osmolex ER.

We believe Osmolex ER's once-daily morning dose offers a more convenient option by reducing the number of pills a patient must take each day, which may improve patient compliance with treatment regimens. While Osmolex ER is bioequivalent to immediate-release amantadine, the product provides a consistent delivery of amantadine throughout the day. Peak serum drug concentration conveniently occurs in the middle portion of a patient's day when the drug is administered in the morning.

Osmolex ER was formulated using our proprietary Osmodex drug delivery system and is manufactured in our Marietta, Georgia facility. Osmolex ER is covered by two formulation patents, one of which extends to March 2030, with additional patent applications pending. On February 16, 2018, upon receipt of approval for Osmolex ER from the FDA, we filed suit against Adamas in the U.S. District Court for the District of Delaware seeking a declaratory judgment that Osmolex ER does not infringe, directly or indirectly, any valid and enforceable claim of any of the 11 patents enumerated in our complaint. On September 20, 2018, Adamas filed an amended answer with counterclaims alleging infringement of certain patents included in our complaint and requesting that the court grant Adamas damages, injunctive relief and attorneys' fees. Adamas commercializes a different amantadine product, an extended-release capsule marketed and sold as Gocovri™. See " — Legal Proceedings" and "Risk Factors — Risks related to our business — Our competitors or other third parties may allege that we, our suppliers or partners are infringing their intellectual property, forcing us to expend substantial resources in litigation, the outcome of which is

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uncertain. Any unfavorable outcome of such litigation, including losses related to "at-risk" product launches, could have a material adverse effect on our business, financial position and results of operations."

Lorzone

Lorzone is an immediate-release form of chlorzoxazone indicated for the treatment of acute musculoskeletal pain in conjunction with rest and physical therapy that was approved by the FDA in June 2010. Musculoskeletal pain affects the bones, muscles, ligaments, tendons and nerves, and symptoms may include aching, stiffness and twitching muscles. In 2012, approximately 54% of adults in the United States had a musculoskeletal pain disorder. In addition, in 2015, musculoskeletal disorders accounted for 31% of all nonfatal occupational injury and illness cases requiring days away from work.

We are presently the sole supplier of the 375 mg and 750 mg strengths of chlorzoxazone. In 2017, the 750 mg dosage represented approximately 85% of the total number of prescriptions written for chlorzoxazone. Our 750 mg tablet is trisected, or scored into three easily breakable parts, on one side and bisected, or scored into two easily breakable parts, on the other side, providing patients with the ability to easily break the pill into their desired therapeutic dosage. On April 22, 2016, the FDA approved a petition designating the 750 mg tablet as a reference standard, which requires a generic filer to show bioequivalence to that strength in an ANDA submission.

We license the commercial rights to Lorzone from Argent Development Group LLC, or Argent, under a marketing rights agreement that remains in effect for as long as Argent's license with Mikart, Inc., or Mikart, remains effective. Argent's license from Mikart expires in June 2020 but will automatically renew for successive five-year terms unless terminated by either Argent or Mikart upon at least two years' notice. Lorzone is manufactured by Mikart under a manufacturing and supply agreement that expires in March 2019. The supply agreement automatically renews on an annual basis unless we or Mikart terminate the agreement upon at least 120 days' notice.

Lorzone is promoted through our specialty neurology sales team. In 2014, we launched initiatives aimed at enhancing prescriber targeting and other promotional strategies. These efforts, combined with payor contracting and discount programs, drove strong growth of the product. Lorzone prescription volume grew at a compound annual growth rate of 13% between 2013 and 2017.

ConZip

ConZip, tramadol hydrochloride (a Schedule IV opioid), is indicated for the management of pain that is severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate. ConZip was approved by the FDA in May 2010. ConZip is designed with a biphasic release profile combining immediate-release tramadol and extended-release tramadol and is available in three strengths: 100 mg (25 mg immediate release/75 mg extended release), 200 mg (50 mg immediate release/150 mg extended release) and 300 mg (50 mg immediate release/250 mg extended release). In addition to marketing this branded product, we also market a generic version of ConZip. This authorized generic was launched as a means of enhancing patient access to the drug and has resulted in volume growth since its introduction in 2015.

We license the commercial rights to the NDA for this product from Cipher Pharmaceuticals Inc. pursuant to a Distribution and Supply Agreement that expires in September 2021. We have the right to renew the agreement for two additional five-year periods upon at least six months' advance notice. ConZip is protected by a patent that expires in April 2022. Milestone payments in an aggregate amount of up to $4.5 million could become payable by us upon the achievement of certain regulatory and sales milestones.

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Women's Health Products

Divigel

Divigel contains plant-based estradiol and is used as a hormone replacement therapy to treat moderate to severe vasomotor symptoms, which include hot flashes, sweating and flushing caused by menopause. The product was approved by the FDA in June 2007. Menopause typically occurs between the ages of 49 and 52 when a woman's menstrual cycle stops. As a result, a woman's ovaries cease producing hormones (estrogen and progesterone), which can lead to vasomotor symptoms. Accordingly, for patients experiencing moderate to severe symptoms, treatment focuses on hormonal replacement.

Divigel is available to patients in fixed dose packets of three strengths, including 0.25 mg, which is the lowest FDA approved dose of any topical estrogen replacement therapy. The gel is applied once daily to the upper thigh. The Divigel 1 mg dosage has been shown to reduce moderate to severe hot flashes by nearly half at two weeks of use and by 80% at 12 weeks of use. We believe that Divigel benefits from market-leading managed-care coverage as a preferred brand across most commercial formularies. Based on 2017 prescription data, we believe that Divigel held an approximately 40% market share in the topical estrogen replacement category, which we believe resulted from robust patient access paired with our promotional efforts.

We acquired Divigel from Upsher-Smith Laboratories, Inc. in March 2014. Since the acquisition, our women's health sales team has grown annual prescriptions dispensed and increased our market share in the topical estrogen replacement market from approximately 29% to approximately 40% as of December 2017. We have received FDA approval for a new dosage strength of Divigel, which we expect to launch in 2019, and are developing another dosage strength of Divigel, which we expect to launch in 2020.

Divigel is manufactured by Orion Corporation pursuant to a supply agreement that will expire in January 2026 and, unless terminated by either Orion Corporation or us upon at least two years' notice, will automatically renew for successive five-year terms. Although Divigel is not protected by any patents, we believe that there are meaningful cost and regulatory impediments to generic competition due to the potential barriers to entry supporting this product. These include the need for dedicated hormone manufacturing capabilities and the significant and costly work to meet clinical endpoints required to support an ANDA filing, which we believe would be required in this circumstance.

OB Complete

OB Complete is our family of prescription prenatal dietary supplements for women in the prenatal, pregnancy and postnatal periods. The OB Complete family of prescription prenatal dietary supplements includes five different proprietary formulations designed as a nutritional supplement for periods prior to conception, throughout pregnancy and in the postnatal period for mothers. OB Complete contains important vitamins and minerals such as docosahexaenoic acid (DHA), folic acid, vitamins D and C and iron. OB Complete prescription prenatal dietary supplements are available in both tablet and softgel capsule form. OB Complete Petite is a smaller, easy-to-swallow capsule that is intended to address the nutritional requirements of expectant mothers. We promote three of our OB Complete family of prescription prenatal dietary supplements through a dedicated women's health sales team, which competes in the prescription prenatal vitamin category.

Two OB Complete formulations, including OB Complete Petite, are protected by a formulation patent that expires in October 2028.

Pipeline Products

Our development pipeline is highlighted by two product candidates in Phase III clinical trials as well as 10 ANDAs pending regulatory approval and 11 other products in various stages of development. Several of our pipeline products incorporate our proprietary Osmodex drug delivery system. We believe that our suite of

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technology, manufacturing and development capabilities enables us to successfully commercialize our pipeline products and benefit from the potential barriers to entry that may exist for potential competitors.

Ontinua ER

Ontinua ER is an extended-release formulation of arbaclofen, the R-isomer of baclofen, that leverages our proprietary Osmodex drug delivery system and is designed to alleviate spasticity resulting from multiple sclerosis. Spasticity refers to feelings of stiffness and a wide range of involuntary muscle spasms, ranging from mild muscle tightness to severe, painful, uncontrollable spasms. If left untreated, spasticity can lead to serious complications such as frozen or immobilized joints and pressure sores. A 2017 study conducted by the U.S. Multiple Sclerosis Prevalence Workgroup found that approximately 947,000 people suffered from multiple sclerosis in the United States. A study conducted from 1996 to 2003 found that approximately 80% of multiple sclerosis patients suffered from some degree of spasticity. With clinicians indicating that approximately 65% of multiple sclerosis patients with spasticity have received pharmacological treatment, we estimate Ontinua ER's primary addressable patient population to be approximately 492,000 patients in the United States. Assuming a preliminary pricing range that we believe would facilitate favorable patient access, we estimate Ontinua ER's multiple sclerosis spasticity market opportunity to be up to $3.5 billion. The FDA granted Ontinua ER an Orphan Drug designation for the treatment of spasticity associated with spinal cord injury or multiple sclerosis, and, if approved by the FDA for this indication, we could be eligible for a seven-year data exclusivity period in addition to our patent protection through 2036.

Therapeutic options for spasticity associated with multiple sclerosis include oral medications such as baclofen, which is the most common first-line treatment option. Although baclofen is a widely prescribed molecule with over 10 million prescriptions filled in the United States in 2017, its therapeutic value can be limited by side effects. Specifically, somnolence is a common and disruptive side effect that often prevents patients from tolerating higher doses and can limit overall efficacy. Baclofen is the only FDA-approved product that targets the GABA b receptor to treat spasticity. Baclofen is a racemic mixture comprised of an R and an S-isomer. Importantly, the R-isomer of baclofen, or arbaclofen, which is the sole constituent of Ontinua ER, has been shown in vivo to be up to 100 times more effective at targeting the GABA b receptor than the S-isomer. Consequently, we believe Ontinua ER may be a more efficacious treatment relative to the existing standard of care.

Clinical Overview

In mid-2017, we initiated our second Phase III clinical trial to evaluate the efficacy of Ontinua ER. We anticipate completing enrollment of the 510-patient trial by the end of 2018. The trial is designed as a double-blind, randomized (1:1:1) study to demonstrate the safety and efficacy of Ontinua ER 40 mg/day and Ontinua ER 80 mg/day versus placebo for treatment of spasticity in patients with multiple sclerosis over a 12-week timeframe. The study's co-primary endpoints are Total Numeric Transformed Modified Ashworth Scale, or TNmAS, in the most affected limb and Clinical Global Impression of Change, or CGIC. We believe that a positive result from this trial, combined with our existing clinical and pre-clinical data package, will enable us to complete the submission of our NDA by the end of 2019. We are also concurrently conducting a long-term safety trial for Ontinua ER which aims to enroll 250 patients. If approved by the FDA, we intend to begin commercialization of Ontinua ER as early as 2020.

In 2014, we completed our initial Phase III clinical trial exploring the efficacy, safety and tolerability of arbaclofen in the treatment of spasticity associated with multiple sclerosis. The multicenter, randomized (1:1:1), double-blind, active and placebo-controlled, 16-week study included 341 patients across three groups: Ontinua ER tablets 40 mg/day, baclofen 80 mg/day and placebo. This study compared the efficacy and safety of Ontinua ER doses (20 mg/day × 14 days, 30 mg/day × 14 days, and 40 mg/day × 12 weeks) with baclofen tablets (40 mg/day × 14 days, 60 mg/day × 14 days, and 80 mg/day × 12 weeks) against a placebo. The trial's co-primary efficacy endpoints were CGIC and TNmAS in the most affected limb. As shown below, in this Phase III clinical trial, Ontinua ER demonstrated a

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statistically significant improvement in CGIC when compared to the placebo while baclofen failed to demonstrate a statistically significant improvement in CGIC when compared to the placebo.


Summary of Change in CGIC Score by Treatment Day

GRAPHIC


Summary of CGIC Score Results, Intent-to-Treat Population (1)
CGIC Day 120
  Statistic   Ontinua ER   Baclofen   Placebo

  LS Mean (standard error)   1.00 (0.12)   0.68 (0.12)   0.52 (0.11)

  p-value vs placebo   0.0004   0.2434    

(1)
Least squares means (LS Means) and p-values from analysis of covariance model including factors for site and treatment group

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As shown below, Ontinua ER also demonstrated a statistically significant improvement in the TNmAS in most affected limb when compared to the placebo.


Summary of Change in TNmAS Score by Treatment Day

GRAPHIC


Summary of TNmAS Results, Intent-to-Treat Population (1)
TNmAS Day 120
  Statistic   Ontinua ER   Baclofen   Placebo

  LS Mean (standard error)   –2.9 (0.24)   –3.32 (0.25)   –1.95 (0.22)

  p-value vs placebo   0.0006   <0.0001    

(1)
LS Means and p-values from analysis of covariance model including factors for site and treatment group

This clinical trial supported our conclusion that daily treatment with Ontinua ER was safe and well tolerated by subjects with muscle spasticity related to multiple sclerosis. Adverse events reported in this study were consistent with the expected adverse events for baclofen, and there did not appear to be any new or unexpected safety issues relative to treatment with arbaclofen extended-release tablets. The overall incidence of treatment emergent adverse events, or TEAEs, and the number of TEAEs leading to discontinuation from the study were lower in the Ontinua ER group compared to the baclofen group.

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Summary of Treatment Emergency Adverse Events >2%, Safety Population

Preferred Term
  Ontinua ER
(N=110)
n (%)
  Baclofen
(N=113)
n (%)
  Placebo
(N=118)
n (%)
  All Subjects
(N=341)
n (%)
 

Somnolence

    17 (15.5 )   27 (23.9 )   6 (5.1 )   50 (14.7 )

Dizziness

    8 (7.3 )   12 (10.6 )   4 (3.4 )   24 (7.0 )

Headache

    8 (7.3 )   7 (6.2 )   1 (0.8 )   16 (4.7 )

Multiple sclerosis relapse

    3 (2.7 )   0 (0.0 )   4 (3.4 )   7 (2.1 )

Muscle spasticity

    3 (2.7 )   2 (1.8 )   2 (1.7 )   7 (2.1 )

Urinary tract infection

    9 (8.2 )   12 (10.6 )   6 (5.1 )   27 (7.9 )

Nasopharyngitis

    3 (2.7 )   2 (1.8 )   4 (3.4 )   9 (2.6 )

Influenza

    4 (3.6 )   0 (0.0 )   1 (0.8 )   5 (1.5 )

Asthenia

    13 (11.8 )   21 (18.6 )   5 (4.2 )   39 (11.4 )

Fatigue

    4 (3.6 )   4 (3.5 )   2 (1.7 )   10 (2.9 )

Irritability

    3 (2.7 )   2 (1.8 )   1 (0.8 )   6 (1.8 )

Muscular weakness

    12 (10.9 )   13 (11.5 )   3 (2.5 )   28 (8.2 )

Pollakiuria

    6 (5.5 )   11 (9.7 )   3 (2.5 )   20 (5.9 )

Urinary incontinence

    3 (2.7 )   4 (3.5 )   2 (1.7 )   9 (2.6 )

Micturition urgency

    0 (0.0 )   6 (5.3 )   0 (0.0 )   6 (1.8 )

Nocturia

    0 (0.0 )   4 (3.5 )   1 (0.8 )   5 (1.5 )

Nausea

    4 (3.6 )   4 (3.5 )   2 (1.7 )   10 (2.9 )

Dry mouth

    1 (0.9 )   7 (6.2 )   0 (0.0 )   8 (2.3 )

Fall

    1 (0.9 )   3 (2.7 )   2 (1.7 )   6 (1.8 )

Ear and labyrinth disorders

    5 (4.5 )   7 (6.2 )   1 (0.8 )   13 (3.8 )

Vertigo

    3 (2.7 )   6 (5.3 )   0 (0.0 )   9 (2.6 )

Cough

    0 (0.0 )   3 (2.7 )   0 (0.0 )   3 (0.9 )

The results are reported as n (%) for the safety population.

The results summarized in the table and charts above are from the corrected dataset from the initial Phase III clinical trial. On June 10, 2015, Osmotica Holdings Corp Limited submitted an NDA containing data from this initial Phase III clinical trial, which was conducted and completed prior to the Business Combination. During the NDA review process, the FDA requested an independent audit of five of the 35 study sites, which were located in Russia and Ukraine. The audit found numerous irregularities and deviations from good clinical practices, which led to a complete response letter on July 9, 2016. The audit observations were thoroughly investigated, and data were corrected where appropriate. In December 2016, we met with the FDA to discuss the path forward for the application. The FDA indicated that, based on the initial audit findings, it considered the data from the Phase III clinical trial to be insufficient to support a marketing application. Following the meeting, we decided to complete a single additional Phase III clinical trial, which, if successful, we believe would support approval of Ontinua ER.

As shown below, we have also completed a separate study examining the effect of a single dose and steady state (multiple doses) of Ontinua ER on simulated driving performance when compared to placebo and positive control diphenhydramine hydrochloride (DPH, BENADRYL®). Driving performance was measured by standard deviation of lateral position (SDLP) using the Cognitive Research Corporation Driving Simulator-MiniSim. After both single dose and at steady state (multiple doses), DPH was shown to adversely impact simulated driving more than Ontinua ER.

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GRAPHIC

We are also exploring the use of Ontinua ER for opioid use disorder. We believe that Ontinua ER could enable the administration of higher and more effective doses of arbaclofen that may potentially reduce cravings for addictive substances.

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RVL-1201

RVL-1201 is an oxymetazoline ophthalmic solution for the treatment of blepharoptosis. Blepharoptosis is defined as the drooping of the upper eyelid that usually occurs from a partial or complete dysfunction of the muscles that elevate the upper eyelid. Blepharoptosis is classified by severity based on the significance of drooping of the upper eyelid. The American Academy of Ophthalmology defines mild blepharoptosis as upper eyelid positioning that is 1 to 2 millimeters inferior to the upper limbus. Moderate blepharoptosis is characterized by upper eyelid positioning that is 3 to 4 millimeters inferior to the upper limbus while severe blepharoptosis is associated with inferiority of greater than 4mm.

Health care providers currently have limited options available to treat blepharoptosis and, in the United States, the only approved treatment is blepharoplasty, a complex eye surgery. By contrast, RVL-1201, an eye drop administered once daily, is a simple non-invasive therapy. The drug is intended to activate the Mueller muscle at the back of the eye thereby lifting the upper eyelid 1 to 2 millimeters. This effect typically occurs within 15 minutes of administration. If approved, we believe RVL-1201 will become an alternative therapy for patients unwilling or unable to pursue blepharoplasty surgery.

While no robust epidemiological studies exploring the prevalence of blepharoptosis in the United States exist, we believe it is a common condition affecting millions of Americans. For example, a study conducted in 1995 in the United Kingdom found some level of blepharoptosis in 12% of a sample set of adults age 50 years and older. Since there is no pharmacological treatment presently available for blepharoptosis, we anticipate that RVL-1201, if approved, will be a welcome addition to the treatment paradigm and an attractive therapy for patients with mild or moderate forms of the condition.

Clinical Overview

We are currently conducting a 26-week toxicology study which we expect to complete by the end of 2018. We are also currently enrolling patients in our second Phase III clinical trial for which we expect to complete enrollment in the fourth quarter of 2018. The randomized, double-masked, placebo-controlled Phase III clinical trial to evaluate the safety and efficacy of RVL-1201 ophthalmic solution compared to a placebo is expected to include 156 patients in the two treatment groups. Eligible subjects will be randomized in a 2:1 ratio (RVL-1201:placebo) and treated for 6 weeks across 35 U.S. sites. The primary endpoints of the clinical trial will be visual field test score at Day 1 Hour 6 and at Day 14 Hour 2. We are also conducting a concurrent Phase III safety trial comprised of 225 patients across 35 U.S. sites, with dosing expected over a period of 12 weeks. If approved, we expect to begin commercializing RVL-1201 as early as 2020. We anticipate offering RVL-1201 as an attractive and non-invasive alternative to blepharoplasty surgeries.

Results from RVL-1201's initial Phase III clinical trial showed that the formulation met its primary efficacy endpoint and was well-tolerated. The 2:1 randomized, double-masked, placebo-controlled study comprised 140 patients with blepharoptosis in two treatment groups for 42 days. Patients treated with RVL-1201 received one full drop in each eye each morning while patients treated with the placebo also received one full drop in each eye each morning. The primary efficacy endpoints were change in baseline visual field using the Leicester Visual Field Test on Hour 6 Day 1 (p=0.0003) and Hour 2 on Day 14 (p< 0.0001). As shown below, patients who received RVL-1201 once-daily experienced a statistically significant improvement in visual field when compared to the placebo group.

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RVL-1201 Phase III Clinical Trial Efficacy: Leicester Peripheral Field Test (LPFT)
(Intent-to-Treat Population)

GRAPHIC

RVL-1201 was generally well tolerated by patients in this clinical trial when administered once daily over a 6-week period. There were no serious adverse events identified from treatment with RVL-1201 in this Phase III clinical trial. The table below includes a summary of common adverse events identified during the Phase III clinical trial.


Adverse Events >2%


 
  RVL-1201 (N=95)   Placebo (N=45)  

Punctate Keratitis

    7.4 %   4.3 %

Blurred Vision

    5.3 %   0.0 %

Stinging on installation

    4.3 %   0.0 %

Ocular hyperemia

    3.2 %   0.0 %

Headache

    2.1 %   0.0 %

We acquired the worldwide rights to RVL-1201 in October 2017 in exchange for an upfront cash payment plus the obligation to make royalty payments based on our net sales of the product. If we commercialize RVL-1201, we intend to leverage our existing women's health sales team to drive sales and promotion. RVL-1201 is manufactured and supplied to us by Nephron Pharmaceuticals Corporation under an exclusive supply agreement that has a term of five years from the production of the initial commercial batches, and automatically renews for additional one-year periods unless either party provides at least 90 days' advance written notice of non-renewal. Sales milestone payments in an aggregate amount of up to $2.1 million could become payable by us upon the achievement of certain regulatory and sales milestones.

Other Pipeline Products

In addition to Ontinua ER and RVL-1201, our pipeline includes 21 product candidates. Four of these pipeline candidates use our proprietary Osmodex drug delivery system to target generic opportunities with complex formulations in markets where we believe there are sizable sales prospects and potential barriers to entry.

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Non-Promoted Products

Our non-promoted products include our own internally developed products as well as products licensed from third parties. We seek to focus on higher-value, higher-barrier-to-entry generic products. Our non-promoted product portfolio consists of approximately 35 products, including certain key products which use our proprietary Osmodex drug delivery system. We believe our broad suite of non-promoted products has allowed us to increase our market presence in our key therapeutic areas and develop long-term relationships with our customers.

Our non-promoted product portfolio as of June 30, 2018 is summarized below:


Non-Promoted Products
  Indication   Osmodex
Technology
  U.S. Regulatory
Status

Methylphenidate ER

  ADHD   Yes   Approved

Venlafaxine ER Tablets (VERT)

  Major Depressive Disorder and Social Anxiety Disorder   Yes   Approved

Hydromorphone ER

  Pain   Yes   Approved

Nifedipine ER*

  Hypertension   Yes   Approved

Sodium Benzoate / Sodium Phenylacetate

  Hyperammonemia   No   Approved

Oxybutynin ER*

  Overactive bladder   Yes   Approved

Prescription Prenatal Vitamins

  Nutritional requirements during pregnancy   No   Dietary Supplement

Osmodex ANDAs

  Various   Yes   In Development (4)

Other ANDAs

  Various   No   Filed (9)
In Development (4)
Approved (1)


*
Out-licensed ANDAs with a commercial partner.

Methylphenidate ER

Methylphenidate ER is an extended-release tablet used to treat ADHD and is a generic version of Concerta®, which is available in four strengths, 18 mg, 27 mg, 36 mg and 54 mg. We filed an ANDA in 2013, received FDA approval in July 2017, and commercially launched our 18-mg, 27-mg, 36-mg and 54-mg methylphenidate ER dosage strengths in September 2017. In addition, as part of the same ANDA approval process, we received approval for our promoted M-72 product that we launched in April 2018. Our methylphenidate products use our proprietary Osmodex drug delivery system, which allows for once-a-day dosing. We estimate that methylphenidate ER was the largest generic drug market in the United States based on sales dollars in 2017. However, despite the size of that market, to our knowledge, there are only four current suppliers of AB-rated methylphenidate ER, which we believe results in part from the complex formulation, technical manufacturing challenges, controlled substance regulations and large volumes associated with this product. These dynamics contribute to a comparatively more attractive market for successful generic suppliers, and we believe the more limited supplier base has supported greater price stability than is typically found in other generic markets, even several years after loss of brand exclusivity. The following chart presents our estimates of price reductions experienced for methylphenidate ER over time following loss of exclusivity as compared to price reductions encountered by certain other generic ER products over time following the loss of a brand's exclusivity.

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Generic Price Erosion

GRAPHIC

(1)
Represents the measurement of price declines following loss of exclusivity (1) for branded methylphenidate ER from May 2011, when an authorized generic version was introduced into the market, and (2) calculated as an average for 14 other generic ER products that entered the market between June 2010 and April 2014.

(2)
In November 2014, the FDA revised the rating of Kremers Urban Pharmaceuticals Inc.'s and Mallinckrodt plc's methylphenidate ER ANDAs from AB-rated to BX-rated, resulting in the authorized generic being the sole therapeutic equivalent to Concerta® at that time.

(3)
Represents data related to 14 generic ER products, other than methylphenidate ER, that entered the market between June 2010 and April 2014.

After Concerta®'s patents were challenged, and pursuant to settlement agreements, an authorized generic product entered the market beginning in 2011. Two additional generic products entered the market in 2013. Some of the formulations did not use osmotic-controlled release drug delivery. In 2014, after receiving reports of lack of efficacy associated with two generic products, the FDA revised its bioequivalence requirements to more closely mirror the drug concentration curve of Concerta®. As a result, the FDA reclassified two products as BX-rated because they did not meet the new bioequivalence requirements, making them no longer freely substitutable for Concerta® at pharmacies in several states. BX-rated product volume comprised approximately 14% of total generic methylphenidate ER prescriptions filled in 2017. The FDA has begun procedures to remove BX-rated methylphenidate ER products from the market, which the manufacturers of those products are currently challenging. If these manufacturers are unsuccessful in their challenges and the FDA ultimately requires BX-rated methylphenidate ER suppliers to remove their products from the market, we believe additional opportunities for volume growth for AB-rated suppliers would exist.

In addition to the formulation and manufacturing challenges associated with methylphenidate ER, the active ingredient is a Schedule II controlled substance. As a result, we and each of our competitors are required to apply for quota from the DEA and support such requests with commercial plans. We believe that this process for obtaining quota from the DEA typically makes it more challenging for later market entrants to quickly obtain significant market share from incumbent suppliers.

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VERT

VERT is indicated for the treatment of major depressive disorder, or MDD, and social anxiety disorder, or SAD. MDD, which can result in feelings of sadness, tearfulness, emptiness, or hopelessness, affected approximately 16.2 million adults in the United States in 2016 (or approximately 6.7% of the adult population in the United States at that time). SAD, which is characterized by intense anxiety or fear of being scrutinized and judged by others in social situations, affected approximately 19 million people in the United States in 2012, according to the National Institutes of Health. Treatment protocols for psychotic conditions have trended towards more use of pharmaceuticals, which have increasingly been recognized for clinical efficacy for mental health conditions. A 2011 study done by the Centers for Disease Control and Prevention found that the rate of anti-depressant use in the United States increased 400% between the period of 1988 to 1994 compared to the period of 2005 to 2008. The market for anti-depressants is highly fragmented across selective serotonin reuptake inhibitors, serotonin and norepinephrine reuptake inhibitors, and other classes of drugs. Physicians may try a number different anti-depressants before finding a successful approach for a particular patient, at which point we believe patients are less likely to seek to switch to alternative medications.

Wyeth received FDA approval for Effexor XR, venlafaxine ER capsules, in 1997. We submitted our NDA for VERT in December 2006, and the FDA approved our NDA for VERT in May 2008, which covered four dosage strengths: 37.5 mg, 75 mg, 150 mg and 225 mg. When we submitted the VERT NDA, we referenced Wyeth's approved NDA for Effexor XR. Since Wyeth had patents listed in the FDA's Orange Book covering Effexor XR, we were required to file a Paragraph IV certification and were subsequently sued by Wyeth. We settled the litigation with Wyeth in February 2008, and Wyeth licensed certain patents to us which have since expired. From 2010 through October 2016, we out-licensed the commercial rights to VERT to UCB, Inc., or UCB, in exchange for a royalty calculated as a percentage of the third party's net sales. On November 10, 2016, we terminated that license agreement in exchange for a cash payment to UCB, thereby reacquiring the rights to sell VERT.

VERT has not historically been subject to the significant competitive pressure often associated with generic markets. Since 2010, when generic competition for this product began, there have never been more than three suppliers of any of the dosage strengths at any given time. Further, from 2008, when UCB first began selling the 225 mg dosage strength, until 2017, when Nostrum Pharmaceuticals LLC began selling that product, UCB (through a third party contract manufacturer) was the sole supplier of the 225 mg dosage extended-release venlafaxine strength. We believe that challenges associated with formulating such a high dosage in a relatively small tablet limited competitors during this period.

VERT is manufactured and supplied for us by Patheon Pharmaceuticals Inc. under a manufacturing services agreement and a product agreement. The agreements automatically renew on an annual basis unless we or Patheon Pharmaceuticals Inc. terminate the agreements upon at least 18 months' advance notice.

Competition

The pharmaceutical industry is intensely competitive and subject to rapid and significant technological change. We will continue to face competition from various global pharmaceutical, biotechnology, specialty pharmaceutical and generic drug companies that engage in drug development activities. Many of our competitors have similar products that focus on the same diseases and conditions that our current and future pipeline products address. Many of our competitors have greater financial flexibility to deploy capital in certain areas as well as more commercial and other resources, marketing and manufacturing organizations, and larger research and development staff. As a result, these companies may be able to pursue strategies or approvals that we are not able to finance or otherwise pursue and may receive FDA, European Medicines Agency or other applicable regulatory approvals more efficiently or rapidly than us. Also, our competitors may have more experience in marketing and selling their products post-approval, and gaining market acceptance more quickly. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Our

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products could become less competitive if our competitors are able to license or acquire technology that is more effective or less costly and thereby offer an improved or a cheaper alternative to our products. We expect any products that we develop and commercialize will compete on the basis of, among other things, efficacy, safety, convenience of administration and delivery, price and the availability of reimbursement from government and other third-party payors. We also expect to face competition in our efforts to identify appropriate collaborators or partners to help commercialize our product portfolio in our target commercial markets.

Government Regulation and Approval Process

Government authorities in the United States at the federal, state and local level, including the FDA, the FTC and the DEA, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, recordkeeping, promotion, advertising, distribution, marketing and export and import of products such as those we market. For both currently marketed and future products, failure to comply with applicable regulatory requirements can, among other things, result in suspension of regulatory approval and possible civil and criminal sanctions. Regulations, enforcement positions, statutes and legal interpretations applicable to the pharmaceutical industry are constantly evolving and are not always clear. Significant changes in regulations, enforcement positions, statutes and legal interpretations could have a material adverse effect on our financial condition and results of operations.

Additionally, future healthcare legislation or other legislative proposals at the federal and state levels could bring about major changes in the affected health care systems, including statutory restrictions on the means that can be employed by brand and generic pharmaceutical companies to settle Paragraph IV patent litigations. We cannot predict the outcome of such initiatives, but such initiatives, if passed, could result in significant costs to us in terms of costs of compliance and penalties associated with failure to comply.

Pharmaceutical Regulation in the United States

In the United States, the FDA regulates drugs under the FDCA and its implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval may subject an applicant to administrative or judicial sanctions. These sanctions could include the FDA's refusal to approve pending applications, withdrawal of an approval, a clinical hold, Warning Letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.

FDA approval is required before any new unapproved drug or dosage form, including a new use of a previously approved drug or a generic version of a previously approved drug, can be marketed in the United States. The process required by the FDA before a new drug may be marketed in the United States generally involves:

    §
    completion of preclinical laboratory and animal testing and formulation studies in compliance with the FDA's current GLP regulations;

    §
    submission to the FDA of an IND for human clinical testing, which must become effective before human clinical trials may begin in the United States;

    §
    approval by an IRB before each trial may be initiated;

    §
    performance of adequate and well-controlled human clinical trials in accordance with GCP to establish the safety and efficacy of the proposed drug product for each intended use;

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    satisfactory completion of an FDA pre-approval inspection of the facility or facilities at which the product is manufactured to assess compliance with the FDA's cGMP regulations to assure that the

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      facilities, methods and controls are adequate to preserve the drug's identity, strength, quality and purity;

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    submission to the FDA of an NDA;

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    satisfactory completion of a potential review by an FDA advisory committee, if applicable; and

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    FDA review and approval of the NDA.

When developing a branded product and bringing it to market, the first step in proceeding to clinical studies is preclinical testing. Preclinical tests are intended to provide a laboratory or animal study evaluation of the product to determine its chemistry, formulation and stability. Toxicology studies are also performed to assess the potential safety of the product. The conduct of the preclinical tests must comply with federal regulations and requirements, including GLPs. The results of these studies are submitted to the FDA as part of an IND application along with other information, including information about product chemistry, manufacturing and controls and a proposed clinical trial protocol. Long-term preclinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND application is submitted.

The IND application automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions relating to one or more proposed clinical trials, including concerns that human research subjects are or would be exposed to an unreasonable and significant risk of illness or injury, and places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. A separate submission to an existing IND application must also be made for each successive clinical trial conducted during product development. Further, an independent IRB must review and approve the plan for any clinical trial and informed consent information for subjects before the trial commences and it must monitor the study until completed. The FDA, the IRB or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk or for failure to comply with the IRB's requirements, or may impose other conditions. GCP requirements include the requirement that all research subjects provide their informed consent in writing for their participation in any clinical trial, unless a narrow regulatory exemption applies. For purposes of an NDA submission and approval, human clinical trials are typically conducted in the following sequential phases, which may overlap or be combined:

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    Phase I: In Phase I, through the initial introduction of the drug into healthy human volunteers or patients, the drug is tested to assess absorption, metabolism, elimination, pharmacokinetics and safety.

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    Phase II: Phase II usually involves trials in a limited patient population to determine the effectiveness of the drug for a particular indication, dosage tolerance and optimum dosage and to identify common adverse effects and safety risks.

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    Phase III: Phase III clinical trials are undertaken to obtain the additional information about clinical efficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug. In most cases, the FDA requires two adequate and well controlled Phase III clinical trials to demonstrate the efficacy of the drug. A single Phase III clinical trial with other confirmatory evidence may be sufficient in rare instances, for example, where the study is a large multicenter trial demonstrating internal consistency and a statistically persuasive finding of a clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with a potentially serious outcome and confirmation of the result in a second trial would be practically or ethically impossible.

After completion of the required clinical testing, an NDA is prepared and submitted to the FDA. FDA approval of the NDA is required before marketing of the product may begin in the United States. The NDA must include, among other things, the results of all preclinical, clinical and other testing and a compilation of data relating to the product's pharmacology, chemistry, manufacture and controls. Under federal law, the

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submission of most NDAs is subject to a substantial application user fee, and the manufacturer or sponsor under an approved NDA is also subject to annual program fees. The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency's threshold determination that it is sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information and is subject to payment of additional user fees. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. Under the Prescription Drug User Fee Act, as amended, the FDA has agreed to certain performance goals in the review of NDAs through a two-tiered classification system, Standard Review and Priority Review. Priority Review designation is given to drugs that are intended to treat a serious condition and, if approved, would provide a significant improvement in safety or effectiveness over existing therapies. The FDA endeavors to review most applications subject to Standard Review within ten to twelve months whereas the FDA's goal is to review most Priority Review applications within six to eight months, depending on whether the drug is a new molecular entity.

The FDA may refer applications for novel drug products or drug products which present difficult questions of safety or efficacy to an advisory committee for review, evaluation and recommendation as to whether the application should be approved and under what conditions. Before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP requirements. Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured. The FDA will not approve the NDA unless it determines that the manufacturing process and facilities are in compliance with cGMP requirements and are adequate to assure consistent production of the product within required specifications and the NDA contains data that provide substantial evidence that the drug is safe and effective for the labeled indication.

After the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter to indicate that the review cycle for an application is complete and that the application is not ready for approval. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order for the FDA to reconsider the application. Even with submission of this additional information, the FDA may ultimately decide that an application does not satisfy the regulatory criteria for approval. If, or when, the deficiencies have been addressed to the FDA's satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.

As a condition of NDA approval, the FDA may require a REMS to help ensure that the benefits of the drug outweigh the potential risks. If the FDA determines a REMS is necessary during review of the application, the drug sponsor must agree to the REMS plan at the time of approval. A REMS may be required to include various elements, such as a medication guide or patient package insert, a communication plan to educate healthcare providers of the drug's risks, limitations on who may prescribe or dispense the drug, or other elements to assure safe use, such as special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring and the use of patient registries. In addition, the REMS must include a timetable to periodically assess the strategy. The requirement for a REMS can materially affect the potential market and profitability of a drug.

Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drug's safety or efficacy, and the FDA has the authority to prevent or limit further marketing of a product based on the results of these post-marketing programs. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or certain problems are identified following initial marketing. Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved labeling, and, even if the FDA approves a product, it may limit the approved indications for use for the product or impose other conditions, including labeling or distribution restrictions or other risk-management mechanisms.

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Further changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA or NDA supplement before the change can be implemented, which may require us to develop additional data or conduct additional preclinical studies and clinical trials. An NDA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the similar procedures in reviewing NDA supplements as it does in reviewing NDAs.

Disclosure of Clinical Trial Information

Sponsors of certain clinical trials of FDA-regulated products, including drugs, are required to register and disclose certain clinical trial information on www.ClinicalTrials.gov. Information related to the product, subject population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to discuss certain results of their clinical trials after completion. Disclosure of the results of these trials can be delayed until the new product or new indication being studied has been approved. Competitors may use this publicly available information to gain knowledge regarding the progress of development programs.

Post-Approval Requirements

Once an NDA is approved, a product will be subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to drug listing and registration, recordkeeping, periodic reporting, product sampling and distribution, adverse event reporting and advertising, marketing and promotion, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the Internet. Drugs may be marketed only for the approved indications and in a manner consistent with the provisions of the approved labeling. While physicians may prescribe for off-label uses, manufacturers may only promote for the approved indications and in accordance with the provisions of the approved labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability. There also are extensive DEA regulations applicable to controlled substances.

Adverse event reporting and submission of periodic reports is also required following FDA approval of an NDA. Additionally, the FDA may require post-marketing testing, known as Phase IV testing, REMS, and surveillance to monitor the effects of an approved product, or the FDA may place conditions on an approval that could restrict the distribution or use of the product. In addition, quality-control, drug manufacture, packaging and labeling procedures must continue to comply with cGMPs after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments and list their marketed products with the FDA and certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the agency inspects manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money, and effort in the areas of production and quality-control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing or if previously unrecognized problems are subsequently discovered. The FDA may also impose a REMS requirement on a drug already on the market if the FDA determines, based on new safety information, that a REMS is necessary to ensure that the drug's benefits outweigh its risks. In addition, regulatory authorities may take other enforcement action, including, among other things, Warning Letters, the seizure of products, injunctions, consent decrees placing significant restrictions on or suspending manufacturing operations, refusal to approve pending applications or supplements to approved applications, civil penalties and criminal prosecution.

The Hatch-Waxman Amendments

505(b)(2) NDAs

The FDA is also authorized to approve an alternative type of NDA under Section 505(b)(2) of the FDCA. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a

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right of reference from the data owner. The applicant may rely upon the FDA's findings of safety and efficacy for an approved product that acts as the "listed drug." The FDA may also require 505(b)(2) applicants to perform additional studies or measurements to support the change from the listed drug. The FDA may then approve the new product candidate for all, or some, of the conditions of use for which the branded reference drug has been approved, or for a new condition of use sought by the 505(b)(2) applicant.

Abbreviated New Drug Applications

The Hatch-Waxman amendments to the FDCA established a statutory procedure for submission and FDA review and approval of ANDAs for generic versions of listed drugs. An ANDA is a comprehensive submission that contains, among other things, data and information pertaining to the API, drug product formulation, specifications and stability of the generic drug, as well as analytical methods, manufacturing process validation data and quality control procedures. Premarket applications for generic drugs are termed abbreviated because they generally do not include clinical data to demonstrate safety and effectiveness. However, a generic manufacturer is typically required to conduct bioequivalence studies of its test product against the listed drug. The bioequivalence studies for orally administered, systemically available drug products assess the rate and extent to which the API is absorbed into the bloodstream from the drug product and becomes available at the site of action. Bioequivalence is established when there is an absence of a significant difference in the rate and extent for absorption of the generic product and the reference listed drug. For some drugs, other means of demonstrating bioequivalence may be required by the FDA, especially where rate or extent of absorption are difficult or impossible to measure. The FDA will approve the generic product as suitable for an ANDA application if it finds that the generic product does not raise new questions of safety and effectiveness as compared to the reference listed drug. A product is not eligible for ANDA approval if the FDA determines that it is not bioequivalent to the reference listed drug if it is intended for a different use or if it is not subject to, and requires, an approved Suitability Petition.

Orange Book Listing

In seeking approval for a drug through an NDA, including a 505(b)(2) NDA, applicants are required to list with the FDA certain patents whose claims cover the applicant's product. Upon approval of an NDA, each of the patents listed in the application for the drug is then published in the Orange Book. Any applicant who files an ANDA seeking approval of a generic equivalent version of a drug listed in the Orange Book or a 505(b)(2) NDA referencing a drug listed in the Orange Book must certify to the FDA (i) that there is no patent listed with the FDA as covering the relevant branded product, (ii) that any patent listed as covering the branded product has expired, (iii) that the patent listed as covering the branded product will expire prior to the marketing of the generic product, in which case the ANDA will not be finally approved by the FDA until the expiration of such patent or (iv) that any patent listed as covering the branded drug is invalid or will not be infringed by the manufacture, sale or use of the generic product for which the ANDA is submitted. A notice of the Paragraph IV certification must be provided to each owner of the patent that is the subject of the certification and to the holder of the approved NDA to which the ANDA or 505(b)(2) application refers. The applicant may also elect to submit a "section viii" statement certifying that its proposed label does not contain (or carves out) any language regarding the patented method-of-use rather than certify to a listed method-of-use patent.

If the reference NDA holder and patent owners assert a patent challenge directed to one of the Orange Book listed patents within 45 days of the receipt of the Paragraph IV certification notice, the FDA is prohibited from approving the application until the earlier of 30 months from the receipt of the Paragraph IV certification, expiration of the patent, settlement of the lawsuit or a decision in the infringement case that is favorable to the applicant. The ANDA or 505(b)(2) application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the branded reference drug has expired as described in further detail below.

Non-Patent Exclusivity

In addition to patent exclusivity, the holder of the NDA for the listed drug may be entitled to a period of non-patent exclusivity, during which the FDA cannot approve an ANDA or 505(b)(2) application that relies on the listed drug.

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For example, for listed drugs that were considered new chemical entities at the time of approval, an ANDA or 505(b)(2) application referencing that drug may not be filed with the FDA until the expiration of five years after approval of that drug, unless the submission is accompanied by a Paragraph IV certification, in which case the applicant may submit its application four years following the original product approval.

A drug, including one approved under Section 505(b)(2), may obtain a three-year period of exclusivity for a particular condition of approval, or change to a marketed product, such as a new formulation for a previously approved product, if one or more new clinical studies (other than bioavailability or bioequivalence studies) was essential to the approval of the application and was conducted/sponsored by the applicant. In addition, drugs approved for diseases for which the patient population is sufficiently small, or orphan indications, are entitled to a seven year data exclusivity period.

DEA Regulation

Several of our products, including ConZip, methylphenidate ER (including M-72) and hydromorphone ER are regulated as "controlled substances" as defined in the Controlled Substances Act of 1970, as amended, which establishes registration, security, recordkeeping, reporting, storage, distribution and other requirements administered by the DEA. The DEA is concerned with, among other things, the control of handlers of controlled substances and with the equipment and raw materials used in their manufacture and packaging, in order to prevent loss and diversion into illicit channels of commerce.

The DEA regulates controlled substances as Schedule I, II, III, IV or V substances. A pharmaceutical product may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest risk of abuse and Schedule V substances the lowest relative risk of abuse among such substances. Methylphenidate (including methylphenidate ER and M-72) and hydromorphone are listed as Schedule II drugs and tramadol hydrochloride (including ConZip) is listed as a Schedule IV drug by the DEA under the Controlled Substances Act. The manufacture, shipment, storage, sale and use of Schedule II drugs are subject to a high degree of regulation. For example, Schedule II drug prescriptions generally must be signed by a physician and may not be refilled without a new prescription. Substances in Schedule IV are considered to have a lower potential for abuse relative to substances in Schedule II. A prescription for controlled substances in Schedule IV may be issued by a practitioner through oral communication, in writing or by facsimile to the pharmacist and may be refilled if so authorized on the prescription or by call-in. In the future, our other potential products may also be listed by the DEA as controlled substances.

Annual registration is required for any facility that manufactures, distributes, dispenses, imports or exports any controlled substance. The registration is specific to the particular location, activity and controlled substance schedule. For example, separate registrations are needed for import and manufacturing, and each registration will specify which schedules of controlled substances are authorized.

The DEA typically inspects a facility to review its security measures prior to issuing a registration. Security requirements vary by controlled substance schedule, with the most stringent requirements applying to Schedule I and Schedule II substances. Required security measures include background checks on employees and physical control of inventory through measures such as cages, surveillance cameras and inventory reconciliations. Records must be maintained for the handling of all controlled substances and periodic reports must be made to the DEA, including, for example, distribution reports for Schedule II controlled substances, Schedule III substances that are narcotics and other designated substances. Reports must also be made for thefts or losses of any controlled substance and authorization must be obtained to destroy any controlled substance. In addition, special authorization and notification requirements apply to imports and exports.

In addition, a DEA quota system controls and limits the availability and production of controlled substances in Schedule II. Distributions of any Schedule II controlled substance must also be accompanied by special order forms, with copies provided to the DEA. The DEA establishes annually an aggregate quota for how much of a Schedule II substance may be produced in total in the United States based on the DEA's estimate of the quantity needed to meet legitimate scientific and medicinal needs. This limited aggregate

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amount of any particular Schedule II substance that the DEA allows to be produced in the United States each year is allocated among individual companies, who must submit applications annually to the DEA for individual production and procurement quotas. We and our contract manufacturers must receive an annual quota from the DEA in order to produce or procure any Schedule II substance for use in manufacturing. The DEA may adjust aggregate production quotas and individual production and procurement quotas from time to time during the year, although the DEA has substantial discretion in whether or not to make such adjustments. Our and our contract manufacturers' quota of an active ingredient may not be sufficient to meet commercial demand or complete clinical trials. Any delay or refusal by the DEA in establishing our and our contract manufacturers' quota for controlled substances could delay or stop our clinical trials or product launches, which could have a material adverse effect on our business, financial position and results of operations.

To meet its responsibilities, the DEA conducts periodic inspections of registered establishments that handle controlled substances. Failure to maintain compliance with applicable requirements, particularly as manifested in loss or diversion, can result in enforcement action that could have a material adverse effect on our business, results of operations and financial condition. The DEA may seek civil penalties, refuse to renew necessary registrations or initiate proceedings to revoke those registrations. In certain circumstances, violations could result in criminal proceedings.

Individual states also regulate controlled substances, and we and our contract manufacturers will be subject to state regulation on distribution of these products.

Regulation of Dietary Supplements

The formulation, manufacturing, packaging, labeling, advertising, distribution and sale of dietary supplements, such as our OB Complete family of prescription prenatal dietary supplements, are subject to regulation by multiple federal agencies, including the FDA, the FTC and the Consumer Product Safety Commission.

The Dietary Supplement Health and Education Act of 1994, or DSHEA, amended the FDCA to establish a new framework governing the composition, safety, labeling, manufacturing and marketing of dietary supplements. Generally, under the FDCA, dietary ingredients that were marketed in the United States prior to October 15, 1994 may be used in dietary supplements without first notifying the FDA. "New" dietary ingredients (i.e., dietary ingredients that were not marketed in the United States before October 15, 1994) must be the subject of a new dietary ingredient notification submitted to the FDA unless the ingredient has been "present in the food supply as an article used for food" without being "chemically altered." A new dietary ingredient notification must provide the FDA evidence of a history of use or other evidence of safety establishing that use of the dietary ingredient will reasonably be expected to be safe. A new dietary ingredient notification must be submitted to the FDA at least 75 days before the initial marketing of the new dietary ingredient. The FDA may determine that a new dietary ingredient notification does not provide an adequate basis to conclude that a dietary ingredient is reasonably expected to be safe. Such a determination could prevent the marketing of such dietary ingredient or a dietary supplement including such dietary ingredient.

All facilities that manufacture, process, package, or store food for human consumption, including dietary supplements, must register with the FDA as a food facility under the Public Health Security and Bioterrorism Preparedness and Response Act of 2002. Facility registrations must be updated biennially. The FDA schedules periodic inspections at registered facilities to determine whether the inspected facilities are in compliance with applicable FDA regulations. The FDA's cGMP regulations for dietary supplements apply to manufacturers and holders of finished dietary supplement products, including dietary supplements manufactured outside the United States that are imported for sale into the United States. Among other things, the FDA's cGMP regulations: (i) require identity testing on all incoming dietary ingredients; (ii) call for a scientifically valid system for ensuring finished products meet all specifications; (iii) include requirements related to process controls, including statistical sampling of finished batches for testing and requirements for written procedures; and (iv) require extensive recordkeeping. The failure of a manufacturing facility to comply with the cGMP regulations renders products manufactured in such facility "adulterated" under the FDCA, and subjects such products and the manufacturer to a variety of potential FDA enforcement actions.

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Dietary supplements are also regulated by various state and local governmental agencies. The FTC regulates the advertising of dietary supplements and the National Advertising Division, or NAD, of the Council of Better Business Bureaus oversees an industry sponsored, self-regulatory system that permits competitors to resolve disputes over advertising claims. The NAD has no enforcement authority of its own, but may refer matters to the FTC or the FDA for further action.

Federal agencies, including the FDA and the FTC, have a variety of procedures and enforcement remedies available to them, including initiating investigations, issuing Warning Letters and cease and desist orders, requiring corrective labeling or advertising, requiring consumer redress, seeking injunctive relief or product seizures, imposing civil penalties or commencing criminal prosecution.

Under the Dietary Supplement and Nonprescription Drug Consumer Protection Act, the FDA requires, among other things, that companies that manufacture or distribute dietary supplements report serious adverse events associated with their products to the FDA and fulfill certain recordkeeping requirements for adverse events. Based on serious adverse event (or other) information, the FDA may take actions against dietary supplements or dietary ingredients that in its determination present a significant or unreasonable risk of illness or injury. In addition, the FDA could issue consumer warnings with respect to the products or ingredients in such products.

The FDA Food Safety Modernization Act, or FSMA, enacted on January 4, 2011, amended the FDCA to enhance the FDA's authority over various aspects of food regulation, including dietary supplements. Under the FSMA, the FDA is authorized to issue a mandatory recall when the FDA determines that there is a reasonable probability that a food, including a dietary supplement, is adulterated or misbranded and that the use of, or exposure to, the food will cause serious adverse health consequences or death to humans or animals. Also under the FSMA, the FDA has (i) expanded access to records; (ii) the authority to suspend food facility registrations and require high-risk imported food to be accompanied by a certification; (iii) stronger authority to administratively detain food; (iv) the authority to refuse admission of an imported food if it is from a foreign establishment to which a U.S. inspector is refused entry for an inspection; and (v) the authority to require that importers verify that the foods they import meet domestic standards.

The FSMA requirements may result in the detention and refusal of admission of imported products, the injunction of manufacturing of any dietary ingredients or dietary supplements until the FDA determines that such ingredients or products are in compliance, and the potential imposition of fees for re-inspection of noncompliant facilities.

The FDCA, as amended by the DSHEA, permits statements of nutritional support often referred to as "structure/function claims" to be included in labeling for dietary supplements without FDA premarket approval. FDA regulations require that dietary supplement manufacturers notify the FDA of those statements within 30 days of marketing. Among other things, the statements may describe the role of a dietary ingredient intended to affect the structure or function of the body or characterize the documented mechanism of action by which a dietary ingredient maintains such structure or function, but may not expressly or implicitly represent that a dietary supplement will diagnose, cure, mitigate, treat, or prevent a disease. A company that uses a statement of nutritional support in labeling must possess information substantiating that the statement is truthful and not misleading. If the FDA determines that a particular statement of nutritional support is an unacceptable drug claim or an unauthorized version of a health claim, or if the FDA determines that a particular claim is not adequately supported by available information or is otherwise false or misleading, the claim could not be used and any product bearing the claim could be subject to regulatory action.

The FTC and the FDA have pursued a coordinated effort to investigate the scientific substantiation for dietary supplement claims. Their efforts to date have resulted in a significant number of investigations and enforcement actions. Dietary supplement claims could also be the subject of inquiries from the NAD and states' Attorneys General.

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The FDA has broad authority to enforce the FDCA provisions applicable to dietary supplements, including powers to issue a public warning or notice of violation letter to a company, publicize information about illegal products, request a voluntary recall, order a mandatory recall, administratively detain domestic products, detain products offered for import, request the DOJ to initiate a seizure action, initiate an injunction action or a criminal prosecution in the U.S. courts and administratively revoke manufacturing facility registrations, thereby effectively enjoining manufacturing of dietary ingredients and dietary supplements without judicial process.

States also regulate foods and drugs under laws that generally parallel federal statutes. These products are also subject to state consumer health and safety regulations, such as the California Safe Drinking Water and Toxic Enforcement Act of 1986, or Proposition 65. Violation of Proposition 65 may result in substantial monetary penalties.

Pricing and Reimbursement

Successful commercialization of our products depends, in part, on the availability of governmental and third-party payor reimbursement for the cost of our products. Government authorities and third-party payors increasingly are challenging the price of medical products and services. On the government side, there is a heightened focus, at both the federal and state levels, on decreasing costs and reimbursement rates for Medicaid, Medicare and other government insurance programs. This has led to an increase in federal and state legislative initiatives related to drug prices, which could significantly influence the purchase of pharmaceutical products, resulting in lower prices and changes in product demand. If enacted, these changes could lead to reduced payments to pharmaceutical manufacturers. Many states have also created preferred drug lists and include drugs on those lists only when the manufacturers agree to pay a supplemental rebate. If our current products or future drug candidates are not included on these preferred drug lists, physicians may not be inclined to prescribe them to their Medicaid patients, thereby diminishing the potential market for our products.

In addition, third-party payors have been imposing additional requirements and restrictions on coverage and limiting reimbursement levels for pharmaceutical products. Third-party payors may require manufacturers to provide them with predetermined discounts from list prices and limit coverage to specific pharmaceutical products on an approved list, or formulary, which might not include all of the FDA-approved pharmaceutical products for particular indications. Third-party payors may challenge the price and examine the medical necessity and cost-effectiveness of pharmaceutical products in addition to their safety and efficacy. Manufacturers may need to conduct expensive pharmaco-economic studies in order to demonstrate the medical necessity and cost-effectiveness of pharmaceutical products in addition to the costs required to obtain the FDA approvals. Adequate third-party reimbursement may not be available to enable manufacturers to maintain price levels sufficient to realize an appropriate return on their investment in drug development.

Healthcare Reform

In the United States, there have been a number of federal and state proposals during the last several years regarding the pricing of pharmaceutical products, government control and other changes to the healthcare system of the United States. It is uncertain what other legislative proposals may be adopted or what actions federal, state, or private payors may take in response to any healthcare reform proposals or legislation. We cannot predict the effect such reforms may have on our business, and no assurance can be given that any such reforms will not have a material adverse effect.

By way of example, in March 2010, the ACA was signed into law, which, among other things, includes changes to the coverage and payment for drug products under government health care programs. The law includes measures that (i) significantly increase Medicaid rebates through both the expansion of the program and significant increases in rebates, (ii) substantially expand the Public Health System (340B) program to allow other entities to purchase prescription drugs at substantial discounts, (iii) extend the Medicaid rebate rate to a significant portion of Managed Medicaid enrollees, (iv) assess a rebate on Medicaid Part D spending in the coverage gap for branded and authorized generic prescription drugs, and (v) levy a significant excise tax on the industry to fund the healthcare reform.

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In addition to the changes brought about by the ACA, other legislative changes have been proposed and adopted, including aggregate reductions of Medicare payments to providers of 2% per fiscal year and reduced payments to several types of Medicare providers. Moreover, there has recently been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies for drug products. At the federal level, the Trump Administration's budget proposal for fiscal year 2019 contains further drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid and to eliminate cost sharing for generic drugs for low-income patients. While any proposed measures will require authorization through additional legislation to become effective, Congress and the Trump Administration have each indicated an intent to continue to seek new legislative or administrative measures to control drug costs. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

Healthcare Regulations

Pharmaceutical companies are subject to various federal and state laws that are intended to combat health care fraud and abuse and that govern certain of our business practices, especially our interactions with third-party payors, healthcare providers, patients, customers and potential customers through sales and marketing or research and development activities. These include anti-kickback laws, false claims laws, sunshine laws, privacy laws and FDA regulation of advertising and promotion of pharmaceutical products.

Anti-kickback laws, including the federal Anti-Kickback Statute, make it a criminal offense knowingly and willfully to offer, pay, solicit, or receive any remuneration to induce or reward referral of an individual for, or the purchase, order or recommendation of, any good or service reimbursable by, a federal health care program (including our products). The federal Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. Although there are several statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution, the exceptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor. In addition, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation. Moreover, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act. The penalties for violating the federal Anti-Kickback Statute include administrative civil money penalties, imprisonment for up to five years, fines of up to $25,000 per violation and possible exclusion from federal healthcare programs such as Medicare and Medicaid.

The federal civil and criminal false claims laws, including the civil False Claims Act, prohibit knowingly presenting, or causing to be presented, claims for payment to the federal government (including Medicare and Medicaid) that are false or fraudulent (and, under the Federal False Claims Act, a claim is deemed false or fraudulent if it is made pursuant to an illegal kickback). Manufacturers can be held liable under these laws if they are deemed to "cause" the submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or promoting a product off-label. Actions under the False Claims Act may be brought by the Attorney General or as a qui tam action by a private individual in the name of the government. Violations of the False Claims Act can result in significant monetary penalties, including fines ranging from $11,181 to $22,363 for each false claim, and treble

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damages. The federal government is using the False Claims Act, and the accompanying threat of significant liability, in its investigation and prosecution of pharmaceutical companies throughout the country, for example, in connection with the promotion of products for unapproved uses and other improper sales and marketing practices. The government has obtained multi-million and multi-billion dollar settlements under the False Claims Act in addition to individual criminal convictions under applicable criminal statutes. In addition, companies have been forced to implement extensive corrective action plans, and have often become subject to consent decrees or corporate integrity agreements, severely restricting the manner in which they conduct their business. Given the significant size of actual and potential settlements, it is expected that the government will continue to devote substantial resources to investigating healthcare providers' and manufacturers' compliance with applicable fraud and abuse laws.

The Federal Civil Monetary Penalties Law prohibits, among other things, the offering or transferring of remuneration to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary's selection of a particular supplier of Medicare or Medicaid payable items or services. Noncompliance can result in civil money penalties of up to $15,270 for each wrongful act, assessment of three times the amount claimed for each item or service and exclusion from the federal healthcare programs.

Federal criminal statutes prohibit, among other actions, knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Like the federal Anti-Kickback Statute, the ACA amended the intent standard for certain healthcare fraud statutes under HIPAA such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

Analogous state and foreign laws and regulations, including state anti-kickback and false claims laws, may apply to products and services reimbursed by non-governmental third-party payors, including commercial payors. Additionally, there are state laws that require pharmaceutical companies to comply with the pharmaceutical industry's voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or that otherwise restrict payments that may be made to healthcare providers as well as state and foreign laws that require drug manufacturers to report marketing expenditures or pricing information.

Sunshine laws, including the Federal Open Payments law enacted as part of the ACA, require pharmaceutical manufacturers to disclose payments and other transfers of value to physicians and certain other health care providers or professionals, and in the case of some state sunshine laws, restrict or prohibit certain such payments. Pharmaceutical manufacturers are required to submit reports to the government by the 90 th day of each calendar year. Failure to submit the required information may result in civil monetary penalties of up to an aggregate of $165,786 per year (or up to an aggregate of $1.105 million per year for "knowing failures") for all payments, transfers of value or ownership or investment interests not reported in an annual submission, and may result in liability under other federal laws or regulations. Certain states and foreign governments require the tracking and reporting of gifts, compensation and other remuneration to physicians.

Privacy laws, such as the privacy regulations implemented under HIPAA, restrict covered entities from using or disclosing protected health information. Covered entities commonly include physicians, hospitals and health insurers from which we may seek to acquire data to aid in our research, development, sales and marketing activities. Although pharmaceutical manufacturers are not covered entities under HIPAA, our ability to acquire or use protected health information from covered entities may be affected by privacy laws. Specifically, HIPAA, as amended by HITECH, and their respective implementing regulations, including the

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final omnibus rule published on January 25, 2013, imposes specified requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA's privacy and security standards directly applicable to "business associates," defined as independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney's fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways, thus complicating compliance efforts.

The FDA regulates the sale and marketing of prescription drug products and, among other things, prohibits pharmaceutical manufacturers from making false or misleading statements and from promoting products for unapproved uses. There has been an increase in government enforcement efforts at both the federal and state level. Numerous cases have been brought against pharmaceutical manufacturers under the Federal False Claims Act, alleging, among other things, that certain sales or marketing-related practices violate the Anti-Kickback Statute or the FDA's regulations, and many of these cases have resulted in settlement agreements under which the companies were required to change certain practices, pay substantial fines and operate under the supervision of a federally appointed monitor for a period of years. Due to the breadth of these laws and their implementing regulations and the absence of guidance in some cases, it is possible that our practices might be challenged by government authorities. Violations of fraud and abuse laws may be punishable by civil and criminal sanctions including fines, civil monetary penalties, as well as the possibility of exclusion of our products from payment by federal health care programs.

Government Price Reporting

Government regulations regarding reporting and payment obligations are complex, and we are continually evaluating the methods we use to calculate and report the amounts owed with respect to Medicaid and other government pricing programs. Our calculations are subject to review and challenge by various government agencies and authorities, and it is possible that any such review could result either in material changes to the method used for calculating the amounts owed to such agency or the amounts themselves. Because the process for making these calculations, and our judgments supporting these calculations, involve subjective decisions, these calculations are subject to audit. In the event that a government authority challenges or finds ambiguity with regard to our report of payments, such authority may impose civil and criminal sanctions, which could have a material adverse effect on our business. From time to time we conduct routine reviews of our government pricing calculations. These reviews may have an impact on government price reporting and rebate calculations used to comply with various government regulations regarding reporting and payment obligations.

Many government and third-party payors reimburse the purchase of certain prescription drugs based on a drug's AWP. In the past several years, state and federal government agencies have conducted ongoing investigations of manufacturers' reporting practices with respect to AWP, which they have suggested have led to excessive payments by state and federal government agencies for prescription drugs. We and numerous other pharmaceutical companies have been named as defendants in various state and federal court actions alleging improper or fraudulent practices related to the reporting of AWP.

Drug Pedigree Laws

State and federal governments have proposed or passed various drug pedigree laws which can require the tracking of all transactions involving prescription drugs from the manufacturer to the pharmacy (or other dispensing) level. Companies are required to maintain records documenting the chain of custody of prescription drug products beginning with the purchase of such products from the manufacturer. Compliance with these pedigree laws requires implementation of extensive tracking systems as well as heightened documentation and coordination with customers and manufacturers. While we fully intend to

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comply with these laws, there is uncertainty about future changes in legislation and government enforcement of these laws. Failure to comply could result in fines or penalties, as well as loss of business that could have a material adverse effect on our financial results.

Federal Regulation of Patent Litigation Settlements and Authorized Generic Arrangements

As part of the Medicare Prescription Drug Improvement and Modernization Act of 2003, companies are required to file with the FTC and DOJ certain types of agreements entered into between brand and generic pharmaceutical companies related to the settlement of patent litigation or manufacture, marketing and sale of generic versions of branded drugs. This requirement could affect the manner in which generic drug manufacturers resolve intellectual property litigation and other disputes with brand pharmaceutical companies, and could result generally in an increase in private-party litigation against pharmaceutical companies or additional investigations or proceedings by the FTC or other governmental authorities.

Other

The U.S. federal government, various states and localities have laws regulating the manufacture and distribution of pharmaceuticals, as well as regulations dealing with the substitution of generic drugs for branded drugs. Our operations are also subject to regulation, licensing requirements and inspection by the states and localities in which our operations are located or in which we conduct business.

Certain of our activities are also subject to FTC enforcement actions. The FTC also enforces a variety of antitrust and consumer protection laws designed to ensure that the nation's markets function competitively, are vigorous, efficient and free of undue restrictions. Federal, state, local and foreign laws of general applicability, such as laws regulating working conditions, also govern us.

In addition, we are subject to numerous and increasingly stringent federal, state and local environmental laws and regulations concerning, among other things, the generation, handling, storage, transportation, treatment and disposal of toxic and hazardous substances, the discharge of pollutants into the air and water and the cleanup of contamination. We are required to maintain and comply with environmental permits and controls for some of our operations, and these permits are subject to modification, renewal and revocation by the issuing authorities. Our environmental capital expenditures and costs for environmental compliance may increase in the future as a result of changes in environmental laws and regulations or increased manufacturing activities at any of our facilities. We could incur significant costs or liabilities as a result of any failure to comply with environmental laws, including fines, penalties, third-party claims and the costs of undertaking a clean-up at a current or former site or at a site to which our wastes were transported. In addition, we have grown in part by acquisition, and our diligence may not have identified environmental impacts from historical operations at sites we have acquired in the past or may acquire in the future.

Properties

Our principal office is located in Bridgewater, New Jersey, where we lease approximately 18,000 square feet of office space pursuant to a lease that expires in March 2022. We also own a facility in Marietta, Georgia and lease facilities in Sayreville, New Jersey, Tampa, Florida, Wilmington, North Carolina, Buenos Aires, Argentina and Budapest, Hungary. We believe our facilities are adequate to meet our current needs, although we may seek to negotiate new leases or evaluate additional or alternate space for our operations. We believe appropriate alternative space would be readily available on commercially reasonable terms.

Employees and Labor Relations

As of June 30, 2018, we had a total of 414 full time employees (including 47 employees in Argentina and five employees in Hungary). We have no collective bargaining agreements with our employees and none are represented by labor unions. We consider our current relations with our employees to be good.

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Legal Proceedings

From time to time, we are a party to various legal proceedings. In addition, we have in the past been, and may in the future be, subject to investigations by governmental and regulatory authorities, which exposes us to greater risks associated with litigation, regulatory or other proceedings, including significant fines or penalties. The outcome of litigation, regulatory or other proceedings cannot be predicted with certainty, and some lawsuits, claims, actions or proceedings may be disposed of unfavorably to us. In addition, intellectual property disputes often have a risk of injunctive relief which, if imposed against us, could materially and adversely affect our business, financial condition or results of operations.

On February 16, 2018, upon receipt of approval for Osmolex ER from the FDA, we filed suit against Adamas in the U.S. District Court for the District of Delaware seeking a declaratory judgment that Osmolex ER does not infringe, directly or indirectly, any valid and enforceable claim of any of the 11 patents enumerated in our complaint. On September 20, 2018, Adamas filed an amended answer with counterclaims alleging infringement of certain patents included in our complaint and requesting that the court grant Adamas damages, injunctive relief and attorneys' fees. Adamas commercializes a different amantadine product, an extended-release capsule marketed and sold as Gocovri™. We intend to vigorously defend our rights to commercialize Osmolex ER free and clear of any of these patents. However, this litigation is at a very early stage. If Adamas counterclaims for infringement and we do not prevail, we could be exposed to injunctive relief, invalidity or damages, any of which could materially and adversely affect our business, financial condition and results of operations.

In general, we intend to continue to vigorously prosecute and defend these proceedings, as appropriate; however, from time to time, we may settle or otherwise resolve these matters on terms and conditions that we believe are in our best interests. Resolution of any or all claims, investigations and legal proceedings, individually or in the aggregate, could have a material adverse effect on our business, results of operations and cash flows in any given accounting period or on our overall financial condition.

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MANAGEMENT

Executive Officers and Directors

Below is a list of the names, ages as of June 30, 2018, and positions of the individuals who serve as our executive officers and directors. Our Articles of Association will provide that each of our directors will, subject to any earlier resignation or removal in accordance with the terms of our Articles of Association, serve until the first annual meeting of shareholders following the completion of this offering. Each director shall be eligible to stand for re-election at that annual general meeting.


Name
  Age   Position

Brian Markison

    58   Chief Executive Officer and Chairman of the Board of Directors

Tina deVries, Ph.D. 

    58   Executive Vice President, Research & Development

Andrew Einhorn

    58   Chief Financial Officer

Christopher Klein

    54   General Counsel and Secretary

James Schaub

    37   Executive Vice President and Chief Operating Officer

David Burgstahler

    49   Director

Sriram Venkataraman

    45   Director

Carlos Sielecki

    60   Director

Juan Vergez

    60   Director

Fred Weiss (1)

    76   Director

(1)
Mr. Weiss will become a director upon pricing of this offering.

Brian Markison became a director and our Chief Executive Officer in 2016. Mr. Markison has been a healthcare industry advisor to Avista since September 2012 and has more than 30 years of operational, marketing, commercial development and sales experience with international pharmaceutical companies. From July 2011 to July 2012, he served as the President and Chief Executive Officer and member of the board of directors of Fougera Pharmaceuticals Inc., a specialty pharmaceutical company in dermatology that was sold to Sandoz Ltd., the generics division of Novartis AG. Before leading Fougera, Mr. Markison was Chairman and Chief Executive Officer of King Pharmaceuticals, Inc., which he joined as Chief Operating Officer in March 2004. He was promoted to President and Chief Executive Officer later that year and elected Chairman in 2007. Prior to joining King Pharmaceuticals, Inc., Mr. Markison held various senior leadership positions at Bristol-Myers Squibb Company, including President of Oncology, Virology and Oncology Therapeutics Network; President of Neuroscience, Infectious Disease and Dermatology; and Senior Vice President, Operational Excellence and Productivity. He serves as Chairman of the board of Lantheus Holdings, Inc. and is on the board of directors of Avista Healthcare Public Acquisition Corp., National Spine and Pain Centers, LLC and Braeburn Pharmaceuticals, Inc. He is also a Director of the College of New Jersey. Mr. Markison received a B.S. degree from Iona College. Mr. Markison was chosen as a director because of his strong commercial and operational management background and extensive experience in the pharmaceutical industry.

Tina deVries, Ph.D. became our Executive Vice President, Research & Development in May 2016. Dr. deVries most recently served as the Principal of TM deVries Consulting, LLC from October 2014 to April 2016. From October 2013 to September 2014, she held the position of Vice President of Nonclinical and Clinical Pharmacology at Actavis plc. Dr. deVries previously served as the Vice President of Clinical Pharmacology at Warner Chilcott plc, a specialty pharmaceutical company, from April 1996 until the company was acquired by Actavis in October 2013. Dr. deVries holds a B.S. in Pharmacy and a Ph.D. in Pharmaceutics and Pharmaceutical Chemistry from The Ohio State University.

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Andrew Einhorn became our Chief Financial Officer in September 2017. Mr. Einhorn has more than 15 years of experience in the pharmaceutical industry. From March 2014 to March 2017, Mr. Einhorn served as the Chief Financial Officer of Edge Therapeutics, Inc., a clinical-stage biotechnology company that he joined as Executive Vice President of Corporate Development in May 2013. Prior to that, he was a co-founder, Executive Vice President and Chief Financial Officer at Oceana Therapeutics, Inc. from May 2008 to January 2012. Previously, Mr. Einhorn was a co-founder and Chief Financial Officer of both Esprit Pharma, Inc., from June 2005 to October 2007, and ESP Pharma, Inc., from April 2003 to March 2005. From 1983 to 2003, Mr. Einhorn was an investment banker with Credit Lyonnais Securities, PNC Capital Markets, Chase Securities, Inc., Bankers Trust Company and the Chase Manhattan Bank. Mr. Einhorn is licensed as a Certified Public Accountant in the State of New Jersey and holds a B.S. in Finance and Accounting from The American University.

James Schaub has served as our Executive Vice President and Chief Operating Officer since 2016. Prior to that he served as Chief Operating Officer, Trigen Laboratories beginning in December 2013. Mr. Schaub previously served as Vice President, M&A of Fougera Pharmaceuticals, Inc. from August 2011 to September 2012. Prior to that, Mr. Schaub spent five years with King Pharmaceuticals, Inc., where he held several commercial roles of increasing responsibility. He joined our company in December 2013. Mr. Schaub holds a B.A. in Economics from Middlebury College and an M.B.A. from Rutgers Business School.

Christopher Klein became our General Counsel and Secretary in December 2013. Mr. Klein previously served as the General Counsel of Fougera Pharmaceuticals Inc. from August 2011 to September 2012. Prior to his time at Fougera Pharmaceuticals Inc., Mr. Klein spent six years with King Pharmaceuticals, Inc. where he held the position of Deputy General Counsel prior to King Pharmaceuticals, Inc.'s acquisition by Pfizer, Inc. Prior to that, Mr. Klein spent six years in senior legal roles with Bristol-Myers Squibb Company. Mr. Klein holds a B.A. in Biology from Adelphi University, an M.A. in Education from Columbia University and a J.D. from Fordham University.

David Burgstahler became a director in 2016. Mr. Burgstahler is the Co-Managing Partner and Co-Chief Executive Officer of Avista Capital Partners and is the Chief Executive Officer of Avista Healthcare Public Acquisition Corp. Mr. Burgstahler was a founding partner of Avista Capital Partners in 2005 and since 2009, has been President of Avista Capital Partners. Prior to forming Avista Capital Partners, Mr. Burgstahler was a partner of DLJ Merchant Banking Partners. Mr. Burgstahler was at DLJ Investment Banking from 1995 to 1997 and at DLJ Merchant Banking Partners from 1997 through 2005. Prior to that, Mr. Burgstahler worked at Andersen Consulting (now known as Accenture plc) and McDonnell Douglas (now known as The Boeing Company). Mr. Burgstahler currently serves as a director of Avista Healthcare Public Acquisition Corp., Inform Diagnostics, Inc., Kramer Laboratories, Inc., United BioSource Corporation and WideOpenWest, Inc. Mr. Burgstahler also previously served on the board of directors of AngioDynamics Inc., Armored AutoGroup, BioReliance Corp., ConvaTec Healthcare B S.a.r.l., Focus Diagnostics, Inc., INC Research Holdings, Inc., Lantheus Holdings, Inc., MPI Research, Inc., Strategic Partners, LLC, Visant Corp. and Warner Chilcott PLC. Mr. Burgstahler is also a Trustee of the Trinity School in New York City. Mr. Burgstahler holds a B.S. in Aerospace Engineering from the University of Kansas and an M.B.A. from Harvard Business School. Mr. Burgstahler was selected to serve on our board of directors because of his extensive finance and management background, including over 20 years in banking and private equity finance, and his experience serving as a director for a diverse group of private and public companies.

Sriram Venkataraman became a director in 2016. He is also a Partner of Avista Capital Partners, having joined in 2007. Prior to joining Avista Capital Partners, Mr. Venkataraman was a Vice President in the Healthcare Investment Banking group at Credit Suisse Group AG, where he worked from 2001 to 2007. Previously, he worked at GE Healthcare (formerly known as GE Medical Systems) from 1996 to 1999. He currently serves as a director of OptiNose, Inc., Inform Diagnostics, Inc. and National Spine & Pain Centers Holdings, LLC and previously served as a director of AngioDynamics, Inc., Lantheus Holdings, Inc. and Zest

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Anchors, Inc. Mr. Venkataraman holds an M.S. in Electrical Engineering from the University of Illinois, Urbana-Champaign and an M.B.A. from The Wharton School at the University of Pennsylvania. Our board of directors believes that Mr. Venkataraman's experience in the healthcare industry, his strong finance and management background, and his experience serving as a director of private and public companies qualifies him to serve on our board of directors.

Carlos Sielecki became a director of Osmotica Holdings Corp Limited in 2007 and joined our board of directors in 2016 in connection with the Business Combination. Mr. Sielecki currently serves as a director of Simali S.A. and holds a degree in architecture from the University of Buenos Aires. Mr. Sielecki was selected to serve as a director because of his management background, including 15 years of experience in the management of pharmaceutical businesses.

Juan Vergez became a director in 2016. Mr. Vergez served as the President of Osmotica Argentina from November 2010 to May 2016, and as the New Business Director of Osmotica Argentina from May 2016 to December 2017. Mr. Vergez previously served as a director of Nutrifoods, S.A. Mr. Vergez was chosen as a director due to his more than 40 years of experience in the pharmaceutical industry.

Fred Weiss will become a director effective upon the pricing of this offering. Mr. Weiss is currently the managing director of the consulting firm FGW Consultancy LLC and was previously the managing director of FGW Associates, Inc., a position he held beginning in 1997. Prior to joining FGW Associates, Inc., he served as a senior executive for Warner-Lambert for nearly 20 years. Mr. Weiss has been on the Board of Directors and Chair of the Finance Committee of the Michael J. Fox Foundation for Parkinson's Research since 2000. From 2001 to 2007 Mr. Weiss was a member of the BTG plc Board of Directors and Chair of the Audit Committee. Mr. Weiss also served from 2000 to January 2017 as Vice Chair of the Board of Directors and Chair of the Audit Committee of numerous BlackRock-sponsored mutual funds. He currently serves on the Board of Directors of Allergan plc. Mr. Weiss was selected to serve on our board of directors because of his financial expertise and experience in strategic planning and corporate development.

Code of Business Conduct and Ethics

In connection with this offering, we plan to adopt a Code of Business Conduct and Ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions. Following this offering, a current copy of the code will be available on our website.

Board Structure and Committee Composition

Our business and affairs are managed under the direction of our board of directors. Upon the pricing of this offering, our board will consist of six directors. Our Articles of Association that will be in effect upon closing of this offering provides that our board of directors shall consist of at least three directors but not more than 15 directors and that the number of directors may be fixed from time to time by resolution of our board of directors.

Under our Articles of Association, at each annual general meeting, all directors will be subject to re-election. Any director who does not stand for re-election, or who stands for re-election but is not re-elected, will retire at the end of the relevant annual general meeting.

Our Articles of Association provide that the directors have the authority to appoint one or more directors to our board of directors, subject to the maximum number of directors allowed for in our Articles of Association. A vacancy on our board of directors may be filled by the remaining directors and any director so appointed will hold office until our next annual general meeting. During any vacancy on our board, the remaining directors will have full power to act as the board.

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In connection with this offering, we plan to enter into a shareholders' agreement with Avista and Altchem governing their nomination rights with respect to our board of directors following this offering. Under the agreement, we will be required to take all necessary action to include individuals designated by each of Avista and Altchem in the slate of nominees recommended by the board of directors for election by our shareholders, as follows:

    §
    for so long as Avista or Altchem, as applicable, owns at least 20% of our issued and outstanding ordinary shares, such Sponsor will be entitled to designate two individuals for nomination to serve on our board of directors; and

    §
    when Avista or Altchem, as applicable, own less than 20% but at least 10% of our issued and outstanding ordinary shares, such Sponsor will be entitled to designate one individual for nomination.

Each of Avista and Altchem will also have the right under a shareholders' agreement to remove their designees and to fill vacancies created by the removal or resignation of their designees, and we are required to take all necessary action to cause such removals and fill such vacancies at the request of Avista or Altchem, as applicable.

Upon consummation of this offering, we will have an audit committee, a compensation committee and a nominating and corporate governance committee with the composition and responsibilities described below. Each committee will operate under a charter that will be approved by our board of directors. The members of each committee are appointed by the board of directors and serve until their successor is elected and qualified, unless they are earlier removed or resign. In addition, from time to time, special committees may be established under the direction of the board of directors when necessary to address specific issues.

Because we will be a "controlled company" within the meaning of the corporate governance standards of the Nasdaq Stock Market, we will not have a majority of independent directors and our compensation committee and nominating and corporate governance committee will not be composed entirely of independent directors as defined under such standards. The controlled company exception does not modify the independence requirements for the audit committee and we intend to comply with the audit committee requirements of the Sarbanes-Oxley Act, the Irish Companies Act and the corporate governance standards of the Nasdaq Stock Market. Pursuant to such requirements, the audit committee must be composed of at least three members, one of whom must be independent at the time of this offering, a majority of whom must be independent within 90 days of the date of this prospectus, and all of whom must be independent within one year of the date of this prospectus.

Audit Committee

Effective upon completion of this offering, our audit committee will be comprised of Mr. Weiss, Mr. Venkataraman and Mr. Vergez, with Mr. Weiss serving as chairman of the committee. Our board of directors has determined that Mr. Weiss meets the independence requirements of Rule 10A-3 under the Exchange Act and the applicable rules of the Nasdaq Stock Market and the Irish Companies Act. Our board of directors has determined that Mr. Weiss is an "audit committee financial expert" within the meaning of the SEC regulations and has "competence in accounting or auditing" within the meaning of the Irish Companies Act. The audit committee's responsibilities upon completion of this offering will include:

    §
    appointing, approving the compensation of, and assessing the qualifications, performance and independence of our independent registered public accounting firm, and in particular the provision of additional services to each entity covered by the committee;

    §
    pre-approving audit and permissible non-audit services, and the terms of such services, to be provided by our independent registered public accounting firm;

    §
    reviewing and discussing with management and the independent registered public accounting firm our annual and quarterly financial statements and related disclosures as well as critical accounting policies and practices used by us;

    §
    monitoring the audit of our financial statements;

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    §
    setting policies for our hiring of employees or former employees of our independent registered public accounting firm;

    §
    reviewing our significant risks or exposures and assessing the steps that management has taken or should take to monitor and minimize such risks or exposures;

    §
    reviewing the adequacy of our internal control over financial reporting, including information system controls and security;

    §
    monitoring the effectiveness of our systems of internal control, internal audit and risk management for each entity covered by the committee;

    §
    establishing policies and procedures for the receipt and retention of accounting-related complaints and concerns;

    §
    recommending, based upon the audit committee's review and discussions with management and the independent registered public accounting firm, whether our audited financial statements shall be included in our Annual Report on Form 10-K;

    §
    monitoring our compliance with legal and regulatory requirements as they relate to our financial statements and accounting matters;

    §
    preparing the audit committee report required by the rules of the SEC to be included in our annual proxy statement;

    §
    reviewing all related party transactions for potential conflict of interest situations and approving all such transactions; and

    §
    reviewing and discussing with management and our independent registered public accounting firm our earnings releases and scripts.

Compensation Committee

Effective upon completion of this offering, our compensation committee will be composed of Mr. Burgstahler, Mr. Sielecki and Mr. Weiss, with Mr. Burgstahler serving as chairman of the committee. Our board of directors has determined that Mr. Weiss is "independent" as defined under the applicable listing standards of the Nasdaq Stock Market. The compensation committee's responsibilities upon completion of this offering will include:

    §
    reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer, the officers who report directly to the chief executive officer and all officers who are "insiders" subject to Section 16 of the Exchange Act;

    §
    evaluating the performance of our chief executive officer and such other officers in light of such corporate goals and objectives and determining and approving, or recommending to our board of directors for approval, the compensation of our chief executive officer and such other officers;

    §
    appointing, compensating and overseeing the work of any compensation consultant, legal counsel or other advisor retained by the compensation committee;

    §
    conducting the independence assessment outlined in the listing standards of the Nasdaq Stock Market with respect to any compensation consultant, legal counsel or other advisor retained by the compensation committee;

    §
    annually reviewing and reassessing the adequacy of the committee charter;

    §
    reviewing and establishing our overall management compensation and our compensation philosophy and policy;

    §
    overseeing and administering our equity compensation and other compensatory plans;

    §
    reviewing and approving our equity and incentive policies and procedures for the grant of equity-based awards and approving the grant of such equity-based awards;

    §
    reviewing and making recommendations to our board of directors with respect to non-employee director compensation; and

    §
    producing a report, if required, on executive compensation to be included in our annual proxy statement or Annual Report on Form 10-K.

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Nominating and Corporate Governance Committee

Effective upon completion of this offering, our nominating and corporate governance committee will be composed of Mr. Markison, Mr. Burgstahler, Mr. Weiss and Mr. Sielecki, with Mr. Burgstahler serving as chairman of the committee. Our board of directors has determined that Mr. Weiss is "independent" as defined in the applicable rules of the Nasdaq Stock Market. The nominating and corporate governance committee's responsibilities upon completion of this offering will include:

    §
    establishing procedures for identifying and evaluating board of director candidates, including nominees recommended by shareholders;

    §
    identifying individuals qualified to become members of our board of directors;

    §
    recommending to our board of directors the persons to be nominated for election as directors and to each of our board's committees;

    §
    developing and recommending to our board of directors a set of corporate governance principles;

    §
    articulating to each director what is expected, including reference to the corporate governance principles and directors' duties and responsibilities;

    §
    reviewing and recommending to our board of directors practices and policies with respect to directors;

    §
    reviewing and recommending to our board of directors the functions, duties and compositions of the committees of our board of directors;

    §
    reviewing and assessing the adequacy of the committee charter and submitting any changes to our board of directors for approval;

    §
    considering and reporting to our board of directors any questions of possible conflicts of interest of board of directors members;

    §
    providing for new director orientation and continuing education for existing directors on a periodic basis;

    §
    performing an evaluation of the performance of the committee; and

    §
    overseeing the evaluation of our board of directors.

Compensation Committee Interlocks and Insider Participation

None of our executive officers serves as a member of the board of directors, as a member of the compensation committee, or other committee serving an equivalent function, of any other entity that has one or more of its executive officers serving as a member of our board of directors or compensation committee, except that Mr. Markison, our Chief Executive Officer, serves as a director and member of the audit and compensation committees of Avista Healthcare Public Acquisition Corp. and Mr. Burgstahler, one of our directors, serves as the president and chief executive officer and as a director of Avista Healthcare Public Acquisition Corp. Upon the completion of this offering, our compensation committee will include Mr. Burgstahler and Mr. Sielecki. Mr. Burgstahler is the Co-Managing Partner and Co-Chief Executive Officer of Avista Capital Partners and Mr. Sielecki is affiliated with Altchem Limited. For additional information regarding transactions between Avista Capital Partners and its affiliates and us and between Altchem Limited and its affiliates and us, see "Certain Relationships and Related Party Transactions."

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EXECUTIVE AND DIRECTOR COMPENSATION

The following discussion and analysis of compensation arrangements should be read with the compensation tables and related disclosures set forth below. This discussion contains forward-looking statements that are based on our current plans and expectations regarding future compensation programs. Actual compensation programs that we adopt may differ materially from the programs summarized in this discussion.

Introduction

This section provides an overview of the compensation awarded to, earned by, or paid to our principal executive officer and our next two most highly compensated executive officers in respect of their service to us for our fiscal year ended December 31, 2017. We refer to these individuals as our named executive officers. During 2017, our named executive officers received compensation and benefits from one of our subsidiaries, Vertical/Trigen Holdings, LLC, and its subsidiaries. Prior to this offering, the compensation committee of the board of managers of Osmotica Holdings S.C.Sp. was responsible for determining the compensation of our executive officers, including our named executive officers. Following this offering, the compensation committee of our board of directors will be responsible for making determinations regarding the compensation of our executive officers. Our named executive officers are:

    §
    Brian A. Markison, our President and Chief Executive Officer;

    §
    Tina deVries, Ph.D., our Executive Vice President, Research and Development; and

    §
    James Schaub, our Executive Vice President, Commercial Operations and Portfolio Strategy.

Summary compensation table

The following table sets forth the compensation awarded to, earned by, or paid to our named executive officers in respect of their service to us for the fiscal year ended December 31, 2017.


Name and principal position
  Year   Salary
($) (1)
  Nonequity
incentive
plan
compensation
($) (2)
  All other
compensation
($) (3)
  Total
($)
 

Brian A. Markison

    2017     613,085     613,562     135     1,226,782  

President and Chief Executive Officer

                               

Tina deVries, Ph.D. 

    2017     383,178     191,738     10,800     585,716  

EVP, Research & Development

                               

James Schaub

    2017     291,808     146,301     27,385     465,494  

EVP and Chief Operating Officer

                               

(1)
Amounts shown for Dr. deVries and Mr. Schaub include contributions made to our 401(k) plan. Mr. Markison did not contribute to our 401(k) plan in 2017.

(2)
Amounts represent each named executive officer's annual bonus earned with respect to fiscal 2017 under the Osmotica Pharmaceutical 2017 Annual Incentive Plan, based on the achievement of EBITDA goals.

(3)
Amount shown for Mr. Markison represents the value of a gift of sunglasses given to all attendees of a sales meeting ($100), plus a tax gross-up given to all gift recipients ($35). Amount shown for Dr. deVries represents 401(k) plan matching company contributions for 2017. Amount shown for Mr. Schaub represents the value of a gift of sunglasses given to all attendees of a sales meeting ($100), plus a tax gross-up given to all gift recipients ($34), 401(k) plan matching company contributions for 2017 ($10,800), and a car allowance ($16,451).

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2017 base salary and annual bonus

The employment agreement with each named executive officer, described below, establishes a base salary, which is subject to discretionary increases. Each of our named executive officers is paid a base salary reflecting his or her skill set, experience, performance, role and responsibilities. Effective April 2017, each of our named executive officers received an increase in base salary as follows:


Name
  Base
salary
prior to
April 2017
  Base
salary
effective
April 2017
  %
increase
  Notes

Brian A. Markison

  $ 600,000   $ 618,000     3.00 % Reflects merit increase

Tina deVries, Ph.D. 

 
$

375,000
 
$

386,250
   
3.00

%

Reflects merit increase

James Schaub

 
$

270,000
 
$

300,000
   
11.11

%

Reflects merit increase and an adjustment for Mr. Schaub's increased responsibilities for our Vertical Pharmaceuticals Commercial business

As described below, each named executive officer has a target annual bonus based on his or her base salary earned with respect to the applicable year, as set forth in his or her employment agreement. Annual bonuses for 2017 for our named executive officers were awarded under the Osmotica Pharmaceutical 2017 Annual Incentive Plan, and were based on the achievement of pre-established corporate EBITDA goals. For 2017, the corporate EBITDA goal was met in full and, as a result, each named executive officer received 100% of his or her target annual bonus as follows: Mr. Markison, $613,562, Dr. deVries, $191,738 and Mr. Schaub, $146,301.

Employment arrangements with our named executive officers

Each of our named executive officers is party to an employment agreement with one of our subsidiaries that sets forth the terms and conditions of his or her employment with us. Each such agreement provides for "at will" employment. Each agreement contains nondisclosure, nonsolicitation, noncompetition and assignment of intellectual property and other obligations to which the executive is bound. The material terms of the employment agreements with our named executive officers are described below. The terms "cause," "good reason" and "change in control" referred to below are defined in each named executive officer's employment agreement.

Mr. Markison.     Our subsidiary, Vertical/Trigen Holdings, LLC, entered into an employment agreement with Mr. Markison on December 3, 2015 that provides for a base salary of $600,000 per year, subject to discretionary increases and which has subsequently been increased, and a target annual bonus equal to 100% of his annual base salary, with the actual amount of the bonus earned based on the achievement of performance objectives. Mr. Markison is eligible to participate in our benefit plans, as in effect from time to time.

Dr. deVries.     Our subsidiary, Vertical/Trigen Opco, LLC, entered into an employment agreement with Dr. deVries on May 2, 2016 that provides for a base salary of $375,000 per year, subject to annual review and which has subsequently been increased, and a target annual bonus equal to 50% of her annual base salary, with the actual amount of the bonus earned based on the achievement of performance objectives. Dr. deVries is eligible to participate in our benefit plans, as in effect from time to time

Mr. Schaub.     Our subsidiary, Vertical/Trigen Opco, LLC, entered into an employment agreement with Mr. Schaub on December 16, 2013 that provides for a base salary of $250,000 per year, subject to discretionary adjustments and which has subsequently been increased, and a target annual bonus equal to 50% of his annual base salary, with the actual amount of the bonus earned based on the achievement of performance objectives. Mr. Schaub is eligible to participate in our benefit plans, as in effect from time to time.

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Termination of employment without cause or for good reason.     If Mr. Markison's employment is terminated by us without cause or by him for good reason, he will be entitled to receive (i) a lump sum amount equal to his annual base salary, (ii) a lump sum amount equal to his full target bonus for the year of termination, and (iii) a lump sum amount equal to any earned, but unpaid, annual bonus for the year prior to the year of termination. In addition, if Mr. Markison elects to receive COBRA health care continuation coverage, we will pay a portion of his monthly COBRA premiums for 24 months following the date of termination in an amount equal to the employer portion of such group medical and dental premiums as in effect on the date of termination.

If Dr. deVries' employment is terminated by us without cause or by her for good reason, she will be entitled to receive (i) an amount equal to her monthly base salary plus one-twelfth of her target annual bonus, payable for 12 months following termination in accordance with our payroll schedule and (ii) a lump sum amount equal to any earned, but unpaid, annual bonus for the year prior to the year of termination. In addition, if Dr. deVries elects to receive COBRA health care continuation coverage, we will pay her monthly COBRA premiums for up to 12 months following the date of termination.

If Mr. Schaub's employment is terminated by us without cause or by him for good reason, he will be entitled to receive (i) an amount equal to his monthly base salary, payable for 12 months following termination in accordance with our payroll schedule, (ii) a lump sum amount equal to any earned, but unpaid, annual bonus for the year prior to the year of termination and (iii) a pro rata annual bonus for the year of termination, based on actual performance and paid at the same time annual bonuses are paid to employees generally. In addition, if Mr. Schaub elects to receive COBRA health care continuation coverage, we will pay his monthly COBRA premiums for up to 12 months following the date of termination.

Termination of employment by reason of death or disability.     If Mr. Markison's employment is terminated by reason of his death or permanent disability, he will be entitled to receive (i) a pro rata annual bonus for the year of termination, based on actual performance and paid at the same time annual bonuses are paid to employees generally and (ii) a lump sum amount equal to any earned, but unpaid, annual bonus for the year prior to the year of termination.

If Dr. deVries' employment is terminated by reason of her death or disability, she will be entitled to receive a lump sum amount equal to any earned, but unpaid, annual bonus for the year prior to the year of termination, and, if she elects to receive COBRA health care continuation coverage, we will pay her monthly COBRA premiums for up to 12 months following the date of termination.

If Mr. Schaub's employment is terminated by reason of his death or disability, he will be entitled to receive (i) a lump sum amount equal to any earned, but unpaid, annual bonus for the year prior to the year of termination and (ii) a pro rata annual bonus for the year of termination, based on actual performance and paid at the same time annual bonuses are paid to employees generally.

Termination of employment without cause or for good reason following a change in control. If Mr. Markison's employment is terminated by us without cause or by him for good reason, in either case, within 12 months following a change in control, in lieu of the benefits described above, Mr. Markison will be entitled to receive (i) a lump sum amount equal to the greater of his annual base salary on the date of termination or the day immediately prior to the change in control, (ii) a lump sum amount equal to the greater of his target annual bonus in the year of termination or in the year in which the change in control occurred and (iii) a lump sum amount equal to any earned, but unpaid, annual bonus for the year prior to the year of termination. In addition, if Mr. Markison elects to receive COBRA health care continuation coverage, we will pay a portion of his monthly COBRA premiums for 24 months following the date of termination in an amount equal to the employer portion of such group medical and dental premiums as in effect on the date of termination.

Neither Dr. deVries nor Mr. Schaub is entitled to any enhanced severance benefits in connection with a termination of the executive's employment by us without cause or by the executive for good reason following a change in control.

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Severance subject to release of claims.     Our obligation to provide an executive with severance payments and other benefits under the executive's employment agreement is conditioned on the executive signing (and not subsequently revoking) an effective release of claims in favor of us.

Equity compensation

None of our named executive officers received equity-based compensation in 2017. On May 5, 2016, each of our named executive officers received a grant of options to purchase common units of Osmotica Holdings S.C.Sp. under the Osmotica Holdings S.C.Sp. 2016 Equity Incentive Plan (renamed the Amended and Restated Osmotica Pharmaceuticals plc 2016 Equity Incentive Plan in connection with the Reorganization), or the 2016 Plan. Mr. Markison was granted an option to purchase 30,000 common units, Dr. deVries was granted an option to purchase 4,000 common units and Mr. Schaub was granted an option to purchase 10,000 common units. Fifty percent of each option grant vests in equal annual installments on each of the first four anniversaries of the option's vesting commencement date, generally subject to the named executive officer's continued employment on each applicable vesting date (referred to as the Time-Based Options). Fifty percent of each option grant vests based on the achievement of specified performance metrics, with the performance metrics reflecting a multiple of Avista's and Altchem's return on their investment in us (referred to as the Performance-Based Options). Upon a termination of the executive's employment for cause, or a resignation by the executive other than for good reason, any common units received upon the exercise of the Time-Based Options and the Performance-Based Options may be repurchased by us at the lower of cost or fair market value.

In connection with the Reorganization, the Time-Based Options and the Performance-Based Options will be converted to options to purchase our ordinary shares, on the same basis as common units of Osmotica Holdings S.C.Sp. are converted into our ordinary shares, with corresponding adjustments to the exercise price of the options. In connection with the conversion, the Time-Based Options will continue to vest as described above and the Performance-Based Options will be converted into options that vest solely based on the passage of time, with the converted Performance-Based Options vesting in equal annual installments on each of the first four anniversaries of this offering, generally subject to the named executive officer's continued employment on each applicable vesting date.

Outstanding equity awards at fiscal year-end table

The following table sets forth information concerning the outstanding equity awards held by each of our named executive officers as of December 31, 2017.


 
  Option 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
($/share)
  Option
expiration date
 

Brian Markison (1)

    160,631     481,895     642,526     14.95     5/5/2026  

Tina deVries, Ph.D. (2)

    21,417     64,253     85,670     14.95     5/5/2026  

James Schaub (3)

    53,543     160,632     214,175     14.95     5/5/2026  

(1)
Represents an option to purchase 30,000 common units granted on May 5, 2016, as adjusted to reflect the conversion into an option to purchase our ordinary shares in connection with the Reorganization. Fifty percent of the award vests on each anniversary of the Business Combination as follows: 25% vested on each of February 3, 2017 and February 3, 2018, and the remainder vests in two equal installments on each of February 3, 2019 and February 3, 2020. Prior to the Reorganization, fifty percent of the award vested based on the achievement of specified performance metrics, with the performance metrics reflecting a multiple of Avista's and Altchem's return on their investment in us. In connection with the

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    Reorganization, the option will be converted into an option to purchase our ordinary shares and certain amendments will be made to the vesting terms of the options. See "Equity Compensation" above.

(2)
Represents an option to purchase 4,000 common units granted on May 5, 2016, as adjusted to reflect the conversion into an option to purchase our ordinary shares in connection with the Reorganization. Fifty percent of the award vests as follows: 25% vested on each of May 2, 2017 and May 2, 2018, and the remainder vests in two equal installments on each of May 2, 2019 and May 2, 2020. Prior to the Reorganization, fifty percent of the award vested based on the achievement of specified performance metrics, with the performance metrics reflecting a multiple of Avista's and Altchem's return on their investment in us. In connection with the Reorganization, the option will be converted into an option to purchase our ordinary shares and certain amendments will be made to the vesting terms of the options. See "Equity Compensation" above.

(3)
Represents an option to purchase 10,000 common units granted on May 5, 2016, as adjusted to reflect the conversion into an option to purchase our ordinary shares in connection with the Reorganization. Fifty percent of the award vests on each anniversary of the Business Combination as follows: 25% vested on each of February 3, 2017 and February 3, 2018, and the remainder vests in two equal installments on each of February 3, 2019 and February 3, 2020. Prior to the Reorganization, fifty percent of the award vested based on the achievement of specified performance metrics, with the performance metrics reflecting a multiple of Avista's and Altchem's return on their investment in us. In connection with the Reorganization, the option will be converted into an option to purchase our ordinary shares and certain amendments will be made to the vesting terms of the options. See "Equity Compensation" above.

Employee benefits plans

We currently provide broad-based health and welfare benefits that are available to all of our employees, including our named executive officers, including medical, dental, vision, life and disability insurance. In addition, we maintain a 401(k) plan, under which eligible employees may elect to defer their current eligible compensation, subject to the limits imposed by the Internal Revenue Code. The 401(k) plan also provides that we will make employer matching contributions equal to 100% of each employee's elective deferrals up to 3% of base salary, plus 50% of each employee's elective deferrals between 3% and 5% of base salary. Other than the 401(k) plan, we do not provide any qualified or non-qualified retirement or deferred compensation benefits to our employees, including our named executive officers.

Payments on termination of employment or change in control

Each of our named executive officers is a party to an employment agreement with us that provides for certain payments and benefits in connection with a qualifying termination of his or her employment, as described in " Employment arrangements with our named executive officers " above.

In addition, in connection with a change in control, each option granted to our named executive officers that vests solely based on the passage of time will become fully vested and exercisable. Each option granted to our named executive officers that vests based on the achievement of specified performance criteria will vest and become exercisable only to the extent the performance criteria associated with such options are satisfied in connection with the change in control.

Director compensation

Other than Mr. Markison, whose compensation is included with that of our other named executive officers above, none of our directors received any compensation for their service with us during 2017.

Incentive plans

2016 Equity Incentive Plan

The 2016 Plan, as it will be amended and restated in connection with the Reorganization, provides for the grant of stock options, stock appreciation rights, restricted stock, phantom shares, and other share-based awards. Subject to adjustment, the maximum number of shares that may be issued pursuant to awards under the 2016 Plan is 3,212,607 shares. In the event that an outstanding award expires, is cancelled or otherwise terminated without consideration, such shares shall not be available again for grant under the plan. As of September 30, 2018, options to purchase 3,015,572 ordinary shares were outstanding under

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the 2016 Plan. No other equity-based awards have been granted under the 2016 Plan and no further awards will be made under the 2016 Plan following the completion of this offering. In connection with this offering, we have adopted a new omnibus equity plan, the Osmotica Pharmaceuticals plc 2018 Incentive Plan, under which we will grant equity-based awards in connection with or following this offering. This summary is not a complete description of all provisions of the 2016 Plan and is qualified in its entirety by reference to the 2016 Plan, which is filed as an exhibit to the registration statement of which this prospectus is part.

The 2016 Plan is administered by the board of managers of Osmotica Holdings S.C.Sp., and, following this offering, will be administered by the compensation committee of our board of directors, which has the discretionary authority to, among other things, construe and interpret the provisions of the 2016 Plan or any award thereunder, provide for any omission in the 2016 Plan, resolve any ambiguity or conflict under the 2016 Plan, accelerate vesting or otherwise waive any requirements of any award and modify the purchase price or exercise price under any award, subject to the participant's written consent if such amendment or modification would adversely affect his or her rights in any material respect, and subject to approval by our shareholders to the extent required by applicable law. As used in this summary, the term "Administrator" refers to the relevant administrator of the 2016 Plan.

Each of our named executive officers has been granted options to purchase common units under the 2016 Plan, which options will be converted to options to purchase our ordinary shares in connection with the Reorganization. The per share exercise price of each option granted under the 2016 Plan is determined by the Administrator. Each option granted under the 2016 Plan has a term of not more than ten years from the date of grant. The time or times each option granted under the 2016 Plan vests and becomes exercisable is determined by the Administrator on the date of grant.

In the event of any corporate event or transaction such as a merger, consolidation, reorganization, recapitalization or other similar change in capital structure, the Administrator, to prevent dilution or enlargement of participants' rights under the 2016 Plan, shall, in its sole discretion, substitute or adjust the number and kind of ordinary shares or other securities that may be issued under the plan or awards, the number and kind of ordinary shares or other securities subject to outstanding awards, grant a distribution equivalent right or make other value determinations applicable to the 2016 Plan or outstanding awards. In connection with a merger, consolidation or change in control transaction (as defined in the 2016 Plan), the Administrator will take one or more of the following actions with respect to all or any outstanding awards, on such terms as it determines: (i) provide for the continuation, assumption or substitution of awards; (ii) provide for acceleration of the vesting of, right to exercise or lapse of restrictions of awards; (iii) upon written notice to the applicable participant, provide for the expiration of awards to the extent not timely exercised or purchased by the date of such merger or consolidation or any later date set by the Administrator; or (iv) provide for the cancellation of awards for fair value (in the form of cash, our ordinary shares or other property), provided that, in the case of vested stock options and stock appreciation rights or similar awards, the fair value is equal to the excess, if any, of the value of the consideration paid in any such merger or consolidation to a holder of the same number of ordinary shares subject to the award over the aggregate exercise price, purchase price or grant price, as applicable, with respect to the award.

2018 Incentive Plan

In connection with this offering, our board of directors has adopted the Osmotica Pharmaceuticals plc 2018 Incentive Plan, or the 2018 Plan, and, in connection with and following this offering, all equity-based awards will be granted under the 2018 Plan. The following summary describes the material terms of the 2018 Plan. This summary is not a complete description of all provisions of the 2018 Plan and is qualified in its entirety by reference to the 2018 Plan, which is filed as an exhibit to the registration statement of which this prospectus is a part. In connection with this offering, our compensation committee expects to grant stock option awards to our employees, other than employees who are our executive officers, with an aggregate grant date fair value, determined under the accounting rules, of up to approximately $1.2 million.

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These stock options will vest on the fourth anniversary of the grant date, generally subject to the employee's continued employment through such vesting date, with pro-rated vesting in the event the employee's employment is terminated by reason of death or disability prior to the vesting date. The stock options will have a per share exercise price equal to the initial public offering price.

    Purposes

The purposes of the 2018 Plan are to attract, retain and reward key employees of the company and its subsidiaries, to incentivize them to generate shareholder value, to enable them to participate in the growth of the company and to align their interests with the interests of our shareholder. Our non-employee directors, consultants and advisors are eligible to participate in the 2018 Plan under a sub plan, as described below.

    Administration

The 2018 Plan will be administered by our compensation committee, which will have the discretionary authority to interpret the 2018 Plan, determine eligibility for and grant awards, determine, modify and waive the terms and conditions of any award, determine the form of settlement of awards, prescribe forms, rules and procedures relating to the 2018 Plan and awards and otherwise do all things necessary or desirable to carry out the purposes of the 2018 Plan. Our compensation committee may delegate such of its duties, powers and responsibilities as it may determine to one or more of its members, members of our board of directors and, to the extent permitted by law, our officers, and may delegate to employees and other persons such ministerial tasks as it deems appropriate. As used in this summary, the term "Administrator" refers to our compensation committee and its authorized delegates, as applicable.

    Eligibility

Our employees are eligible to participate in the 2018 Plan. Non-employee directors of, consultants and advisors to the company and its subsidiaries are eligible to participate in the 2018 Plan Sub Plan for Directors and Consultants, or the Sub Plan. The Sub Plan is a sub plan of the 2018 Plan under which our non-employee service providers are eligible to participate in the 2018 Plan on substantially the same terms as employees, with certain exceptions noted in this summary. Eligibility for stock options intended to be incentive stock options, or ISOs, is limited to employees of the company or certain affiliates. Eligibility for stock options, other than ISOs, and stock appreciation rights, or SARs, is limited to individuals who are providing direct services to us or certain affiliates on the date of grant of the award. As of September 30, 2018, approximately 428 employees, five directors and 20 consultants and advisors would be eligible to participate in the 2018 Plan (either directly or through the Sub Plan), including all of our executive officers.

    Authorized shares

Subject to adjustment as described below, the maximum number of our ordinary shares that may be delivered in satisfaction of awards under the 2018 Plan is 4,100,000 shares. A maximum of 4,100,000 shares from the share pool may be issued in satisfaction of ISOs. The number of shares delivered in satisfaction of awards under the 2018 Plan is determined (i) net of shares underlying the portion of any award that is settled in cash or the portion of any award that expires, becomes unexercisable without having been exercised, terminates, or is forfeited to or repurchased by us (subject to compliance with Irish law) due to failure to vest, (ii) by treating as having been delivered the full number of shares covered by any portion of an SAR that is settled in shares (and not only the number of shares delivered in settlement) and (iii) by treating as having been delivered any shares withheld from a stock option or other award to satisfy the tax withholding obligations with respect to such stock option or other award or in payment of the exercise price or purchase price of such stock option or other award. The number of shares available for delivery under the 2018 Plan will not be increased by any shares that have been delivered under the 2018 Plan and are subsequently repurchased using proceeds directly attributable to stock option exercises.

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Shares that may be delivered under the 2018 Plan may be authorized but unissued shares or previously issued shares acquired by us.

    Individual limits

With respect to any participant in any calendar year, no more than 615,000 shares underlying each of awards of stock options, awards of SARs and awards other than stock options and SARs may be granted.

    Director limits

In addition to the individual limits described above, the Sub Plan provides that the aggregate value of all compensation granted or paid to any of our non-employee directors with respect to any calendar year, including awards under the Sub Plan, for his or her services as a director during such calendar year, may not exceed $550,000, with the value of any awards under the Sub Plan calculated based on their grant date fair value and assuming maximum payout.

    Types of awards

The 2018 Plan provides for the grant of stock options, SARs, restricted and unrestricted stock and stock units, performance awards, and other awards that are convertible into or otherwise based on our shares. Dividend equivalents may also be provided in connection with awards under the 2018 Plan.

    §
    Stock options and SARs.   The Administrator may grant stock options, including ISOs, and SARs. A stock option is a right entitling the holder to acquire our ordinary shares upon payment of the applicable exercise price. A SAR is a right entitling the holder upon exercise to receive an amount (payable in cash or shares of equivalent value) equal to the excess of the fair market value of the shares subject to the right over the base value from which appreciation is measured. The exercise price of each stock option, and the base value of each SAR, granted under the 2018 Plan shall be no less than 100% of the fair market value of a share on the date of grant (110% in the case of certain ISOs). Other than in connection with certain corporate transactions or changes to our capital structure, stock options and SARs granted under the 2018 Plan may not be repriced, amended, or substituted for with new stock options or SARs having a lower exercise price or base value, nor may any consideration be paid upon the cancellation of any stock options or SARs that have a per share exercise or base price greater than the fair market value of a share on the date of such cancellation, in each case, without shareholder approval. Each stock option and SAR will have a maximum term of not more than ten years from the date of grant (or five years, in the case of certain ISOs).

    §
    Restricted and unrestricted stock and stock units.   The Administrator may grant awards of shares, stock units, restricted stock and restricted stock units. A stock unit is an unfunded and unsecured promise, denominated in shares, to deliver shares or cash measured by the value of shares in the future, and a restricted stock unit is a stock unit that is subject to the satisfaction of specified performance or other vesting conditions. Restricted stock are shares subject to restrictions requiring that they be redelivered or forfeited to the company if specified conditions are not satisfied.

    §
    Performance awards.   The Administrator may grant performance awards, which are awards subject to performance criteria. The performance criteria that may be used with respect to performance awards are described under "—2018 Annual Incentive Plan—Awards; Performance Criteria."

    §
    Other share-based awards.   The Administrator may grant other awards that are convertible into or otherwise based on our ordinary shares, subject to such terms and conditions as it determines.

    §
    Substitute awards.   The Administrator may grant substitute awards in connection with certain corporate transactions, which may have terms and conditions that are inconsistent with the terms and conditions of the 2018 Plan.

During a transition period following the completion of this offering, the Administrator may grant awards under the 2018 Plan that are intended to be exempt from Section 162(m) of the Code and its requirements under a special transition rule.

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    Vesting; terms of awards

The Administrator determines the terms of all awards granted under the 2018 Plan, including the time or times an award vests or becomes exercisable, the terms on which an award remains exercisable, and the effect of termination of a participant's employment or service on an award. The Administrator may at any time accelerate the vesting or exercisability of an award.

    Transferability of awards

Except as the Administrator may otherwise determine, awards may not be transferred other than by will or by the laws of descent and distribution.

    Effect of certain transactions

In the event of certain covered transactions (including the consummation of a merger, consolidation, or the sale of substantially all of our assets or ordinary shares, a change in ownership of our shares, or our dissolution or liquidation), the Administrator may, with respect to outstanding awards, provide for (in each case, on such terms and subject to such conditions as it deems appropriate):

    §
    The assumption, substitution or continuation of some or all awards (or any portion thereof) by the acquirer or surviving entity;

    §
    The acceleration of exercisability or delivery of shares in respect of any award, in full or in part; and

    §
    The cash payment in respect of some or all awards (or any portion thereof) equal to the difference between the fair market value of the shares subject to the award and its exercise or base price, if any.

Except as the Administrator may otherwise determine, each award will automatically terminate or be forfeited immediately upon the consummation of the covered transaction, other than awards that are substituted for, assumed, or that continue following the covered transaction.

    Adjustment provisions

In the event of certain corporate transactions, including a share dividend, share split or combination of shares (including a reverse share split), recapitalization or other change in our capital structure, the Administrator shall make appropriate adjustments to the maximum number of shares that may be issued under the 2018 Plan, the individual award limits, the number and kind of securities subject to, and, if applicable, the exercise or purchase prices (or base values) of outstanding awards, and any other provisions affected by such event.

    Clawback

The Administrator may provide that any outstanding award or the proceeds of any award or share acquired thereunder will be subject to forfeiture and disgorgement to the company, with interest and other related earnings, if the participant to whom the award was granted violates a non-competition, non-solicitation, confidentiality or other restrictive covenant or to the extent provided in any applicable company policy that provides for forfeiture or disgorgement, or as otherwise required by law or applicable stock exchange listing standards.

    Amendments and termination

The Administrator may at any time amend the 2018 Plan or any outstanding award and may at any time terminate the 2018 Plan as to future grants. However, except as expressly provided in the 2018 Plan, the Administrator may not alter the terms of an award so as to materially and adversely affect a participant's rights without the participant's consent (unless the Administrator expressly reserved the right to do so at the time the award was granted). Any amendments to the 2018 Plan will be conditioned on shareholder approval to the extent required by law or applicable stock exchange requirements.

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2018 Employee Share Purchase Plan

In connection with this offering, our board of directors has adopted the Osmotica Pharmaceuticals plc 2018 Employee Share Purchase Plan, or the ESPP. As of the date of this prospectus, no options to purchase our ordinary shares have been granted under the ESPP. The following summary describes the material terms of the ESPP. This summary is not a complete description of all provisions of the ESPP and is qualified in its entirety by reference to the ESPP, which is filed as an exhibit to the registration statement of which this prospectus is a part.

    Purposes

The purposes of the ESPP are to attract, retain and reward eligible employees of us and our participating subsidiaries, to incentivize them to generate shareholder value, to enable them to participate in our growth and to align their interests with the interests of our shareholders. During any time in which the Administrator (as such term is defined below) determines that the ESPP is not able to satisfy the requirements of Section 423 of the Code, the ESPP will not be treated as an "employee stock purchase plan" under Section 423, but the Administrator will still be able to grant options to purchase our ordinary shares under the ESPP. If, or as of such time as, the Administrator determines that the ESPP is able to satisfy the requirements under Section 423 of the Code and that it will operate the ESPP in accordance with such requirements, the ESPP is intended to qualify as an "employee stock purchase plan" under Section 423 of the Code.

    Administration

The ESPP will be administered by our compensation committee, which will have the authority to interpret the ESPP, determine eligibility under the ESPP, prescribe forms, rules and procedures relating to the ESPP, and otherwise do all things necessary or appropriate to carry out the purposes of the ESPP. Our compensation committee may delegate such of its duties, powers and responsibilities as it may determine to one or more of its members, members of our board of directors and, to the extent permitted by law, our officers, and may delegate to employees and other persons such ministerial tasks as it deems appropriate. As used in this summary, the term "Administrator" refers to our compensation committee and its authorized delegates, as applicable.

    Shares subject to the ESPP

Subject to adjustment as described below, the aggregate number of ordinary shares available for purchase pursuant to the exercise of options under the ESPP is 1,550,000 shares. Shares to be delivered upon exercise of options under the ESPP may be authorized but unissued shares, treasury shares, or shares acquired in an open-market transaction. If any option granted under the ESPP expires or terminates for any reason without having been exercised in full or ceases for any reason to be exercisable in whole or in part, the unpurchased shares subject to such option will again be available for purchase under the ESPP.

    Eligibility

Participation in the ESPP will generally be limited to our employees and employees of our subsidiaries (i) who have been continuously employed by us or one of our subsidiaries, as applicable, for a period of at least 30 business days as of the first day of an applicable offering period, (ii) whose customary employment with us or one of our subsidiaries, as applicable, is for more than five months per calendar year, (iii) who customarily work 20 hours or more per week, and (iv) who satisfy the requirements set forth in the ESPP. The Administrator may establish additional or other eligibility requirements, or change the requirements described in this paragraph, to the extent consistent with Section 423 of the Code. Any employee who owns (or is deemed under statutory attribution rules to own) shares possessing five percent or more of the total combined voting power or value of all classes of shares of us or our parent or subsidiaries, if any, will not be eligible to participate in the ESPP. As of June 30, 2018, approximately 362 employees would be eligible to participate in the ESPP, including all of our executive officers.

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    General terms of participation

The ESPP allows eligible employees to purchase shares during specified offering periods. Unless otherwise determined by the Administrator, offering periods under the ESPP will be six months in duration and commence on the first business day of January and July of each year. During each offering period, eligible employees will be granted an option to purchase our ordinary shares on the last business day of the offering period. A participant may purchase a maximum of 5,000 shares with respect to any offering period (or such lesser number as the Administrator may prescribe). No participant will be granted an option under the ESPP that permits the participant's right to purchase our ordinary shares under the ESPP and under all other employee stock purchase plans of us or our parent or subsidiaries, if any, to accrue at a rate that exceeds $25,000 in fair market value (or such other maximum as may be prescribed by the Code) for each calendar year during which any option granted to the participant is outstanding at any time, determined in accordance with Section 423 of the Code.

The purchase price of each share issued pursuant to the exercise of an option under the ESPP on an exercise date will be 85% (or such greater percentage as specified by the Administrator) of the lesser of: (a) the fair market value of an ordinary share on date the option is granted, which will be the first day of the offering period, and (b) the fair market value of an ordinary share on the exercise date, which will the last business day of the offering period.

The Administrator has the discretion to change the commencement and exercise dates of offering periods, the purchase price, the maximum number of shares that may be purchased with respect to any offering period, the duration of any offering periods and other terms of the ESPP, in each case, without shareholder approval, except as required by law.

Participants in the ESPP will pay for shares purchased under the ESPP through payroll deductions. Participants may elect to authorize payroll deductions between one and ten percent of the participant's eligible compensation each payroll period.

    Transfer restrictions

For participants who have purchased shares under the ESPP, the Administrator may impose restrictions prohibiting the transfer, sale, pledge or alienation of such shares, other than by will or by the laws of descent and distribution, for such period as may be determined by the Administrator.

    Adjustments

In the event of any change in our outstanding ordinary shares by reason of a share dividend, share split, reverse share split, split-up, recapitalization, merger, consolidation, reorganization, or other capital change, the aggregate number and type of shares available for purchase under the ESPP, the maximum number and type of shares purchasable during an offering period, and the purchase price per share will be appropriately adjusted.

    Corporate transactions

In the event of a (i) merger, consolidation or similar transaction in which we are not the surviving corporation or which results in the acquisition of all or substantially all of our then-outstanding ordinary shares by a single person or entity (or group of persons or entities), (ii) sale of all or substantially all of our assets, (iii) dissolution or liquidation of us, or (iv) change in control, the Administrator may provide that each outstanding option will be assumed or substituted for or will be cancelled and the balances of participants' accounts returned, or that the option period will end before the date of the proposed corporate transaction.

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    Amendments and termination

Our board of directors has discretion to amend the ESPP to any extent and in any manner it may deem advisable, provided that any amendment that would be treated as the adoption of a new plan for purposes of Section 423 of the Code will require shareholder approval. Our board of directors may suspend or terminate the ESPP at any time.

2018 Annual Incentive Plan

In connection with this offering, our board of directors has adopted the 2018 Annual Cash Incentive Plan, or our Annual Incentive Plan. Following its adoption, annual cash bonus opportunities for our leadership team employees, including our Chief Executive Officer and his direct reports, will be granted under our Annual Incentive Plan. Annual cash bonuses paid to our named executive officers in respect of fiscal 2017 are described under "Base salary and annual bonus" above. Annual cash bonuses for our named executive officers in respect of fiscal 2018 will be based on the achievement of pre-established corporate EBITDA goals. The following summary describes the material terms of our Annual Incentive Plan. This summary is not a complete description of all provisions of our Annual Incentive Plan and is qualified in its entirety by reference to our Annual Incentive Plan, which is filed as an exhibit to the registration statement of which this prospectus is a part.

    Administration

Our Annual Incentive Plan will be administered by our compensation committee and its delegates. As used in this summary, the term "Administrator" refers to our compensation committee and its authorized delegates, as applicable.

The Administrator will have the discretionary authority to interpret our Annual Incentive Plan, determine eligibility for and grant awards, determine, modify or waive the terms and conditions of any award, prescribe forms, rules and procedures relating to our Annual Incentive Plan and awards, and otherwise do all things necessary or desirable to carry out the purposes of our Annual Incentive Plan.

    Eligibility and participation

Executive officers and key employees of the company and its subsidiaries will be eligible to participate in our Annual Incentive Plan and will be selected from time to time by the Administrator to participate in the plan.

    Awards; performance criteria

Awards under our Annual Incentive Plan will be made based on, and subject to achieving, specified criteria established by the Administrator. For each award granted under our Annual Incentive Plan, the Administrator will establish the performance criteria applicable to the award, the amount or amounts payable if the performance criteria are achieved and such other terms and conditions as the Administrator deems appropriate.

Performance criteria and any targets with respect thereto need not be based upon an increase, a positive or improved result or avoidance of loss and may be applied to a participant individually, or to a business unit or division or the company as a whole and may relate to any or any combination of the following (measured either absolutely or by reference to an index or indices or the performance of one or more companies and determined either on a consolidated basis or, as the context permits, on a divisional, subsidiary, line of business, project or geographical basis or in combinations thereof): sales; revenues; prescription volume or trends; assets; expenses; earnings before or after deduction for all or any portion of interest, taxes, depreciation, or amortization, whether or not on a continuing operations or an aggregate or per share basis; return on equity, investment, capital or assets; one or more operating ratios; borrowing levels, leverage ratios or credit rating; market share; capital expenditures; cash flow; share price; shareholder return; sales of

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particular products or services; customer acquisition or retention; acquisitions and divestitures (in whole or in part); joint ventures and strategic alliances; spin-offs, split-ups and the like; reorganizations; recapitalizations, restructurings, financings (issuance of debt or equity) or refinancings; or strategic business criteria, consisting of one or more objectives based on: meeting specified market penetration or value added, product development or introduction (including, without limitation, any clinical trial accomplishments, regulatory or other filings or approvals, or other product development milestones), geographic business expansion, cost targets, cost reductions or savings, customer satisfaction, operating efficiency, acquisition or retention, employee satisfaction, information technology, corporate development (including, without limitation, licenses, innovation, research or establishment of third-party collaborations), manufacturing or process development, legal compliance or risk reduction, or patent application or issuance goals. The Administrator may provide that one or more of the performance criteria applicable to an award will be adjusted to reflect events occurring during the performance period that affect the applicable performance criteria.

During a transition period following the completion of this offering, the Administrator may grant awards under the Annual Incentive Plan that are intended to be exempt from Section 162(m) of the Code and its requirements under a special transition rule.

    Payments under an award; individual limits

A participant will be entitled to payment under an award only if all conditions to payment have been satisfied in accordance with our Annual Incentive Plan and the terms of the award. Following the end of a performance period, the Administrator will determine whether and to what extent the applicable performance criteria have been satisfied and will determine the amount payable under each award. The Administrator has the discretionary authority to increase or decrease the amount actually paid under any award. The maximum amount payable to any participant in any calendar year is $4 million.

    Recovery of compensation

Payments in respect of an award will be subject to forfeiture and disgorgement to the company if the participant violates a non-competition, non-solicitation, confidentiality or other restrictive covenant or to the extent provided in any applicable company policy that provides for forfeiture or disgorgement, or as otherwise required by law or applicable stock exchange listing standards.

    Amendment and termination

The Administrator may amend, suspend or terminate our Annual Incentive Plan at any time, except that any amendment or termination that would materially and adversely affect a participant's rights under an award will require the consent of the affected participant, unless the Administrator expressly reserved the right to so amend the award at the time of grant.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Set forth below is a description of certain relationships and related party transactions between us and our subsidiaries, and our directors, executive officers or holders of more than 5% of our voting securities.

Lease Agreement for Office and Warehouse Space in Buenos Aires, Argentina

On December 29, 2008, through our subsidiary Osmotica Pharmaceutical Argentina S.A., we entered into a lease agreement with Simali S.A., an affiliate of Altchem, pursuant to which we lease certain office and warehouse space located in Buenos Aires, Argentina. The current lease term expires on December 31, 2020. From January 1, 2015 through June 30, 2018, we paid an aggregate of $1,102,997 in rent payments under this lease. Our monthly rent payment thereunder is 560,000 Argentinean pesos, 670,000 Argentinean pesos and 800,000 Argentinean pesos for 2018, 2019 and 2020, respectively, plus any required value-added tax. As of June 30, 2018, the exchange rate was 28,932 Argentinean pesos to $1.00.

Junior Subordinated Payment-In-Kind Promissory Notes Due 2024

In connection with the Business Combination, Osmotica Holdings S.C.Sp. issued $25 million in aggregate principal amount of junior subordinated payment-in-kind promissory notes due 2024. Avista and Altchem purchased $11,934,000 and $12,500,000, respectively, in principal amount of such notes. Interest accrued on the notes at an annual rate of 18% and was payable in-kind. On December 21, 2017, in connection with the refinancing of our senior secured credit facilities, we repaid all amounts outstanding under the notes and, as a result, Avista and Altchem received $16,383,712 and $17,160,750, respectively, representing repayment of all outstanding original principal amount plus accrued interest thereon.

2016 Advisory Services and Monitoring Agreement

On February 3, 2016, in conjunction with the Business Combination, we entered into an advisory services and monitoring agreement with an affiliate of Avista and Altchem, pursuant to which Vertical/Trigen paid the affiliate of Avista a one-time fee of $7,000,000 for advisory services related to the Business Combination. In addition, this agreement provides for the payment of a quarterly fee of $125,000 to each of the affiliate of Avista and Altchem during the term of the agreement, as consideration for advisory services. Under the terms of the agreement, to the extent any transaction is entered into by us or our affiliates, the affiliate of Avista and Altchem would be entitled to receive an additional fee that is reasonable and customary for services provided in connection with such a transaction. In addition, we are required to pay, or reimburse the affiliate of Avista, their out-of-pocket expenses in connection with their performance of services under the agreement. Since January 1, 2015, we have paid $261,771 to the affiliate of Avista. We intend to terminate this agreement in connection with this offering.

2013 Advisory Services and Monitoring Agreement

On December 16, 2013, Vertical/Trigen and certain affiliates entered into an advisory services and monitoring agreement with, among others, an affiliate of Avista, which was terminated in connection with the Business Combination. The agreement provided for the payment of a quarterly fee of $62,500 to the affiliate of Avista during the term of the agreement, as consideration for advisory services. In addition, Vertical/Trigen was required to pay, or reimburse the affiliate of Avista, its out-of-pocket expenses in connection with its performance of services under the agreement. Between January 1, 2015 and the termination of the agreement in connection with the Business Combination, we paid $137,454 to the affiliate of Avista pursuant to this agreement.

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Amended and Restated Partnership Agreement

On February 3, 2016, in connection with the Business Combination, Osmotica S.C.Sp. entered into an Amended and Restated Partnership Agreement, or Partnership Agreement, with its equity holders, including the Sponsors, our directors and officers and certain other investors, relating to rights and obligations with respect to ownership of partnership interests in Osmotica Holdings S.C.Sp., including the designation of certain director nominees, certain corporate governance rights, drag-along rights, tag-along rights, preemptive rights, demand and piggyback registration rights and related lockup obligations. In connection with the consummation of this offering and the Reorganization, we intend to replace this agreement with a shareholders' agreement, as described below.

Shareholders' Agreement

In connection with this offering, we plan to enter into a shareholders' agreement with Avista and Altchem. The shareholders' agreement will provide, among other things, that:

    §
    for so long as Avista or Altchem, as applicable, owns at least 20% of our issued and outstanding ordinary shares, such Sponsor will each be entitled to designate two individuals for nomination to serve on our board of directors; and

    §
    when Avista or Altchem, as applicable, own less than 20% but at least 10% of our issued and outstanding ordinary shares, such Sponsor will be entitled to designate one individual for nomination.

The initial Avista nominees will be David Burgstahler and Sriram Venkataraman, and the initial Altchem nominees will be Juan Vergez and Carlos Sielecki. We will be required to take all necessary actions to effect and maintain that the composition of our board of directors is as set forth above. Pursuant to the terms of the shareholders' agreement and in proportion to the aforementioned board nomination rights, Avista and Altchem will also have the right to designate members of our audit and compensation committees.

In addition, pursuant to the shareholders' agreement, after the six-month anniversary of this offering, Avista and Altchem will have the right to demand that we register any ordinary shares held by them, subject to certain terms and conditions, including a minimum expected aggregate gross proceeds of $25.0 million. After the 12-month anniversary of this offering, Avista and Altchem will have the right to require us to file a registration statement on Form S-3. Avista and Altchem will also have piggyback registration rights, such that, if we propose to register any of our shares, we will generally be required to include shares that Avista and Altchem request to be included in such registration statement. We will be responsible for all registration expenses, other than underwriting discounts which will be borne by Avista or Altchem on a pro rata basis.

Related Party Transactions Policy

In connection with this offering, we plan to adopt a related party transactions policy that will govern the review and approval of related party transactions following this offering. Pursuant to this policy, if we want to enter into a transaction with a related party or an affiliate of a related party, our audit committee will review the proposed transaction to determine, based on applicable rules of the Nasdaq Stock Market and the SEC, whether such transaction requires pre-approval by our audit committee or our board of directors. If pre-approval is required, the proposed transaction will be reviewed at the next regular or special meeting of our audit committee or our board of directors, as applicable. We may not enter into a related party transaction unless our audit committee has specifically confirmed in writing that either no further reviews are necessary or that all requisite corporate reviews have been obtained.

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PRINCIPAL SHAREHOLDERS

The following table shows information as of September 30, 2018, after giving effect to the Reorganization, regarding the beneficial ownership of our ordinary shares (i) prior to this offering and (ii) as adjusted to give effect to this offering by:

    §
    each person or group who is known by us to own beneficially more than 5% of our ordinary shares;

    §
    each member of our board of directors and each of our named executive officers; and

    §
    all members of our board of directors and our executive officers as a group.

Unless otherwise indicated below, the address for each listed director, officer and shareholder is c/o Osmotica Pharmaceuticals plc, 400 Crossing Boulevard, Bridgewater, New Jersey 08807. Beneficial ownership has been determined in accordance with the applicable rules and regulations promulgated under the Exchange Act. The information is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting or investment power and any shares as to which the individual or entity has the right to acquire beneficial ownership within 60 days after through the exercise of any option, warrant or other right. For purposes of calculating each person's or group's percentage ownership, of our ordinary shares issuable pursuant to options exercisable within 60 days after are included as outstanding and beneficially owned for that person or group but are not treated as outstanding for the purpose of computing the percentage ownership of any other person or group. The inclusion in the following table of those shares, however, does not constitute an admission that the named shareholder is a direct or indirect beneficial owner. To our knowledge, except under applicable community property laws or as otherwise indicated, the persons named in the table have sole voting and sole investment control with respect to all shares shown as beneficially owned. For more information regarding the terms of our ordinary shares, see "Description of Share Capital." For more information regarding our relationship with certain of the persons named below, see "Certain Relationships and Related Party Transactions."

The numbers listed below are based on 42,857,139 ordinary shares outstanding as of September 30, 2018, after giving effect to the Reorganization.


 
  Shares Owned Before
this Offering
  Shares Owned After
this Offering
(no option exercise)
  Shares Owned After
this Offering
(full option exercise)
 
Name of Beneficial Owner
  Number   Percentage   Number   Percentage   Number   Percentage  

Beneficial owners of more than 5% of our ordinary shares:

                                     

Investment funds affiliated with Avista Capital Partners (1)

    19,450,785     45.4 %   19,450,785     38.0 %   19,450,785     37.1 %

Altchem (2)

    21,417,540     50.0 %   21,417,540     41.9 %   21,417,540     40.9 %

Directors and Named Executive Officers:

                                     

Brian Markison (3)

    1,809,505     4.2 %   1,809,505     3.5 %   1,809,505     3.4 %

David Burgstahler (4)

                         

Sriram Venkataraman (4)

                         

Carlos Sielecki (5)

                         

Juan Vergez (5)

                         

Tina deVries, Ph.D. (6)

    42,835     *     42,835     *     42,835     *  

James Schaub (7)

    266,590     *     266,590     *     266,590     *  

All executive officers and directors as a group (9 persons) (8)

    2,257,286     5.2 %   2,257,286     4.4 %   2,257,286     4.3 %

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*
Indicates less than one percent.

(1)
The shares included in the table consist of 4,825,916 ordinary shares held by ACP Holdco (Offshore), L.P., 8,654,948 ordinary shares held by ACP III AIV, L.P., 4,936,926 ordinary shares held by Orbit Co-Invest I LLC and 1,032,995 ordinary shares held by Orbit Co-Invest III LLC, which we collectively refer to as the Avista Funds. Avista Capital Partners III GP, L.P., or ACP GP, serves as the general partner of ACP Holdco (Offshore), L.P. and ACP III AIV, L.P., and as the Manager of each of Orbit Co-Invest I LLC and Orbit Co-Invest III LLC. By virtue of the relationships described above, ACP GP may be deemed to share beneficial ownership of the shares held by the Avista Funds. Voting and disposition decisions at ACP GP with respect to the ordinary shares held by the Avista Funds are made by an investment committee, the members of which include David Burgstahler and Sriram Venkataraman, each of whom is a member of our board of directors. Each of the members of the investment committee disclaims beneficial ownership of the ordinary shares held by the Avista Funds. The address for each of these entities is 65 East 55th Street, 18th Floor, New York, NY 10022.

(2)
The shares included in the table consists of 20,235,297 ordinary shares held by Altchem Limited and 1,182,243 ordinary shares held by Orbit Co-Invest A-1 LLC. Altchem Limited serves as the manager of Orbit Co-Invest A-1 LLC. As a result, Altchem Limited may be deemed to share beneficial ownership of the shares held by Orbit Co-Invest A-1 LLC. Voting and disposition decisions with respect to ordinary shares beneficially owned by Altchem Limited are made by the foundation council of Harsaul Foundation, a foundation organized in Panama, in its absolute discretion. As a result, Harsaul Foundation may be deemed to share beneficial ownership of the ordinary shares held by each of Altchem Limited and Orbit Co-Invest A-1 LLC. The address for Altchem Limited is Kapaïokákn, 6, CITY HOUSE, 3032, Limasol, Cyprus. The address for Orbit Co-Invest A-I LLC is 895 Sawyer Road Marietta, GA 30062. The registered address for Harsaul Foundation is Ave. Samuel Lewis and 54 Street, Panama, Republic of Panama.

(3)
Includes 321,263 shares that may be acquired by Mr. Markison upon the exercise of outstanding options.

(4)
Excludes the ordinary shares held by the Avista Funds. See footnote 1 above.

(5)
Excludes the ordinary shares held by Altchem Limited and Orbit Co-Invest A-1 LLC. See footnote 2 above.

(6)
Includes 42,835 shares that may be acquired by Dr. deVries upon the exercise of outstanding options.

(7)
Includes 107,087 shares that may be acquired by Mr. Schaub upon the exercise of outstanding options.

(8)
Includes 540,791 shares that may be acquired by executive officers and directors upon exercise of outstanding options. Excludes the ordinary shares held by the Avista Funds, Altchem Limited and Orbit Co-Invest A-1 LLC. See footnotes 1 and 2 above.

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DESCRIPTION OF CERTAIN INDEBTEDNESS

The following is a summary of certain of our indebtedness that is currently outstanding. The following descriptions do not purport to be complete and are qualified in their entirety by reference to the agreements and related documents referred to herein, copies of which have been filed as exhibits to the registration statement of which this prospectus forms a part, and may be obtained as described under "Where You Can Find More Information" in this prospectus.

Senior Secured Credit Facilities

On February 3, 2016, Osmotica Pharmaceutical Corp., Orbit Blocker I LLC, Orbit Blocker II LLC and Valkyrie Group Holdings, Inc., collectively, the Borrowers, entered into senior secured credit facilities, consisting of (i) a $160.0 million senior secured term loan facility and (ii) a $30.0 million senior secured revolving credit facility, with certain lenders, Fifth Third Bank, as issuing bank, and CIT Bank, N.A., as administrative agent and swingline lender. The credit agreement governing our senior secured credit facilities, as it may be amended, supplemented or otherwise modified, is referred to as the Credit Agreement. On November 10, 2016, the Borrowers entered into an amendment to the Credit Agreement pursuant to which the Borrowers incurred an additional $117.5 million term loan and made certain other amendments to the Credit Agreement. On December 21, 2017, the Borrowers entered into an amendment to the Credit Agreement pursuant to which the Borrowers refinanced all existing indebtedness under the Credit Agreement with (x) a $277.5 million senior secured term loan A facility, or the Term A Loans, (y) a $50.0 million senior secured term loan B facility, or the Term B Loans, and (z) a $50.0 million secured revolving credit facility, or the Revolver.

In addition to borrowings on a revolving basis, the Revolver includes (i) borrowing capacity of up to the lesser of $5.0 million and the aggregate revolving credit commitments in the form of letters of credit and (ii) expedited borrowings on same-day notice, referred to as swingline loans, in an aggregate amount up to the lesser of $5.0 million and the aggregate revolving credit commitments.

The Credit Agreement provides that, subject to certain conditions, the Borrowers may request increases to the outstanding term loans and the commitments under the Revolver and may add one or more incremental term loan tranches up to a specified amount (which amount may increase if the Borrowers meet certain specified financial ratios). The availability of such increased loans and commitments and additional tranches of term loans or revolving credit facilities is subject to, among other conditions, the absence of any default or event of default under the Credit Agreement (subject to certain exceptions) and the receipt of commitments by existing or additional financial institutions.

Interest Rate and Fees

Borrowings under our senior secured credit facilities bear interest at a rate per annum equal to an applicable margin plus, at the Borrowers' option, either (i) a base rate determined by reference to the highest of (a) the federal funds effective rate plus 0.50%, (b) the prime rate of CIT Bank, N.A. and (c) LIBOR plus 1.00% and (d) 2.00% or (ii) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, which shall be no less than 1.00%. After giving effect to this offering, the applicable margin for borrowings under the Revolver and the Term A Loans is subject to adjustment each fiscal quarter based on the Borrowers' total net leverage ratio and is equal to (a) 3.75% per annum with respect to loans that are LIBOR borrowings and 2.75% with respect to loans that are base rate borrowings if the Borrowers' total net leverage ratio exceeds 2.00 to 1.00 and (b) 3.25% per annum with respect to loans that are LIBOR borrowings and 2.25% with respect to loans that are base rate borrowings if the Borrowers' total net leverage ratio is less than or equal to 2.00 to 1.00. The applicable margin for borrowings of the Term B Loans is 4.25% per annum with respect to LIBOR borrowings and 3.25% per annum with respect to loans that are base rate borrowings.

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In addition to paying interest on outstanding principal under our senior secured credit facilities, the Borrowers pay customary agency fees and a commitment fee in respect of the unutilized commitments under the Revolver, which initially was 0.50% per annum. The commitment fee is subject to a step-down to 0.375% per annum based on the Borrowers' total net leverage ratio at the end of each fiscal quarter.

Mandatory Prepayments

The Credit Agreement requires the Borrowers to prepay, subject to certain exceptions, outstanding term loans with:

    §
    50% (subject to a step-down to 25% based upon the Borrowers' total net leverage ratio) of the Borrowers' annual excess cash flow;

    §
    100% of the net cash proceeds of certain asset sales and casualty and condemnation events, subject to reinvestment rights and certain other exceptions; and

    §
    100% of the net cash proceeds of any incurrence or issuance of certain debt, subject to certain exceptions, which exceptions include certain other debt permitted under our senior secured credit facilities.

Voluntary Prepayments

All outstanding loans under our senior secured credit facilities may be voluntarily prepaid at any time without premium or penalty other than customary "breakage" costs with respect to LIBOR loans.

Amortization and Final Maturity

The Credit Agreement requires scheduled quarterly principal payments equal to (i) 0.6925% of the original principal amount of the Term A Loans and (ii) 0.25% of the original principal amount of the Term B Loans, with the balance of the Term A Loans and the Term B Loans due and payable on December 21, 2022. There is no scheduled amortization of the principal amounts of the loans outstanding under the Revolver. Any principal amount outstanding under the Revolver is due and payable in full on December 21, 2022.

Guarantees and Security

The Borrowers' obligations under our senior secured credit facilities are unconditionally guaranteed by the Borrowers' immediate corporate parents and certain of their existing direct or indirect wholly owned material domestic subsidiaries, and are required to be guaranteed by certain of their future direct or indirect wholly owned material domestic subsidiaries. All obligations under our senior secured credit facilities, and the guarantees of those obligations, are secured, subject to certain exceptions, by substantially all of the Borrowers' assets and the assets of the guarantors, including:

    §
    a first-priority pledge of all capital stock of the Borrowers directly held by the Borrowers' corporate parents and a first-priority pledge of all of the capital stock directly held by the Borrowers and the subsidiary guarantors (which pledge, in the case of the capital stock of certain foreign subsidiaries, is limited to 65% of the stock of such foreign subsidiary); and

    §
    a first-priority security interest in substantially all of the Borrowers' and the guarantors' tangible and intangible assets.

Incremental Debt

The senior secured credit facilities permit the Borrowers to incur additional indebtedness under the Credit Agreement up to the sum of (a) $75.0 million and (b) an unlimited amount so long as the Borrowers' total net leverage ratio would be equal to or less than 3.50 to 1.00 on a pro forma basis.

Certain Covenants and Events of Default

Our senior secured credit facilities contain a number of covenants that, among other things and subject to certain exceptions, restrict the Borrowers' ability and the ability of their subsidiaries to:

    §
    incur additional indebtedness;

    §
    pay dividends on capital stock or redeem, repurchase or retire capital stock or other indebtedness;

    §
    make investments, loans and acquisitions;

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    §
    create restrictions on (i) the payment of dividends or other amounts to the Borrowers from restricted subsidiaries that are not guarantors or (ii) the ability of the Borrowers and the guarantors to incur liens on property for the benefit of the lenders under our senior secured credit facilities;

    §
    engage in transactions with affiliates;

    §
    sell assets, including capital stock of subsidiaries;

    §
    materially alter the business we conduct;

    §
    consolidate or merge;

    §
    incur liens;

    §
    enter into certain derivative transactions; and

    §
    prepay or amend any junior debt (including any junior lien debt and any subordinated debt).

In addition, the Credit Agreement requires the Borrowers to comply with (i) a maximum total net leverage ratio financial maintenance covenant tested as of the last day of each fiscal quarter and (ii) a minimum fixed charge coverage ratio. Any breach of these financial covenants is subject to certain equity cure rights under the Credit Agreement.

The Credit Agreement also contains certain customary representations and warranties, affirmative covenants and provisions relating to events of default (including upon a change of control).

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DESCRIPTION OF SHARE CAPITAL

The following is a summary of some of the terms of our ordinary shares based on our Articles of Association, as they will become effective upon their amendment prior to the completion of this offering, and the Irish Companies Act.

The following summary is subject to, and is qualified in its entirety by reference to, the provisions of our Articles of Association, the form of which is filed as an exhibit to the registration statement of which this prospectus is a part.

Except as otherwise specified below, references to voting by our shareholders contained in this Description of Share Capital are references to voting by holders of ordinary shares entitled to attend and vote generally at general meetings of our shareholders.

Organization

We are an Irish public company with limited liability. We were organized in Ireland on July 13, 2017 under the name Lilydale Limited with registered number 607944. Effective May 1, 2018, we were renamed Osmotica Pharmaceuticals Limited. On July 31, 2018, Osmotica Pharmaceuticals Limited re-registered under the Irish Companies Act of 2014 as a public limited company and was renamed Osmotica Pharmaceuticals plc. Our affairs will be governed by our Constitution, including our Articles of Association, that will come into effect immediately prior to the completion of this offering and Irish law.

Objective

As provided by and described in our Memorandum of Association, our principal objective is to carry on the business of a holding company and all associated related activities and to carry on various activities associated with that objective.

Share Capital

Immediately after the completion of this offering, our authorized share capital will be $4,400,000 and €25,000, divided into 400,000,000 ordinary shares with a nominal value of $0.01 per share, 40,000,000 Preferred Shares with a nominal value of $0.01 per share and 25,000 Euro Deferred Shares with a nominal value of €1.00 per share. Upon the completion of this offering and the use of proceeds therefrom, we expect to have 51,157,139 ordinary shares outstanding and no outstanding shares of any other class. The 25,000 Euro deferred shares currently issued and outstanding in our share capital will be redeemed for nil consideration on or around completion of this offering.

We may issue shares subject to the maximum authorized share capital contained in our Memorandum and Articles of Association. The authorized share capital may be increased or reduced (but not below the number of issued ordinary shares, preferred shares and Euro deferred shares, as applicable) by a resolution approved by a simple majority of the votes of our shareholders cast at a general meeting (referred to under Irish law as an "ordinary resolution") (unless otherwise determined by the directors). The shares comprising our authorized share capital may be divided into shares of any nominal value.

The rights and restrictions to which our ordinary shares will be subject will be prescribed in our Articles of Association. Our Articles of Association entitle our board of directors, without shareholder approval, to determine the terms of the preferred shares issued by us. The preferred shares may be preferred as to dividends, rights upon liquidation or voting in such manner as our board of directors may resolve. The preferred shares may also be redeemable at the option of the holder of the preferred shares or at our option, and may be convertible into or exchangeable for shares of any other class or classes of our share capital, depending on the terms of issue of such preferred shares.

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Irish law does not recognize fractional shares held of record. Accordingly, our Articles of Association will not provide for the issuance of fractional shares, and our official Irish register will not reflect any fractional shares.

Whenever an alteration or reorganization of our share capital would result in any of our shareholders becoming entitled to fractions of a share, our board of directors may, on behalf of those shareholders that would become entitled to fractions of a share, arrange for the sale of the shares representing fractions and the distribution of the net proceeds of sale in due proportion among the shareholders who would have been entitled to the fractions.

Transfer and Registration of Shares

Our share register is maintained by our transfer agent. Registration in this share register will be determinative of membership in us. Any of our shareholders who only hold ordinary shares beneficially will not be the holder of record of such ordinary shares. Instead, the depository or other nominee will be the holder of record of such shares. Accordingly, a transfer of ordinary shares from a person who holds such ordinary shares beneficially to a person who will also hold such ordinary shares beneficially through the same depository or other nominee will not be registered in our official share register, as the depository or other nominee will remain the holder of record of such ordinary shares.

A written instrument of transfer will be required under Irish law in order to register on our official share register any transfer of ordinary shares (i) from a person who holds such ordinary shares directly to any other person or (ii) from a person who holds such ordinary shares beneficially to another person who also will hold such ordinary shares beneficially where the transfer involves a change in the depository or other nominee that is the record owner of the transferred ordinary shares. An instrument of transfer will be required for a shareholder who directly holds ordinary shares to transfer those ordinary shares into his or her own broker account (or vice versa). Such instruments of transfer may give rise to Irish stamp duty, which must be paid prior to registration of the transfer on our official Irish share register. However, a shareholder who directly holds ordinary shares may transfer those ordinary shares into his or her own broker account (or vice versa) without giving rise to Irish stamp duty, provided that there is no change in the beneficial ownership of the ordinary shares as a result of the transfer and the transfer is not made in contemplation of a sale of the ordinary shares.

Accordingly, we strongly recommend that shareholders hold their shares through DTC (or through a broker who holds such shares through DTC).

Any transfer of our ordinary shares that is subject to Irish stamp duty will not be registered in the name of the buyer unless such stamp duty is paid and details of the transfer are provided to our transfer agent. We do not expect to pay any stamp duty on behalf of any acquirer of ordinary shares in our capital. See "Material Tax Considerations — Material Irish Tax Considerations — Stamp Duty." We may, in our absolute discretion, pay (or cause one of our affiliates to pay) any stamp duty.

Our Articles of Association provide that, in the event of any such payment, we (i) may seek reimbursement from the transferor or transferee (at our discretion), (ii) may set-off the amount of the stamp duty against future dividends payable to the transferor or transferee (at our discretion) and (iii) will have a lien against any of our shares in respect of which we have paid stamp duty. Our Articles of Association grant our board of directors general discretion to decline to register an instrument of transfer without giving a reason. In addition, our board of directors may decline to register a transfer of shares unless a registration statement under the Securities Act is in effect with respect to the transfer or the transfer is exempt from registration.

The registration of transfers may be suspended at such times and for such periods, not exceeding 30 days in any year, as our board of directors may from time to time determine (except as may be required by law).

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Issuance of Shares

We have the authority, pursuant to our Articles of Association, to increase our authorized but unissued share capital by ordinary resolution by creating additional shares of any class or series. An ordinary resolution of our company requires more than 50% of the votes cast at a shareholder meeting by our shareholders entitled to vote at that meeting. As a matter of Irish law, the board of directors of a company may issue authorized but unissued new shares without shareholder approval once authorized to do so by the Articles of Association of the company or by an ordinary resolution adopted by the shareholders at a general meeting. The authority conferred can be granted for a maximum period of five years, at which point it must be renewed by the shareholders by an ordinary resolution. Because of this requirement of Irish law, our Articles of Association authorize our board of directors to issue new shares up to the amount of our authorized but unissued share capital without shareholder approval for a period of five years from the date our Articles of Association were adopted in substantially the form attached as an exhibit to the registration statement of which this prospectus forms a part. We expect that we will seek to renew such general authority at an annual general meeting before the end of that five-year period. Our Articles of Association authorize our board of directors, without shareholder approval, to determine the terms of any class of preferred shares issued by us.

No Share Certificates

We do not intend to issue share certificates unless (i) certificates are required by law, any stock exchange, a recognized depository, any operator of any clearance or settlement system or the terms of issue of any class or series of our shares or (ii) a holder of our ordinary shares applies for share certificates evidencing ownership of our shares.

Under our Articles of Association, holders of our ordinary shares will have no right to certificates for their ordinary shares, except on request and on such terms as our board of directors, at its sole discretion, determines.

Holders' rights to request certificates for ordinary shares are subject to any resolution of our board of directors determining otherwise.

No Sinking Fund

Our ordinary shares will have no sinking fund provisions.

No Liability for Further Calls or Assessments

The ordinary shares to be sold in this offering are duly and validly issued, will be credited as fully paid up and will not be subject to calls for any additional payments (non-assessable).

Pre-emption Rights, Share Warrants and Share Options

Under Irish law, certain statutory pre-emption rights apply automatically in favor of our shareholders when our shares are issued for cash. However, we have opted out of these pre-emption rights in our Articles of Association as permitted under Irish law for the maximum period permitted of five years from the date of adoption of the Articles of Association. This opt-out may be renewed every five years under Irish law by a special resolution of the shareholders. A special resolution requires not less than 75% of the votes cast by our shareholders at a meeting of shareholders. We expect that we will seek renewal of the opt-out at an annual general meeting within five years from the date on which our Articles of Association were adopted in substantially the form attached as an exhibit to the registration statement of which this prospectus forms a part. If the opt-out expires and is not renewed, shares issued for cash must be offered to our pre-existing shareholders pro rata based on their existing shareholding before the shares can be issued to any new shareholders or pre-existing shareholders in an amount greater than their pro rata entitlements. The statutory pre-emption rights:

    §
    generally do not apply where shares are issued for non-cash consideration;

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    §
    do not apply to the issuance of non-equity shares (that is, shares that have the right to participate only up to a specified amount in any dividend and capital distribution, which are sometimes referred to as non-participating shares); and

    §
    do not apply to the issuance of shares pursuant to certain employee compensation plans, including the 2018 Plan.

The Irish Companies Act provides that directors may issue share warrants or options without shareholder approval once authorized to do so by the Articles of Association or an ordinary resolution of shareholders. This authority can be granted for a maximum period of five years, after which it must be renewed by the shareholders by an ordinary resolution. Our Articles of Association provide that our board of directors is authorized to grant, upon such terms as the board deems advisable, options to purchase (or commitments to issue at a future date) our shares of any class or series, and to cause warrants or other appropriate instruments evidencing such options or commitments to be issued. This authority under the articles will lapse after five years from the date our Articles of Association were adopted in substantially the form attached as an exhibit to the registration statement of which this prospectus forms a part. We expect that we will seek renewal of this authority at an annual general meeting before the end of that five-year period. The board of directors may issue ordinary shares upon exercise of warrants or options or other commitments without shareholder approval or authorization (up to the relevant authorized but unissued share capital). Statutory pre-emption rights will apply to the issuance of warrants and options issued by us unless an opt-out applies or shareholder approval for an opt-out is obtained in the same manner described directly above for our ordinary shares. We will be subject to the Nasdaq Stock Market listing rules requiring shareholder approval of certain ordinary share issuances. The Irish Takeover Rules may be applicable in certain circumstances and can impact on our ability to issue ordinary shares. See "Risk Factors — Risks Related to Being an Irish Corporation Listing Ordinary Shares."

Under Irish law, we are prohibited from allotting shares without consideration. Accordingly, at least the nominal value of the shares issued underlying any restricted share award, restricted share unit, performance share award, bonus share or any other share-based grant must be paid pursuant to the Irish Companies Act.

Share Repurchases and Redemptions

Overview

Our Articles of Association provide that any share that we have agreed to acquire shall be deemed to be a redeemable share. Accordingly, for Irish law purposes, the repurchase of shares by us may technically be effected as a redemption of those shares as described below under "Repurchases and Redemptions." If our Articles of Association did not contain such provisions, repurchases by us would be subject to many of the same rules that apply to purchases of our shares by subsidiaries described below under "Purchases by Subsidiaries," including the shareholder approval requirements described below. Except where otherwise noted, when we refer elsewhere in this prospectus to repurchasing or buying back our shares, we are referring to the redemption of shares by us pursuant to the Articles of Association or the purchase of our shares by one of our subsidiaries, in each case in accordance with our Articles of Association and Irish law as described below.

Repurchases and Redemptions

Under Irish law, a company can issue redeemable shares and redeem them out of distributable reserves (which are described below under "Dividends") or (if the company proposes to cancel the shares on redemption) the proceeds of a new issue of shares for that purpose. The redemption of redeemable shares may only be made by a public limited company where the nominal value of the issued share capital that is not redeemable is not less than 10% of the nominal value of the total issued share capital of the company. All redeemable shares must also be fully paid and the terms of redemption of the shares must provide for payment on redemption. Redeemable shares may, upon redemption, be cancelled or held in treasury. Shareholder approval will not be required to redeem our shares.

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We may also be given authority by our shareholders to purchase our shares either on or off market, which would take effect on the same terms and be subject to the same conditions as applicable to purchases by our subsidiaries as described below.

Our board of directors will also be entitled to issue preferred shares that may be redeemed either at our option or the option of the shareholder, depending on the terms of such shares. See "Description of Share Capital — Share Capital." Repurchased and redeemed shares may be cancelled or held as treasury shares. The nominal value of treasury shares held by us at any time must not exceed 10% of the nominal value of our issued share capital. While we hold shares as treasury shares, we cannot exercise any voting rights in respect of those shares. Treasury shares may be cancelled by us or re-issued subject to certain conditions.

Purchases by Subsidiaries

Under Irish law, it may be permissible for an Irish or non-Irish subsidiary to purchase shares of a company. A general authority of the shareholders of a company is required to allow a subsidiary to make on-market purchases of the company's shares; however, as long as this general authority has been granted, no specific shareholder authority is required for a particular on-market purchase of the company's shares by a subsidiary. A company may elect to seek such general authority, which must expire no later than 18 months after the date on which it was granted, at the first annual general meeting of a company and at subsequent annual general meetings. For an off-market purchase by a subsidiary of a company, the proposed purchase contract must be authorized by special resolution of the shareholders of the company before the contract is entered into. The person whose shares are to be bought back cannot vote in favor of the special resolution and, for at least 21 days prior to the special resolution, the purchase contract must be on display or must be available for inspection by shareholders at the registered office of the company.

The number of shares held by the subsidiaries of a company at any time will count as treasury shares and will be included in any calculation of the permitted treasury share threshold of 10% of the nominal value of the issued share capital of the company. While a subsidiary holds shares of a company, it cannot exercise any voting rights in respect of those shares. The acquisition of the shares of a company by a subsidiary must be funded out of distributable reserves of the subsidiary.

Dividends

Under Irish law, dividends and distributions may only be made from distributable reserves. Distributable reserves, broadly, means the accumulated realized profits of a company, less accumulated realized losses of the company on a standalone basis. In addition, no dividend or distribution may be made unless the net assets of a company are not less than the aggregate of the company's called up share capital plus undistributable reserves and the distribution does not reduce the company's net assets below such aggregate. Undistributable reserves include a company's undenominated capital (effectively its share premium and capital redemption reserve) and the amount by which the company's accumulated unrealized profits, so far as not previously utilized by any capitalization, exceed the company's accumulated unrealized losses, so far as not previously written off in a reduction or reorganization of capital. The determination as to whether or not a company has sufficient distributable reserves to fund a dividend must be made by reference to "relevant accounts" of the company. The "relevant accounts" are either the last set of unconsolidated annual audited financial statements or unaudited financial statements prepared in accordance with the Irish Companies Act, which give a "true and fair view" of a company's unconsolidated financial position in accordance with accepted accounting practice in Ireland. These "relevant accounts" must be filed in the Companies Registration Office (the official public registry for companies in Ireland).

Consistent with Irish law, our Articles of Association authorize our board of directors to declare interim dividends without shareholder approval out of funds lawfully available for the purpose, to the extent they appear justified by profits and subject always to the requirement to have distributable reserves at least equal to the amount of the proposed dividend. Our board of directors may also recommend a dividend to be approved and declared by our shareholders at a general meeting. Our board of directors may direct that the payment be made by distribution of assets, shares or cash and no dividend declared or paid may exceed the

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amount recommended by the directors. We may pay dividends in any currency but, if we elect to pay dividends, we intend to pay such dividends in U.S. dollars. Our board of directors may deduct from any dividend or other moneys payable to any shareholder all sums of money, if any, due from the shareholder to us in respect of our ordinary shares.

Our board of directors is also authorized to issue shares in the future with preferred rights to participate in dividends declared by us. The holders of such preference shares may, depending on their terms, rank senior to the holders of our ordinary shares with respect to dividends. The 25,000 Euro deferred shares do not have any right to receive a dividend.

For information about the Irish tax considerations relating to dividend payments, see "Material Tax Considerations — Material Irish Tax Considerations — Income Tax on Dividends Paid on Our Shares."

Bonus Shares

Under our Articles of Association, upon the recommendation of our board of directors, the shareholders by ordinary resolution may authorize the board to capitalize any amount credited to our undenominated capital, any of our profits available for distribution or any amount representing unrealized revaluation reserves, and use such amount for the issuance to shareholders of shares as fully paid bonus shares.

Lien on Shares, Calls on Shares and Forfeiture of Shares

Our Articles of Association provide that we will have a first and paramount lien on every share for all debts and liabilities owed by any of our shareholders to us, whether presently due or not, payable in respect of such share. Subject to the terms of their allotment, directors may call for any unpaid amounts in respect of any shares to be paid, and if payment is not made within 14 days after notice demanding payment, we may sell the shares. These provisions are standard inclusions in the articles of association of an Irish company limited by shares such as ours and will only be applicable to our shares that have not been fully paid up.

Consolidation and Division; Subdivision

Under our Articles of Association, we may, by ordinary resolution, divide any or all of our share capital into shares of smaller nominal value than its existing shares (often referred to as a share split) or consolidate any or all of our share capital into shares of larger nominal value than its existing shares (often referred to as a reverse share split).

Reduction of Share Capital

We may, by ordinary resolution, reduce our authorized but unissued share capital. We also may, by special resolution and subject to confirmation by the Irish High Court, reduce our issued share capital and any undenominated share capital. Upon the completion of this offering, we intend to reduce our issued share capital and undenominated share capital in order to create distributable reserves for us.

General Meetings of Shareholders

We are required under Irish law to hold an annual general meeting within 18 months of incorporation and thereafter at intervals of no more than 15 months, provided that an annual general meeting is held in each calendar year and no more than nine months after our fiscal year-end. Any annual general meeting may be held outside Ireland, provided that technological means are provided to enable shareholders to participate in the meeting without leaving Ireland. Our Articles of Association include a provision requiring annual general meetings to be held within such time periods as required by Irish law.

The only matters that must, as a matter of Irish law, be transacted at an annual general meeting are the presentation of the annual profit and loss account, balance sheet and reports of the directors and auditors, the appointment of auditors and the fixing of the auditor's fees (or delegation of same). At any annual

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general meeting, only such business may be conducted as has been brought before the meeting (i) in the notice of the meeting, (ii) by or at the direction of the board of directors, (iii) in certain circumstances, at the direction of the Irish High Court, (iv) as required by law or (v) such business that the chairman of the meeting determines is properly within the scope of the meeting. In addition, subject to compliance with our Articles of Association, shareholders entitled to vote at an annual general meeting may make nominations of candidates for election to the board of directors and propose business to be considered thereat.

Our extraordinary general meetings may be convened (i) by our board of directors, (ii) on requisition of the shareholders holding the number of our shares prescribed by the Irish Companies Act (currently 10% of our paid-up share capital carrying voting rights), or (iii) in certain circumstances, on requisition of our auditors.

Extraordinary general meetings are generally held for the purposes of approving such of our shareholder resolutions as may be required from time to time. The business to be conducted at any extraordinary general meeting must be set forth in the notice of the meeting.

In the case of an extraordinary general meeting requisitioned by our shareholders, the proposed purpose of the meeting must be set out in the requisition notice of the meeting. The requisition notice can propose any business to be considered at the meeting. Under Irish law, upon receipt of this requisition notice, the board of directors has 21 days to convene the extraordinary general meeting of our shareholders to vote on the matters set out in the requisition notice. This meeting must be held within two months of receipt of the requisition notice. If the board does not proceed to convene the meeting within such 21-day period, the requisitioning shareholders, or any of them representing more than one-half of the total voting rights of all of them, may themselves convene a meeting, which meeting must be held within three months of the receipt of the requisition notice by the board.

If the board of directors becomes aware that our net assets are half or less of the amount of our called up share capital, the board must, not later than 28 days from the date that it learns of this fact, convene an extraordinary general meeting of our shareholders to be held not later than 56 days from such date.

This meeting must be convened for the purposes of considering what measures, if any, should be taken to address the situation.

At least 21 days' notice of any annual general meeting or general meeting at which a special resolution is proposed and 14 days in all other circumstances must be given to shareholders, each director and our auditors, under our Articles of Association.

Quorum for Shareholder Meetings

Our Articles of Association provide that no business shall be transacted at any general meeting unless a quorum is present. Under our Articles of Association, the presence, in person or by proxy, of one or more shareholders holding at least 50% of the voting power of our issued shares that carry the right to vote at the meeting constitutes a quorum for the conduct of any business at a general meeting.

The provisions of our Articles of Association relating to general meetings apply to general meetings of the holders of any class of shares except that the necessary quorum is determined by reference to the shares of the holders of the class. Accordingly, for general meetings of holders of a particular class of shares, a quorum consists of one or more shareholders present in person or by proxy holding not less than a majority of the issued and outstanding shares of the class entitled to vote at the meeting in question.

Voting

Generally

Holders of our ordinary shares are entitled to one vote per ordinary share held as of the record date for the meeting.

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Our Articles of Association provide that all votes at a general meeting will be decided by way of a poll. Voting rights on a poll may be exercised by shareholders registered in our share register as of the record date for the meeting or by a duly appointed proxy of such a registered shareholder, which proxy need not be a shareholder. All proxies must be appointed in accordance with our Articles of Association. Our Articles of Association provide that our board of directors may permit the appointment of proxies by the shareholders to be notified to us electronically.

In accordance with our Articles of Association, our board of directors may, from time to time, cause us to issue preferred shares. These shares may have such voting rights, if any, as may be specified in the terms of such shares (e.g., they may carry more votes per share or may entitle their holders to a class vote on such matters as may be specified in the terms of the shares).

Treasury shares (i.e., shares held by us) and our shares held by our subsidiaries will not entitle their holders to vote at general meetings of shareholders.

Except where a greater majority is required by Irish law or our Articles of Association, any question proposed for consideration at any of our general meetings or of any class of shareholders will be decided by an ordinary resolution passed by a simple majority of the votes cast by shareholders entitled to vote at such meeting.

Irish law requires special resolutions of the shareholders at a general meeting to approve certain matters. A special resolution requires not less than 75% of the votes cast by shareholders at a meeting of shareholders.

Examples of matters requiring special resolutions include:

    §
    amending our objects as contained in our memorandum of association;

    §
    amending our Articles of Association (please see below in relation to an additional approval threshold for amending certain provisions of our Articles of Association);

    §
    approving a change of name;

    §
    authorizing the entry into a guarantee or the granting of security in connection with a loan, quasi loan or credit transaction in favor of a director or connected person of a director (which generally includes a family member or business partner of the director and any entity controlled by the director);

    §
    opting out of pre-emption rights on the issuance of new shares;

    §
    re-registering from a public limited company to a private company;

    §
    purchasing of our own shares off-market;

    §
    reducing issued share capital;

    §
    resolving that we be wound up by the Irish courts;

    §
    resolving in favor of a shareholders' voluntary winding-up;

    §
    re-designating shares into different share classes;

    §
    setting the re-issue price of treasury shares; and

    §
    merging with other Irish companies or with companies incorporated in the EEA, as described below under " — Acquisitions."

Our Constitution requires the prior approval of holders of at least 75% in nominal value of our issued and outstanding ordinary shares which carry an entitlement to vote at a general meeting for amendments to any of the following: paragraph six of our Memorandum of Association and Articles 17, 67.1, 76, 90, 92, 112, 155-158 (inclusive), 193 and 195-197 (inclusive) of our Articles of Association.

Action by Written Consent

Prior to the completion of this offering, our shareholders may pass resolutions that are signed in writing by all shareholders. Upon the completion of this offering, any resolution or action required or permitted to be

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passed or taken by our shareholders may be effected only at a duly convened annual or extraordinary general meeting of our shareholders and may not be effected by any resolution or consent in writing by such shareholders.

Variation of Rights Attaching to a Class or Series of Shares

Under our Articles of Association and the Irish Companies Act, any variation of class rights attaching to our issued shares must be approved by an ordinary resolution passed at a general meeting of the shareholders of the affected class or series or with the consent in writing of the holders of a majority of the issued shares of that class of shares entitled to vote on such variation. The rights conferred upon the holder of any of our pre-existing issued shares shall not be deemed to be varied by the issuance of any preferred shares.

Record Dates

Our Articles of Association provide that our board of directors may set a record date for the purposes of determining which shareholders are entitled to notice of, or to vote at, a general meeting and the record date shall not be more than sixty (60) days prior to the date of the meeting. If no record date is fixed by the board of directors, the date immediately preceding the date on which notice of the meeting is deemed given under our Articles of Association will be the record date for such determination of members.

Shareholder Proposals

Under Irish law, there is no general right for a shareholder to put items on the agenda of an annual general meeting, other than as set out in the Articles of Association of a company. Under our Articles of Association, in addition to any other applicable requirements, for business or nominations to be properly brought by a shareholder before an annual general meeting or an extraordinary general meeting requisitioned by shareholders, such shareholder must have given timely notice thereof in proper written form to our corporate secretary.

To be timely for an annual general meeting, a shareholder's notice to our secretary as to the business or nominations to be brought before the meeting must be delivered to or mailed and received at our registered office not less than 90 days nor more than 120 days before the first anniversary of the notice convening our annual general meeting for the prior year. In the event that the date of the annual general meeting is changed by more than 30 days from the date contemplated at the time of the previous year's proxy statement, notice by the member must be so delivered by close of business on the day that is not earlier than 120 days prior to such annual general meeting and not later than the later of (a) 90 days prior to the day of the contemplated annual general meeting or (b) ten days after the day on which public announcement of the date of the contemplated annual general meeting is first made by us. In no event shall the public announcement of an adjournment or postponement of an annual general meeting commence a new time period (or extend any time period) for the giving of a shareholder's notice. With respect to our first annual general meeting following completion of this offering, notice must be so delivered not later than the 10th day following the day on which public announcement of the date of such meeting is first made by us.

To be timely for business or nominations of a director at an extraordinary general meeting, notice must be delivered, or mailed and received not less than 90 days nor more than 120 days prior to the date of such extraordinary general meeting. If the first public announcement of the date of the extraordinary general meeting is less than 100 days prior to the date of the meeting, notice must be given by close of business 10 days after the day on which the public announcement of the date of the extraordinary general meeting is first made by us.

For nominations to the board, the notice must include all information about the director nominee that is required to be disclosed by SEC rules regarding the solicitation of proxies for the election of directors pursuant to Regulation 14A under the Exchange Act. For other business that a shareholder proposes to bring before the meeting, the notice must include a brief description of the business, the reasons for proposing the business at the meeting and a discussion of any material interest of the shareholder in the

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business. Whether the notice relates to a nomination to the board of directors or to other business to be proposed at the meeting, the notice also must include information about the shareholder and the shareholder's holdings of our shares. The chairman of the meeting shall have the power and duty to determine whether any business proposed to be brought before the meeting was made or proposed in accordance with these procedures (as set out in our Articles of Association), and if any proposed business is not in compliance with these provisions, to declare that such defective proposal shall be disregarded.

Shareholders' Suits

In Ireland, the decision to institute proceedings on behalf of a company is generally taken by the company's board of directors. In certain limited circumstances, a shareholder may be entitled to bring a derivative action on our behalf. The central question at issue in deciding whether a shareholder may be permitted to bring a derivative action is whether, unless the action is brought, a wrong committed against us would otherwise go un-redressed. The cause of action may be against a director, another person or both.

A shareholder may also bring proceedings against us in his or her own name where the shareholder's rights as such have been infringed or where our affairs are being conducted, or the powers of the board of directors are being exercised, in a manner oppressive to any shareholder or shareholders or in disregard of their interests as shareholders. Oppression connotes conduct that is burdensome, harsh or wrong. This is an Irish statutory remedy under Section 212 of the Irish Companies Act and the court can grant any order it sees fit, including providing for the purchase or transfer of the shares of any shareholder.

Our Articles of Association provide that all actions, other than those related to U.S. securities law, but including, without limitation, (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or employees to us or any of our shareholders, (iii) any action asserting a claim against us arising pursuant to any provision of Irish law or our Articles of Association, and (iv) any action to interpret, apply, enforce or determine the validity of our Articles of Association, shall be brought in the courts of Ireland, which have sole and exclusive jurisdiction to determine such matters.

Inspection of Books and Records

Under Irish law, our shareholders shall have certain rights to inspect our books and records, including the right to: (i) receive a copy of our Memorandum and Articles of Association and any act of the Irish Government that alters our Memorandum and Articles of Association; (ii) inspect and obtain copies of the minutes of general meetings of shareholders (including resolutions adopted at such meetings); (iii) inspect and receive a copy of the register of shareholders, register of directors and secretaries, register of directors' interests and other statutory registers maintained by us; (iv) receive copies of the most recent balance sheets and directors' and auditors' reports which have previously been sent to shareholders prior to an annual general meeting; and (v) receive balance sheets of any of our subsidiary companies that have previously been sent to shareholders prior to an annual general meeting for the preceding ten years. Our auditors also have the right to inspect all of our books and records. The auditors' report must be circulated to the shareholders with our Financial Statements (as defined below) at least 21 days before the annual general meeting, and such report must be read to the shareholders at our annual general meeting. The Financial Statements referenced above mean our balance sheet, profit and loss account and, so far as they are not incorporated in the balance sheet or profit and loss account, any group accounts and the directors' and auditors' reports, together with any other document required by law to be annexed to the balance sheet. Our auditors will also have the right to inspect all of our books, records and vouchers.

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Acquisitions

There are a number of mechanisms for acquiring an Irish public limited company, including:

    §
    a court-approved scheme of arrangement under the Irish Companies Act. A scheme of arrangement with one or more classes of shareholders requires a court order from the Irish High Court and the approval of: (i) more than 50% in number of the shareholders of each participating class or series voting on the scheme of arrangement, or (ii) representing 75% or more by value of the shares of such participating class or series held by the shareholders voting on the scheme of arrangement, in each case at the relevant meeting or meetings. A scheme of arrangement, if authorized by the shareholders of each participating class or series and the court, is binding on all of the shareholders of each participating class or series. Shares held by the acquiring party are not excluded from the tally of a vote on the scheme, but such shares may be considered to belong to a separate class for the purposes of approving the scheme, in which case the acquiring party's shares would not be voted for the purposes of the separate class approval required from the remaining, non-acquiring shareholders;

    §
    through a tender offer by a third party pursuant to the Irish Takeover Rules. Where the holders of 80% or more in value of a class of our shares (excluding any shares already beneficially owned by the offeror) have accepted an offer for their shares, the remaining shareholders in that class may be statutorily required to also transfer their shares, unless, within one month, the non-tendering shareholders can obtain an Irish court order otherwise providing. If the offeror has acquired acceptances of 80% of all of our shares but does not exercise this "squeeze out" right, the non-accepting shareholders also have a statutory right to require the offeror to acquire their shares on the same terms as the original offer, or such other terms as the offeror and the non-tendering shareholders may agree or on such terms as an Irish court, on application of the offeror or non-tendering shareholder, may order. If our shares were listed on the Irish Stock Exchange or another regulated stock exchange in the EU, this 80% threshold would be increased to 90%; and

    §
    by way of a merger with a company incorporated in the EEA under the European Communities (Cross-Border Mergers) Regulations 2008, which implement the EU Cross Border Merger Directive 2005/56 in Ireland or with another Irish company under the Irish Companies Act. Such a merger must be approved by a special resolution and the Irish High Court. Shareholders also may be entitled to have their shares acquired for cash. See " — Appraisal Rights."

The approval of the board of directors, but not shareholder approval, is required for a sale, lease or exchange of all or substantially all of our assets, except that such a transaction between us and one of our directors or a person or entity connected to such a director may require shareholder approval.

Appraisal Rights

Generally, under Irish law, shareholders of an Irish company do not have statutory appraisal rights. If we are being merged as the transferor company with another EEA company under the European Communities (Cross-Border Mergers) Regulations 2008 or if we are being merged with another Irish company under the Irish Companies Act, (i) any of our shareholders who voted against the special resolution approving the merger or (ii) if 90% of our shares are held by the successor company, any other of our shareholders, may be entitled to require that the successor company acquire its shares for cash. In addition, a dissenting shareholder in a successful tender offer for an Irish company may, by application to the Irish High Court, object to the compulsory squeeze out provisions.

Disclosure of Interests in Shares

Under the Irish Companies Act, our shareholders must notify us if, as a result of a transaction, (i) the shareholder will be interested in 3% or more of our ordinary shares that carry voting rights or (ii) the shareholder who was interested in 3% or more of the shares will cease to be interested in our ordinary shares that carry voting rights. In addition, where a shareholder is interested in 3% or more of our ordinary shares, the shareholder must notify us of any alteration of its interest that brings its total holding through

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the nearest whole percentage number, whether an increase or a reduction. All such disclosures must be notified to us within two days of the event that gave rise to the requirement to notify. Where a person fails to comply with the notification requirements described above, no right or interest of any kind whatsoever in respect of any of our ordinary shares held by such person will be enforceable by such person, whether directly or indirectly, by action or legal proceeding. However, such person may apply to the Irish High Court to have the rights attaching to its ordinary shares reinstated. In addition to the disclosure requirement described above, under the Irish Companies Act, we may, by notice in writing, and must, on the requisition of shareholders holding 10% or more of our paid-up capital carrying voting rights, require a person whom we know or have reasonable cause to believe is, or at any time during the three years immediately preceding the date on which such notice is issued was, interested in shares comprised in our relevant share capital to: (i) indicate whether or not it is the case and (ii) where such person holds or has during that time held an interest in our ordinary shares, to give certain further information as may be required by us including particulars of such person or beneficial owner's past or present interests in our ordinary shares.

Any information given in response to the notice is required to be given in writing within such reasonable time as may be specified in the notice.

Where such a notice is served by us on a person who is or was interested in our ordinary shares and that person fails to give us any information required within the reasonable time specified, we may apply to a court for an order directing that the affected ordinary shares be subject to certain restrictions. Under the Irish Companies Act, the restrictions that may be placed on the ordinary shares by the court are as follows:

    §
    any transfer of those ordinary shares or, in the case of unissued shares, any transfer of the right to be issued with ordinary shares and any issue of such ordinary shares, shall be void;

    §
    no voting rights shall be exercisable in respect of those ordinary shares;

    §
    no further shares shall be issued in respect of those ordinary shares or in pursuance of any offer made to the holder of those ordinary shares; and

    §
    no payment shall be made of any sums due from us on those ordinary shares, whether in respect of capital or otherwise.

Where our ordinary shares are subject to these restrictions, the court may order the ordinary shares to be sold and may also direct that the ordinary shares shall cease to be subject to these restrictions.

In addition, persons or groups (within the meaning of the Exchange Act) beneficially owning 5% or more of our ordinary shares must comply with the reporting requirements under Section 13 of the Exchange Act.

Anti-Takeover Provisions

Shareholder Rights Plans and Share Issuances

Irish law does not expressly prohibit companies from issuing share purchase rights or adopting a shareholder rights plan as an anti-takeover measure. However, there is no directly relevant case law on the validity of such plans under Irish law.

Our Articles of Association allow our board of directors to adopt any shareholder rights plan upon such terms and conditions as the board deems expedient and in our best interest, subject to applicable law, including the Irish Takeover Rules and Substantial Acquisition Rules described below and the requirement for shareholder authorization for the issue of shares described above.

Subject to the Irish Takeover Rules described below and the Irish Companies Act, the board of directors also has the power to issue any of our authorized and unissued shares on such terms and conditions as it may determine to be in our best interest. It is possible that the terms and conditions of any issue of shares could discourage a takeover or other transaction that holders of some or a majority of our ordinary shares might believe to be in their best interest or in which holders of our ordinary shares might receive a premium for their shares over the then-market price of the shares.

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Irish Takeover Rules and Substantial Acquisition Rules

A tender offer by which a third party makes an offer generally to our shareholders or a class of shareholders to acquire shares of any class conferring voting rights will be governed by the Irish Takeover Panel Act 1997 and the Irish Takeover Rules made thereunder and will be regulated by the Irish Takeover Panel (as well as being governed by the Exchange Act and the regulations promulgated thereunder). The "General Principles" of the Irish Takeover Rules and certain important aspects of the Irish Takeover Rules are described below. Takeovers by means of a scheme of arrangement are also generally subject to these regulations.

General Principles.     The Irish Takeover Rules are based on the following General Principles that will apply to any transaction regulated by the Irish Takeover Panel:

    §
    in the event of an offer, all classes of shareholders of the target company should be afforded equivalent treatment and, if a person acquires control of a company, the other holders of securities must be protected;

    §
    the holders of securities in the target company must have sufficient time and information to allow them to make an informed decision regarding the offer. If the board of directors of the target company advises the holders of the securities with respect to the offer, it must advise on the effects of the implementation of the offer on employment, employment conditions and the locations of the target company's places of business;

    §
    the board of a target company must act in the interests of the company as a whole and must not deny the holders of securities the opportunity to decide on the merits of the offer;

    §
    false markets must not be created in the securities of the target company or any other company concerned by the offer in such a way that the rise or fall of the prices of the securities becomes artificial and the normal functioning of the markets is distorted;

    §
    an offeror can only announce an offer after ensuring that it can fulfill in full any cash consideration offered, and after taking all reasonable measures to secure the implementation of any other type of consideration;

    §
    a target company may not be hindered in the conduct of its affairs for longer than is reasonable by an offer for its securities. This is a recognition that an offer will disrupt the day-to-day running of a target company, particularly if the offer is hostile and the board of the target company must divert its attention to resist the offer; and

    §
    a "substantial acquisition" of securities (whether such acquisition is to be effected by one transaction or a series of transactions) will only be allowed to take place at an acceptable speed and shall be subject to adequate and timely disclosure.

Mandatory Offer.     If an acquisition of shares were to increase the aggregate holding of an acquirer and its concert parties (which generally mean persons acting in concert with the acquirer) to shares carrying 30% or more of the voting rights in our shares, the acquirer and, depending on the circumstances, its concert parties would be mandatorily required (except with the consent of the Irish Takeover Panel) to make a cash tender offer for the remaining outstanding shares at a price not less than the highest price paid for the shares by the acquirer or its concert parties during the previous twelve months.

This requirement would also be triggered by an acquisition of shares by a person holding (together with its concert parties) shares carrying between 30% and 50% of the voting rights in us if the effect of such acquisition were to increase the percentage of the voting rights held by that person (together with its concert parties) by 0.05% within a twelve month period.

Voluntary Offer; Requirements to Make a Cash Offer and Minimum Price Requirements.     A voluntary offer is a tender offer that is not a mandatory offer. If an offeror or any of its concert parties acquires any of our shares of the same class as the shares that are the subject of the voluntary offer within the period of three months prior to the commencement of the offer period, the offer price must be not less than the highest price paid for our shares of that class by the offeror or its concert parties during that period. The Irish

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Takeover Panel has the power to extend the "look back" period to twelve months if the Panel, having regard to the General Principles, believes it is appropriate to do so.

If the offeror or any of its concert parties has acquired our shares of the same class as the shares that are the subject of the voluntary offer (i) during the period of twelve months prior to the commencement of the offer period which represent 10% or more of the nominal value of the issued shares of that class or (ii) at any time after the commencement of the offer period, the offer shall be in cash (or accompanied by a full cash alternative) and the price per share shall be not less than the highest price paid by the offeror or its concert parties for shares (of that class) during, in the case of (i), the period of twelve months prior to the commencement of the offer period and, in the case of (ii), the offer period. The Irish Takeover Panel may apply this rule to an offeror who, together with its concert parties, has acquired less than 10% of the nominal value of the issued shares of the class of shares that is the subject of the offer in the twelve-month period prior to the commencement of the offer period if the Panel, having regard to the General Principles, considers it just and proper to do so.

An offer period will generally commence from the date of the first announcement of an offer or proposed offer.

Substantial Acquisition Rules.     The Irish Takeover Rules also contain rules governing substantial acquisitions of shares which restrict the speed at which a person may increase his or her holding of shares and rights over shares to an aggregate of between 15% and 30% of the voting rights in our shares. Except in certain circumstances, an acquisition or series of acquisitions of shares or rights over shares representing 10% or more of the voting rights in our shares is prohibited, if such acquisition(s), when aggregated with shares or rights already held, would result in the acquirer holding 15% or more but less than 30% of the voting rights in our shares and such acquisitions are made within a period of seven days. These rules also require accelerated disclosure of certain other acquisitions of shares or rights over shares relating to such holdings.

Frustrating Action.     Under the Irish Takeover Rules, the board of directors is not permitted to take any action that might frustrate an offer for our shares during the course of an offer or at any earlier time at which the board has reason to believe an offer is or may be imminent, except as noted below. Potentially frustrating actions such as (i) the issue of shares, options or convertible securities, (ii) material disposals, (iii) entering into contracts other than in the ordinary course of business or (iv) any action, other than seeking alternative offers, which may result in the frustration of an offer, are prohibited during the course of an offer or at any time during which the board has reason to believe that an offer is or may be imminent. Exceptions to this prohibition are available where:

    §
    the action is approved by our shareholders at a general meeting; or

    §
    with the consent of the Irish Takeover Panel, where:

    §
    the Irish Takeover Panel is satisfied that the action would not constitute a frustrating action;

    §
    the holders of at least 50% of the voting rights state in writing that they approve the proposed action and would vote in favor of it at a general meeting;

    §
    the action is in accordance with a contract entered into prior to the announcement of the offer (or prior to a time at which the board has reason to believe that an offer is or may be imminent); or

    §
    the decision to take such action was made before the announcement of the offer (or prior to a time at which the board has reason to believe that an offer is or may be imminent) and has been either at least partially implemented or is in the ordinary course of business.

Insider Dealing.     The Irish Takeover Rules also provide that no person, other than the offeror who is privy to confidential price-sensitive information concerning an offer made in respect of the acquisition of a company (or a class of its securities) or a contemplated offer, shall deal in relevant securities of the offeree during the period from the time at which such person first has reason to suppose that such an offer, or an

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approach with a view to such an offer being made, is contemplated to the time of (i) the announcement of such offer or approach or (ii) the termination of discussions relating to such offer, whichever is earlier.

For other provisions that could be considered to have an anti-takeover effect, see " — Transfer and Registration of Shares," " — Issuance of Shares — Pre-emption Rights, Share Warrants and Share Options," " — Voting — Generally," " — Voting — Variation of Rights Attaching to a Class or Series of Shares," " — Disclosure of Interests in Shares" and " — Corporate Governance."

Business Combinations with Interested Shareholders

Our Articles of Association provide that, subject to certain exceptions, we may not engage in certain business combinations with any person, other than Avista and Altchem and their respective affiliates, that acquires beneficial ownership of 15% or more of our outstanding voting shares for a period of three years following the date on which such person became a 15% shareholder unless: (i) a committee of our disinterested directors approves the business combination; and (ii) in certain circumstances, the business combination is authorized by a special resolution of disinterested shareholders.

Corporate Governance

Generally

Our Articles of Association allocate authority over management of our Company to our board of directors. Our board of directors may then delegate management to committees of the board or such other persons as it thinks fit. Regardless of any delegation, the board of directors will remain responsible, as a matter of Irish law, for the proper management of our affairs. The board of directors may create new committees or change the responsibilities of existing committees from time to time.

See "Management — Board Structure and Committee Composition."

Directors: Term and Appointment

Directors are elected or appointed at the annual general meeting or at any extraordinary general meeting called for that purpose until the next annual general meeting of the company. Each director is elected by the affirmative vote of a majority of the votes cast with respect to such director. In the event of a "contested election" of directors, directors shall be elected by the vote of a plurality of the votes cast at any meeting for the election of directors at which a quorum is present.

No person may be appointed director unless nominated in accordance with our Articles of Association. Our Articles of Association provide that, with respect to an annual or extraordinary general meeting of shareholders, nominations of persons for election to our board of directors may be made by (i) the affirmative vote of our board of directors or a committee thereof, (ii) any shareholder who is entitled to vote at the meeting and who has complied with the advance notice procedures provided for our Articles of Association, or (iii) with respect to election at an extraordinary general meeting requisitioned in accordance with section 178 of the Irish Companies Act, by a shareholder who holds ordinary shares or other shares carrying the general right to vote at general meetings of the company and who makes such nomination in the written requisition of the extraordinary general meeting in accordance with our Articles of Association and the Irish Companies Act relating to nominations of directors and the proper bringing of special business before an extraordinary general meeting.

Under our Articles of Association, our board of directors has the authority to appoint directors to the board, either to fill a vacancy or as an additional director. A vacancy on the board of directors created by the removal of a director may be filled by an ordinary resolution of the shareholders at the meeting at which such director is removed and, in the absence of such election or appointment, the remaining directors may fill the vacancy. The board of directors may fill a vacancy by an affirmative vote of a majority of the directors constituting a quorum. If there is an insufficient number of directors to constitute a quorum, the board may nonetheless act to fill such vacancies or call a general meeting of the shareholders. Under our Articles of Association, if the board fills a vacancy, the director's term expires at the next annual general

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meeting. If there is an appointment to fill a casual vacancy or an addition to the board, the total number of directors shall not at any time exceed the number of directors from time to time fixed by the board in accordance with the Articles of Association.

Removal of Directors

The Irish Companies Act provides that, notwithstanding anything contained in the Articles of Association of a company or in any agreement between that company and a director, the shareholders may, by an ordinary resolution, remove a director from office before the expiration of his or her term, provided that notice of any such resolution be given to the shareholders not less than 28 days before the meeting at which the director is to be removed, and the director will be entitled to be heard at such meeting. The power of removal is without prejudice to any claim for damages for breach of contract (e.g., employment agreement) that the director may have against us in respect of his or her removal.

Directors' Duties

Our directors have certain statutory and fiduciary duties. All of our directors have equal and overall responsibility for our management (although directors who also serve as employees will have additional responsibilities and duties arising under their employment agreements and will be expected to exercise a greater degree of skill and diligence than non-executive directors). The principal fiduciary duties include the statutory and common law fiduciary duties of acting in good faith in the interests of our company and exercising due care and skill. Other statutory duties include ensuring the maintenance of proper books of account, having annual accounts prepared, having an annual audit performed, maintaining certain registers and making certain filings as well as the disclosure of personal interests. Particular duties also apply to directors of insolvent companies (for example, the directors could be liable to sanctions where they are deemed by the court to have carried on our business while insolvent, without due regard to the interests of creditors). For public limited companies like us, directors are under a specific duty to ensure that the corporate secretary is a person with the requisite knowledge and experience to discharge the role.

Conflicts of Interest

As a matter of Irish law, a director is under a fiduciary duty to avoid conflicts of interest. Irish law and our Articles of Association provide that: (i) a director may be a director of or otherwise interested in a company relating to us and will not be accountable to us for any remuneration or other benefits received as a result, unless we otherwise direct; (ii) a director or a director's firm may act for us in a professional capacity other than as auditor; and (iii) a director may hold an office or place of profit in us and will not be disqualified from contracting with us. If a director has a personal interest in an actual or proposed contract with us, the director must declare the nature of his or her interest and we are required to maintain a register of such declared interests that must be available for inspection by the shareholders. Such a director may vote on any resolution of the board of directors in respect of such a contract, and such a contract will not be voidable solely as a result.

Indemnification of Directors and Officers; Insurance

To the fullest extent permitted by Irish law, our Articles of Association confer an indemnity on our directors and officers. However, this indemnity is limited by the Irish Companies Act, which prescribes that an advance commitment to indemnify only permits a company to pay the costs or discharge the liability of a director or corporate secretary where judgment is given in favor of the director or corporate secretary in any civil or criminal action in respect of such costs or liability, or where an Irish court grants relief because the director or corporate secretary acted honestly and reasonably and ought fairly to be excused. Any provision whereby an Irish company seeks to commit in advance to indemnify its directors or corporate secretary over and above the limitations imposed by the Irish Companies Act will be void under Irish law, whether contained in its Articles of Association or any contract between the company and the director or corporate secretary. This restriction does not apply to our executives who are not directors, the corporate secretary or other persons who would be considered "officers" within the meaning of that term under the Irish Companies Act.

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Our Articles of Association also contain indemnification and expense advancement provisions for persons who are not directors or our corporate secretary.

We are permitted under our Articles of Association and the Irish Companies Act to take out directors' and officers' liability insurance, as well as other types of insurance, for our directors, officers, employees and agents.

Additionally, we and certain of our subsidiaries intend to enter into agreements to indemnify our directors to the maximum extent allowed under applicable law before the completion of the offering. These agreements, among other things, will provide that we will indemnify our directors for certain expenses (including attorneys' fees), judgments, fines and settlement amounts reasonably incurred by such person in any action or proceeding, including any action by or in our right, on account of any services undertaken by such person on our behalf or that person's status as our director.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling the registrant pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Duration; Dissolution; Rights upon Liquidation

Our duration will be unlimited. We may be dissolved at any time by way of either a shareholder's voluntary winding up or a creditors' winding up. In the case of a shareholder's voluntary winding up, we must be solvent and a special resolution of the shareholders is required. We may also be dissolved by way of court order on the application of a creditor, or by the Director of Corporate Enforcement in Ireland where our affairs have been investigated by an inspector and it appears from the report or any information obtained by the Director of Corporate Enforcement that we should be wound up.

The rights of the shareholders to a return of our assets on dissolution or winding up, following the settlement of all claims of creditors, may be prescribed in our Articles of Association or the terms of any shares issued by the board of directors from time to time. If the Articles of Association and terms of issue of our shares contain no specific provisions in respect of a dissolution or winding up then, subject to the shareholder priorities and the rights of any creditors, the assets will be distributed to shareholders in proportion to the paid-up nominal value of the shares held. Our Articles of Association provide that our ordinary shareholders may be entitled to participate in a winding up, and the method by which the property will be divided shall be determined by the liquidator, subject to a special resolution of the shareholders, but such rights of ordinary shareholders to participate may be subject to the rights of any preference shareholders to participate under the terms of any series or class of preference shares.

Transfer Agent and Registrar

The transfer agent and registrar for our ordinary shares is Computershare Trust Company, N.A.

Exchange Controls

There is no limitation imposed by Irish law or by our Articles of Association on the right of a non-resident to hold or vote our ordinary shares.

Listing

We have applied to list our ordinary shares on the Nasdaq Global Market under the symbol "OSMT."

Differences in Corporate Law

We, and our relationships with our shareholders, are governed by Irish corporate law and not by the corporate law of any U.S. state. As a result, our directors and shareholders are subject to different

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responsibilities, rights and privileges than are available to directors and shareholders of U.S. corporations. To help you understand these differences, we have prepared the following summary comparing certain important provisions of Irish corporate law (as modified by our Articles of Association) with those of Delaware corporate law. Before investing, you should consult your legal advisor regarding the impact of Irish corporate law on your specific circumstances and reasons for investing.

Duties of Directors

Our business is managed by our board of directors. Members of the board of directors of an Irish company owe fiduciary duties to the company to act in good faith in their dealings with or on behalf of the company and to exercise their powers and fulfill the duties of their offices on the same basis. These duties include the following essential elements:

    §
    to act in good faith and what the director considers to be in the interests of the company;

    §
    not to make a personal profit from opportunities that arise from the office of director;

    §
    to exercise the care, diligence and skill that a reasonably prudent person would exercise in carrying out their duties as a director;

    §
    to act honestly and responsibly in relation to the affairs of a company;

    §
    to act in accordance with the company's constitution;

    §
    not to use the company's property unless permitted by the constitution or approved by a shareholders' resolution;

    §
    generally not to agree to a restraint on the exercise of directors' powers unless permitted by the constitution or approved by a resolution of the company in a general meeting;

    §
    to avoid conflicts of interest; and

    §
    to have regard to interests of the company's employees and its members.

Under Irish law, the fiduciary duties of the directors are to the company, and not to the company's individual shareholders. Our shareholders may not generally sue our directors directly for a breach of a fiduciary duty.

The business of a Delaware corporation is also managed by or under the direction of its board of directors. In exercising their powers, directors are charged with a fiduciary duty of care to protect the interests of the corporation and a fiduciary duty of loyalty to act in the best interests of its shareholders. The duty of care requires that directors act in an informed and deliberative manner and inform themselves, prior to making a business decision, of all material information reasonably available to them. The duty of care also requires that directors exercise care in overseeing and investigating the conduct of corporate employees. The duty of loyalty may be summarized as the duty to act in good faith, not out of self-interest, and in a manner which the director reasonably believes to be in the best interests of the shareholders. These duties are similar to those imposed on the directors by the Irish Companies Act.

Under Irish law, the question of whether a director has acted properly will typically be assessed on a case-by-case basis, with regard to the circumstances surrounding the director's action. In contrast, Delaware law presumes that directors act on an informed basis and in the best interests of the company and its shareholders.

Unless this presumption is rebutted, the decision of the board of a Delaware company will be upheld unless the action had no rational business purpose or constituted corporate waste. If the presumption is rebutted, the directors must demonstrate that the challenged action was entirely fair to the company.

Interested Directors

Under Irish law, directors who have an interest in a transaction or proposed transaction with us must disclose that interest to the board of directors when the proposed transaction is first considered (unless such interest has previously been disclosed). Not disclosing such an interest is a criminal offense, punishable by a fine.

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Our Articles of Association provide that an interested director may vote on a resolution concerning a matter in which he or she has declared an interest.

Delaware law does not allow for criminal penalties but does specify that if a director has an interest in a transaction, that transaction would be voidable by a court unless either (i) the material facts about the interested director's relationship or interests are disclosed or are known to the board of directors and a majority of the disinterested directors authorize the transaction, (ii) the material facts about the interested director's relationship or interests are disclosed or are known to the shareholders entitled to vote and the transaction is specifically approved in good faith by such shareholders or (iii) the transaction was fair to the company when it was authorized, approved or ratified. In addition, the interested director could be held liable for a transaction in which he or she derived an improper personal benefit. Under Irish law, directors also have a general duty to avoid conflicts of interest. A director may be required to account to the company for any personal profit he or she has made in breach of this duty unless he or she has been specifically released from the duty by shareholder vote.

Voting Rights and Quorum Requirements

Under Irish law, the voting rights of our shareholders are regulated by our Memorandum and Articles of Association and the Irish Companies Act. Under our Articles of Association, one or more shareholders present in person or by proxy and holding shares representing at least 50% of the issued shares carrying the right to vote at such meeting will constitute a quorum. Most shareholder actions or resolutions may be passed by a simple majority of votes cast. Certain actions (including the amendment of the majority of the provisions of our Memorandum and Articles of Association) require approval by 75% of the votes cast at a meeting of shareholders. The amendment of a number of provisions of our Articles of Association, being paragraph six of the memorandum of association and Articles 17, 67.1, 76, 90, 92, 112, 155-158 (inclusive), 193, and 195-197 (inclusive) of our Articles of Association, requires the prior approval of holders of at least 75% in nominal value of our issued ordinary shares which carry an entitlement to vote at a general meeting. For a Delaware corporation, the presence, either in person or by proxy, of as few as one third of the shares eligible to vote may constitute a quorum. Except for certain extraordinary transactions, such as approving a merger, shareholders of a Delaware corporation may act by the majority vote of the shares present, either in person or by proxy.

Under Irish law and our Articles of Association, the election of directors at a general meeting of shareholders will require a majority of votes cast at such meeting. In the event of a "contested election" of directors, directors shall be elected by the vote of a plurality of the votes cast at any meeting for the election of directors at which a quorum is present. In contrast, the election of directors for a Delaware corporation requires only a plurality vote.

Under Irish law, any individual who is a shareholder of our company and who is present at a meeting may vote in person, as may any corporate shareholder that is represented by a duly authorized representative at a meeting of shareholders. Our Articles of Association also permit attendance at general meetings by proxy, provided the instrument appointing the proxy is in common form or such other form as the directors may determine. Under our Articles of Association, each holder of ordinary shares is entitled to one vote per share held.

Amalgamations, Mergers and Similar Arrangements

Under Irish law, the disposal of or acquisition of assets by a company requires the approval of its board of directors. However, certain acquisitions and disposal of assets may also require shareholder approval. Under Delaware law, with certain exceptions, a merger, consolidation or sale of all or substantially all the assets of a corporation must be approved by the board of directors and the shareholders. Under Delaware law, a shareholder of a corporation participating in a major corporate transaction may, under certain circumstances, be entitled to appraisal rights which would allow him or her to receive the fair value of his or her shares (as determined by a court) in cash instead of the consideration he or she would otherwise receive in the transaction. Irish public companies may be acquired by way of a merger with a company

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incorporated in the EEA under the European Communities (Cross-Border Mergers) Regulations 2008, which implement the EU Cross-Border Merger Directive 2005/56 in Ireland or by way of a merger with another Irish company under the Irish Companies Act. Such a merger must be approved by a special resolution. Shareholders also may be entitled to have their shares acquired for cash. While, generally, under Irish law, shareholders of an Irish company do not have statutory appraisal rights, if we are being merged as the transferor company with another EEA company under these Regulations or another Irish company under the Irish Companies Act (i) any of our shareholders who vote against the special resolution approving the merger or (ii) if 90% of our shares are held by the successor company, any other of our shareholders may be entitled to require that the successor company acquire its shares for cash.

Takeovers

Takeover of certain Irish public companies, including us, are regulated by statutory takeover rules, which are administered by the Irish Takeover Panel.

In addition to the merger mechanisms under the European Communities (Cross-Border Mergers) Regulations 2008 and the Irish Companies Act referred to above, Irish law provides two principal ways for the control of a public company to change. The first method involves a public offer for the shares of that company. The number of shares required to vote in favor of a proposal to force minority shareholders of a public company, such as us, is 80% under the Irish Companies Act.

The second method of acquiring control of an Irish public company is by a scheme of arrangement. A company proposes the scheme of arrangement to its shareholders, which, if accepted, would result in the company being acquired by a third party. A scheme of arrangement must be approved by a majority in number of shareholders representing 75% in value of the shares of each relevant class actually voting at a general meeting.

If the scheme is approved, and subsequently confirmed by the Irish High Court, it becomes binding on all of the target shareholders, regardless of whether they voted on the scheme.

A general principle of Irish takeover law is that the directors of a company that is the target of an offer (or of a company which the directors believe will soon be the target of an offer) must refrain from frustrating that offer or depriving shareholders of the opportunity to consider the merits of the offer, unless the shareholders approve of such actions in a general meeting.

Under Delaware law, the board of directors may take defensive actions against a takeover if the directors believe in good faith that the takeover is a threat to the company's interests and if the response is reasonable in light of the threat posed by the takeover. However, the board may not use such measures for its own personal interests. For example, a board may institute defensive measures to allow it to negotiate a higher price with the acquirer or prevent shareholders from being coerced into selling at a price that is clearly too low.

However, the board may not use such measures just to keep itself in control of the company. In contrast, Irish takeover law only allows the directors to advise shareholders (by way of a publicly available announcement) on the merits and drawbacks of any particular offer and to recommend shareholders to accept or reject such offer.

Shareholders' Suits

Under Irish law, our shareholders generally may not sue for wrongs suffered by us.

In Ireland, the decision to institute proceedings on behalf of a company is generally taken by the company's board of directors. In certain limited circumstances, a shareholder may be entitled to bring a derivative action on our behalf. The central question at issue in deciding whether a shareholder may be permitted to bring a derivative action is whether, unless the action is brought, a wrong committed against the company would otherwise go un-redressed. The cause of action may be against the director, another person, or both.

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In contrast to a derivative action, Irish law permits an action by a shareholder in his or her own right on the basis of the infringement of his or her personal rights as a shareholder. A shareholder may commence a suit in a representative capacity for him or herself as well as other similarly affected consenting shareholders. Additionally, under Irish law, any shareholder who claims that our affairs are being conducted, or that the powers of our directors are being exercised, in a manner oppressive to his or her interests as a shareholder, may apply to the Irish courts for an appropriate order.

Delaware law generally allows a shareholder to sue for wrongs suffered by a company if he first demands that the company sue on its own behalf and the company declines to do so, but allows the shareholder to. In certain situations, such as when there are specific reasons to believe that the directors are protecting their personal interests, the shareholder may sue directly without first making the demand.

Indemnification of Directors and Officers

In general, the Irish Companies Act prohibits us from indemnifying any director against liability due to his or her negligence, default, breach of duty or breach of trust due to us. We may, however, indemnify our officers if they are acquitted in a criminal proceeding or are successful in a civil proceeding. To the fullest extent permitted by Irish law, our Articles of Association confer an indemnity on our directors and officers.

Under Delaware law, a corporation may indemnify a director or officer against expenses (including attorneys' fees), judgments, fines and settlement amounts that he or she reasonably incurred in defending him or her self in a lawsuit. The director or officer must have acted in good faith and, if being charged with a crime, must not have had a reasonable cause to believe that he or she was breaking the law.

Inspection of Corporate Records

Under Irish law, members of the general public have the ability to inspect our public documents available at the Irish Companies Registration Office. Our shareholders also have the right to inspect our register of directors and secretaries and minutes of general meetings. Our audited financial statements must be presented to our shareholders at each annual general meeting (and made available to our shareholders in advance of an annual general meeting).

The register of members of a company is also open to inspection by shareholders without charge, and by members of the general public on payment of a fee. A company is required to maintain its share register in Ireland. A company is required to keep at its registered office a register of directors and officers that is also open for inspection. Irish law does not, however, provide a general right for shareholders to inspect or obtain copies of any other corporate records.

Delaware law permits a shareholder to inspect or obtain copies of a corporation's shareholder list and its other books and records for any purpose reasonably related to his or her interest as a shareholder.

Calling of Special Shareholders' Meetings

Under Irish law, an extraordinary general meeting may be convened (i) by the board of directors, (ii) on requisition of the shareholders holding the number of shares prescribed by the Irish Companies Act (currently 10% of our paid-up share capital carrying voting rights) or (iii) in certain circumstances, on requisition of our auditors.

Under Delaware law, a special meeting of the shareholders may be called by the board of directors or by any person who is authorized by the corporation's certificate of incorporation or bylaws.

Amendment of Organizational Documents

Irish law provides that the memorandum and articles of association of a company may be amended by a resolution of shareholders at a general meeting of shareholders of which due notice has been given. A 75% majority of votes cast at a general meeting is required to pass such a resolution. Our Constitution provides that the amendment of a number of provisions of our Memorandum and Articles of Association, being paragraph six of the Memorandum of Association and Articles 17, 67.1, 76, 90, 92, 112, 156-159 (inclusive), 194 and 196-198 (inclusive) of our Articles of Association, require the prior approval of holders

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of at least 75% in nominal value of our issued ordinary shares which carry an entitlement to vote at a general meeting.

Under Delaware law, a company's certificate of incorporation may be amended if the amendment is approved by both the board of directors and the shareholders. Unless a different percentage is provided for in the certificate of incorporation, a majority of the voting power of the shareholders of the corporation is required to approve an amendment. Under Irish law, the certificate of incorporation of a company (which simply evidences the date of the company's incorporation and its registered number and the fact that it has been incorporated) may not be amended. Under Delaware law, the certificate of incorporation may limit or remove the voting power of a class of the company's shares. However, if the amendment would alter the number of authorized shares or par value or otherwise adversely affect the rights or preference of a class of shares, the holders of shares of that class are entitled to vote, as a class, upon the proposed amendment, without regard to the restriction in the certificate of incorporation.

Delaware law allows the bylaws of the corporation to be amended either by the shareholders or, if allowed in the certificate of incorporation, by the board of directors by a majority of voting power.

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SHARES ELIGIBLE FOR FUTURE SALE

Immediately prior to this offering, there was no public market for our ordinary shares, and we cannot predict what effect, if any, market sales of our ordinary shares or the availability of our ordinary shares for sale will have on the market price of our ordinary shares prevailing from time to time. Nevertheless, sales of substantial amounts of our ordinary shares in the public market, or the perception that such sales could occur, could materially and adversely affect the market price of our ordinary shares and could impair our future ability to raise capital through the sale of our equity or equity-related securities at a time and price that we deem appropriate.

Upon the consummation of this offering, we will have outstanding an aggregate of approximately 51,157,139 ordinary shares. Of the outstanding shares, the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except any shares purchased by our "affiliates," as that term is defined in Rule 144 under the Securities Act, may be sold only in compliance with the limitations described below. The remaining 42,857,139 outstanding ordinary shares will be deemed restricted securities, as defined under Rule 144. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144 or 701 under the Securities Act, which we summarize below. All of these shares will be subject to lock-up agreements described below.

Taking into account the lock-up agreements described below, and assuming Jefferies LLC does not release shareholders from these agreements, all 42,857,139 of our currently outstanding ordinary shares will be eligible for sale in the public market 180 days after the date of this offering (                             , 2019), subject to the provisions of Rule 144 and Rule 701.

Rule 144

In general, under Rule 144, beginning 90 days after the date of this prospectus, a person who is not our affiliate and has not been our affiliate at any time during the preceding three months will be entitled to sell any of our ordinary shares that such person has beneficially owned for at least six months, including the holding period of any prior owner other than one of our affiliates, without regard to volume limitations. Sales of our ordinary shares by any such person would be subject to the availability of current public information about us if the shares to be sold were beneficially owned by such person for less than one year.

Beginning 180 days after the date of this prospectus, our affiliates who have beneficially owned our ordinary shares for at least six months, including the holding period of any prior owner other than one of our affiliates, would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:

    §
    1% of the number of our ordinary shares then outstanding, which will equal approximately 511,571 shares immediately after this offering; and

    §
    the average weekly trading volume in our ordinary shares on the Nasdaq Global Market during the four calendar weeks preceding the date of filing of a Notice of Proposed Sale of Securities Pursuant to Rule 144 with respect to the sale.

Sales under Rule 144 by our affiliates are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us.

Rule 701

In general, under Rule 701 as currently in effect, any of our employees, directors, officers, consultants or advisors who purchase shares from us in connection with a compensatory share or option plan or other written agreement before the effective date of this offering is entitled to sell such shares 90 days after the effective date of this offering in reliance on Rule 144, in the case of affiliates, without having to comply

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with the holding period requirements of Rule 144 and, in the case of non-affiliates, without having to comply with the public information, holding period, volume limitation or notice filing requirements of Rule 144.

Lock-Up Agreements

Our officers, directors and shareholders will be subject to lock-up agreements with the underwriters that will restrict the sale of our ordinary shares held by them for 180 days, subject to certain exceptions. See "Underwriting" for a description of these lock-up agreements.

Registration Statements on Form S-8

Immediately after the completion of this offering, we intend to file a registration statement on Form S-8 under the Securities Act to register all of our ordinary shares issued or reserved for future issuance under our equity incentive plans. This registration statement would cover approximately 7,115,572 shares. Shares registered under the registration statement will generally be available for sale in the open market after the 180-day lock-up period immediately following the date of this prospectus.

Registration Rights

Beginning six months after the date of this prospectus, subject to certain exceptions, holders of                    shares of our ordinary shares will be entitled to the registration rights described under "Certain Relationships and Related Party Transactions — Shareholders' Agreement." Registration of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon effectiveness of the registration.

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MATERIAL TAX CONSIDERATIONS

Material U.S. Federal Income Tax Considerations

The following is a description of material U.S. federal income tax considerations of the acquisition, ownership and disposition of ordinary shares acquired pursuant to this offering by a U.S. Holder, as defined below. This description only applies to ordinary shares held as "capital assets" within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended, or the Code (generally, property held for investment) and does not address, except as explicitly set forth below, aspects of U.S. federal income taxation that may be applicable to U.S. Holders that are subject to special tax rules, such as:

    §
    banks or other financial institutions;

    §
    insurance companies;

    §
    real estate investment trusts;

    §
    regulated investment companies;

    §
    grantor trusts;

    §
    tax-exempt organizations;

    §
    persons that will own ordinary shares through partnerships (including any entities or arrangements classified as partnerships) or other pass-through entities, in each case, for U.S. federal income tax purposes;

    §
    brokers, dealers or other traders in securities or currencies;

    §
    U.S. Holders that have a functional currency other than the U.S. dollar;

    §
    certain former citizens and former long-term residents of the United States;

    §
    U.S. Holders that use a mark-to-market method of accounting;

    §
    U.S. Holders that will hold ordinary shares as part of a position in a straddle or as part of a hedging, conversion or integrated transaction for U.S. federal income tax purposes; or

    §
    direct, indirect or constructive owners of 10% or more of our total combined voting power or 10% or more of the total value of our ordinary shares.

Moreover, this description does not address the 3.8% Medicare contribution tax on net investment income, the U.S. federal estate and gift tax, the alternative minimum tax or any state, local or non-U.S. consequences of the acquisition, ownership and disposition of ordinary shares. We have not received nor do we expect to seek a ruling from the Internal Revenue Service, or IRS regarding any matter discussed herein. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of those set forth below. Each prospective investor should consult its own tax advisors with respect to the U.S. federal, state, local and non-U.S. tax consequences of acquiring, owning and disposing of ordinary shares.

This description is based on the Code, U.S. Treasury Regulations promulgated thereunder and administrative and judicial interpretations thereof, each as available and in effect on the date hereof, all of which are subject to change or differing interpretations, possibly with retroactive effect, which could affect the tax considerations described herein.

For purposes of this description, a U.S. Holder is a beneficial owner of ordinary shares who for U.S. federal income tax purposes is:

    §
    a citizen or individual resident of the United States;

    §
    a corporation (or any other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any state thereof, including the District of Columbia;

    §
    an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

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    §
    a trust (i) that has a valid election in effect to be treated as a U.S. person for U.S. federal income tax purposes or (ii)(a) if a court within the United States can exercise primary supervision over its administration and (b) one or more U.S. persons have the authority to control all of the substantial decisions of that trust.

If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds ordinary shares, the tax treatment of such partnership and a partner in such partnership generally will depend on the status of the partner and the activities of such partnership. Such partner or partnership should consult its own tax advisors as to the U.S. federal income tax consequences of acquiring, owning and disposing of the ordinary shares.

PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO THEIR SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, NON-U.S. OR OTHER TAX LAWS, INCLUDING GIFT AND ESTATE TAX LAWS.

Distributions on ordinary shares

As described in "Dividend policy," above, following the completion of the offering, our board of directors does not intend to pay dividends on our ordinary shares, and we do not anticipate paying any distributions on our ordinary shares in the foreseeable future. However, we expect to reevaluate our dividend policy on a regular basis following this offering and may, subject to compliance with the covenants contained in the agreements governing our credit facilities, the indentures governing our outstanding notes, applicable law and other considerations, determine to pay dividends in the future. If we were to pay any distributions on our ordinary shares, subject to the considerations in "— Passive foreign investment company considerations," discussed below, such distributions generally would be taxable to a U.S. Holder as foreign-source dividend income, and would generally not be eligible for the dividends received deduction allowed to certain corporations in respect of dividends received from other U.S. corporations. Dividend income generally is taxed as ordinary income. Dividend income may be treated as "qualified dividend income" and subject to tax at a lower capital gains rate with respect to U.S. Holders that are individuals (or certain trusts and estates) if we and our ordinary shares meet certain requirements discussed below. U.S. Holders should consult their own tax advisors regarding the availability of preferential rates and the dividend received deduction on dividends in light of their particular circumstances.

Distributions, if any, in excess of our current or accumulated earnings and profits would be treated as a non-taxable return of capital to the extent of a U.S. Holder's adjusted basis in its ordinary shares and thereafter as capital gain (which rate will depend on the holding period of a U.S. Holder). However, we have not maintained calculations of our earnings and profits (including all of our subsidiaries earnings and profits) in accordance with U.S. federal income tax accounting principles. U.S. Holders should therefore assume that any distribution paid with respect to ordinary shares would constitute ordinary dividend income.

Dividends paid to a non-corporate U.S. Holder by a "qualified foreign corporation" may be considered "qualified dividend income" and thus subject to lower capital gains rates of taxation if certain holding period and other requirements are met. A qualified foreign corporation generally includes a foreign corporation (other than a PFIC) if (i) its ordinary shares are readily tradable on an established securities market in the United States or (ii) it is eligible for benefits under a comprehensive U.S. income tax treaty that includes an exchange of information program and which the U.S. Treasury Department has determined is satisfactory for these purposes. Our ordinary shares are expected to be readily tradable on an established securities market, the Nasdaq Global Market. There can be no assurances, however, that our ordinary shares will be considered readily tradable on an established securities market in the United States in later years. U.S. Holders should consult their own tax advisors regarding the availability of the reduced "qualified dividend income" rate in light of their particular circumstances.

Under current Irish law, dividends paid by an Irish corporation to a U.S. Holder may be subject to Irish dividend withholding tax unless an exemption applies. A U.S. Holder may be entitled, subject to certain

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limitations, to a credit against its U.S. federal income tax liability for Irish taxes withheld from dividends. Application of the U.S. foreign tax credit rules are complex. U.S. Holders should consult their own tax advisors concerning the foreign tax credit rules in light of their particular circumstances. See "— Material Irish Tax Considerations — Withholding Tax on Dividends."

U.S. Holders should consult their own tax advisors with respect to the appropriate U.S. federal income tax treatment of any distribution received.

Sale, exchange, or other taxable disposition of ordinary shares

Subject to the considerations in "— Passive foreign investment company considerations," discussed below, upon the sale, exchange, or other taxable disposition of ordinary shares, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between the amount realized on such disposition and the U.S. Holder's adjusted tax basis in its ordinary shares. Assuming we are not a PFIC and have never been treated as a PFIC during a U.S. Holder's holding period for our ordinary shares, such gain or loss generally will be treated as long-term capital gain or loss if a U.S. Holder's holding period in such ordinary shares exceeds one year at the time of such disposition. Long-term capital gains may be taxed at lower rates than ordinary income for certain non-corporate taxpayers. The deductibility of capital losses is subject to significant limitations. Capital gain or loss, if any, recognized by a U.S. Holder generally will be treated as U.S. source income or loss for U.S. foreign tax credit purposes. A U.S. Holder's initial tax basis in the ordinary shares will generally equal the cost of such ordinary shares. Prospective investors should consult their own tax advisors regarding the U.S. federal income tax treatment of capital gains and capital losses including the availability of the U.S. foreign tax credit based on their particular circumstances.

Passive foreign investment company considerations

Status as a PFIC

The rules governing PFICs can have adverse tax effects on U.S. Holders. We generally will be classified as a PFIC for U.S. federal income tax purposes if, for any taxable year, either:

      (i)  at least 75% or more of our gross income consists of certain types of "passive income," or

     (ii)  the average value (determined on a quarterly basis), of our assets that produce, or are held for the production of, passive income is at least 50% or more of the value of all of our assets.

Passive income generally includes dividends, interest, rents and royalties (other than certain rents and royalties derived in the active conduct of a trade or business), annuities and gains from the disposition of assets that produce passive income. If we own at least 25% by value of the stock of another corporation, we will be treated for purposes of the PFIC tests as owning our proportionate share of the assets of the other corporation and as receiving directly our proportionate share of the other corporation's income.

Additionally, if we are classified as a PFIC in any taxable year with respect to which a U.S. Holder owns ordinary shares, we generally will continue to be treated as a PFIC with respect to such U.S. Holder in all succeeding taxable years, regardless of whether we continue to meet the tests described above, unless the U.S. Holder makes the "deemed sale election" described below.

We do not believe that we are currently a PFIC, and we do not anticipate becoming a PFIC for the 2018 taxable year; however, such a determination cannot be made until after the end of such taxable year. Notwithstanding the foregoing, the determination of whether we are a PFIC is made annually and depends on the particular facts and circumstances (such as the valuation of our assets, including goodwill and other intangible assets) and also may be affected by the application of the PFIC rules, which are subject to differing interpretations. The fair market value of our assets is expected to depend, in part, upon (a) the market price of our ordinary shares, which is likely to fluctuate, and (b) the composition of our income and assets, which will be affected by how, and how quickly, we spend any cash that is raised in any financing transaction, including this offering. In light of the foregoing, no assurance can be provided that we are not a PFIC for the current taxable year or that we will not become a PFIC in any future taxable year. Prospective investors should consult their own tax advisors regarding our potential PFIC status.

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U.S. federal income tax treatment of a shareholder of a PFIC

If we are classified as a PFIC for any taxable year during which a U.S. Holder owns ordinary shares, the U.S. Holder, absent certain elections (including the mark-to-market and QEF elections described below), generally will be subject to adverse rules (regardless of whether we continue to be classified as a PFIC) with respect to (i) any "excess distributions" (generally, any distributions received by the U.S. Holder on its ordinary shares in a taxable year that are greater than 125% of the average annual distributions received by the U.S. Holder in the three preceding taxable years or, if shorter, the U.S. Holder's holding period for its ordinary shares) and (ii) any gain realized on the sale or other disposition of its ordinary shares.

Under these adverse rules (a) the excess distribution or gain will be allocated ratably over the U.S. Holder's holding period, (b) the amount allocated to the current taxable year and any taxable year prior to the first taxable year in which we are classified as a PFIC will be taxed as ordinary income and (c) the amount allocated to each other taxable year during the U.S. Holder's holding period in which we were classified as a PFIC (i) will be subject to tax at the highest rate of tax in effect for the applicable category of taxpayer for that year and (ii) will be subject to an interest charge at a statutory rate with respect to the resulting tax attributable to each such other taxable year.

If we are classified as a PFIC, a U.S. Holder will generally be treated as owning a proportionate amount (by value) of stock or shares owned by us in any direct or indirect non-U.S. subsidiaries that are also PFICs and will be subject to similar adverse rules with respect to any distributions we receive from, and dispositions we make of, the stock or shares of such non-U.S. subsidiaries. You are urged to consult your tax advisors about the application of the PFIC rules to any of our non-U.S. subsidiaries.

If we are classified as a PFIC and then cease to be so classified, a U.S. Holder may make an election (a "deemed sale election") to be treated for U.S. federal income tax purposes as having sold such U.S. Holder's ordinary shares on the last day our taxable year during which we were a PFIC. A U.S. Holder that makes a deemed sale election would then cease to be treated as owning stock in a PFIC by reason of ownership of our ordinary shares. However, gain recognized as a result of making the deemed sale election would be subject to the adverse rules described above and loss would not be recognized.

PFIC "mark-to-market" election

In certain circumstances, a U.S. Holder can avoid or mitigate certain of the adverse rules described above by making a mark-to-market election with respect to its ordinary shares, provided that the ordinary shares are "marketable." Our ordinary shares will be marketable if they are "regularly traded" on a "qualified exchange" or other market within the meaning of applicable U.S. Treasury Regulations. The Nasdaq Global Market is a "qualified exchange." U.S. Holders should consult your own tax advisor with respect to such rules.

A U.S. Holder that makes a mark-to-market election must include in gross income, as ordinary income, for each taxable year that we are a PFIC an amount equal to the excess, if any, of the fair market value of the U.S. Holder's ordinary shares at the close of the taxable year over the U.S. Holder's adjusted tax basis in its ordinary shares. An electing U.S. Holder may also claim an ordinary loss deduction for the excess, if any, of the U.S. Holder's adjusted tax basis in its ordinary shares over the fair market value of its ordinary shares at the close of the taxable year, but this deduction is allowable only to the extent of any net amount of previously included income from prior taxable years as a result of the mark-to-market election. A U.S. Holder that makes a mark-to-market election generally will be required to adjust such U.S. Holder's tax basis in its ordinary shares to reflect the amount included in gross income or allowed as a loss deduction because of such mark-to-market election. Gains from an actual sale or other disposition of ordinary shares in a year in which we are a PFIC will be treated as ordinary income, and any losses incurred on a sale or other disposition of ordinary shares will be treated as ordinary losses to the extent of any net amount of previously included income from prior taxable years as a result of the mark-to market election.

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If we are classified as a PFIC for any taxable year in which a U.S. Holder owns (or is deemed to own) ordinary shares but before a mark-to-market election is made, the adverse PFIC rules described above will apply to any mark-to-market gain recognized in the year the election is made. Otherwise, a mark-to-market election will be effective for the taxable year for which the election is made and all subsequent taxable years. A mark-to-market election cannot be revoked without the consent of the IRS unless the ordinary shares cease to be marketable, in which case the election is automatically terminated.

A mark-to-market election is not permitted for the shares of any of our non-U.S. subsidiaries that are also classified as PFICs. Prospective investors should consult their own tax advisors regarding the availability of, and the procedure for making, a mark-to-market election.

PFIC "QEF" election

In some cases, a shareholder of a PFIC can avoid the interest charge on any excess distributions or gain realized from the sale or other disposition of shares of a PFIC and the other adverse PFIC consequences described above by obtaining certain information from the PFIC and by making a timely QEF election to be taxed currently as ordinary income on its pro rata share of the PFIC's undistributed net capital gains and other earnings and profits. We do not, however, expect to provide the information regarding our income that would be necessary in order for a U.S. Holder to make a QEF election with respect to our ordinary shares if we are classified as a PFIC.

PFIC information reporting requirements

If we are a PFIC in any taxable year, a U.S. Holder of ordinary shares (i) in such year will be required to file an annual information return regarding distributions received on such ordinary shares and any gain realized on disposition of such ordinary shares and (ii) will generally be required to file an annual information return with the IRS relating to their ownership of ordinary shares. This filing requirement is in addition to the pre-existing reporting requirements described above that apply to a U.S. Holder's interest in a PFIC (which this requirement does not affect) and will apply whether or not a U.S. Holder makes any of the elections discussed above.

NO ASSURANCE CAN BE GIVEN THAT WE ARE NOT CURRENTLY A PFIC OR THAT WE WILL NOT BECOME A PFIC IN THE FUTURE. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE OPERATION OF THE PFIC RULES AND RELATED REPORTING REQUIREMENTS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, INCLUDING THE ADVISABILITY OF MAKING ANY ELECTION THAT MAY BE AVAILABLE.

U.S. backup withholding tax and information reporting

Backup withholding and information reporting requirements may apply to distributions on, and to proceeds from the sale, exchange, redemption, or disposition of ordinary shares that are held by U.S. Holders. The payor will be required to backup withhold tax on payments made within the United States, or by a U.S. payor or certain U.S. intermediaries (and certain subsidiaries thereof), on an ordinary share to a U.S. Holder, other than an exempt recipient, if the U.S. Holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption from, the backup withholding requirements. In order to establish an exemption from the backup withholding requirements, the U.S. Holder may be required to provide a certification of their exempt status on a duly executed IRS Form W-9.

Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a U.S. Holder's U.S. federal income tax liability. A U.S. Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for a refund with the IRS and furnishing any required information in a timely manner.

Prospective investors should consult their own tax advisors with respect to such rules and other tax information reporting requirements that may be applicable to them based on their particular circumstances.

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THE ABOVE DISCUSSION DOES NOT COVER ALL TAX MATTERS THAT MAY BE OF IMPORTANCE TO A PARTICULAR U.S. HOLDER. YOU ARE STRONGLY URGED TO CONSULT YOUR OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES OF YOUR ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR ORDINARY SHARES.

Material Irish Tax Considerations

Scope of Discussion

The following is a summary of the material Irish tax considerations for certain beneficial owners of our shares. The summary is based upon Irish tax laws and the practice of the Irish Revenue Commissioners in effect on the date of this prospectus and correspondence with the Irish Revenue Commissioners. Changes in law or administrative practice may result in alteration of the tax considerations described below, possibly with retrospective effect.

The summary does not constitute tax advice and is intended only as a general guide. The summary is not exhaustive and holders of our shares should consult their own tax advisors about the Irish tax considerations (and tax considerations under the laws of other relevant jurisdictions) of the Reorganization, and the acquisition, ownership and disposal of our shares. The summary applies only to shareholders who will own our shares as capital assets and does not apply to other categories of shareholders, such as dealers in securities, trustees, insurance companies, collective investment schemes and shareholders who have, or who are deemed to have, acquired our shares by virtue of an Irish office or employment (performed or carried on in Ireland).

Tax on Chargeable Gains

The current rate of tax on chargeable gains (where applicable) in Ireland is 33%.

A disposal of our shares by a shareholder who is not resident or ordinarily resident for tax purposes in Ireland will not give rise to Irish tax on any chargeable gain realized on such disposal unless such shares are used, held or acquired for the purposes of a trade or business carried on by such shareholder through a branch or agency in Ireland.

A holder of our shares who is an individual and who is temporarily non-resident in Ireland may, under Irish anti-avoidance legislation, be liable to Irish tax on any chargeable gain realized on a disposal during the period in which such individual is non-resident.

Stamp Duty

The rate of stamp duty (where applicable) on transfers of shares of Irish incorporated companies is 1% of the price paid or the market value of the shares acquired, whichever is greater. Where Irish stamp duty arises, it is generally a liability of the transferee.

Irish stamp duty may, depending on the manner in which our shares are held, be payable in respect of transfers of our shares after the Reorganization.

Shares held through DTC

It is expected that a transfer of our shares effected by means of the transfer of book entry interests in DTC will not be subject to Irish stamp duty. On the basis that most of our shares are expected to be held through DTC, it is anticipated that most transfers of shares will be exempt from Irish stamp duty.

Shares held outside of DTC or transferred into or out of DTC

A transfer of our shares where any party to the transfer holds such shares outside of DTC may be subject to Irish stamp duty. Shareholders wishing to transfer their shares into (or out of) DTC may do so without giving rise to Irish stamp duty provided that:

    §
    there is no change in the beneficial ownership of such shares as a result of the transfer; and

    §
    the transfer into (or out of) DTC is not effected in contemplation of a sale of such shares by a beneficial owner to a third party.

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Withholding Tax on Dividends

As noted elsewhere in this prospectus, we do not expect to pay dividends for the foreseeable future. To the extent that we do make dividend payments (or other returns to shareholders that are treated as "distributions" for Irish tax purposes), it should be noted that such distributions made by us will, in the absence of one of many exemptions, be subject to Irish dividend withholding tax, or DWT, currently at a rate of 20%.

For DWT purposes, a distribution includes any distribution that may be made by us to our shareholders, including cash dividends, non-cash dividends and additional shares taken in lieu of a cash dividend. Where an exemption does not apply in respect of a distribution made to a particular shareholder, we are responsible for withholding DWT prior to making such distribution.


LIST OF RELEVANT TERRITORIES FOR THE PURPOSES OF
IRISH DIVIDEND WITHHOLDING TAX (AS OF FEBRUARY 7, 2018)

Albania   Finland   Malaysia   Slovenia

Armenia

 

France

 

Malta

 

South Africa

Australia

 

Georgia

 

Mexico

 

Spain

Austria

 

Germany

 

Moldova

 

Sweden

Bahrain

 

Ghana

 

Montenegro

 

Switzerland

Belarus

 

Greece

 

Morocco

 

Thailand

Belgium

 

Hong Kong

 

Netherlands

 

The Republic Of Turkey

Bosnia & Herzegovina

 

Hungary

 

New Zealand

 

Ukraine

Botswana

 

Iceland

 

Norway

 

United Arab Emirates

Bulgaria

 

India

 

Pakistan

 

United Kingdom

Canada

 

Israel

 

Panama

 

United States

Chile

 

Italy

 

Poland

 

Uzbekistan

China

 

Japan

 

Portugal

 

Vietnam

Croatia

 

Kazakhstan

 

Qatar

 

Zambia

Cyprus

 

Korea

 

Romania

 

 

Czech Republic

 

Kuwait

 

Russia

 

 

Denmark

 

Latvia

 

Saudi Arabia

 

 

Egypt

 

Lithuania

 

Serbia

 

 

Estonia

 

Luxembourg

 

Singapore

 

 

Ethiopia

 

Macedonia

 

Slovak Republic

 

 

General Exemptions

The following is a general overview of the scenarios where it will be possible for us to make payments of dividends without deduction of DWT.

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Irish domestic law provides that a non-Irish resident shareholder is not subject to DWT on dividends received from us if such shareholder is beneficially entitled to the dividend and is either:

    §
    a person (not being a company) resident for tax purposes in a Relevant Territory (including the U.S.) and is neither resident nor ordinarily resident in Ireland (for a list of Relevant Territories for DWT purposes, as of February 7, 2018, see above);

    §
    a company resident for tax purposes in a Relevant Territory, provided such company is not under the control, whether directly or indirectly, of a person or persons who is or are resident in Ireland;

    §
    a company, wherever resident, that is controlled, directly or indirectly, by persons resident in a Relevant Territory and who is or are (as the case may be) not controlled by, directly or indirectly, persons who are not resident in a Relevant Territory;

    §
    a company, wherever resident, whose principal class of shares (or those of its 75% direct or indirect parent) is substantially and regularly traded on a stock exchange in Ireland, on a recognized stock exchange in a Relevant Territory or on such other stock exchange approved by the Irish Minister for Finance; or

    §
    a company, wherever resident, that is wholly owned, directly or indirectly, by two or more companies where the principal class of shares of each of such companies is substantially and regularly traded on a stock exchange in Ireland, on a recognized stock exchange in a Relevant Territory or on such other stock exchange approved by the Irish Minister for Finance,

          and provided, in all cases noted above, we have received from the shareholder, where required, the relevant Irish Revenue Commissioners DWT form(s) prior to the payment of the dividend and such DWT Form(s) remain valid.

For non-Irish resident shareholders that cannot avail themselves of one of Ireland's domestic law exemptions from DWT, it may be possible for such shareholders to rely on the provisions of a double tax treaty to which Ireland is party to reduce the rate of DWT.

Our shareholders that do not fall within any of the categories specifically referred to above may nonetheless fall within other exemptions from DWT. If any shareholders are exempt from DWT, but receive dividends subject to DWT, such shareholders may apply for refunds of such DWT from the Irish Revenue Commissioners.

Income Tax on Dividends Paid on Our Shares

Irish income tax may arise for certain persons in respect of dividends received from Irish resident companies. A shareholder that is not resident or ordinarily resident in Ireland and that is entitled to an exemption from DWT generally has no liability to Irish income tax or the universal social charge on our dividends. An exception to this position may apply where such shareholder holds our shares through a branch or agency in Ireland through which a trade is carried on.

A shareholder that is not resident or ordinarily resident in Ireland and that is not entitled to an exemption from DWT generally has no additional Irish income tax liability or a liability to the universal social charge. The DWT deducted by us discharges the liability to income tax. An exception to this position may apply where the shareholder holds our shares through a branch or agency in Ireland through which a trade is carried on.

Capital Acquisitions Tax

Irish capital acquisitions tax, or CAT, comprises principally gift tax and inheritance tax. CAT could apply to a gift or inheritance of our shares irrespective of the place of residence, ordinary residence or domicile of the parties. This is because our shares are regarded as property situated in Ireland for Irish CAT purposes as our share register must be held in Ireland. The person who receives the gift or inheritance has primary liability for CAT.

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CAT is levied at a rate of 33% above certain tax-free thresholds. The appropriate tax-free threshold is dependent upon (i) the relationship between the donor and the donee and (ii) the aggregation of the values of previous gifts and inheritances received by the donee from persons within the same group threshold. Gifts and inheritances passing between spouses of the same marriage or civil partners of the same civil partnership are exempt from CAT. Children have a tax-free threshold of €310,000 in respect of taxable gifts or inheritances received from their parents. Our shareholders should consult their own tax advisors as to whether CAT is creditable or deductible in computing any domestic tax liabilities.

There is also a "small gift exemption" from CAT whereby the first €3,000 of the taxable value of all taxable gifts taken by a donee from any one donor, in each calendar year, is exempt from CAT and is also excluded from any future aggregation. This exemption does not apply to an inheritance.

THE IRISH TAX CONSIDERATIONS SUMMARIZED ABOVE ARE FOR GENERAL INFORMATION ONLY. EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR CONSEQUENCES THAT MAY APPLY TO SUCH SHAREHOLDER.

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UNDERWRITING

Subject to the terms and conditions set forth in the underwriting agreement, dated                             , 2018, among us and Jefferies LLC, Barclays Capital Inc. and RBC Capital Markets, LLC, as the representatives of the underwriters named below and as the joint book-running managers of this offering, we have agreed to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from us the respective number of ordinary shares shown opposite its name below:


Underwriter
  Number of
Ordinary Shares
 

Jefferies LLC

       

Barclays Capital Inc. 

       

RBC Capital Markets, LLC

       

Wells Fargo Securities, LLC

       

Total

    8,300,000  

The underwriting agreement provides that the obligations of the several underwriters are subject to certain conditions precedent such as the receipt by the underwriters of officers' certificates and legal opinions and approval of certain legal matters by their counsel. The underwriting agreement provides that the underwriters will purchase all of the ordinary shares if any of them are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the non defaulting underwriters may be increased or the underwriting agreement may be terminated. We have agreed to indemnify the underwriters and certain of their controlling persons against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make in respect of those liabilities.

The ordinary shares will constitute a new class of securities with no established trading market. The underwriters have advised us that, following the completion of this offering, they currently intend to make a market in the ordinary shares as permitted by applicable laws and regulations. However, the underwriters are not obligated to do so, and the underwriters may discontinue any market-making activities at any time without notice in their sole discretion. Accordingly, no assurance can be given as to the liquidity of the trading market for the ordinary shares, that you will be able to sell any of the ordinary shares held by you at a particular time or that the prices that you receive when you sell will be favorable.

The underwriters are offering the ordinary shares subject to their acceptance of the ordinary shares from us and subject to prior sale. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

Commission and Expenses

The underwriters have advised us that they propose to offer the ordinary shares to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers, which may include the underwriters, at that price less a concession not in excess of $               per ordinary share. The underwriters may allow, and certain dealers may reallow, a discount from the concession not in excess of $               per ordinary share to certain brokers and dealers. After the offering, the initial public offering price, concession and reallowance to dealers may be reduced by the representatives. No such reduction will change the amount of proceeds to be received by us as set forth on the cover page of this prospectus.

The following table shows the public offering price, the underwriting discounts and commissions that we are to pay the underwriters and the proceeds, before expenses, to us in connection with this offering. Such

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amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional ordinary shares.


 
  Per Ordinary Share   Total  
 
  Without Option
to Purchase
Additional Ordinary
Shares
  With Option
to Purchase
Additional Ordinary
Shares
  Without Option
to Purchase
Additional Ordinary
Shares
  With Option
to Purchase
Additional Ordinary
Shares
 

Public offering price

  $     $     $     $    

Underwriting discounts and commissions paid by us

  $     $     $     $    

Proceeds to us, before expenses

  $     $     $     $    

We estimate expenses payable by us in connection with this offering, other than the underwriting discounts and commissions referred to above, will be approximately $4.5 million. We have agreed to reimburse the underwriters for expenses related to clearance of this offering with the Financial Industry Regulatory Authority, or FINRA, of up to $40,000.

Determination of Offering Price

Prior to this offering, there has not been a public market for our ordinary shares. Consequently, the initial public offering price for our ordinary shares will be determined by negotiations between us and the representatives. Among the factors to be considered in these negotiations will be prevailing market conditions, our financial information, market valuations of other companies that we and the underwriters believe to be comparable to us, estimates of our business potential, the present state of our development and other factors deemed relevant.

We offer no assurances that the initial public offering price will correspond to the price at which the ordinary shares will trade in the public market subsequent to the offering or that an active trading market for the ordinary shares will develop and continue after the offering.

Listing

We have applied to have our ordinary shares approved for listing on Nasdaq Global Market under the trading symbol "OSMT."

Option to Purchase Additional Ordinary Shares

We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase, from time to time, in whole or in part, up to an aggregate of 1,245,000 ordinary shares from us at the public offering price set forth on the cover page of this prospectus, less underwriting discounts and commissions. If the underwriters exercise this option, each underwriter will be obligated, subject to specified conditions, to purchase a number of additional ordinary shares proportionate to that underwriter's initial purchase commitment as indicated in the table above. This option may be exercised only if the underwriters sell more ordinary shares than the total number set forth on the cover page of this prospectus.

No Sales of Similar Securities

We, our officers, directors and holders of all or substantially all our outstanding shares have agreed, subject to specified exceptions, not to directly or indirectly:

    §
    sell, offer, contract or grant any option to sell (including any short sale), pledge, transfer, establish an open "put equivalent position" within the meaning of Rule 16a-l(h) under the Exchange Act, or

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    §
    otherwise dispose of any ordinary shares, options or warrants to acquire ordinary shares, or securities exchangeable or exercisable for or convertible into ordinary shares currently or hereafter owned either of record or beneficially, or

    §
    publicly announce an intention to do any of the foregoing for a period of 180 days after the date of this prospectus without the prior written consent of Jefferies LLC.

This restriction terminates after the close of trading of the ordinary shares on and including the 180th day after the date of this prospectus.

Jefferies LLC may, in its sole discretion and at any time or from time to time before the termination of the 180-day period release all or any portion of the securities subject to lock-up agreements. There are no existing agreements between the underwriters and any of our shareholders who will execute a lock-up agreement, providing consent to the sale of ordinary shares prior to the expiration of the lock-up period.

Stabilization

The underwriters have advised us that, pursuant to Regulation M under the Exchange Act, certain persons participating in the offering, including the underwriters, may engage in short sale transactions, stabilizing transactions, syndicate covering transactions or the imposition of penalty bids in connection with this offering. These activities may have the effect of stabilizing or maintaining the market price of the ordinary shares at a level above that which might otherwise prevail in the open market. Establishing short sales positions may involve either "covered" short sales or "naked" short sales.

"Covered" short sales are sales made in an amount not greater than the underwriters' option to purchase additional ordinary shares in this offering. The underwriters may close out any covered short position by either exercising their option to purchase additional ordinary shares or purchasing our ordinary shares in the open market. In determining the source of ordinary shares to close out the covered short position, the underwriters will consider, among other things, the price of ordinary shares available for purchase in the open market as compared to the price at which they may purchase ordinary shares through the option to purchase additional ordinary shares.

"Naked" short sales are sales in excess of the option to purchase additional ordinary shares. The underwriters must close out any naked short position by purchasing ordinary shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of our ordinary shares in the open market after pricing that could adversely affect investors who purchase in this offering.

A stabilizing bid is a bid for the purchase of ordinary shares on behalf of the underwriters for the purpose of fixing or maintaining the price of the ordinary shares. A syndicate covering transaction is the bid for or the purchase of ordinary shares on behalf of the underwriters to reduce a short position incurred by the underwriters in connection with the offering. Similar to other purchase transactions, the underwriters' purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our ordinary shares or preventing or retarding a decline in the market price of our ordinary shares. As a result, the price of our ordinary shares may be higher than the price that might otherwise exist in the open market. A penalty bid is an arrangement permitting the underwriters to reclaim the selling concession otherwise accruing to a syndicate member in connection with the offering if the ordinary shares originally sold by such syndicate member are purchased in a syndicate covering transaction and therefore have not been effectively placed by such syndicate member.

Neither we, nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our ordinary shares. The underwriters are not obligated to engage in these activities and, if commenced, any of the activities may be discontinued at any time.

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Electronic Distribution

A prospectus in electronic format may be made available by e-mail or on the web sites or through online services maintained by one or more of the underwriters or their affiliates. In those cases, prospective investors may view offering terms online and may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of ordinary shares for sale to online brokerage account holders. Any such allocation for online distributions will be made by the underwriters on the same basis as other allocations. Other than the prospectus in electronic format, the information on the underwriters' web sites and any information contained in any other web site maintained by any of the underwriters is not part of this prospectus, has not been approved or endorsed by us or the underwriters and should not be relied upon by investors.

Other Activities and Relationships

The underwriters and certain of their affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The underwriters and certain of their affiliates have, from time to time, performed, and may in the future perform, various commercial and investment banking and financial advisory services for us and our affiliates, for which they received or will receive customary fees and expenses.

In the ordinary course of their various business activities, the underwriters and certain of their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities or instruments issued by us or our affiliates. If the underwriters or their respective affiliates have a lending relationship with us, they routinely hedge their credit exposure to us consistent with their customary risk management policies. The underwriters and their respective affiliates may hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in our securities or the securities of our affiliates, including potentially the ordinary shares offered hereby. Any such short positions could adversely affect future trading prices of the ordinary shares offered hereby. The underwriters and certain of their respective affiliates may also communicate independent investment recommendations, market color or trading ideas or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long or short positions in such securities and instruments.

Disclaimers About Non-U.S. Jurisdictions

This prospectus does not constitute an offer to sell to, or a solicitation of an offer to buy from, anyone in any country or jurisdiction (i) in which such an offer or solicitation is not authorized, (ii) in which any person making such offer or solicitation is not qualified to do so or (iii) in which any such offer or solicitation would otherwise be unlawful. No action has been taken that would, or is intended to, permit a public offer of the ordinary shares or possession or distribution of this prospectus or any other offering or publicity material relating to the ordinary shares in any country or jurisdiction (other than the United States) where any such action for that purpose is required. Accordingly, each underwriter has undertaken that it will not, directly or indirectly, offer or sell any ordinary shares or have in its possession, distribute or publish any prospectus, form of application, advertisement or other document or information in any country or jurisdiction except under circumstances that will, to the best of its knowledge and belief, result in compliance with any applicable laws and regulations and all offers and sales of ordinary shares by it will be made on the same terms.

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European Economic Area

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive, or a Relevant Member State, an offer to the public of any ordinary shares which are the subject of the offering contemplated herein may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of any ordinary shares may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:

    §
    to legal entities which are qualified investors as defined under the Prospectus Directive;

    §
    by the underwriters to fewer than 100, or, if the Relevant Member State has implemented the relevant provisions of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representatives of the underwriters for any such offer; or

    §
    in any other circumstances falling within Article 3(2) of the Prospectus Directive,

provided that no such offer of ordinary shares shall result in a requirement for us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.

Each person in a Relevant Member State who receives any communication in respect of, or who acquires any ordinary shares under, the offers contemplated here in this prospectus will be deemed to have represented, warranted and agreed to and with each underwriter and us that:

    §
    it is a qualified investor as defined under the Prospectus Directive; and

    §
    in the case of any ordinary shares acquired by it as a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive, (i) the ordinary shares acquired by it in the offering have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Relevant Member State other than qualified investors, as that term is defined in the Prospectus Directive, or in the circumstances in which the prior consent of the representatives of the underwriters has been given to the offer or resale or (ii) where ordinary shares have been acquired by it on behalf of persons in any Relevant Member State other than qualified investors, the offer of such ordinary shares to it is not treated under the Prospectus Directive as having been made to such persons.

For the purposes of this representation and the provision above, the expression an "offer of ordinary shares to the public" in relation to any ordinary shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any ordinary shares to be offered so as to enable an investor to decide to purchase or subscribe for the ordinary shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State, the expression "Prospectus Directive" means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in each Relevant Member State and the expression "2010 PD Amending Directive" means Directive 2010/73/EU.

United Kingdom

This prospectus has only been communicated or caused to have been communicated and will only be communicated or caused to be communicated as an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA, as received in connection with the issue or sale of the ordinary shares in circumstances in which Section 21(1) of the FSMA does not apply to us. All applicable provisions of the FSMA will be complied with in respect to anything done in relation to the ordinary shares in, from or otherwise involving the United Kingdom.

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Notice to Residents of Canada

The ordinary shares may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the ordinary shares must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser's province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser's province or territory for particulars of these rights or consult with a legal advisor.

Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.

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LEGAL MATTERS

The validity of the issuance of our ordinary shares to be sold in this offering will be passed upon for us by A&L Goodbody, Dublin, Ireland, and certain other legal matters in connection with this offering will be passed upon for us by Ropes & Gray LLP, Boston, Massachusetts. Certain legal matters in connection with this offering will be passed upon on behalf of the underwriters by Latham & Watkins LLP, New York, New York.


EXPERTS

The consolidated financial statements of Osmotica Holdings S.C.Sp. as of December 31, 2017 and 2016 and for the years then ended included in this prospectus and in the registration statement have been so included in reliance on the report of BDO USA LLP, an independent registered public accounting firm, appearing elsewhere herein and in the registration statement, given on the authority of said firm as experts in auditing and accounting.

The financial statements of Osmotica Pharmaceuticals Limited (formerly known as Lilydale Limited), which consist of a balance sheet as of March 31, 2018 and statements of changes in equity for the period July 13, 2017 (date of incorporation) through December 31, 2017 and the three months in the period ended March 31, 2018, included in this prospectus and in the registration statement have been so included in reliance on the report of BDO USA LLP, an independent registered public accounting firm, appearing elsewhere herein and in the registration statement, given on the authority of said firm as experts in auditing and accounting.

Independence

In connection with our filing for an initial public offering of ordinary shares, we requested our independent auditor to affirm its independence relative to the rules and regulations of the Public Company Accounting Oversight Board, or the PCAOB, and the U.S. Securities and Exchange Commission, or the SEC.

The independence evaluation procedures of BDO, our registered independent public accounts, identified an engagement by a BDO member firm, BDO—Bercher y Asociados S.R.L. located in Argentina, that consisted of certain bookkeeping services provided to an affiliate of Osmotica Holdings S.C.Sp. located in Argentina prior to the engagement of BDO as Osmotica Holdings S.C.Sp.'s independent registered public accounting firm under the standards of the PCAOB. These bookkeeping services are inconsistent with the auditor independence rules of Regulation S-X and the PCAOB. The engagement of the BDO member firm in Argentina was terminated in December 2017. The total fees received by the BDO member firm for the bookkeeping services were insignificant in relation to total audit fees for Osmotica Holdings S.C.Sp. The BDO member firm referenced above does not participate in the audits of Osmotica Holdings S.C.Sp.'s consolidated financial statements and the bookkeeping services did not have any impact on BDO's objectivity or BDO's ability to audit the consolidated financial statements of Osmotica Holdings S.C.Sp.

After consideration of the facts and circumstances and the applicable independence rules, BDO has concluded that (i) the aforementioned matter does not impair BDO's ability to exercise objective and impartial judgment in connection with its audits of Osmotica Holdings S.C.Sp.'s consolidated financial statements and (ii) a reasonable investor with knowledge of all relevant facts and circumstances would conclude that BDO has been and is capable of exercising objective and impartial judgment on all issues encompassed within its audits of Osmotica Holdings S.C.Sp.'s consolidated financial statements. After considering this matter, the audit committee of the board of managers of Osmotica Holdings S.C.Sp. concurred with BDO's conclusions.

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ENFORCEMENT OF CIVIL LIABILITIES

It may not be possible to enforce court judgments obtained in the United States against us in Ireland based on the civil liability provisions of the U.S. federal or state securities laws. The United States currently does not have a treaty with Ireland providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters.

The following requirements must be met before a judgment of a U.S. court will be deemed to be enforceable in Ireland:

    §
    the judgment must be for a definite sum;

    §
    the judgment must be final and conclusive; and

    §
    the judgment must be provided by a court of competent jurisdiction.

An Irish court will also exercise its right to refuse enforcement if the U.S. judgment was obtained by fraud, if the judgment violates Irish public policy, if the judgment is in breach of natural justice or if it is irreconcilable with an earlier foreign judgment. There is some uncertainty as to whether the courts of Ireland would recognize or enforce judgments of U.S. courts obtained against us or our directors or officers based on the civil liabilities provisions of the U.S. federal or state securities laws or hear actions against us or those persons based on those laws. Therefore, a final judgment for the payment of money rendered by any U.S. federal or state court based on civil liability, whether or not based solely on U.S. federal or state securities laws, would not automatically be enforceable in Ireland.


WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to our ordinary shares being offered by this prospectus. This prospectus, which forms a part of the registration statement, does not contain all of the information set forth in the registration statement. For further information with respect to us and our ordinary shares, reference is made to the registration statement and the exhibits and schedules filed as a part thereof. Statements contained in this prospectus as to the contents of any contract or other document are not necessarily complete. We are not currently subject to the informational requirements of the Exchange Act. As a result of this offering, we will become subject to the informational requirements of the Exchange Act and, in accordance therewith, will file reports and other information with the SEC. The registration statement, such reports and other information can be inspected and copied at the Public Reference Room of the SEC located at 100 F Street, N.E., Washington, D.C. 20549. Copies of such materials, including copies of all or any portion of the registration statement, can be obtained from the Public Reference Room of the SEC at prescribed rates. You can call the SEC at 1-800-SEC-0330 to obtain information on the operation of the Public Reference Room. Such materials may also be accessed electronically by means of the SEC's website at www.sec.gov.

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INDEX TO FINANCIAL STATEMENTS

 
   

OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

   

Audited Consolidated Financial Statements

 
 

Report of Independent Registered Public Accounting Firm

  F-2

Consolidated Balance Sheets as of December 31, 2017 and 2016

  F-3

Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2017 and 2016

  F-4

Consolidated Statements of Changes in Partners' Capital for the Years Ended December 31, 2017 and 2016

  F-5

Consolidated Statements of Cash Flows for the Years Ended December 31, 2017 and 2016

  F-6

Notes to Consolidated Financial Statements

  F-7

Condensed Consolidated Financial Statements (unaudited)

 
 

Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017

  F-55

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Six Months Ended June 30, 2018 and 2017

  F-56

Condensed Consolidated Statement of Changes in Partners' Capital for the Six Months Ended June 30, 2018

  F-57

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017

  F-58

Notes to the Condensed Consolidated Financial Statements

  F-59

OSMOTICA PHARMACEUTICALS LIMITED (FORMERLY LILYDALE LIMITED)

 
 

Audited Financial Statements

 
 

Report of Independent Registered Public Accounting Firm

  F-81

Balance Sheet as of March 31, 2018

  F-82

Statements of Changes in Equity for the Year Ended December 31, 2017 and the Three Months Ended March 31, 2018

  F-83

Notes to Financial Statements

  F-84

Unaudited Condensed Financial Statements

 
 

Condensed Balance Sheets as of June 30, 2018 and March 31, 2018

  F-86

Condensed Statement of Changes in Equity for the Six Months Ended June 30, 2018

  F-87

Condensed Statement of Cash Flows for the Six Months Ended June 30, 2018

  F-88

Notes to Condensed Financial Statements

  F-89

F-1


Table of Contents

Report of Independent Registered Public Accounting Firm

Board of Managers
Osmotica Holdings S.C.Sp.
Bridgewater, New Jersey

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Osmotica Holdings S.C.Sp. (the "Company") and subsidiaries as of December 31, 2017 and 2016 and the related consolidated statements of operations and comprehensive loss, changes in partners' capital, and cash flows for each of the two years in the period ended December 31, 2017, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Emphasis of Matter

As discussed in Note 1 to the consolidated financial statements, the 2017 and 2016 consolidated financial statements have been restated to correct misstatements. Our opinion is not modified with respect to this matter.

/s/ BDO USA, LLP

We have served as the Company's auditor since 2016.
Woodbridge, New Jersey
May 9, 2018, except for Note 1, which is August 22, 2018, and Note 16, which is October 1, 2018

F-2


Table of Contents



OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 
  December 31,  
 
  2017
(restated)
  2016
(restated)
 

Assets

             

Current assets:

             

Cash and cash equivalents

  $ 34,743,152   $ 19,558,571  

Trade accounts receivable, net

    37,637,957     43,739,048  

Due from affiliates

        21,868  

Income taxes receivable

        1,558,700  

Inventories, net

    16,946,870     19,838,989  

Prepaid expenses and other current assets

    25,814,289     9,492,706  

Total current assets

    115,142,268     94,209,882  

Property, plant and equipment, net

    31,410,133     27,730,400  

Intangibles, net

    585,388,710     701,289,912  

Goodwill

    152,815,716     152,815,716  

Other non-current assets

    942,419     2,454,501  

Total assets

  $ 885,699,246   $ 978,500,411  

Liabilities and Partners' Capital

             

Current liabilities:

             

Trade accounts payable

  $ 36,069,936   $ 34,979,446  

Accrued liabilities

    81,926,390     64,707,702  

Current portion of long-term debt, net of deferred financing costs

    6,655,604     5,169,134  

Current portion of obligation under capital leases

    24,245     113,841  

Due to affiliates

        2,544,752  

Contingent consideration

        10,317,604  

Total current liabilities

    124,676,175     117,832,479  

Long-term debt, net of non-current deferred financing costs

    313,949,581     323,660,709  

Accrued interest — promissory notes

        4,162,500  

Long-term portion of obligation under capital leases

    57,059     81,305  

Income taxes payable — long-term portion

    1,334,645      

Deferred taxes — long-term portion

    25,364,055     67,558,265  

Other long-term liabilities

    1,047,477      

Total liabilities

    466,428,992     513,295,258  

Commitments and contingencies

             

Partners' capital:

   
 
   
 
 

Partners' capital

    419,903,400     464,930,372  

Accumulated other comprehensive (loss) income

    (633,146 )   274,781  

Total partners' capital

    419,270,254     465,205,153  

Total liabilities and partners' capital

  $ 885,699,246   $ 978,500,411  

   

See accompanying notes to consolidated financial statements

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OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

 
  Years ended December 31,  
 
  2017   2016
restated
 

Revenues

             

Net product sales

  $ 237,671,178   $ 170,522,170  

Royalty revenue

    6,449,095     40,918,166  

Licensing and contract revenue

    1,628,759     7,019,316  

Total revenues

    245,749,032     218,459,652  

Cost of goods sold (inclusive of amortization of intangibles of $43,380,923 and $21,470,233 for 2017 and 2016, respectively)

    125,188,435     125,615,991  

Gross profit

    120,560,597     92,843,661  

Selling, general and administrative expenses

    56,954,513     65,958,147  

Acquisition-related costs

        8,397,822  

Research and development expenses

    42,688,062     29,061,518  

Impairment of intangible assets

    72,520,279     21,474,837  

Impairment of fixed assets

    466,024      

Total operating expenses

    172,628,878     124,892,324  

Operating loss

    (52,068,281 )   (32,048,663 )

Interest expense and amortization of debt discount

    (29,052,363 )   (20,186,952 )

Other non-operating (loss) income, net

    (4,521,898 )   168,729  

Total other non-operating expense, net

    (33,574,261 )   (20,018,223 )

Loss before income taxes

    (85,642,542 )   (52,066,886 )

Income tax benefit

    40,487,570     10,245,646  

Net loss

  $ (45,154,972 ) $ (41,821,240 )

Other comprehensive (loss) income, net

             

Change in foreign currency translation adjustments

    (907,927 )   268,877  

Comprehensive loss

  $ (46,062,899 ) $ (41,552,363 )

Loss per unit attributable to unitholders

             

Basic and diluted

  $ (45.14 ) $ (41.81 )

Weighted average units basic and diluted

    1,000,367     1,000,159  

   

See accompanying notes to consolidated financial statements

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Table of Contents



OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL

 
  Partners'
capital
(restated)
  Accumulated
other
comprehensive
(loss) income
  Total
(restated)
 

Balance, December 31, 2015

  $ 69,090,758   $ 5,904   $ 69,096,662  

Net loss

    (41,821,240 )       (41,820,240 )

Change in foreign currency translation

        268,877     268,877  

Legacy Osmotica — contributed equity, net of adjustments

    332,651,125         332,651,125  

Valkyrie — contributed equity

    6,954,800         6,954,800  

Vertical/Trigen Holdings LLC 2013 Equity Incentive Plan — compensation expense

    1,159,173         1,159,173  

Partners' contributions

    120,201,600         120,201,600  

Partners' distributions

    (23,305,844 )       (23,305,844 )

Balance, December 31, 2016

  $ 464,930,372   $ 274,781   $ 465,205,153  

Net loss

    (45,154,972 )       (45,154,972 )

Change in foreign currency translation

        (907,927 )   (907,927 )

Partners' contributions

    128,000         128,000  

Balance, December 31, 2017

  $ 419,903,400   $ (633,146 ) $ 419,270,254  

   

See accompanying notes to consolidated financial statements

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Table of Contents



OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 
  Years ended December 31,  
 
  2017
(restated)
  2016
(restated)
 

CASH FLOWS FROM OPERATING ACTIVITIES:

             

Net loss

  $ (45,154,972 ) $ (41,821,240 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

             

Depreciation and amortization

    46,450,146     23,585,336  

Impairment of intangibles and fixed assets

    72,986,303     21,474,837  

Expensed IPR&D

    16,372,476      

Deferred income tax benefit

    (44,493,488 )   (13,162,142 )

Incentive unit liability expense

        1,159,173  

Bad debt expense

    832,388     4,068,812  

Change in fair value of contingent consideration

    182,396     698,447  

Payment for contingent consideration

    (1,991,288 )    

Payment of In-kind interest

    (9,321,500 )    

Deferred financing fees

    4,981,624      

Non-cash interest expense and amortization of deferred financing fees

    7,506,359     5,531,889  

Change in operating assets and liabilities:

             

Trade accounts receivable, net

    5,268,883     (12,525,675 )

Inventories, net

    2,892,119     12,561,233  

Prepaid expenses and other current assets

    (14,569,647 )   (5,327,064 )

Other non-current assets

    1,512,082     (1,171,047 )

Trade accounts payable

    588,238     (14,389,937 )

Accrued and other current liabilities

    13,794,939     (25,473,265 )

Net cash provided by (used in) operating activities

    57,837,058     (44,790,643 )

CASH FLOWS FROM INVESTING ACTIVITIES:

             

Payments for business combination, net of cash acquired

        (321,000,000 )

Payments for asset acquisitions

    (12,500,000 )   (116,531,828 )

Payments for other intangible assets

        (2,000,000 )

Purchase of property, plant and equipment

    (6,895,332 )   (13,931,009 )

Net cash used in investing activities

    (19,395,332 )   (453,462,837 )

CASH FLOWS FROM FINANCING ACTIVITIES:

             

Partners' contributions

    128,000     120,201,600  

Distributions to Partners

        (23,305,844 )

Payments on capital lease obligations

    (113,842 )   (490,159 )

Proceeds from issuances of debt

    327,500,000     342,500,000  

Debt repayment

    (338,756,329 )   (3,773,367 )

Debt financing costs

    (3,563,499 )   (13,487,749 )

Payment for contingent consideration

    (8,508,712 )    

Other

        (1,128,287 )

Net cash (used in) provided by financing activities

    (23,314,382 )   420,516,194  

Net change in cash and cash equivalents

    15,127,344     (77,737,286 )

Effect on cash of changes in exchange rate

    57,237     (316,130 )

Cash and cash equivalents, beginning of year

    19,558,571     97,611,987  

Cash and cash equivalents, end of year

  $ 34,743,152   $ 19,558,571  

Supplemental disclosure of cash and non-cash transactions:

             

Cash paid for interest

  $ 25,272,842   $ 12,412,562  

Income taxes paid

  $ 17,592,965   $ 8,522,189  

Non-cash investing activities

             

Legacy Osmotica — contributed capital

  $   $ 320,000,000  

   

See accompanying notes to consolidated financial statements

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Table of Contents


OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Nature of Operations

Osmotica Holdings S.C.Sp. ("Parent"), is a Luxembourg special limited partnership, formed on January 28, 2016. Osmotica Holdings US LLC ("Holdings"), a subsidiary of Parent entered in to a fifty-fifty partnership (the "Merger"), effective February 3, 2016, pursuant to a definitive agreement between Vertical/ Trigen Holdings, LLC ("Vertical/Trigen") and members, and Osmotica Holdings Corp Limited and Subsidiaries ("Legacy Osmotica"). Prior to the Merger, Vertical/Trigen was engaged in the marketing and distribution of branded and generic pharmaceutical products in the United States. Vertical/Trigen members exchanged their equity interests for equivalent equity interests in the Parent as well as an additional capital contribution such that there was no change in the basis of accounting. In accordance with the Merger, the Company (as defined in Note 2) became jointly owned by the members of Vertical/Trigen and the shareholders of Legacy Osmotica. The Company and several other holding companies and partnerships were formed as a result of the Merger. Pursuant to the Merger, Vertical/Trigen was deemed to be the accounting acquirer (see Note 3).

Vertical/Trigen, a Delaware limited liability company, was originally formed on October 25, 2013. On December 13, 2013, Valkyrie Group Holdings, Inc., ("Valkyrie") along with three individual members, collectively purchased a fifty-one percent (51%) interest in the net assets of Vertical Pharmaceuticals LLC ("Vertical"), Trigen Laboratories LLC ("Trigen") and Biovance Therapeutics LLC ("Biovance") (referred to as "VTB"), through Vertical/Trigen from the previous three individual members of VTB, and the previous members collectively owned a forty-nine percent (49%) interest in the net assets of Vertical/Trigen post acquisition. Vertical was incorporated in New Jersey in May 2003 as an S Corporation and Trigen was incorporated in New Jersey in October 2004 as an S Corporation. Vertical and Trigen are engaged in the development, marketing and distribution of pharmaceutical products in the United States. In August 2011, the members of Vertical and Trigen created an affiliate, Biovance, as a Limited Liability Company that was engaged in the development, marketing and distribution of generic pharmaceutical products in the United States and specializes in women's health and primary care. As of December 31, 2014, Valkyrie, along with five individual members, collectively owned 60.8% of the net assets of Vertical/Trigen, and the previous members collectively owned 39.2% as a result of additional equity contributions (see Note 3). On July 8, 2015, Vertical/Trigen Midco, LLC filed articles of dissolution for Biovance.

Restatement

The Company has identified and recorded an adjustment related to misstatements associated with the Legacy Osmotica business combination described in Note 3. For the periods ended December 31, 2017 and 2016 the correction resulted in an increase to Goodwill of $6,768,187; a reduction in Trade accounts payable of $2,038,719, and an increase in Partners' capital of $8,806,906. The Company has corrected these amounts in the periods presented in these financial statements for the years ended December 31, 2017 and 2016.

At the time of the issuance of the 2017 consolidated financial statements, the Company had previously made an immaterial reclassification $4,185,000 between Goodwill and Tradenames which is part of Intangibles, net on the consolidated balance sheets for the year ended December 31, 2017, related to the Legacy Osmotica business combination. The Company has now recorded this reclassification between Goodwill and Intangibles, net in the year ended December 31, 2016.

The Company identified and recorded corrections related to the treatment of deferred taxes associated with different tax jurisdictions of certain intangible assets resulting from the Legacy Osmotica business combination. For the years ended December 31, 2017 and 2016, the corrections resulted in an increase to

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Table of Contents


OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1. Organization and Nature of Operations (Continued)

Goodwill of $9,256,085 and an increase to Deferred Tax Liabilities, included within deferred taxes — long term portion of the consolidated balance sheet, of $9,256,085.

The Company further identified and recorded corrections related to the Legacy Osmotica business combination and a historical business combination by Vertical/Trigen that was completed in a year prior to 2016. For the years ended December 31, 2017 and 2016, the corrections resulted in a decrease to deferred taxes — long term portion in the amount of $8,702,401; a decrease in Goodwill of $3,647,050; an increase in income tax benefit for December 31, 2016 of $2,381,325, and an increase in Partners' capital in the amount of $2,674,026 for the year ended December 31, 2016 and $5,055,351 for the year ended December 31, 2017. The increase in income tax benefit for December 31, 2016 of $2,381,325 was the result of the change in corporate organizational structure due to the Legacy Osmotica business combination.

The Company also identified and recorded an adjustment for the year ended December 31, 2017 associated with an intercompany transfer of intellectual property that occurred during 2017. This correction resulted in a decrease to deferred taxes — long term portion in the amount of $1,309,346; an increase to Income taxes payable — long term portion in the amount of $261,869; and an increase to other long term liabilities in the amount of $1,047,477.

The above corrections resulted in the Company making corrections to the consolidated statement of cash flows for the year ended December 31, 2016. For the year ended December 31, 2016, within the Cash Flows from Operating Activities section, Net loss decreased by $2,381,325, deferred income tax benefit increased by $2,381,325, trade accounts payable increased by $10,306,906 and accrued and other current liabilities decreased by $10,306,906.

Certain Note disclosures in these consolidated financial statements have also been revised to take into account the corrections that are described above and those revisions are labeled as "restated" within these Notes to the consolidated financial statements.

The following table presents the amounts originally reported, net restatement adjustment and restated for items affected by the restatement at December 31, 2016:

 
  As originally reported   Net adjustments   As restated  

Intangibles, net

  $ 697,104,912   $ 4,185,000   $ 701,289,912  

Goodwill

  $ 144,623,494   $ 8,192,222   $ 152,815,716  

Trade accounts payable

  $ 37,018,165   $ (2,038,719 ) $ 34,979,446  

Deferred taxes — long-term portion

  $ 67,004,581   $ 553,684   $ 67,558,265  

Partners' capital

  $ 451,068,115   $ 13,862,257   $ 464,930,372  

Income tax benefit

  $ 7,864,321   $ 2,381,325   $ 10,245,646  

Net loss

  $ 44,202,565   $ (2,381,325 ) $ 41,821,240  

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Table of Contents


OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1. Organization and Nature of Operations (Continued)

The following table presents the amounts originally reported, net restatement adjustment and restated for items affected by the restatement at December 31, 2017:

 
  As originally reported   Net adjustments   As restated  

Goodwill

  $ 140,438,494   $ 12,377,222   $ 152,815,716  

Trade accounts payable

  $ 38,108,655   $ (2,038,719 ) $ 36,069,936  

Other long-term liabilities

  $   $ 1,047,477   $ 1,047,477  

Income taxes payable- long-term portion

  $ 1,072,776   $ 261,869   $ 1,334,645  

Deferred taxes — long-term portion

  $ 26,119,717   $ (755,662 ) $ 25,364,055  

Partners' capital

  $ 406,041,143   $ 13,862,257   $ 419,903,400  

Note 2. Summary of Significant Accounting Policies

Principles of Consolidation   —  The accompanying consolidated financial statements include the accounts of Osmotica Holdings S.C.Sp. and its wholly-owned domestic subsidiary, Osmotica Holdings US LLC ("Holdings"), as well as the wholly-owned domestic and foreign subsidiaries of Holdings: Osmotica Holdings US LLC, Osmotica Holdings Corp Limited (Cyprus), Osmotica Kereskedelmi és Szolgáltató Korlátolt Felelõsségû Társaság (Hungary), Osmotica Argentina S.A. (Argentina), Osmotica Pharmaceutical Corp., RevitaLid, Inc., Orbit Blocker I LLC, Orbit Blocker II LLC, Valkyrie Group Holdings Inc., Vertical/Trigen Holdings, LLC, Osmotica Pharmaceutical US LLC, Vertical/Trigen Midco, LLC, Vertical/Trigen Opco, LLC, Vertical Pharmaceuticals, LLC, and Trigen Laboratories, LLC (collectively "Osmotica" or the "Company"). All inter-company transactions and balances have been eliminated in consolidation. The Company has no involvement with variable interest entities.

Basis of Accounting   —  The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The Company primarily markets pharmaceutical products, including: branded pharmaceutical products and generic pharmaceutical products.

Segment Information   —  The Company has determined that it operates in one operating segment, which focuses on developing and commercializing pharmaceutical products that target markets with underserved patient populations. The Company's operating segment is reported in a manner consistent with the internal reporting provided to the chief operating decision maker ("CODM"). The Company's CODM has been identified as its chief executive officer.

Foreign Currency Translation   —  The Company's reporting currency is the U.S. dollar. Operations outside the United States are generally measured using the local currency as the functional currency, except for Osmotica Kereskedelmi és Szolgáltató Korlátolt Felelõsségû Társaság (Hungary) and Osmotica Holding Corp LTD (Cyprus) which uses the U.S. dollar as its functional currency. The financial statements of Osmotica Argentina, S.A. (Argentina) have been translated from the Argentine peso, to U.S. dollars, based on the current translation rates in effect during the period or as of the date of consolidation, as applicable. Assets and liabilities of these operations are translated into U.S. dollars at end-of-period exchange rates; income and expenses are translated using the average exchange rates for the reporting period. Resulting cumulative translation adjustments are recorded as a component of Partners' Capital in the Consolidated Balance Sheets in accumulated other comprehensive (loss) income.

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Table of Contents


OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2. Summary of Significant Accounting Policies (Continued)

Use of Estimates   —  The preparation of the Company's consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Estimates are used when accounting for items and matters including, but not limited to, sales allowances, such as returns on products sales, rebates and chargebacks, price adjustment and allowances, customer coupon redemptions, wholesaler/pharmacy discounts, product service fees, sales commissions and bonuses, incentive/share-based compensation, impairment of goodwill and identifiable intangibles, inventory obsolescence and measurement of deferred tax assets and liabilities, and assumptions underlying the accounting for business combinations. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Actual results could differ from management's estimates.

Cash and Cash Equivalents   —  The Company considers all unrestricted, highly liquid investments with maturity of three months or less when purchased to be cash and cash equivalents. The Company maintains cash balances, which, at times, may exceed the amounts insured by the Federal Deposit Insurance Corporation. There were no cash equivalents as of December 31, 2017 or 2016.

Revenue Recognition   —  Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, or services have been rendered, the sales price is fixed or determinable, and collectability is reasonably assured.

Provision for estimated chargebacks, commercial rebates, discounts and allowances and doubtful accounts settled in sales credits at the time of sales, are analyzed and adjusted, if necessary, monthly and recorded against gross trade accounts receivable. Estimated product returns, commercial and governmental rebates, customer coupons settled in cash, are analyzed and adjusted, if necessary, monthly and recorded as a component of accrued expenses.

Product Sales   —  Revenues from product sales are recognized when title and risk of loss have passed to the customer.

Royalty Revenue   —  Royalties are recognized as earned in accordance with contract terms when they can be reasonably estimated, and collectability is reasonably assured. The Company's commercial partners are obligated to report their net product sales and the resulting royalty due to the Company. Based on historical product sales, royalty receipts and other relevant information, the Company accrues royalty revenue monthly and performs a quarterly true-up when it receives royalty reports from its commercial partners. Historically these true-up adjustments have been immaterial.

Licensing and Contract Revenue   —  The Company recognizes revenue from an arrangement when such product is shipped to the commercial partner. Licensing revenue is recognized in the period in which the product subject to the arrangement is sold or services are rendered. Sales deductions, such as returns on product sales, government program rebates, price adjustments, and prompt pay discounts in regard to licensing revenue is generally the responsibility of the Company's partners and not recorded by the Company. Licensing and contract revenues are shown net of costs in situations where it has been determined that the Company is an agent in the relationship.

Cost of Goods Sold   —  Cost of goods sold comprises costs to manufacture or acquire products sold to customers; royalty and other revenue sharing payments under license and other agreements granting the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2. Summary of Significant Accounting Policies (Continued)

Company rights to sell related products; and direct and indirect distribution costs incurred in the sale of products. The Company acquired the rights to sell certain commercial products through license and assignment agreements with the original developers or other parties with interests in these products. These agreements obligate the Company to make payments under varying payment structures based on net sales from related products. The Company accrues their obligation monthly.

Freight   —  The Company records amounts billed to customers for shipping and handling as revenue, and records shipping and handling expenses related to product sales as cost of goods sold.

Trade Accounts Receivable, net   —  Trade accounts receivable are stated at their net realizable value. The nature of the Company's business involves, in the ordinary course, significant judgments and estimates related to pricing allowances. Depending on the products, the customers and arrangements with the Company's customers, certain pricing allowances are recorded as deductions to the Company's trade accounts receivable.

Unless otherwise noted, the provisions and allowances for the following customer deductions are reflected in the accompanying consolidated financial statements as reductions of revenues and trade accounts receivable, respectively.

Allowance for Doubtful Accounts   —  Provisions for doubtful accounts, which reflect trade receivable balances owed to the Company that are believed to be uncollectible, are recorded as a component of selling, general and administrative expenses. In estimating the allowance for doubtful accounts, the Company considers its historical experience with collections and write-offs, the credit quality of its customers and any recent or anticipated changes thereto, and the outstanding balances and past due amounts from its customers. Extended payment terms, if any, are evaluated in accordance with Accounting Standard Codification ("ASC") 605, Revenue Recognition as applicable. Accounts are considered past due when they remain uncollected beyond the due date specified in the applicable contract or on the applicable invoice, whichever is deemed to take precedence.

The Company performs monthly detailed analysis of the receivables due from its customers and provides a specific reserve against known uncollectible items. The Company also includes in the allowance for doubtful accounts an amount that it estimates to be uncollectible for all other customers, based on a percentage of the past due receivables. The percentage reserved increases as the age of the receivables increases. Accounts are written off once all reasonable collection efforts have been exhausted and/or when facts or circumstances regarding the customer (i.e. bankruptcy filing) indicate that the chance of collection is remote.

Chargebacks   —  The Company enters into contractual agreements with certain third parties such as retailers, hospitals, and group-purchasing organizations ("GPOs") to sell certain products at predetermined prices. Similarly, the Company maintains an allowance for rebates and discounts related to chargebacks, wholesaler fees for service contracts, GPO administrative fees, government programs, prompt payment and other adjustments with certain customers. Most of the parties have elected to have these contracts administered through wholesalers that buy the product from the Company and subsequently sell it to these third parties. As noted elsewhere, these wholesalers represent a significant percentage of the Company's gross sales. When a wholesaler sells products to one of these third parties that are subject to a contractual price agreement, the difference between the price paid to the Company by the wholesaler and the price under the specific contract is charged back to the Company by the wholesaler. Utilizing this information,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2. Summary of Significant Accounting Policies (Continued)

the Company estimates a chargeback percentage for each product and records an allowance as a reduction to gross sales when the Company records its sale of the products. The Company reduces the chargeback allowance when a chargeback request from a wholesaler is processed. Actual chargebacks processed by the Company can vary materially from period to period based upon actual sales volume through the wholesalers. However, the Company's provision for chargebacks is fully reserved for at the time when sales revenues are recognized.

The Company obtains product inventory reports from major wholesalers to aid in analyzing the reasonableness of the chargeback allowance and to monitor whether wholesaler inventory levels do not significantly exceed customer demand. The Company assesses the reasonableness of its chargeback allowance by applying a product chargeback percentage that is based on a combination of historical activity and current price and mix expectations to the quantities of inventory on hand at the wholesalers according to wholesaler inventory reports. In addition, the Company estimates the percentage of gross sales that were generated through direct and indirect sales channels and the percentage of contract vs. non-contract revenue in the period, as these each affect the estimated reserve calculation. In accordance with its accounting policy, the Company estimates the percentage amount of wholesaler inventory that will ultimately be sold to third parties that are subject to contractual price agreements based on a trend of such sales through wholesalers. The Company uses this percentage estimate until historical trends indicate that a revision should be made. On an ongoing basis, the Company evaluates its actual chargeback rate experience, and new trends are factored into its estimates each quarter as market conditions change.

The Company ensures that chargebacks are reasonable through review of contractual obligations, historical trends and evaluation of recent activity. Furthermore, other events that could materially alter chargebacks include: changes in product pricing as a result of competitive market dynamics or negotiations with customers, changes in demand for specific products due to external factors such as competitor supply position or consumer preferences, customer shifts in buying patterns from direct to indirect through wholesalers, which could either individually or in aggregate increase or decrease the chargebacks depending on the direction and trend of the change(s).

Commercial Rebates   —  The Company maintains an allowance for commercial rebates that it has in place with certain customers. Commercial rebates vary by product and by volume purchased by each eligible customer. The Company tracks sales by product number for each eligible customer and then applies the applicable commercial rebate percentage, using both historical trends and actual experience to estimate its commercial rebates. The Company reduces gross sales and increases the commercial rebates allowance by the estimated commercial rebates when the Company sells its products to eligible customers. The Company reduces the commercial rebate allowance when it processes a customer request for a rebate. At each month end, the Company analyzes the allowance for commercial rebates against actual rebates processed and makes necessary adjustments as appropriate. The amount of actual commercial rebates processed can vary materially from period to period as discussed below.

The allowance for commercial rebates takes into consideration price adjustments which are credits issued to reflect increases or decreases in the invoice or contract prices of the Company's products. In the case of a price decrease, a credit is given for products remaining in customer's inventories at the time of the price reduction. Contractual price protection results in a similar credit when the invoice or contract prices of the Company's products increase, effectively allowing customers to purchase products at previous prices for a specified period of time. Amounts recorded for estimated shelf-stock adjustments and price protections are based upon specified terms with direct customers, estimated changes in market prices, and estimates of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2. Summary of Significant Accounting Policies (Continued)

inventory held by customers. The Company regularly monitors these and other factors and evaluates the reserve as additional information becomes available.

The Company ensures that commercial rebates are reasonable through review of contractual obligations, review of historical trends and evaluation of recent activity. Furthermore, other events that could materially alter commercial rebates include: changes in product pricing as a result of competitive market dynamics or negotiations with customers, changes in demand for specific products due to external factors such as competitor supply position or consumer preferences, customer shifts in buying patterns from direct to indirect through wholesalers, which could either individually or in aggregate increase or decrease the commercial rebates depending on the direction and velocity of the change(s).

Product Returns   —  Certain of the Company's products are sold with the customer having the right to return the product within specified periods. Estimated return accruals are made at the time of sale based upon historical experience. Historical factors such as one-time recall events as well as pending new developments like comparable product approvals or significant pricing movement that may impact the expected level of returns are taken into account monthly to determine the appropriate accrued expense. As part of the evaluation of the liability required, the Company considers actual returns to date that are in process, the expected impact of any product recalls and the amount of wholesaler's inventory to assess the magnitude of unconsumed product that may result in product returns to the Company in the future. The product returns level can be impacted by factors such as overall market demand and market competition and availability for substitute products which can increase or decrease the pull through for sales of the Company's products and ultimately impact the level of product returns.

The Company ensures that product returns are reasonable through inspection of historical trends and evaluation of recent activity. Furthermore, other events that could materially alter product returns include: acquisitions and integration activities that consolidate dissimilar contract terms and could impact the return rate as typically the Company purchases smaller entities with less contracting power and integrates those product sales to Company contracts; and consumer demand shifts by products, which could either increase or decrease the product returns depending on the product or products specifically demanded and ultimately returned.

Accrual for Promotions and Co-Pay Discount Cards   —  From time to time the Company authorizes various retailers to run in-store promotional sales of its products. Upon receiving confirmation that a promotion was run, the Company accrues an estimate of the dollar amount expected to be owed back to the retailer. This estimate is then adjusted to actual upon receipt of an invoice from the retailer. Additionally, the Company provides consumer co-pay discount cards, administered through outside agents to provide discounted products when redeemed. Upon release of the cards into the market, the Company records an estimate of the dollar value of co-pay discounts expected to be utilized. This estimate is based on historical experience and is adjusted as needed based on actual usage.

Government Program Rebates   —  Federal law requires that a pharmaceutical distributor, as a condition of having federal funds being made available to the States for the manufacturer's drugs under Medicaid and Medicare Part B, must enter into a rebate agreement to pay rebates to state Medicaid programs for the distributor's covered outpatient drugs that are dispensed to Medicaid beneficiaries and paid for by a state Medicaid program under a fee-for-service arrangement. The Centers for Medicare and Medicaid Services ("CMS") are responsible for administering the Medicaid rebate agreements between the federal government

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2. Summary of Significant Accounting Policies (Continued)

and pharmaceutical manufacturers. Rebates are also due on the utilization of Medicaid managed care organizations ("MMCOs").

The Company also pays rebates to managed care organizations ("MCOs") for the reimbursement of a portion of the sales price of prescriptions filled that are covered by the respective plans. The liability for Medicaid, Medicare, and other government program rebates is settled in cash and is estimated based on historical and current rebate redemption and utilization rates contractually submitted by each state's program administrator and assumptions regarding future government program utilization for each product sold; and accordingly recorded as a reduction of product sales.

Inventories   —  Inventories are stated at the lower of cost or market. The Company maintains an allowance for excess and obsolete inventory as well as inventory where the cost is in excess of its net realizable value ("NRV") based on management's assessments. The Company capitalizes inventory costs associated with its products prior to regulatory approval when, based on management judgement, future commercialization is considered probable and future economic benefit is expected to be realized. As of December 31, 2017 and 2016, there were no capitalized inventory costs associated with products that had not yet achieved regulatory approval. The Company assesses the regulatory approval process and where the product stands in relation to that approval process including any known constraints or impediments to approval. The Company also considers the shelf life of the product in relation to the product timeline for approval. Sample inventory utilized for promoting the Company's products is expensed and included in selling, general and administrative ("SG&A") expenses when the sample units are distributed to the Company's sales representatives.

Property, Plant and Equipment   —  Property, plant and equipment is stated at cost, less accumulated depreciation. Maintenance and repairs are charged to expense when incurred. Additions and improvements that extend the economic useful life of the asset are capitalized and depreciated over the remaining useful lives of the assets. The cost and accumulated depreciation of assets sold or retired are removed from the respective accounts, and any resulting gain or loss is reflected in current earnings. Depreciation is provided using the straight-line method in amounts considered to be sufficient to amortize the cost of the assets to operations over their estimated useful lives or lease terms, as follows:


Asset category
  Depreciable life

Buildings

  20 - 30 years

Leasehold improvements

  Lesser of the useful life of the improvement or the terms of the underlying lease

Machinery

  3 - 15 years

Furniture, fixtures and equipment

  3 - 10 years

Computer hardware and software

  3 - 12 years

Business Combinations   —  The Company accounts for its business combinations under the provisions of ASC Topic 805, Business Combinations ("ASC 805"), which requires that the purchase method of accounting be used for all business combinations. Assets acquired, and liabilities assumed, are recorded at the date of acquisition at their respective fair values. Amounts allocated to acquire in-process research and development ("IPR&D") are capitalized at the date of an acquisition and are not amortized. As products in development are approved for sale, amounts are allocated to product rights and licenses and amortized over

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2. Summary of Significant Accounting Policies (Continued)

their estimated useful lives. Definite-lived intangible assets are amortized over the expected life of the asset. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.

Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination. Acquisition-related expenses are recognized separately from business combinations and are expensed as incurred. If the business combination provides for contingent consideration, the Company records the contingent consideration at fair value at the acquisition date. Changes in fair value of contingent consideration resulting from events after the acquisition date, such as earn-outs, are recognized as follows: 1) if the contingent consideration is classified as equity, the contingent consideration is not re-measured and its subsequent settlement is accounted for within equity, or 2) if the contingent consideration is classified as a liability, the changes in fair value are recognized in earnings.

Purchases of developed products and licenses that are accounted for as an asset acquisition are capitalized as intangible assets and amortized over an estimated useful life. IPR&D assets acquired as part of an asset acquisition are expensed immediately if they have no alternative future uses. Transaction costs are capitalized and included as a component of the consideration transferred to acquire the group of assets.

Goodwill and Indefinite Lived Intangible Assets   —  Goodwill, which represents the excess of purchase price over the fair value of net assets acquired, is carried at cost. Goodwill is not amortized; rather, it is subject to a periodic assessment for impairment by applying a fair value-based test. The Company is organized in one reporting unit and evaluates the goodwill for the Company as a whole. Goodwill is assessed for impairment on an annual basis as of October 1 st  of each year or more frequently if events or changes in circumstances indicate that the asset might be impaired. Under the authoritative guidance issued by the FASB, the Company has the option to first assess the qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the goodwill impairment test is performed. The goodwill impairment test requires the Company to estimate the fair value of the reporting unit and to compare the fair value of the reporting unit with its carrying amount. If the fair value exceeds the carrying value, then no impairment is recognized. If the carrying value recorded exceeds the fair value calculated, then an impairment charge is recognized for the difference. The judgments made in determining the projected cash flows used to estimate the fair value can materially impact the Company's financial condition and results of operations. There was no impairment of goodwill for the years ended December 31, 2017 or 2016.

In-Process Research and Development ("IPR&D") intangible assets represent the value assigned to acquired Research & Development ("R&D") projects that principally represent rights to develop and sell a product that the Company has acquired which have not yet been completed or approved. These assets are subject to impairment testing until completion or abandonment of each project. Impairment testing requires the development of significant estimates and assumptions involving the determination of estimated net cash flows for each year for each project or product (including net revenues, cost of sales, R&D costs, selling and marketing costs and other costs which may be allocated), the appropriate discount rate to select in order to measure the risk inherent in each future cash flow stream, the assessment of each asset's life cycle, the potential regulatory and commercial success risks, and competitive trends impacting each asset and related cash flow stream as well as other factors. The major risks and uncertainties associated with the timely and successful completion of the IPR&D projects include legal risk, market risk and regulatory risk. If

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2. Summary of Significant Accounting Policies (Continued)

applicable, upon abandonment of the IPR&D product, the assets are reduced to zero. IPR&D is assessed for impairment on an annual basis as of October 1 st  of each year or more frequently if events or changes in circumstances indicate that the asset might be impaired. If the fair value of the IPR&D is less than its carrying amount, an impairment is recognized for the difference. The Company recognized impairment charges to IPR&D of $56,625,436 and $587,000 for the years ended December 31, 2017 and 2016, respectively (see Note 7).

Long-Lived Assets, Including Definite-Lived Intangible Assets   —  Intangible assets are stated at cost less accumulated amortization. Amortization is generally recorded on a straight-line basis or based on the expected pattern of cash flows over estimated useful lives ranging from 3 to 20 years. The Company periodically reviews the estimated useful lives of intangible assets and makes adjustments when events indicate that a shorter life is appropriate.

Long-lived assets, other than goodwill and other indefinite-lived intangibles, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows derived from such assets.

Factors that the Company considers in deciding when to perform an impairment review include significant changes in the Company's forecasted projections for the asset or asset group for reasons including, but not limited to, significant under-performance of a product in relation to expectations, significant changes, or planned changes in the Company's use of the assets, significant negative industry or economic trends, and new or competing products that enter the marketplace. The impairment test is based on a comparison of the undiscounted cash flows expected to be generated from the use of the asset group. If impairment is indicated, the asset is written down by the amount by which the carrying value of the asset exceeds the related fair value of the asset with the related impairment charge recognized within the statements of operations.

The Company recorded impairment charges of $15,894,843 and $20,887,837, in regard to definite-lived intangible assets for the years ended December 31, 2017 and 2016, respectively (see Note 7).

In-Process Research and Development   —  In-process research and development represent the fair value assigned to incomplete research projects that the Company acquires through business combinations or developed internally which, at that time, have not reached technological feasibility. Intangible assets associated with IPR&D projects are not amortized until regulatory approval is obtained and product is launched, subject to certain specified conditions and management judgment. The useful life of an amortizing asset generally is determined by identifying the period in which substantially all of the cash flows are expected to be generated. During the years ended December 31, 2017 and 2016, $264,100,000 and $25,200,000 of IPR&D was transferred to Product Rights as the products in development are approved for sale and placed into service (see Note 7). Such amounts will be amortized over their respectful estimated useful lives of 7 and 10 years. At that time an evaluation of fair value was performed immediately prior to such transfer.

Research and Development Costs   —  Research and development costs are expensed as incurred. These expenses include the costs of proprietary efforts, as well as costs incurred in connection with certain licensing arrangements. Upfront payments are recorded when incurred, and milestone payments are recorded when the specific milestone has been achieved.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2. Summary of Significant Accounting Policies (Continued)

Advertising   —  Advertising expense consists primarily of print media promotional materials. Advertising costs are expensed as incurred. Advertising expense for the years ended December 31, 2017 and 2016 amounted to $2,650,540 and $4,554,243, respectively.

Income Taxes   —  Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Where applicable, the Company records a valuation allowance to reduce any deferred tax assets that it determines will not be realizable in the future.

The Company recognizes the benefit of an uncertain tax position that it has taken or expects to take on income tax returns it files if such tax position is more likely than not to be sustained on examination by the taxing authorities, based on the technical merits of the position. These tax benefits are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

Share-based Compensation   —  The Company recognizes share-based compensation expense for all options and other arrangements within the scope of ASC 718, Stock Compensation, that are expected to vest. Share-based compensation expense is measured at the date of grant, based on the fair value of the award, and is recognized using the straight-line method over the employee's requisite service period. Compensation for share-based awards with vesting conditions other than service are recognized at the time that those conditions will be achieved.

Comprehensive income (loss)   —  Comprehensive income (loss) refers to revenues, expenses, gains and losses that under GAAP are included in comprehensive loss but are excluded from net loss as these amounts are recorded directly as an adjustment to partners' capital. The Company's other comprehensive loss is comprised of foreign currency translation adjustments.

Fair Value of Financial Instruments   —  The Company applies ASC 820, Fair Value Measurement ("ASC 820"), which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework. ASC 820 defines fair value as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company's principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy established in ASC 820 generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entity's own assumptions based on market data and the entity's judgments about the assumptions that market participants would use in pricing the asset or liability and are to be developed based on the best information available in the circumstances.

The Company's financial instruments include cash and cash equivalents, accounts receivable, accounts payable and short and long-term debt. The fair values of these financial instruments approximate book value because of the short maturity of these instruments.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2. Summary of Significant Accounting Policies (Continued)

The valuation hierarchy is composed of three levels. The classification within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The levels within the valuation hierarchy are described below:

    Level 1 — Assets and liabilities with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities.

    Level 2 — Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.

    Level 3 — Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities.

The fair value of the Company's financial instruments carried at fair value at December 31, 2017 was $0 and were as follows at December 31, 2016:


 
  December 31,
2016
  Quoted Prices in
Active Markets
for Identical Items
(Level 1)
  Significant Other
Observable Inputs
(Level 2)
  Significant
Unobservable
Inputs (Level 3)
 

Description

                         

Contingent consideration

  $ (10,317,604 ) $   $   $ (10,317,604 )

Total liabilities

  $ (10,317,604 ) $   $   $ (10,317,604 )

The following table provides a summary of changes in fair value of the Company's Level 3 financial instruments for the years ended December 31, 2016 and 2017:


 
  Amount  

Balance as of January 1, 2016

  $ 9,619,157  

Change in fair value of contingent consideration

    698,447  

Balance as of December 31, 2016

  $ 10,317,604  

Change in fair value of contingent consideration

    182,396  

Payment of contingent consideration

    (10,500,000 )

Balance as of December 31, 2017

  $  

Basic and Diluted Loss per Unit   —  Basic and diluted net loss per unit is determined by dividing net loss by the weighted average common units outstanding during the period. For all periods presented, the units underlying the common unit options have been excluded from the calculation because their effect would be

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2. Summary of Significant Accounting Policies (Continued)

anti-dilutive. Therefore, the weighted average units outstanding used to calculate both basic and diluted loss per unit are the same.

The following potentially dilutive securities have been excluded from the computations of diluted weighted average units outstanding as they would be anti-dilutive:


 
  2017   2016  

Unit options to purchase units

    74,200     75,000  

Reclassifications and Corrections   —  Certain reclassifications have been made to the prior period financial statements to conform to the current period financial statement presentation. These reclassifications had no effect on net earnings or cash flows as previously reported. During the 2017 financial statement close, the Company identified certain errors related to presentation of revenue and the elimination of certain intercompany transactions for the 2016 consolidated financial statements. As a result of the correction, Total revenue and Cost of goods sold in the consolidated statement of operations and comprehensive loss were reduced by approximately $7,715,000. The error correction did not impact previously reported Gross profit, Operating loss or Net loss and did not affect cash flows or the Company's financial position.

Recently Adopted Accounting Standards

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes . To simplify presentation in the balance sheet, the new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent. As a result, each jurisdiction within the reporting group will now only have one net noncurrent deferred tax asset or liability. The guidance does not change the existing requirement that only permits offsetting within a jurisdiction, and companies are still prohibited from offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. The guidance may be applied either prospectively or retrospectively by reclassifying the comparative balance sheets. For entities, other than public business entities, the amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018, with early adoption permitted. The Company has elected to early adopt ASU 2015-17 during the year ended December 31, 2016.

In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business , which amends the current definition of a business. Under ASU 2017-01, to be considered a business, an acquisition would have to include an input and a substantive process that together significantly contributes to the ability to create outputs. ASU 2017-01 further states that when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business. The new guidance also narrows the definition of the term "outputs" to be consistent with how it is described in Topic 606, Revenue from Contracts with Customers . The changes to the definition of a business will likely result in more acquisitions being accounted for as asset acquisitions. The guidance is effective for the annual period beginning after December 15, 2018, with early adoption permitted. In 2016, the Company elected to early adopt ASU 2017-01 and to apply it to any transaction which occurred prior to the issuance date that has not been reported in financial statements that have been issued or made available for issuance.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2. Summary of Significant Accounting Policies (Continued)

In January 2017, the FASB issued ASU 2017-04, Intangibles — Goodwill and Other, Simplifying the Accounting for Goodwill Impairment . ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. This new guidance will be applied prospectively and is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. Early adoption is permitted. The Company has elected to early adopt ASU 2017-04 and to apply it to its annual goodwill impairment test.

Recent Accounting Standards

The effective dates shown in the following pronouncements are private company effective dates, based on the Company's current status as a private company.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) . The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The amendments in this update deferred the effective date for implementation of ASU 2014-09 by one year and is now effective for annual reporting periods beginning after December 15, 2018. The Company has completed its initial impact assessment and has commenced an in-depth evaluation of the adoption impact, which involves review of selected revenue arrangements. Based on the Company's preliminary review, the Company believes that the timing and measurement of revenue for its customers will be similar to the Company's current revenue recognition. However, this view is preliminary and could change based on further analysis associated with the conversion and implementation phases of the Company's ASU 2014-09 project.

From March 2016 through December 2017, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, ASU 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting, ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606):Narrow-Scope Improvements and Practical Expedients , ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers and ASU No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments. These amendments are intended to improve and clarify the implementation guidance of Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements of ASU No. 2014-09 and ASU No. 2015-14.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"), which is effective for annual reporting periods beginning after December 15, 2019. Under ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: 1) a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis, and 2) a right-of-use asset, which is an asset that represents the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2. Summary of Significant Accounting Policies (Continued)

lessee's right to use, or control the use of, a specified asset for the lease term. The guidance is effective for the annual period beginning after December 15, 2019. The Company is currently evaluating the impact of the new accounting standard.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting , which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification of related amounts within the statement of cash flows. The amendments are effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any interim or annual period. The Company is currently evaluating the impact of the new accounting standard.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments . ASU 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments for debt prepayment or extinguishment costs, the maturing of a zero-coupon bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization. ASU 2016-15 designates the appropriate cash flow classification, including requirements to allocate certain components of these cash receipts and payments among operating, investing and financing activities. The guidance is effective for the Company for annual periods beginning after December 15, 2018, although early adoption is permitted. The Company is currently evaluating the impact of the new accounting standard.

In October of 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. ASU 2016-16 requires recognition of the current and deferred income tax effects of an intra-entity asset transfer, other than inventory, when the transfer occurs, as opposed to current GAAP, which requires companies to defer the income tax effects of intra-entity asset transfers until the asset has been sold to an outside party. The income tax effects of intra-entity inventory transfers will continue to be deferred until the inventory is sold. ASU 2016-16 is effective for annual periods beginning after December 15, 2018, with early adoption permitted. The standard is required to be adopted on a modified retrospective basis with a cumulative-effect adjustment recorded to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact of the new accounting standard.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220) — Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This standard allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act and requires certain disclosures about stranded tax effects. This standard will be effective for the Company for annual periods beginning after December 15, 2018 and should be applied either in the period of adoption or retrospectively. Early adoption is permitted. The Company is currently evaluating the impact of the new accounting standard.

In March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic 740) — Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 ("ASU 2018-05"). This standard amends Accounting Standards Codification 740, Income Taxes (ASC 740) to provide guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the Tax Act) pursuant to Staff Accounting Bulletin No. 118, which allows companies to complete the accounting under ASC 740 within a one-year measurement period from

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 2. Summary of Significant Accounting Policies (Continued)

the Tax Act enactment date. This standard is effective upon issuance. The Company is currently evaluating the impact of the new accounting standard.

Management has evaluated other recently issued accounting pronouncements and does not believe that they will have a significant impact on the consolidated financial statements and related disclosures.

Note 3. Business Combination and Other Strategic Investments

RevitaLid Asset Acquisition

On October 24, 2017, the Company entered into a stock purchase agreement with Nephron Pharmaceuticals Corporation, Point Guard Partners, LLC, VOOM LLC, Tom Riedhammer, Avery Family Trust, and Vision Quest Holdings, LLC (collectively, the "Sellers") to purchase the outstanding stock of RevitaLid, Inc. ("RevitaLid"). RevitaLid is the owner of RVL-1201, an ophthalmic product that treats blepharoptosis, or droopy eyelid, which had been licensed from VOOM LLC. Osmotica obtained all rights to the VOOM LLC License Agreement and will be undertaking future development and commercialization of RVL-1201, which includes conducting clinical trials and filing a new drug application with the Food and Drug Administration ("FDA").

The acquisition of RevitaLid included the license to intellectual property from VOOM LLC dated August 31, 2011 which contains future regulatory and sales milestone payments and royalties payable to VOOM LLC as well as a liability payable to Oculos Clinical Research and unpaid Seller transaction expenses.

The minimum purchase price for the transaction was $12,500,000 which was payable less the liability payable to Oculus Clinical Research less all Sellers' transaction expenses, plus an earn-out based on specified percentages of net sales once regulatory approval has been given regarding commercialization, the Company determined that the earn-out was not probable on October 24, 2017 or as of December 31, 2017.

The Company evaluated the acquisition of the RevitaLid assets under ASC 805, Business Combinations and ASU 2017-01 and concluded that as substantially all of the fair value of the gross assets acquired is concentrated in an identifiable group of similar assets, the transaction did not meet the requirements to be accounted for as a business combination and therefore was accounted for as an asset acquisition. Accordingly, the purchase price of the RevitaLid assets, along with transaction costs of $681,952 were allocated over the relative fair value of the identified group of assets as follows:


In-process research and development

  $ 12,500,000  

Net deferred tax assets and liabilities

    3,872,476  

Total assets acquired

  $ 16,372,476  

The acquired IPR&D was deemed to have no alternative future uses, thus, pursuant to ASC 730, Research and Development , $16,372,476 was recorded as an expense after the acquisition date and included in Research and development expenses in the Consolidated Statements of Operations and Comprehensive Loss. The deferred tax liability of $5,566,642, a component of the net deferred tax assets and liabilities

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3. Business Combination and Other Strategic Investments (Continued)

acquired, was subsequently removed and included as a component of the income tax benefit for the year ended December 31, 2017.

Omtryg Asset Acquisition

On September 8, 2016, Osmotica Kereskedelmi és Szolgáltató Korlátolt Felelõsségû Társaság (Hungary), a wholly-owned subsidiary of the Company entered into an asset purchase agreement with Trygg Pharma AS and its parent Trygg Pharma Group AS (collectively the "Seller") to acquire the rights and certain assets related to Omtryg, approved by the FDA to be sold and marketed as a pharmaceutical drug in the U.S. under a New Drug Application ("NDA").

The assets acquired included shares of Trygg Pharma, Inc., the Seller's beneficial ownership of the Omtryg NDA, the rights to active pharmaceutical ingredient ("API") inventory, certain vendor contracts (excluding any liabilities to vendors incurred prior to the close of the transaction), the Seller's beneficial ownership of acquired intellectual property rights, all data, information, materials, books and records to the extent used in or relating to the acquired business or the product, including all regulatory materials (collectively, the records); the Company also acquired a non-compete from the Seller for as long as the Company is commercializing Omtryg, not to exceed three years (collectively the "Trygg Assets"). Trygg Pharma, Inc. was changed to Trident Pharma, Inc. upon closing of the Omtryg asset acquisition.

The minimum purchase price for the Trygg Assets was $5,000,000; structured as follows:

    §
    $1,000,000 was due at the time of the deal closing; this amount is creditable against future API purchases (as discussed below),

    §
    $4,000,000 to be paid as the Company uses API in commercial production at a pre-established price per kilo (as discussed below),

    §
    Future API purchases are made at the pre-established price per kilo from Trygg Pharma AS, up to available API quantities. The Company has no obligation to purchase API from Trygg Pharma AS once the $4,000,000 obligation has been satisfied.

From any future sale of Omtryg, the Company shall pay to the Seller fifty percent (50%) of sales profits (the "Omtryg Sales Profit Payment"), subject to certain adjustments as outlined in the asset purchase agreement.

The Company evaluated the acquisition of the Trygg Assets under ASC 805, Business Combinations and ASU 2017-01 and concluded that as substantially all of the fair value of the gross assets acquired is concentrated in an identifiable group of similar assets, the transaction did not meet the requirements to be accounted for as a business combination and therefore was accounted for as an asset acquisition. Accordingly, the purchase price of the Trygg Assets, along with transaction costs were allocated over the relative fair value of the identified group of assets as follows:


Inventory, net — raw material

  $ 5,079,500  

Intangibles assets — product rights

    677,521  

Total assets acquired

  $ 5,757,021  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3. Business Combination and Other Strategic Investments (Continued)

During the fourth quarter of 2016, the Company performed an evaluation of the carrying value of the Trygg Assets acquired based on changes in the U.S. regulatory environment and its impact on the commercial opportunity for Omtryg. The Company made a strategic decision not to introduce the product and accordingly has fully reserved the API inventory and wrote-off the intangible asset product rights, resulting in an inventory impairment of $5,079,500, which is included as a component of cost of goods sold and impairment of intangible assets of $677,521, which is included as a component of impairment of intangible assets on the accompanying Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2016. Trident Pharma, Inc. was dissolved on June 22, 2017, with no financial statement impact. The aforementioned asset was written off during the year ended December 31, 2017.

Acquisition of Venlafaxine Distribution Rights

On October 20, 2016, the Company entered into a transaction agreement with UCB, Inc. ("UCB") that closed on November 10, 2016. The transaction agreement terminated certain licensing, supply, and other contracts between the Company and UCB, which were acquired from Legacy Osmotica in connection with the Merger. Prior to this transaction, the Company recognized royalties on sales of Venlafaxine by UCB. In addition, the Company acquired the following assets, marketing and distribution rights to Venlafaxine, inventory of finished Venlafaxine, rights and title to certain marketing and advertising materials, and a two-year non-compete agreement from UCB with respect to the commercialization of a competing product.

The Company made a non-refundable payment to UCB of $115,531,828 which was comprised of $113,500,000 of debt under the existing CIT Bank Term Loan and existing cash for the rights acquired and the inventory (at cost), net of trade receivables. The transaction agreement with UCB provides for payments based on an inventory true-up, out of specification quantities, and short shelf life inventory, as defined in the transaction agreement. Furthermore, the transaction agreement required the Company to make non-refundable payments of $4,166,667 for each of the six months commencing with July 2017, and $2,500,000 for each of the three months commencing with January 2018 as long as there is no sale of a competing product. On May 2, 2017, the Company notified UCB of a competing product, and as a result such non refundable payments were not due and no liabilities were incurred by the Company.

The Company evaluated the acquisition of the Venlafaxine Distribution Rights under ASC 805, Business Combinations and ASU 2017-01 and concluded that as substantially all of the fair value of the gross assets acquired is concentrated in an identifiable group of similar assets, the transaction did not meet the requirements to be accounted for as a business combination and therefore was accounted for as an asset acquisition. Accordingly, the purchase price of the Venlafaxine Distribution Rights, along with transaction costs were allocated over the relative fair value of the identified group of assets as follows:


Intangible assets — distribution rights

  $ 93,683,377  

Inventory, net — raw materials

    728,695  

Inventory, net — finished goods

    22,251,523  

Less: monies owed for trade receivables

    (1,131,767 )

Total assets acquired

  $ 115,531,828  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3. Business Combination and Other Strategic Investments (Continued)

Legacy Osmotica Business Combination

On December 3, 2015, Vertical/Trigen and its members entered into a definitive agreement (the "Merger Agreement") with Legacy Osmotica to pursue a fifty-fifty partnership (the "Merger"). Vertical/Trigen acquired Legacy Osmotica for $645,000,000. To effect this acquisition, a new company was formed and issued units to each entity. On February 3, 2016, the Merger was completed (the "Merger date"). The Company became jointly owned by the members of Vertical/Trigen and the shareholders of Legacy Osmotica. Pursuant to the Merger Agreement, Osmotica Holdings S.C.S.P., a limited partnership ("Parent" or "Merger Co.") was formed of which the Company is a wholly-owned subsidiary. The Vertical/Trigen members contributed their equity interests, valued at $200,000,000 and approximately $120,000,000 in cash to Merger Co. in exchange for Merger Co. equity. Legacy Osmotica shareholders contributed their shares to Merger Co., in exchange for Merger Co. equity and a cash distribution of $325,000,000, which was funded by the Company through $185,000,000 of new debt, the $120,000,000 of contributed new capital and existing cash. The cash payment was used to settle a note payable that Legacy Osmotica had taken immediately prior to the transaction in order to adjust the contributed equity value of Legacy Osmotica to $320,000,000. At the time of the Merger, as discussed further in Note 11, the Vertical/Trigen incentive units per the Vertical/Trigen Holdings, LLC Incentive Plan were accelerated and contributed to Merger Co. Pursuant to the Merger Agreement, Vertical/Trigen was deemed to be the accounting acquirer, as amongst other indicators, Legacy Osmotica was engaged in a sales process when approached by Vertical/Trigen, the former Vertical/Trigen executive team stayed on as executive team of the Company and the shareholders of Legacy Osmotica received a significant distribution in connection with the Merger.

The Merger is being accounted for as a business combination in accordance with ASC 805 whereby the total purchase consideration was allocated to tangible and intangible assets acquired and liabilities assumed based on their respective estimated fair values. The acquisition method of accounting uses the fair value concept defined in ASC 820. ASC 805 requires, among other things, that most assets acquired, and liabilities assumed in a business purchase combination be recognized at their fair values as of the acquisition date and that the fair value of acquired. The process for estimating the fair values of identifiable intangible assets and certain tangible assets requires the use of significant estimates and assumptions, including estimating future cash flows, developing appropriate discount rates, estimating the costs, and timing. The Company's allocation of the purchase price in connection with the merger was calculated as follows:


Legacy Osmotica — contributed equity

  $ 320,000,000  

Cash

    325,000,000  

Purchase price

  $ 645,000,000  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3. Business Combination and Other Strategic Investments (Continued)

The consideration transferred from the Merger was allocated across the net assets of Legacy Osmotica as follows:


Description
  Fair value
(restated)
 

Cash and cash equivalents

  $ 4,000,000  

Trade accounts receivable

    13,584,613  

Inventories

    834,365  

Prepaid expenses and other current assets

    420,344  

Property, plant and equipment

    15,337,116  

Tradenames

    11,585,000  

Developed technology

    146,900,000  

IPR&D

    431,200,000  

Goodwill

    142,812,809  

Deferred tax assets

    11,709,435  

Other non-current assets

    1,283,454  

Trade accounts payable

    (21,259,047 )

Accrued liabilities

    (1,066,684 )

Income taxes

    (5,630,594 )

Long-term portion of obligation under capital leases

    (683,990 )

Due to affiliates

    (6,261,945 )

Deferred tax liabilities

    (99,764,876 )

  $ 645,000,000  

The IPR&D net assets referenced above comprised the following:


 
  Development Phase    
 
IPR&D Asset Acquired
  At
Acquisition
  At December 31,
2017
  Fair Value at
Acquisition
 

Methylphenidate ER

  ANDA Filed   Approved   $ 264,100,000  

Hydromorphone ER

  ANDA Filed   Approved     25,200,000  

Ontinua ER

  Phase III   Phase III     87,100,000  

Osmolex ER

  Phase III   Phase III (1)     28,600,000  

Other Acquired IPR&D

  Various   Formulation     26,200,000  

Total

          $ 431,200,000  

(1)
Osmolex ER was approved by the FDA on February 16, 2018.

Goodwill of $142,812,809 arising from the Merger consisted largely of value of the employee workforce, and the expected value of products to be developed in the future. None of the goodwill recognized pursuant to the Merger is currently expected to be deductible for income tax purposes. Total acquisition costs for the Merger incurred during the years ended December 31, 2016 and 2015, were $8,397,822 and $4,276,956, respectively, and recorded as a component of acquisition-related costs on the accompanying

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3. Business Combination and Other Strategic Investments (Continued)

Consolidated Statements of Operations and Comprehensive Loss. In addition, Valkyrie Group Holdings Inc. (formed in 2013) became a member of the consolidated group of companies at the time of the Merger in 2016. At the time, Valkyrie had a deferred tax asset of $6,954,751 related to its investment in Vertical/Trigen, which was included as contributed capital in the members' equity at the time of the Merger (see consolidated statements of changes in partners' capital).

The operating results of the acquired business has been included in the Company's Consolidated Statements of Operations and Comprehensive Loss since the Merger date. The revenues of the acquired business for the year 2016 from the Merger date was $41,075,810 and the net loss was $55,270,252.

Note 4. Accounts Receivable, Sales and Allowances

The nature of the Company's business inherently involves, in the ordinary course, significant amounts and substantial volumes of transactions and estimates relating to allowances for product returns, chargebacks, rebates, doubtful accounts and discounts given to customers. This is typical of the pharmaceutical industry and not necessarily specific to the Company. Depending on the product, the end-user customer, the specific terms of national supply contracts and the particular arrangements with the Company's wholesale customers, certain rebates, chargebacks and other credits are deducted from the Company's accounts receivable. The process of claiming these deductions depends on wholesalers reporting to the Company the amount of deductions that were earned under the terms of the respective agreement with the end-user customer (which in turn depends on the specific end-user customer, each having its own pricing arrangement, which entitles it to a particular deduction). This process can lead to partial payments against outstanding invoices as the wholesalers take the claimed deductions at the time of payment.

Accounts receivable result primarily from sales of pharmaceutical products, amounts due under revenue sharing, license and royalty arrangements, which inherently involves, in the ordinary course of business, estimates relating to allowances for product returns, chargebacks, rebates, doubtful accounts and discounts given to customers. Credit is extended based on the customer's financial condition, and, generally, collateral is not required. The Company ages its accounts receivable using the corresponding sale date of the transaction and considers accounts past due based on terms agreed upon in the transaction, which is generally thirty to sixty days for branded and generic sales, depending on the customer and the products purchased.

With the exception of the provision for doubtful accounts, which is reflected as part of selling, general and administrative expense, the provisions for the following customer reserves are reflected as a reduction of revenues in the accompanying Consolidated Statements of Operations and Comprehensive Loss.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 4. Accounts Receivable, Sales and Allowances (Continued)

Trade accounts receivable, net consists of the following:


 
  December 31,  
 
  2017   2016  

Gross trade accounts receivable

             

Trade accounts receivable

  $ 110,592,198   $ 101,528,560  

Royalty accounts receivable

    4,002,272     4,772,429  

Other receivable

    184,808     843,750  

Less reserves for:

             

Chargebacks

    (32,342,377 )   (24,311,153 )

Commercial rebates

    (39,233,419 )   (30,552,734 )

Discounts and allowances

    (3,484,587 )   (3,631,326 )

Doubtful accounts

    (2,080,938 )   (4,910,478 )

Total trade accounts receivable, net

  $ 37,637,957   $ 43,739,048  

For the years ended December 31, 2017 and 2016, the Company recorded the following adjustments to gross product sales:


 
  Years ended December 31,  
 
  2017   2016  

Gross product sales

  $ 646,701,628   $ 660,785,296  

Less provisions for:

             

Chargebacks

    (202,366,801 )   (332,075,499 )

Government rebates

    (26,007,632 )   (9,956,927 )

Commercial rebates

    (134,525,716 )   (115,933,668 )

Product returns

    (26,299,811 )   (9,235,710 )

Discounts and allowances

    (15,387,024 )   (18,162,194 )

Advertising and promotions

    (4,443,466 )   (4,899,128 )

Net product sales

  $ 237,671,178   $ 170,522,170  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 4. Accounts Receivable, Sales and Allowances (Continued)

The annual activity in the Company's allowance for customer deductions against trade accounts receivable for the years ended December 31, 2017 and 2016, is as follows:


 
  Chargebacks   Commercial
Rebates
  Discounts
and
Allowances
  Doubtful
Accounts
  Total  

Balance at January 1, 2016

  $ 58,723,920   $ 29,417,482   $ 4,689,636   $ 1,690,657   $ 94,521,695  

Provision

    332,075,499     115,933,668     18,162,194     4,068,812     470,240,173  

Charges processed

    (366,301,094 )   (114,779,360 )   (19,220,504 )   (848,991 )   (501,149,949 )

Reclassification to accrued expense

    (187,172 )   (19,056 )           (206,228 )

Balance at December 31, 2016

    24,311,153     30,552,734     3,631,326     4,910,478     63,405,691  

Provision

    202,366,801     134,525,716     15,387,024     832,388     353,111,929  

Charges processed

    (194,335,577 )   (125,845,031 )   (15,533,763 )   (3,661,928 )   (339,376,299 )

Balance at December 31, 2017

  $ 32,342,377   $ 39,233,419   $ 3,484,587   $ 2,080,938   $ 77,141,321  

The annual activity in the Company's accrued liabilities for customer deductions by account for the years ended December 31, 2017 and 2016, is as follows:


 
  Product
Returns
  Government
Rebates
  Total  

Balance at January 1, 2016

  $ 26,863,173   $ 6,555,900   $ 33,419,073  

Provision

    9,235,710     9,956,927     19,192,637  

Charges processed

    (5,758,134 )   (10,027,078 )   (15,785,212 )

Balance at December 31, 2016

    30,340,749     6,485,749     36,826,498  

Provision

    26,299,811     26,007,632     52,307,443  

Charges processed

    (13,341,236 )   (18,341,667 )   (31,682,903 )

Balance at December 31, 2017

  $ 43,299,324   $ 14,151,714   $ 57,451,038  

Provisions and utilizations of provisions activity in the current period which relate to the prior period revenues are not provided because to do so would be impracticable. The Company's current systems and processes do not capture the chargeback and rebate settlements by the period in which the original sales transaction was recorded. Chargeback, rebate claims and certain other gross to net items are not submitted by customers with sufficient details to link the accrual recorded at the point of sale with the settlement of the accrual. As a result, the Company is unable to reasonably determine the dollar amount of the change in estimate in its gross to net reporting reflected in its results of operations for each period presented, and, those changes could be significant. However, the Company uses a combination of factors and applications to estimate the dollar amount of reserves for chargebacks and rebates at each month end. The Company regularly monitors the reserves based on an analysis of the Company's product sales and most recent claims, wholesaler inventory, current pricing, and anticipated future pricing changes. If amounts are

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 4. Accounts Receivable, Sales and Allowances (Continued)

different from the estimate due to changes from estimated rates, accrual rate adjustments are considered prospectively when determining provisions in accordance with authoritative GAAP.

Note 5. Inventories

The components of inventories, net of allowances, are as follows:


 
  December 31,  
 
  2017   2016  

Finished goods

  $ 10,467,243   $ 13,391,988  

Work in process

    789,413     2,420,217  

Raw materials and supplies

    5,690,214     4,026,784  

  $ 16,946,870   $ 19,838,989  

The Company maintains an allowance for excess and obsolete inventory, as well as inventory where its cost is in excess of its net realizable value. The activity in the allowance for excess and obsolete inventory account for the years ended December 31, 2017 and 2016, was as follows:


 
  Years ended December 31,  
 
  2017   2016  

Balance at beginning of year

  $ 7,754,596   $ 843,615  

Provision

    9,183,372     2,684,768  

Additions from asset acquisition

        5,084,110  

Charges processed

    (13,871,348 )   (857,897 )

Balance at end of year

  $ 3,066,620   $ 7,754,596  

Subsequent to the issuance of the 2016 consolidated financial statements, the Company determined that a reclassification was required to correct disclosure of the components of the allowance for excess and obsolete inventory. These reclassifications had no effect on net earnings, cash flows or the Company's financial position as previously reported.

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OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 6. Property, Plant and Equipment, Net

Property, plant and equipment consist of the following:


 
  December 31,  
 
  2017   2016  

Land

  $ 2,120,000   $ 2,120,000  

Buildings

    11,363,109     4,139,929  

Leasehold improvements

    2,095,784     2,014,883  

Machinery

    11,495,856     5,834,710  

Furniture, fixtures and equipment

    266,314     198,288  

Computer, hardware and software

    5,838,823     2,844,529  

    33,179,886     17,152,339  

Accumulated depreciation

    (5,852,660 )   (2,327,465 )

    27,327,226     14,824,874  

Construction in progress

    4,082,907     12,905,526  

  $ 31,410,133   $ 27,730,400  

Depreciation expense was $3,069,223 and $2,115,103 for the years ended December 31, 2017 and 2016, respectively. There is approximately $3,902,000 of remaining construction in progress expenses to substantially complete the project.

Subsequent to the issuance of the 2016 consolidated financial statements, the Company determined that a reclassification was required to correct the classification of the components of property, plant, and equipment to conform with the current period financial statement presentation. These reclassifications had no effect on net earnings, cash flows or the Company's financial position as previously reported.

Note 7. Goodwill and Other Intangible Assets

Changes in goodwill during the years ended December 31, 2017 and 2016 were as follows:


 
  Goodwill
(restated)
 

December 31, 2015

  $ 10,383,142  

Acquisitions and other adjustments

    142,432,574  

December 31, 2016

    152,815,716  

December 31, 2017

  $ 152,815,716  

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OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 7. Goodwill and Other Intangible Assets (Continued)

The following table sets forth the major categories of the Company's intangible assets and the weighted-average remaining amortization period as of December 31, 2017 and 2016, for those assets that are not already fully amortized:


 
  December 31, 2017
 
  Gross
Carrying
Amount
(restated)
  Accumulated
Amortization
  Reclassifications
(restated)
  Impairment   Net
Carrying
Amount
(restated)
  Weighted
Average
Remaining
Amortization
Period
(Years)

Distribution Rights

  $ 98,433,377   $ (9,890,282 ) $   $   $ 88,543,095   13.0

Product Rights

    69,558,325     (49,902,094 )   264,100,000     (7,128,176 )   276,628,055   5.4

Tradenames

    13,485,000     (1,623,368 )             11,861,632   17.1

Developed Technology

    146,900,000     (21,077,405 )       (8,766,667 )   117,055,928   13.1

IPR&D

    412,025,436         (264,100,000 )   (56,625,436 )   91,300,000   Indefinite Lived

  $ 740,402,138   $ (82,493,149 ) $   $ (72,520,279 ) $ 585,388,710    

(A)
The gross carrying amount and accumulated amortization in the table above is inclusive of $3,786,772 of accumulated amortization for assets that have been fully impaired in 2017.

 
  December 31, 2016
 
  Gross
Carrying
Amount
(restated)
  Accumulated
Amortization
  Reclassifications   Impairment   Net
Carrying
Amount
(restated)
  Weighted
Average
Remaining
Amortization
Period
(Years)
(restated)

Distribution Rights

  $ 98,433,377   $ (2,692,271 ) $   $   $ 95,741,106   13.7

Product Rights

    65,246,162     (25,466,351 )   25,200,000     (20,887,837 )   44,091,974   5.1

Tradenames

    13,485,000     (725,637 )           12,759,363   18.1

Developed Technology

    146,900,000     (10,227,967 )           136,672,033   12.8

IPR&D

    437,812,436         (25,200,000 )   (587,000 )   412,025,436   Indefinite Lived

  $ 761,876,975   $ (39,112,226 ) $   $ (21,474,837 ) $ 701,289,912    

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OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 7. Goodwill and Other Intangible Assets (Continued)

Changes in intangible assets during the years ended December 31, 2017 and 2016, were as follows:


 
  Distribution
Rights
  Product
Rights
  Tradenames
(restated)
  Developed
Technology
  IPR&D   Total
(restated)
 

January 1, 2016

  $ 1,568,332   $ 48,368,120   $ 1,640,196   $   $ 6,612,436   $ 58,189, 084  

Additions

    2,000,000                     2,000,000  

Acquisition of Venlafaxine Distribution Rights

    93,683,377                     93,683,377  

Omtryg Asset Acquisition

        677,521                 677,521  

Osmotica Holdings Corp Limited Merger

            11,585,000     146,900,000     431,200,000     589,685,000  

Amortization

    (1,510,603 )   (9,265,830 )   (465,833 )   (10,227,967 )       (21,470,233 )

Impairments

        (20,887,837 )           (587,000 )   (21,474,837 )

Reclassifications (A)

        25,200,000             (25,200,000 )    

December 31, 2016

    95,741,106     44,091,974     12,759,363     136,672,033     412,025,436     701,289,912  

Acquisitions

                    16,372,476     16,372,476  

Amortization

    (7,198,011 )   (24,435,743 )   (897,731 )   (10,849,438 )       (43,380,923 )

Impairments

        (7,128,176 )       (8,766,667 )   (56,625,436 )   (72,520,279 )

Reclassifications (B)

        264,100,000             (264,100,000 )    

Expensed (C)

                    (16,372,476 )   (16,372,476 )

December 31, 2017

  $ 88,543,095   $ 276,628,055   $ 11,861,632   $ 117,055,928   $ 91,300,000   $ 585,388,710  

(A)
IPR&D related to the hydromorphone ER asset group was reclassified to Product Rights at the time the product was launched. The amount was be amortized on a straight-line basis over the estimated useful life of 10 years; however, as a result of impairments in 2017 and 2016, the net book value was $0 as of December 31, 2017.

(B)
IPR&D related to the methylphenidate ER asset group was reclassified to Product Rights at the time the product was launched. The amount will be amortized over the estimated useful life of 7 years which was determined to be the period in which the Product Rights are expected to contribute to cash flow. The amount will be amortized on an accelerated method based on estimated pattern of cash flows.

(C)
The amount acquired for IPR&D in the RevitaLid Asset Acquisition was deemed to have no alternative future uses, thus the full amount was expensed (see Note 3).

The Company tests goodwill and indefinite-lived intangible assets for impairment annually on October 1 st , or more frequently whenever events or changes in circumstances indicate that the asset might be impaired.

As part of the Company's goodwill and intangible asset impairment assessments and when IPR&D assets are put into service, the Company estimates the fair values of the reporting unit and intangible assets using an income approach that utilizes a discounted cash flow model, or, where appropriate, a market approach. The discounted cash flow models are dependent upon our estimates of future cash flows and other factors. These estimates of future cash flows involve assumptions concerning (i) future operating performance, including future sales, long-term growth rates, operating margins, variations in the amounts, allocation and timing of cash flows and the probability of achieving the estimated cash flows and (ii) future economic conditions. These assumptions are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy. The discount rates applied to the estimated cash flows for the Company's October 1, 2017 and 2016 annual goodwill and indefinite-lived intangible assets impairment test ranged from 9.0% to 8.5%, respectively, depending on the overall risk associated with the particular assets and other market factors. The Company believes the discount rates and other inputs and assumptions are consistent with those that a market participant would use. Impairment charges resulting from annual or interim goodwill and intangible asset impairment assessments, if any, are recorded to Impairment of intangible assets in the Consolidated Statements of Operations and Comprehensive Loss.

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OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 7. Goodwill and Other Intangible Assets (Continued)

During the fourth quarter of 2016, the Company launched a controlled substance product which treats moderate to severe pain. Due to the competitive nature of the market, it was determined that the undiscounted cash flows for one of its product rights was below its carrying value. Accordingly, the Company estimated the present value of the product's future cash flows which resulted in a $17,400,000 impairment expense.

During 2014, the Company acquired the rights to a women's prenatal vitamin to market, sell and distribute the product. During 2015, the Company failed to meet release testing specifications. The Company was unable to remedy the issue in 2016 and accordingly discontinued the product in 2016 resulting in an impairment of product rights of the remaining value of $2,810,316 at December 31, 2016.

During the fourth quarter of 2016, the Company performed an evaluation of the carrying value of the Trygg Assets acquired based on changes in the U.S. regulatory environment and its impact on the commercial opportunity for Omtryg. The Company made a strategic decision not to introduce the product and accordingly wrote-off the intangible asset product rights, resulting in an impairment of intangible assets of $677,521 at December 31, 2016.

During the fourth quarter of 2017, the Company performed an evaluation of the carrying value of the intangible assets acquired. After completing the valuations, the Company realized the net present value of the intangible assets had decreased below the net book value and thus impaired the intangible assets. Product Rights, Developed Technologies, and IPR&D had been impaired by $7,128,176, $8,766,667, and $56,625,436 respectively due to lower than expected cash flows and, in the case of IPR&D, delays in the anticipated timing of development.

Amortization expense was $43,380,923 and $21,470,233 for the years ended December 31, 2017 and 2016, respectively.

The amortization expense of acquired intangible assets for each of the following five years are expected to be as follows:


Years ending December 31,
  Amortization
Expense
 

2018

  $ 73,711,983  

2019

    72,725,102  

2020

    72,345,003  

2021

    71,924,021  

2022

    67,426,944  

Thereafter

    135,955,657  

  $ 494,088,710  

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OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 8. Accrued Liabilities

Accrued liabilities consist of the following:


 
  December 31,  
 
  2017   2016  

Accrued product returns

  $ 43,299,324   $ 30,340,749  

Accrued chargebacks

        187,172  

Accrued royalties

    12,325,232     11,506,866  

Accrued commercial rebates

        19,056  

Accrued compensation

    6,342,731     6,015,808  

Accrued government rebates

    14,151,714     6,485,749  

Accrued expenses and other liabilities

    5,153,356     9,441,735  

Customer coupons

    425,911     509,206  

Deferred revenue

    228,122     201,361  

  $ 81,926,390   $ 64,707,702  

In the ordinary course of business, the Company enters into contractual agreements with wholesalers pursuant to which the wholesalers distribute sales of Company products to customers and provide sales data to the Company. In return the wholesalers charge the Company a fee for services and other customary rebates and chargebacks based on distribution sales of Company products through the wholesalers and downstream customers.

Note 9. Financing Arrangements

The composition of the Company's debt and financing obligations is as follows:


 
  December 31,  
 
  2017   2016  

CIT Bank, N.A. Term Loan, net of deferred financing costs of $6,894,816 and $8,640,721 as of December 31, 2017 and 2016, respectively

  $ 320,605,185   $ 265,115,607  

CIT Bank, N.A. Revolving Facility

         

Newstone Capital Partners, LLLC Subordinated Note, net of deferred financing costs of $0 and $1,309,341 as of December 31, 2017 and 2016, respectively

        38,690,659  

Promissory Notes

        25,000,000  

Leasehold Improvement Note

        23,577  

    320,605,185     328,829,843  

Less current portion

    (6,655,604 )   (5,169,134 )

Long-term debt

  $ 313,949,581   $ 323,660,709  

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OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 9. Financing Arrangements (Continued)

Term Loan

Concurrent with the closing of the Company's acquisition of Osmotica Holdings Corp Limited, the Company entered into a $160,000,000 Term Loan (the "Term Loan") pursuant to a Credit Agreement dated February 3, 2016 (the "Term Loan Agreement") between the Company as borrower, certain other lenders and CIT Bank, N.A. ("CIT Bank") acting as administrative agent. The Term Loan is secured by certain assets of the Company, excluding certain intangibles and foreign property.

The Term Loan Agreement required quarterly principal repayments equal to 0.625% of the initial aggregate Term Loan amount beginning on the last day of the first full fiscal quarter following the closing of the Term Loan Agreement, with final payment of the remaining principal balance due at maturity six years from the date of closing of the Term Loan Agreement. At the Company's election, interest accrues on a Prime Rate/Federal Funds Effective Rate ("ABR Loan") or an LIBOR ("LIBOR Loan") rate, plus a margin of 4.00% for ABR Loan, and 5.00% for LIBOR Loan. As of December 31, 2016, this rate was 6.00%.

For the year ended December 31, 2016, the Company incurred debt issuance costs associated with the Term Loan Agreement in the amount of $5,734,332, which were deferred and are amortized over the length of the Term Loan using the effective interest method.

On November 10, 2016, the Company amended the Term Loan Agreement (the "Amended Term Loan Agreement") in conjunction with the reacquisition of Venlafaxine distribution rights. Pursuant to the Amended Term Loan Agreement, CIT Bank and certain other lenders agreed to make available to the Company, an Incremental Term Loan in the aggregate principal amount of $117,500,000, which was added to the Term Loan; there were no other modifications to the Term Loan Agreement.

The Company accounted for the Amended Term Loan Agreement as a modification of debt in accordance with ASC 470-50, Debt — Modifications and Extinguishments . In accordance with modification guidance detailed in ASC 470-50, lender fees incurred in the amount of $4,000,000 were deferred and are amortized over the length of the Term Loan using the effective interest rate method. In addition, the Company incurred third party fees associated with the Amended Term Loan Agreement in the amount of $398,558, which were expensed as professional fees in accordance with modification guidance and included in selling, general and administrative expense during the year ended December 31, 2016.

On April 28, 2017, the Company amended the Amended Term Loan Agreement (the "Second Amended Term Loan Agreement"), in which the due date of the Company's annual financial statements was modified for the first fiscal year after the closing of the Second Amended Term Loan Agreement.

Furthermore, on December 21, 2017, the Company amended the Second Amended Term Loan Agreement (the "Third Amended Term Loan Agreement"). Pursuant to the Third Amended Term Loan Agreement, CIT Bank and certain other lenders agreed to increase the principal amount of the Term Loan to an aggregate principal amount of $327,500,000. Of the aggregate principal amount, $277,500,000 will be designated as the Term A Loan and $50,000,000 will be designated as the Term B Loan.

The Third Amended Term Loan Agreement requires quarterly principal repayments to 0.6925% of the original principal amount of the Term A Loan and in the case of the Term B Loan 0.25% of the original principal amount of the Term B Loan, with final payment of the remaining principal balance due at maturity five years from the date of closing of the Third Amended Term Loan Agreement.

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OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 9. Financing Arrangements (Continued)

At the Company's election, for the Term A Loan, interest accrues on a Prime Rate/Federal Funds Effective Rate ("ABR Loan") or an LIBOR ("LIBOR Loan") rate in which the applicable rate per annum set forth below under the caption "ABR Spread" or "LIBOR Rate Spread," based upon the Total Leverage Ratio (as defined in the Third Amended Term Loan Agreement) as of last day of the most recently ended fiscal quarter is as follows:


Total Leverage Ratio
  LIBOR
Rate Spread
  ABR Spread  

Category 1

             

Greater than 2.00 to 1.00

    3.75 %   2.75 %

Category 2

   
 
   
 
 

Equal to or less than 2.00 to 1.00

    3.25 %   2.25 %

For Term B Loan, interest accrues with respect to any ABR Loan, 3.25% per annum, and with respect to any LIBOR Rate Loan, 4.25% per annum. As of December 31, 2017, the interest rate was 5.25% for Term A Loan and 5.75% for Term B Loan.

The Company accounted for the Third Amended Term Loan Agreement as a modification of debt in accordance with ASC 470-50, Debt — Modifications and Extinguishments . In accordance with modification guidance detailed in ASC 470-50, lender fees incurred in the amount of $3,126,000 were deferred and are amortized over the length of the Term Loan using the effective interest rate method. In addition, deferred financing fees and a prepayment premium in the total amount of $4,981,624 were charged to other non-operating (loss)/income, net during the year ended December 31, 2017, as certain previous lenders did not participate in the Third Amended Term Loan. In addition, the Company incurred third party fees associated with the Third Amended Term Loan Agreement in the amount of $389,234, which were expensed as professional fees in accordance with modification guidance and included in selling, general and administration expense during the year ended December 31, 2017.

The Third Amended Term Loan Agreement contains covenants that require the Company to deliver quarterly and annual financial statements along with certain supplementary financial information and schedules and ratios. The Third Amended Term Loan Agreement also contains covenants that limit the ability of the Company to, among other things: incur additional indebtedness; incur liens; make investments; make payments on indebtedness; dispose of assets; enter into merger transactions; and make distributions. In addition, the Company shall not permit the total leverage ratio to be greater than 4.75:1.00 until March 31, 2020 at which time the total leverage ratio remains constant at a required 4.50:1.00. The total leverage ratio is the ratio, as of any date of determination, of (a) consolidated total debt, net of unrestricted cash and cash equivalents as of such date to (b) consolidated adjusted earnings before income taxes, depreciation and amortization ("Consolidated EBITDA") for the test period then most recently ended for which financial statements have been delivered. Also, the Company will not permit the fixed charge coverage ratio to fall below 1.25:1.00 beginning on March 31, 2018 through the final maturity date. The fixed charge coverage ratio, as of the date of determination, is the ratio of (x) Consolidated EBITDA net of capital expenditures and cash taxes paid to (y) interest payments, scheduled principal payments, restricted payments and management fees paid to related parties. The Company obtained a waiver from CIT Bank in

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OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 9. Financing Arrangements (Continued)

regard to its non-compliance of its covenant to deliver annual financial statements by April 2, 2018. The Company did not incur a waiver fee as a condition to the waiver. The Company was in compliance with all covenants of the Third Amended Term Loan Agreement as of December 31, 2017.

Revolving Facility

Concurrent with the closing of the Company's acquisition of Osmotica Holdings Corp Limited, the Company entered into a Revolving Facility in an aggregate amount of $30,000,000 (the "Revolving Facility") pursuant to a Credit Agreement dated February 3, 2016 between the Company as borrower, certain other lenders and CIT Bank, N.A. ("CIT Bank") acting as administrative agent, as discussed above. The Company incurred closing costs associated with the Revolving Facility in the amount of $1,075,187, which were deferred and amortized over the length of the Revolving Facility on a straight-line basis during the year ended during the year ended December 31, 2016.

On December 21, 2017, the Company amended the Revolving Facility (the "Amended Revolving Facility"). Pursuant to the Amended Revolving Facility, CIT Bank and certain other lenders agreed to increase the revolving credit commitments up to $50,000,000. The Company accounted for the Amended Revolving Facility as a modification of debt in accordance with ASC 470-50, Debt — Modifications and Extinguishments and ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line of Credit Arrangements. Lender fees incurred in the amount of $437,500 were deferred and are amortized over the length of the Amended Revolving Facility on a straight-line basis.

The total amount available under the Revolving Facility includes a Swingline Loan and Letter of Credit subfacility, respectively, in an aggregate principal amount at any time outstanding not to exceed the lesser of (x) in the case of each of the Swingline Loan and Letter of Credit, $5,000,000 and (y) the total revolving commitment, based on certain terms and conditions of the Credit Agreement.

The Company will be required to repay the Revolving Facility upon its expiration five years from issuance, subject to permitted extension, and will pay interest on the outstanding balance monthly based, at the Company's election, on an adjusted prime/federal funds rate ("ABR") or an adjusted LIBOR ("LIBOR"), in which the applicable rate per annum set forth below under the caption "ABR Spread" or "LIBOR Rate Spread," based upon the Total Leverage Ratio (as defined in the Credit Agreement) as of last day of the most recently ended fiscal quarter is as follows:


Total Leverage Ratio   LIBOR
Rate Spread
  ABR Spread  

Category 1

             

Greater than 2.00 to 1.00

    3.75 %   2.75 %

Category 2

   
 
   
 
 

Equal to or less than 2.00 to 1.00

    3.25 %   2.25 %

At December 31, 2016 and 2017, there were no outstanding borrowings or outstanding letters of credit. Availability under the Revolving Facility as of December 31, 2017, was $50,000,000.

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OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 9. Financing Arrangements (Continued)

Subordinated Note

Concurrent with the closing of the Company's acquisition of Osmotica Holdings Corp Limited, the Company entered into a $40,000,000 Subordinated Note Purchase Agreement (the "Subordinated Note") between the Company as borrower and Newstone Capital Partners, LLC. Interest on the outstanding principal balance of the Subordinated Note accrues, at the Company's election, at a rate equal to ABR plus a margin of 9.00% or LIBOR plus a margin of 10.00%. As of December 31, 2016, the effective interest rate on the Subordinated note was 11.00%. The Subordinated Note was to mature on February 3, 2023. As part of the Third Amended Term Loan Agreement, the Subordinated Note was paid in full including associated accrued interest. $1,159,557 and $800,000 of deferred financing and prepayment costs, respectively, associated with the Subordinated Note was expensed in accordance with ASC 470-50, Debt — Modifications and Extinguishments and included in the total amount of $4,981,624 as a component of other non-operating (loss) income, net on the accompanying Consolidated Statement of Operations and Comprehensive Loss.

Promissory Notes

Concurrent with the closing of the Company's acquisition of Osmotica Holdings Corp Limited, the Company entered into four promissory note agreements (collectively the "PIK Notes") for total proceeds of $25,000,000. The PIK Notes are identical to each other with exception for the Lender (as identified below) and principal sum. Interest accrued on a daily basis at a rate equal to 18% per annum on the unpaid principal balance of the PIK Notes outstanding. The lenders and principal sum of the PIK Notes are below:


Lender
  Principal Sum  

Altchem Limited (Cyprus)

  $ 12,500,000  

ACP III AIV, L.P. 

    7,661,834  

ACP Holdco (Offshore), L.P. 

    4,272,166  

Newstone Capital Partners II, L.P. 

    566,000  

  $ 25,000,000  

As part of the Third Amended Term Loan Agreement, the PIK Notes were paid in full including associated accrued in-kind interest that had been accrued and capitalized in a total amount of $9,321,500.

Leasehold Improvement Note

During 2013, the Company entered into a note to finance a portion of its leasehold improvements (the "Leasehold Improvement Note"). The Leasehold Improvement Note has a fixed interest rate of 6.54% and the Company is required to make forty-eight (48) equal monthly installments of $2,691, which includes principal and interest. As of December 31, 2017, and 2016, the Company had $0 and $23,577 outstanding on the Leasehold Improvement Note.

BMO Harris Bank N.A. Line of Credit

During 2013, the Company entered into a line of credit with BMO Harris Bank N.A. (the "BMO Line of Credit") of $10,000,000 with a variable interest rate (the greater of Prime Rate plus 1.0% or LIBOR plus 3.75%). The BMO Line of Credit was terminated on February 2, 2016. The BMO Line of Credit was due upon demand, provided that the borrower had thirty days to honor such demand for payment. The lender, BMO Harris Bank N.A., required a fund guaranty from a majority interest owner as a condition to close the line of credit.

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OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 9. Financing Arrangements (Continued)

As of December 31, 2017 and 2016, the aggregate fair value of the Company's debt and financing obligations approximate their carrying values.

Aggregated cumulative maturities of long-term obligations (including the incremental and existing Term Loan and the Revolving Facility), excluding deferred financing costs, as of December 31, 2017 are:


Years ending December 31,
  Maturities of Long-term
Obligations
 

2018

  $ 8,186,750  

2019

    8,186,750  

2020

    8,186,750  

2021

    8,186,750  

2022

    294,753,000  

  $ 327,500,000  

Note 10. Concentrations and Credit Risk

In the years ended December 31, 2017 and 2016, a significant portion of the Company's gross product sales reported were through three customers, and a significant portion of the Company's accounts receivable as of December 31, 2017 and 2016 were due from these customers as well. The following table sets forth the percentage of the Company's gross sales and accounts receivable attributable to these customers for the periods indicated:


 
  Year ended December 31, 2017   Year ended December 31, 2016  
 
  Gross
Product Sales
  Gross Accounts
Receivable
  Gross
Product Sales
  Gross Accounts
Receivable
 

Customer 1

    23 %   7 %   68 %   49 %

Customer 2

    32 %   29 %   15 %   28 %

Customer 3

    37 %   57 %   6 %   8 %

Combined Total

    92 %   93 %   89 %   85 %

Purchasing

Three suppliers accounted for more than 91% of the Company's purchases of raw materials manufactured by the Company for the year ended December 31, 2017.

Three suppliers accounted for more than 91% of the Company's purchases of raw materials manufactured by the Company for the year ended December 31, 2016.

The Company purchases various API of finished products at contractual minimum levels through agreements with third parties. Individually, none of these agreements are material to the Company, therefore, the Company does not believe at this time that any of the purchase obligations represent levels above the normal course of business.

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OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 10. Concentrations and Credit Risk (Continued)

Sales by Product

In the years ended December 31, 2017 and 2016, one product accounted for 15% and 20%, respectively, of the Company's total gross product sales.

Royalty Sales

The following table sets forth the percentage of the revenues and accounts receivable recognized in connection with Company's royalty contracts for the year ended December 31, 2017:


 
  Year ended
December 31, 2017
 
 
  Gross Sales   Gross Accounts
Receivable
 

Customer 4

    84 %   59 %

Customer 5

    8 %   16 %

Customer 6

    8 %   24 %

Combined Total

    100 %   99 %

Note 11. Incentive Plans

Share-based Compensation — Osmotica Holdings S.C.Sp. 2016 Equity Incentive Plan

Effective February 3, 2016, Osmotica Holdings S.C.Sp. adopted the 2016 Equity Incentive Plan (the "2016 Plan") which allows for the issuance of up to 75,000 Units in Osmotica Holdings S.C.Sp. (for all share-based compensation). Options vest and become exercisable in whole or in part, in accordance with vesting conditions set by the Company's board of directors. The Company recognizes compensation cost in its Consolidated Statements of Operations and Comprehensive Loss for options granted by the Company to its officers, key employees, or directors under the Plan.

In conjunction with the Merger and in part, as a replacement for the 2013 Plan, which was cancelled, the Company's officers, key employees, or directors were granted nonqualified unit options (the "options") which have a term of 10 years. The exercise price of all options granted is based on the most recent valuation of the Company's Units prior to the grant date. The option awards are made up of two components: 50% of options granted are Time Awards and 50% are Performance Awards. The Time Awards generally vest 25% annually from original grant date, with the Options fully vested after four years. The Performance awards will vest immediately upon the Major Limited Partners (as defined in the 2016 Option Plan) having received (on a cumulative basis) Aggregate Net Proceeds exceeding certain return on investment targets specified in the award documents.

Both the Time Awards and the Performance Awards contain a performance condition — a liquidity event and subsequent disposal of units by the Major Limited Partners must occur before the employee is able to sell vested units. Absent achievement of this performance condition, employees cannot realize the value of vested units as they must stay employed to avoid a Company call option on the units at the lower of cost or fair value. Accordingly, no share-based compensation expense has been recorded.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 11. Incentive Plans (Continued)

Option Awards

The table below summarizes the Time and Performance Award activities for the year ended December 31, 2017:


 
  Number of Units   Weighted
Average
Exercise
Price
  Weighted
Average
Contractual
Term
 
  Time   Performance   Total

Outstanding at December 31, 2015

              $    

Granted

    37,000     37,000     74,000     640    

Exercised

                   

Expired / Forfeited

    (1,350 )   (1,350 )   (2,700 )   640    

Outstanding at December 31, 2016

    35,650     35,650     71,300   $    

Granted

    3,150     3,150     6,300     646    

Exercised

                   

Expired / Forfeited

    (2,700 )   (2,700 )   (5,400 )   640    

Outstanding at December 31, 2017

    36,100     36,100     72,200   $   8.3 years

Vested Options at December 31, 2017

    8,238         8,238   $ 640    

Share-based compensation expense will be recognized as a component of selling, general, and administrative expense.

In the absence of the performance conditions being satisfied, no value is provided to the employee until a liquidity event occurs for both the Time and Performance Awards granted; at that time, compensation cost will be measured based on the current value of the options at the time of vesting. The Company will not recognize share-based compensation until the fulfillment of the requisite performance conditions and these conditions were not satisfied during the year ended December 31, 2017.

Stock-based Compensation — Vertical/Trigen Holdings, LLC 2013 Equity Incentive Plan

In March 2014, Vertical/Trigen issued units to certain officers and key employees under the Vertical/Trigen Holdings, LLC 2013 Equity Incentive Plan, as amended on July 31, 2014 (the "2013 Plan"). Units granted under the 2013 Plan were made up of two components: 50% of the units granted were Time Awards and 50% were Performance Awards. The Time Awards generally vested 20% annually from original grant date, with the units fully vested after five years. The Performance awards were to vest immediately upon having received (on a cumulative basis) Aggregate Net Proceeds exceeding certain return on investment targets specified in the award documents.

Both the Time Awards and the Performance Awards contained a performance condition — a liquidity event and subsequent disposal of units by the Sponsor before the employee was able to sell vested units. Upon termination of employment, Vertical/Trigen could exercise a call option on vested units at fair value.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 11. Incentive Plans (Continued)

At the time of the Merger, as discussed further in Note 3, the vested incentive units were contributed for units in Parent and the 2013 Plan and unvested incentive units were cancelled. At the time of the Merger, the first tranche of the Time Award had already vested, and the second tranche was one month away from vesting. In view of the cancellation so close to this vesting date, the Vertical/Trigen Board accelerated vesting of the second tranche of Time Awards and 1 / 3 of the performance based incentive units were deemed vested at February 3, 2016. Prior to the Merger, no compensation cost had been recognized for the Performance Awards, as the liquidity event was not probable of being achieved.

The Company expenses stock-based compensation to employees over the requisite service period based on the estimated grant-date fair value of the awards. Share-based compensation expense is recognized as a component of selling, general, and administrative expense. In the absence of the performance conditions being satisfied, no value is provided to the employee until a liquidity event occurs for Performance Awards granted. Share based awards with graded-vesting schedules are recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model, and the assumptions used in calculating the fair value of stock-based awards represent management's best estimates and involve inherent uncertainties and the application of management's judgment.

The fair value of the incentive units granted during March 2014 was estimated using the Black-Scholes option pricing model with the following key assumptions (calculated on a weighted average basis):

    §
    Exercise price per unit of the incentive units issued during March 2014 of $52.79 per unit was determined based on the price per common unit used in connection with the December 13, 2013 transaction disclosed in Note 1.

    §
    Risk free interest rate of 1.27% represents an implied rate on the grant date for a traded zero-coupon U.S. Treasury bond with a five-year term.

    §
    Expected volatility estimate of 78.48% represents implied volatility of similar peer-group companies whose stock prices were publicly available, after considering the industry, stage of life-cycle, size and financial leverage of the peer-group companies.

    §
    Expected term of 5.1 years represents the anticipated time period between the grant date and the vesting date of the incentive units.

The following is a summary of Time Award units granted under the 2013 Plan:


 
  Number of Units  
 
  Time   Performance   Total  

Outstanding as of December 31, 2015

    80,500     50,500     131,000  

Forfeited/Cancelled

    (48,300 )   (33,667 )   (81,967 )

Exercised/Converted

    (32,200 )   (16,833 )   (49,033 )

Outstanding as of December 31, 2016

             

Vested units as of December 31, 2016

             

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 11. Incentive Plans (Continued)

The fair value of the incentive units granted during March 2014 was estimated using the Black-Scholes option pricing model with the following key assumptions (calculated on a weighted average basis):


 
  As of
February, 2016
  As of
March, 2014
 

Exercise price

  $ 52.79   $ 53.00  

Risk-free rate of interest

    1.27 %   1.73 %

Term (years)

    5.1     4.6  

Expected stock price volatility

    78 %   87 %

Compensation cost under the 2013 Plan was $1,159,173 for the year ended December 31, 2016.

Note 12. Commitments and Contingencies

Operating Leases

The Company leases its New Jersey office and warehouse facilities under non-cancelable leases that expire in August 2022 and November 2018, respectively. The Company also leases office and warehouse facilities in Tampa, Florida, under non-cancelable leases that expire in October 2018. The Company also leases its Argentina office and warehouse facilities which originally expired in December 31, 2014, but the contract was amended to extend the contract for 3 years, thus expiring on December 31, 2017, with one automatic 3-year extension to December 31, 2020. The Company also leases its Hungary office and warehouse facilities which expired on February 15, 2017 and automatically renewed for a two-year term. The lease will continue to renew for successive two-year periods unless either party elects not to renew. The Company also leases its North Carolina office and warehouse facilities that expires on July 31, 2019.

Total rent expense charged to selling, general and administrative expenses was $598,159 and $672,690 for the years ended December 31, 2017 and 2016, respectively. Total rent expense charged to research and development was $273,706 and $203,283 for the years ended December 31, 2017 and 2016. The table below shows the future minimum rental payments, exclusive of taxes, insurance and other costs, under the leases as of December 31, 2017:


Years ending December 31,
  Operating Leases  

2018

  $ 853,234  

2019

    474,452  

2020

    453,416  

2021

    420,532  

2022

    242,570  

Thereafter

     

  $ 2,444,204  

Capital Leases

Amortization of assets held under the capital lease is included in depreciation expense as a component of selling, general and administrative expenses. The Company has future minimum lease payments for the year

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 12. Commitments and Contingencies (Continued)

ended December 31, 2017 required under the capital leases together with its present value of the net minimum lease payments of $82,801.

Contingent Milestone Payments

The Company has entered into strategic business agreements for the development and marketing of finished dosage form pharmaceutical products with various pharmaceutical development companies. Each strategic business agreement includes a future payment schedule for contingent milestone payments and in certain strategic business agreements, minimum royalty payments. The Company will be responsible for contingent milestone payments and minimum royalty payments to these strategic business partners based upon the occurrence of future events. Each strategic business agreement defines the triggering event of its future payment schedule, such as meeting product development progress timelines, successful product testing and validation, successful clinical studies, and various U.S. Food and Drug Administration and other regulatory approvals.

Royalty Obligations

The Company has agreements with third parties that require the Company to make minimum royalty payments on a calendar year basis.

The following table lists the Company's enforceable and legally binding royalty obligations as of December 31, 2017:


 
  Royalty Obligations  

Less than 1 year

  $ 1,375,000  

1 to 3 years

    2,563,000  

3 to 5 years

    2,000,000  

More than 5 years

    4,083,000  

  $ 10,021,000  

Supply Agreement Obligations

The Company is engaged in various supply agreements with third parties which obligate the Company to purchase various API or finished products at contractual minimum levels. None of these agreements are individually in the aggregate material to the Company. Further, the Company does not believe at this time that any of the purchase obligations represent levels above that of normal business demands.

The following table lists the Company's enforceable and legally binding purchase obligations as of December 31, 2017:


 
  Purchase Obligations  

Less than 1 year

  $ 4,000,000  

1 to 3 years

    8,000,000  

3 to 5 years

    4,000,000  

  $ 16,000,000  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 12. Commitments and Contingencies (Continued)

Defined Contribution Plan

Vertical/Trigen and Legacy Osmotica both had a defined contribution plan under Section 401(k) of the Internal Revenue Code ("IRC") as of December 31, 2016 pursuant to the Merger (the "Contribution Plans"). The employees of the respective Companies are eligible to participate in the Contribution Plans. Participants may contribute amounts through payroll deductions not to exceed IRC limitations. For the year ended December 31, 2016, the Vertical/Trigen Plan provided for nonelective employer contributions equal to 3% of basic compensation. The separate Contribution Plans were merged into one plan effective January 1, 2017. Effective January 1, 2017, the plan provides for employer matching contributions equal to 100% of each employee's elective deferrals up to 3% of base salary, plus 50% of each employee's elective deferrals between 3% and 5% of base salary. For the years ended December 31, 2017 and 2016, the Company recognized expenses related to its contributions under the Plan of $896,632 and $372,044, respectively.

Legal Proceedings

The Company is a party in legal proceedings and potential claims arising from time to time in the ordinary course of its business. The amount, if any, of ultimate liability with respect to such matters cannot be determined. Despite the inherent uncertainties of litigation, management of the Company believes that the ultimate disposition of such proceedings and exposures will not have a material adverse impact on the financial condition, results of operations, or cash flows of the Company.

On November 29, 2016, a third-party competitor brought suit against Vertical in the United States District Court for the Northern District of Georgia. The lawsuit alleged that Vertical engaged in certain federal and state false advertising and deceptive trade practices in its labeling, marketing and promotion of one of its prescription prenatal dietary supplements. On March 15, 2017, the parties signed a confidential settlement agreement and on March 17, 2017, the Court dismissed the litigation and Vertical settled in the amount of $4,200,000 which is a component of selling, general and administrative expenses for the year ended December 31, 2016. Vertical has stopped promoting the product in question and stopped shipping the product by May 1, 2017.

Osmotica was a party to patent infringement litigation in the U.S District Court for the Northern District of Georgia with Shire Development, LLC ("Shire") over the Company's proposed delayed-release mesalamine ANDA product which is a generic version of Shire's LIALDA®. ( Shire Development LLC et al. v. Osmotic Pharmaceutical Corp. , No. 1-12-cv-00904 (N.D. Georgia, filed March 16, 2012)). The litigation over the mesalamine product was limited to one (1) patent, U.S. Patent No. 6,773,720 (the "'720 Patent"), which is directed to a particular controlled-release formulation. Absent invalidation by a generic challenger, the '720 Patent will expire on June 8, 2020.

On March 29, 2017, Osmotica sent a notice to the FDA requesting that their ANDA be withdrawn, and on March 31, 2017, Osmotica received confirmation from FDA that the ANDA was withdrawn. On May 5, 2017, Osmotica was dismissed from the litigation, as such no loss or accrual was deemed necessary.

In February 2017, a former employee of the Company filed with the Equal Employment Opportunity Commission ("EEOC") a Charge of Discrimination based on disability and sexual orientation. While the Charge of Discrimination was pending at the EEOC, the employee declared bankruptcy. In November 2017, the EEOC issued a determination of no probable cause following the filing of the Company's position statement without further investigation. This started a period of 90 days during which the former employee could bring a law suit in Federal Court to pursue the claim. On February 16, 2018, the Chapter 7 Trustee

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 12. Commitments and Contingencies (Continued)

for the employee filed a law suit in the Federal District Court for the Northern District of Georgia alleging gender and disability discrimination and retaliation, seeking reinstatement of the employee, back pay and unspecified damages ( Chapter 7 Trustee vs. Osmotica Pharmaceutical US LLC ). Given the stage of the proceedings, the Company is unable to provide an estimate of the reasonably possible loss or range of loss. Further, the Company has engaged counsel to defend the law suit.

Note 13. Income Taxes

Osmotica Holdings S.C.Sp. ("Parent") is a Luxembourg special limited partnership, formed on January 28, 2016, together with its wholly-owned subsidiaries (collectively "Osmotica" or the "Company"), as discussed in Note 1. The Parent has an Advance Tax Confirmation ("ATC") in place with Luxembourg, which is effective for the 2016 - 2020 tax years. The ATC confirms that the parent (a tax transparent entity for Luxembourg purposes) is not subject to corporate income tax or net wealth tax in Luxembourg due to its tax status as well as the fact that the activity of the Parent does not constitute commercial activity for Luxembourg tax purposes.

Vertical/Trigen Holdings, LLC is a Delaware limited liability company, formed on January 28, 2016, a wholly-owned subsidiary of Osmotica Holdings S.C.S.P., (Luxembourg) a limited partnership ("Parent"), as discussed in Note 1. Vertical/Trigen Holdings, LLC is a limited liability company treated as a partnership for U.S. income tax purposes. Following the Merger in 2016, Vertical/Trigen Holdings, LLC became a wholly-owned subsidiary of certain U.S. corporations that are directly or indirectly owned by Osmotica Holdings U.S. LLC and included in the consolidated financial statements and designated as C Corp filers for U.S. tax purposes. As such, the activity of Vertical/Trigen Holdings, LLC is subject to federal income tax at the level of its U.S. corporate parents beginning in 2016. In addition, the Company's foreign entities are subject to income tax in various foreign jurisdictions.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13. Income Taxes (Continued)

The loss before income taxes and the related tax benefit are as follows:


 
  December 31,
2017
restated
  December 31,
2016
restated
 

Loss before income taxes

             

U.S. operations

  $ (41,276,187 ) $ (25,420,531 )

Non-U.S. operations

    (44,366,355 )   (26,646,355 )

Total loss before income taxes

    (85,642,542 )   (52,066,886 )

Current provision

             

Federal

    2,198,256     2,330,172  

State

    212,416     374,625  

Foreign

    1,595,246     211,699  

Total current tax expenses

    4,005,918     2,916,496  

Deferred (benefit) provision

   
 
   
 
 

Federal

    (41,477,737 )   (11,825,074 )

State

    (3,282,520 )   (1,603,838 )

Foreign

    266,769     266,770  

Total deferred tax benefit

    (44,493,488 )   (13,162,142 )

Total benefit for income taxes

  $ (40,487,570 ) $ (10,245,646 )

A reconciliation of the statutory federal income tax rate to the Company's effective tax rate for the years ended December 31, 2017 and 2016 respectively are as follows:


 
  December 31,
2017
  December 31,
2016
restated
 

Federal tax at 34% statutory rate

    34.00 %   34.00 %

State and local income taxes, net of federal benefit

    2.37 %   1.56 %

Differences in tax effects on foreign income

    –15.81 %   –10.89 %

Federal tax credits

    8.69 %   4.62 %

Uncertain tax positions — interest & penalties

    –0.07 %   –0.19 %

Enacted change in statutory rates

    22.61 %   –7.12 %

Change in tax status

    0.00 %   3.27 %

Change in valuation allowance

    –3.96 %   –3.70 %

Permanent adjustments

    0.09 %   –2.66 %

Other

    –0.58 %   0.79 %

Effective tax rate

    47.34 %   19.68 %

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13. Income Taxes (Continued)

Differences between the Federal statutory income tax rate of 34% and the effective tax rate are primarily due to the enactment of U.S. tax legislation known as the Tax Cuts and Jobs Act ("TCJA"), permanent adjustments, change in estimate with regard to the prior year Orphan Drug credit, current year tax credits, and the foreign tax rate differential.

Deferred taxes reflect the tax effects of the differences between the amounts recorded as assets and liabilities for financial statement purposes and the comparable amounts recorded for income tax purposes. Significant components of the deferred tax assets (liabilities) at December 31, 2017 and 2016 respectively are as follows:


 
  December 31, 2017
(restated)
  December 31, 2016
(restated)
 

Deferred tax assets:

             

Accounts receivable

  $ 495,373   $ 1,808,464  

Deferred revenue

        3,086,298  

Accrued expenses

    11,259,586     14,598,908  

Inventory

    341,539     1,942,253  

Investment in partnership

    7,730,044     9,338,214  

Net operating losses

    9,210,120     6,377,380  

Tax credits

    9,091,441     1,154,975  

Other

    1,612,787     1,569,264  

Less: valuation allowance

    (12,083,092 )   (8,582,546 )

Deferred tax liabilities:

             

Prepaid expenses

    (9,200,249 )   (701,981 )

Property plant & equipment

    (2,827,186 )   (3,317,284 )

Intangible assets

    (40,994,418 )   (94,832,210 )

Total deferred income taxes

  $ (25,364,055 ) $ (67,558,265 )

On December 22, 2017, the U.S. enacted the TCJA, which resulted in the revaluation of the Company's U.S. related deferred tax assets and liabilities and had an impact on the Company's total 2017 tax benefit. The TCJA introduces significant changes to U.S. corporate income tax law that will have a meaningful impact on the Company's provision for income taxes. The final impact of the TCJA on the Company may differ from the estimates reported due to such factors as changes in interpretations and assumptions made, additional guidance that may be issued, and actions taken by the Company as a result of the TCJA.

As of December 31, 2016, the company adopted Accounting Standard Update 2015-17 Balance Sheet Classification of Deferred Taxes, which requires that all deferred tax assets and liabilities, along with any valuation allowance, be classified as noncurrent on the balance sheet and applied its provisions prospectively without retrospective adjustment.

Included in the deferred tax balances above is a net deferred tax liability of $44,655,585 and $79,530,664 respectively for 2017 and 2016 related to the assets and liabilities in Vertical/Trigen Holdings, LLC, which is a partnership for Federal income tax purposes. The Company owns in aggregate

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13. Income Taxes (Continued)

100% of Vertical/Trigen Holdings, LLC and the assets and liabilities of this entity are included in the consolidated financial statements of the Company.

As of December 31, 2017, the Company has a federal net operating loss carryover of $4.4 million and net operating loss carryovers in certain foreign and state tax jurisdictions of approximately $90.2 million and $1.0 million respectively, which will begin to expire in 2022. At December 31, 2017, the Company had total tax credit carryovers of approximately $9.1 million primarily consisting of Federal Orphan Drug Tax Credit carryovers. These credit carryovers begin to expire in 2036. The Company assesses the realizability of the deferred tax assets at each balance sheet date based on actual and forecasted operating results in order to determine the proper amount, if any, required for a valuation allowance. As of December 31, 2017, the Company maintains valuation allowances on deferred tax assets applicable to entities in foreign jurisdictions for which separate income tax returns are filed, where realization of the related deferred tax assets from future profitable operations is not reasonably assured. In connection with the Merger, a valuation allowance was recorded in the amount of $7,531,871 because it was determined that the net realizable value of certain of the deferred tax assets, primarily net operating loss carryforwards applicable to entities in foreign jurisdictions, may not be realizable. In 2016, the valuation allowance increased by $1,050,675 to $8,582,546 primarily due to incremental net operating losses generated during 2016 applicable to entities in foreign jurisdictions. In 2017, the valuation allowance decreased by $399,515 for return to provision adjustments and increased by $3,900,061 to $12,083,092 primarily due to incremental net operating losses applicable to entities in foreign jurisdictions.

The Company leverages its significant resources in research and development and proprietary drug delivery technology to address the growing need of the global patient population. The Company completed a tax evaluation project to determine its appropriate research and development credits for the Orphan Drug and Research & Development credit. This project resulted in the engagement of professional technical experts and the investment in significant time to evaluate historical records to identify the maximum credits as permitted by the relevant tax law. This project was concluded in connection with the preparation of the current year financial statements. As a result of the significant effort required to attain, validate and conclude on the appropriate credits, the Company considers the results of the tax project to be new information and therefore the results of such project are recorded in the current year as a change in accounting estimate. The adjustment recorded was an increase in tax credits of approximately $5.7 million net of a reduction in income tax expense of approximately $2.7 million for a net tax effect of $3.0 million.

The Company files income tax returns in U.S. federal, state and certain international jurisdictions. For federal and certain state income tax purposes, the Company's 2014 through 2016 tax years remain open for examination by the tax authorities under the normal statute of limitations. For certain international income tax purposes, the Company's 2010 through 2016 tax years remain open for examination by the tax authorities under the normal statute of limitations.

No provision is made for foreign withholding or income taxes associated with the cumulative undistributed earnings of the foreign subsidiaries. The cumulative undistributed earnings, if any, are expected to be reinvested in working capital and other business needs indefinitely. Any future foreign withholding or income taxes associated with the undistributed earnings are not anticipated to be material.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding accrued interest, for December 31, 2017 and 2016 respectively are presented below. It is not anticipated that the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13. Income Taxes (Continued)

amount of unrecognized tax benefits will materially change in the next 12 months. If recognized, the total amount of unrecognized benefits of $909,370 would have no impact on the effective tax rate.


 
  December 31, 2017   December 31, 2016  

Unrecognized tax benefits beginning balance

  $ 855,574   $  

Additions related to current period tax positions

    53,796     855,574  

Unrecognized tax benefits ending balance

  $ 909,370   $ 855,574  

The company classifies interest expense and penalties related to unrecognized tax benefits as components of the tax provision for income taxes. Interest and penalties recognized in the consolidated income statement as of December 31, 2017 are $62,184 and $0, respectively. As of December 31, 2017, the Company has recorded accrued interest and penalties of $163,405.

The Company sells its products in various jurisdictions and is subject to federal, foreign, state and local taxes. While the Company believes that it has properly paid or accrued for all such taxes based on its interpretation of applicable law, tax laws are complex, and interpretations differ. As a result, on February 26, 2018, the Company filed requests to enter into Voluntary Disclosure Agreements with the States of New Jersey and Georgia related to prior and current period sales and use taxes. The ultimate liability of the Company in respect to such taxes cannot be estimated with any certainty at this time. As of this report, the outcome of these requests is not expected to be material to the Company's financial position or results of operations.

Note 14. Related Parties

At December 31, 2017 and 2016, the Company has amounts due from affiliates that totaled $0 and $21,868, respectively. The balance at December 31, 2016 was comprised of other assets and receivables from former shareholders. Furthermore, as of December 31, 2017 and 2016, the Company had a due to affiliates of $0 and $2,544,752, which comprised of taxes payable upon completion of the Company's 2016 tax returns on behalf of former shareholders of the Company. In addition, as of December 31, 2017 and 2016, the Company had a $250,000 and $250,000 accrued liability which was comprised of quarterly advisory and monitoring fees payable to shareholders. During each of 2017 and 2016, $1,000,000 of such fees were recorded each year as selling, general and administrative expense. Further, the Company leases its Argentina office and warehouse space facilities through a related party lease. The term of the operating lease expired on December 31, 2017. The lease was automatically renewed for another three-year period through December 31, 2020. For the years ended December 31, 2017 and 2016, the Company incurred rent expense of $325,838 and $242,004, respectively.

Vertical/Trigen paid Avista Capital a $7,000,000 advisory fee on February 3, 2016 as part of the Merger. This one-time fee is a component of the acquisition-related costs.

The Company entered into a two-year consulting agreement with two Vertical/Trigen shareholders. The term of the agreements requires a compensation rate of $20,833 per month and is a component of the selling, general and administrative expenses. This agreement terminated in January 2018.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 15. Segment Reporting

The Company operates in one business segment which focuses on developing and commercializing pharmaceutical products that target markets with underserved patient populations. The Company's business offerings have similar economic and other characteristics, including the nature of products, manufacturing and acquiring processes, types of customers, distribution methods and regulatory environment. The CODM reviews profit and loss information on a consolidated basis to assess performance and make overall operating decisions. The consolidated financial statements reflect the financial results of the Company's one reportable operating segment.

For the years ended December 31, 2017 and 2016, the following customers comprised 10% or more of the Company's total gross product sales:


 
  Years ended December 31,  
 
  2017   2016  

Amerisource Bergen

    23 %   68 %

McKesson

    32 %   15 %

Cardinal Health

    37 %   6 %

The following table presents a summary of total revenues for the years ended December 31, 2017 and 2016:


 
  Years ended December 31  
 
  2017   2016  

Venlafaxine ER

  $ 96,054,161   $ 25,572,122  

Methylphenidate

    43,711,097      

Lorzone

    22,275,831     29,001,268  

Divigel

    18,541,774     15,849,284  

OB Complete

    10,446,364     12,761,104  

Other

    46,641,951     87,338,392  

Net product sales

  $ 237,671,178   $ 170,522,170  

Royalty revenue

    6,449,095     40,918,166  

Licensing and contract revenue

    1,628,759     7,019,316  

Total revenues

  $ 245,749,032   $ 218,459,652  

The Company has no significant revenues or tangible assets outside the United States.

Note 16. Subsequent Events

On February 16, 2018, the Company received FDA approval for its amantadine extended release tablets under the trade name OSMOLEX ER. On that same date the Company filed in the Federal District Court for the District of Delaware a Complaint for Declaratory Judgment of Noninfringement of certain patents owned

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 16. Subsequent Events (Continued)

by Adamas Pharmaceuticals, Inc. ( Osmotica Pharmaceutical US LLC and Vertical Pharmaceuticals, LLC vs. Adamas Pharmaceuticals, Inc. and Adamas Pharma, LLC ). Adamas was served with the Complaint on February 21, 2018. Adamas filed an answer on April 13, 2018 denying the allegations in the Complaint, and on September 20, 2018, filed an amended answer with counterclaims alleging infringement of certain patents included in the Company's Complaint and requesting that the court grant Adamas damages, injunctive relief and attorneys' fees.

On April 30, 2018, Vertical Pharmaceuticals, LLC was served with a Complaint in an action entitled State of Arkansas, ex rel, Scott Ellington, et al., v. Purdue Pharma, L.P., et al Crittenden County Circuit Court, No. CV-2018-268 . The State of Arkansas brought suit against numerous manufacturers and distributors of opioid products alleging that defendants were negligent and created a public nuisance by shipping opioid products into Arkansas without proper controls, and alleging violations of the Arkansas Uniform Narcotic Drug Act, Arkansas Controlled Substances Act, and the Arkansas Drug Dealer Liability Act. On July 17, 2018, the Court entered an Order dismissing Vertical from the lawsuit without prejudice.

On April 30, 2018, the Company acquired Lilydale Limited ("Lilydale") in the amount of €100. Lilydale was incorporated in Ireland on July 13, 2017 and currently has no activity, operations or financing. Effective May 1, 2018, the Company completed a name change to Osmotica Pharmaceuticals Limited. On July 31, 2018, Osmotica Pharmaceuticals Limited re-registered under the Irish Companies Act of 2014 as a public limited company and was renamed Osmotica Pharmaceuticals plc.

Osmotica Pharmaceuticals plc was acquired for the purpose of facilitating an offering of ordinary shares in the future. Immediately prior to the initial public offering ("IPO") and prior to the commencement of trading of the ordinary shares of Osmotica Pharmaceuticals plc on the Nasdaq Global Market, the Company will undertake a series of restructuring transactions that will result in Osmotica Pharmaceuticals plc being the direct parent of Osmotica Holdings S.C.Sp., with each holder of common units of Osmotica Holdings S.C.Sp. receiving approximately 42.84 ordinary shares of Osmotica Pharmaceuticals plc in exchange for each such common unit. In addition, each holder of an option to purchase common units of Osmotica Holdings S.C.Sp. will receive an option to purchase the number of ordinary shares of Osmotica Pharmaceuticals plc determined by multiplying the number of units underlying such option by approximately 42.84 (rounded down to the nearest whole share) and dividing the exercise price per unit for such option by approximately 42.84 (rounded up to the nearest whole cent). This being referred to as the "Reorganization." Until the Reorganization, Osmotica Pharmaceuticals plc will not conduct any operations (other than activities incidental to its formation, the Reorganization and the pursuit of an IPO). Upon the completion of the Reorganization, the historical consolidated financial statements of Osmotica Holdings S.C.Sp. will become the historical financial statements of Osmotica Pharmaceuticals plc. On April 30, 2018, the board of managers of the Company approved plans with regard to the preparation of an IPO and the associated corporate restructuring step plans associated with the Reorganization.

On August 14, 2018, the Board of Directors of Osmotica Pharmaceuticals plc proposed that the corporate headquarters that is currently located in Luxembourg re-domicile to Ireland and that the Company pursue an IPO. The Osmotica Pharmaceuticals plc Board of Directors also approved, among other things, the form of the Reorganization and the transactions that would be required to effect such Reorganization; the pursuit of an IPO; the use of net proceeds that would be received from an IPO to, among other things, repay certain amounts of the Company's outstanding indebtedness under the Company's senior secured credit facilities and for working capital and other general corporate purposes; and the formation of an IPO Committee and granted the IPO Committee the ability to approve the issuance of shares in an IPO and approve the final

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 16. Subsequent Events (Continued)

terms of an IPO. The Reorganization is anticipated to take place immediately prior to the IPO and prior to the commencement of trading of the ordinary shares on the Nasdaq Global Market. The Company has also applied to list its ordinary shares on the Nasdaq Global Market.

On August 2, 2018 the board of managers of the Company adopted an amendment to the Osmotica Pharmaceuticals S.C.Sp. 2016 Equity Incentive Plan which will be effective upon an IPO of ordinary shares of Osmotica Pharmaceuticals plc. The Time Award and Performance Awards will be converted to options to purchase ordinary shares on the same basis as common units of Osmotica Pharmaceuticals S.C.Sp. will be converted to ordinary shares of Osmotica Pharmaceuticals plc with corresponding adjustments to the exercise price of the options following a series of restructuring transactions occurring immediately prior to the IPO. In connection with the conversion, the Time Awards will continue to vest as described in Note 11, and the Performance Awards will be converted into options that vest based solely on the passage of time, with the Performance Awards vesting in equal annual installments on each of the first four anniversaries of the IPO.

On August 2, 2018 the board of managers of the Company adopted the Osmotica Pharmaceuticals plc 2018 Incentive Plan which is effective upon the IPO of Osmotica Pharmaceuticals plc and will provide for the issuance of up to 4,100,000 ordinary shares. The terms of awards under the plan will be determined by the plan Administrator.

The Company has evaluated subsequent events through May 9, 2018, the date on which these consolidated financial statements were issued and extended this evaluation through October 1, 2018. No significant subsequent events to this date would have had a material impact on the Company's consolidated financial statements as of and for the year ended December 31, 2017 other than described above.

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OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 
  June 30, 2018
(Unaudited)
  December 31,
2017
(restated)
 

Assets

             

Current assets:

             

Cash and cash equivalents

  $ 28,408,246   $ 34,743,152  

Trade accounts receivable, net

    60,967,782     37,637,957  

Inventories, net

    26,025,678     16,946,870  

Prepaid expenses and other current assets

    10,859,605     25,814,289  

Total current assets

    126,261,311     115,142,268  

Property, plant and equipment, net

    31,662,200     31,410,133  

Intangibles, net

    546,713,905     585,388,710  

Goodwill

    152,815,716     152,815,716  

Other non-current assets

    847,386     942,419  

Total assets

  $ 858,300,518   $ 885,699,246  

Liabilities and Partners' Capital

             

Current liabilities:

             

Trade accounts payable

  $ 32,554,967   $ 36,069,936  

Accrued liabilities

    73,479,457     81,926,390  

Current portion of long-term debt, net of deferred financing costs

    6,723,757     6,655,604  

Current portion of obligation under capital leases

    110,349     24,245  

Income taxes payable — current portion

    1,822      

Total current liabilities

    112,870,352     124,676,175  

Long-term debt, net of non-current deferred financing costs

    311,313,040     313,949,581  

Long-term portion of obligation under capital leases

    176,677     57,059  

Income taxes payable — long-term portion

    1,334,645     1,334,645  

Deferred taxes — long-term portion

    11,966,226     25,364,055  

Other long-term liabilities

    1,047,477     1,047,477  

Total liabilities

    438,708,417     466,428,992  

Commitments and contingencies

             

Partners' capital:

   
 
   
 
 

Partners' capital

    421,315,591     419,903,400  

Accumulated other comprehensive loss

    (1,723,490 )   (633,146 )

Total partners' capital

    419,592,101     419,270,254  

Total liabilities and partners' capital

  $ 858,300,518   $ 885,699,246  

   

See accompanying notes to unaudited condensed consolidated financial statements

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OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 
  Six Months Ended June 30,  
 
  2018   2017  

Revenues

             

Net product sales

  $ 130,819,848   $ 108,225,240  

Royalty revenue

    752,281     6,206,963  

Licensing and contract revenue

    87,625     1,243,368  

Total revenues

    131,659,754     115,675,571  

Cost of goods sold (inclusive of amortization of intangibles of $38,474,805 and $13,812,537 for six months ended June 30, 2018 and 2017, respectively)

    67,138,131     55,899,691  

Gross profit

    64,521,623     59,775,880  

Selling, general and administrative expenses

    33,838,822     28,041,959  

Research and development expenses

    19,141,080     11,694,722  

Impairment of intangible assets

        41,700,000  

Total operating expenses

    52,979,902     81,436,681  

Operating income (loss)

    11,541,721     (21,660,801 )

Interest expense and amortization of debt discount

    (10,084,397 )   (14,419,491 )

Other non-operating income, net

    446,599     1,281,871  

Total other non-operating expense, net

    (9,637,798 )   (13,137,620 )

Income (loss) before income taxes

    1,903,923     (34,798,421 )

Income tax (expense) benefit

    (489,706 )   4,738,730  

Net income (loss)

  $ 1,414,217   $ (30,059,691 )

Other comprehensive (loss) income, net

             

Change in foreign currency translation adjustments

   
(1,090,344

)
 
124,118
 

Comprehensive income (loss)

  $ 323,873   $ (29,935,573 )

Income (loss) per unit attributable to unitholders

             

Basic

  $ 1.41   $ (30.05 )

Diluted

  $ 1.32   $ (30.05 )

Weighted average units basic and diluted

             

Basic

    1,000,515     1,000,315  

Diluted

    1,070,613     1,000,315  

   

See accompanying notes to unaudited condensed consolidated financial statements

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OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL

(Unaudited)

 
  Partners' capital
restated
  Accumulated
other
comprehensive
loss
  Total
restated
 

Balance at December 31, 2017

  $ 419,903,400   $ (633,146 ) $ 419,270,254  

Net income

    1,414,217         1,414,217  

Change in foreign currency translation

        (1,090,344 )   (1,090,344 )

Partners' distributions

    (2,026 )       (2,026 )

Balance at June 30, 2018

  $ 421,315,591   $ (1,723,490 ) $ 419,592,101  

   

See accompanying notes to unaudited condensed consolidated financial statements

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OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 
  Six Months Ended June 30,  
 
  2018   2017  

CASH FLOWS FROM OPERATING ACTIVITIES:

             

Net income (loss)

  $ 1,414,217   $ (30,059,691 )

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:

             

Depreciation and amortization

    40,866,608     15,169,780  

Impairment of intangible assets

        41,700,000  

Deferred income tax benefit

    (13,397,829 )   (13,630,652 )

Bad debt provision

    (239,604 )   (435,220 )

Change in fair value of contingent consideration

        182,396  

Payment for contingent consideration

        (1,991,288 )

Non-cash interest expense and amortization of deferred financing fees

    839,107     3,695,397  

Change in operating assets and liabilities:

             

Trade accounts receivable, net

    (23,112,006 )   29,509,517  

Inventories, net

    (9,078,808 )   2,100,734  

Prepaid expenses and other current assets

    14,753,991     (3,961,805 )

Other non-current assets

        26,856  

Trade accounts payable

    (5,419,606 )   (11,556,348 )

Accrued and other current liabilities

    (6,680,027 )   8,238,818  

Net cash (used in) provided by operating activities

    (53,957 )   38,988,494  

CASH FLOWS FROM INVESTING ACTIVITIES:

             

Purchase of property, plant and equipment

    (2,181,262 )   (5,707,846 )

Net cash used in investing activities

    (2,181,262 )   (5,707,846 )

CASH FLOWS FROM FINANCING ACTIVITIES:

             

Distributions to Partners

    (2,026 )   (2,544,746 )

Payments on capital lease obligations

    (54,391 )   (88,830 )

Proceeds from insurance financing loan

    974,699      

Repayment of insurance financing loan

    (194,960 )    

Debt repayment

    (4,093,376 )   (2,930,407 )

Payment for contingent consideration

        (8,508,712 )

Net cash used in financing activities

    (3,370,054 )   (14,072,695 )

Net change in cash and cash equivalents

    (5,605,273 )   19,207,953  

Effect on cash of changes in exchange rate

    (729,633 )   (20,691 )

Cash and cash equivalents, beginning of period

    34,743,152     19,558,570  

Cash and cash equivalents, end of period

  $ 28,408,246   $ 38,745,832  

Supplemental disclosure of cash and non-cash transactions:

             

Cash paid for interest

  $ 9,245,291   $ 11,464,542  

Income taxes paid

  $ 413,413   $ 4,928,036  

Purchase of fixed assets by entering into capital lease

  $ 260,113   $  

   

See accompanying notes to unaudited condensed consolidated financial statements

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OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Organization and Nature of Operations

Osmotica Holdings S.C.Sp. ("Parent"), together with its wholly-owned subsidiaries (collectively "Osmotica" or the "Company"), is a Luxembourg special limited partnership, formed on January 28, 2016. Osmotica Holdings US LLC, a subsidiary of Parent entered in to a fifty-fifty partnership (the "Merger"), effective February 3, 2016, pursuant to a definitive agreement between Vertical/Trigen Holdings, LLC ("Vertical/Trigen") and members, and Osmotica Holdings Corp Limited and Subsidiaries. The Company and several other holding companies and partnerships were formed as a result of the Merger. Pursuant to the Merger, Vertical/Trigen was deemed to be the accounting acquirer. Osmotica is a fully integrated biopharmaceutical company focused on the development and commercialization of specialty products that target markets with underserved patient populations.

Unless otherwise indicated or required by the context, references throughout to "Osmotica," the "Company," or "Parent" refer to financial information and transactions of Osmotica Holdings S.C.Sp.

Note 2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation   —  The accompanying unaudited condensed consolidated financial statements included herein have been prepared by the Company in accordance with accounting principles generally accepted in the United States ("GAAP") and under the rules and regulations of the United States Securities and Exchange Commission ("SEC") for interim reporting. In management's opinion, the interim financial data presented includes all adjustments (consisting solely of normal recurring items) necessary for fair presentation. All intercompany accounts and transactions have been eliminated. Certain information required by GAAP has been condensed or omitted in accordance with rules and regulations of the SEC. Operating results for the six months ended June 30, 2018 and 2017, respectively, are not necessarily indicative of the results that may be expected for any future period or for the year ending December 31, 2018. The accompanying Condensed Consolidated Balance Sheet data as of December 31, 2017 was derived from the audited consolidated financial statements.

These unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and the notes thereto for the year ended December 31, 2017. Except for the revenue recognition accounting policy that was updated as a result of adopting Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Accounting Standards Codification ("ASC") Topic 606), the Company's significant accounting policies have not changed substantially from those previously described in the consolidated financial statements for the year ended December 31, 2017.

Principles of Consolidation   —  The accompanying condensed consolidated financial statement include the accounts of Osmotica Holdings S.C.Sp. and its wholly owned domestic and foreign subsidiaries. All inter-company transactions and balances have been eliminated in consolidation. The Company is not involved with variable interest entities.

Use of Estimates   —  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures in the condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. Actual results could differ materially from those estimates.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

Product Sales   —  Revenue is recognized at the point in time when the Company's performance obligations with its customers have been satisfied. At contract inception, the Company determines if the contract is within the scope of ASC Topic 606 and then evaluates the contract using the following five steps: (1) identify the contract with the customer; (2) identify the performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue at the point in time when the entity satisfies a performance obligation.

Revenue is recorded at the transaction price, which is the amount of consideration the Company expects to receive in exchange for transferring products to a customer. The Company considered the unit of account for each purchase order that contains more than one product. Because all products in a given purchase order are generally delivered at the same time and the method of revenue recognition is the same for each, there is no need to separate an individual order into separate performance obligations. In the event that the Company fulfilled an order only partially because a requested item is on backorder, the portion of the purchase order covering the item is generally cancelled, and the customer has the option to submit a new one for the backordered item. The Company determines the transaction price based on fixed consideration in its contractual agreements, which includes estimates of variable consideration, and the transaction price is allocated entirely to the performance obligation to provide pharmaceutical products. In determining the transaction price, a significant financing component does not exist since the timing from when the Company delivers product to when the customers pay for the product is less than one year and the customers do not pay for product in advance of the transfer of the product.

The Company records product sales net of any variable consideration, which includes estimated chargebacks, commercial rebates, discounts and allowances and doubtful accounts. The Company utilizes the expected value method to estimate all elements of variable consideration included in the transaction price. The variable consideration is recorded as a reduction of revenue at the time revenues are recognized. The Company will only recognize revenue to the extent that it is probable that a significant revenue reversal will not occur in a future period. These estimates may differ from actual consideration amount received and the Company will re-assess these estimates each reporting period to reflect known changes in factors.

Royalty Revenue   —  For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (a) when the related sales occur, or (b) when the performance obligation to which some or all the royalty has been allocated has been satisfied (or partially satisfied).

Licensing and Contract Revenue   —  The Company has arrangements with commercial partners that allow for the purchase of product from the Company by the commercial partners for purposes of sub-distribution. The Company recognizes revenue from an arrangement when control of such product is transferred to the commercial partner, which is typically upon delivery. In these situations, the performance obligation is satisfied when product is delivered to the Company's commercial partner. Licensing revenue is recognized in the period in which the product subject to the sublicensing arrangement is sold by the Company to its commercial partner. Sales deductions, such as returns on product sales, government program rebates, price adjustments, and prompt pay discounts in regard to licensing revenue is generally the responsibility of the Company's commercial partners and not recorded by the Company.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

Freight   —  The Company records amounts billed to customers for shipping and handling as revenue, and records shipping and handling expenses related to product sales as cost of goods sold. The Company accounts for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated products. When shipping and handling costs are incurred after a customer obtains control of the products, the Company also has elected to account for these as costs to fulfill the promise and not as a separate performance obligation.

Chargebacks   —  The Company enters into contractual agreements with certain third parties such as retailers, hospitals, and group-purchasing organizations ("GPOs") to sell certain products at predetermined prices. Similarly, the Company maintains an allowance for rebates and discounts related to chargebacks, wholesaler fees for service contracts, GPO administrative fees, government programs, prompt payment and other adjustments with certain customers. Most of the parties have elected to have these contracts administered through wholesalers that buy the product from the Company and subsequently sell it to these third parties. As noted elsewhere, these wholesalers represent a significant percentage of the Company's gross sales. When a wholesaler sells products to one of these third parties that are subject to a contractual price agreement, the difference between the price paid to the Company by the wholesaler and the price under the specific contract is charged back to the Company by the wholesaler. Utilizing this information, the Company estimates a chargeback percentage for each product and records an allowance as a reduction to gross sales when the Company records its sale of the products. The Company reduces the chargeback allowance when a chargeback request from a wholesaler is processed. The Company's provision for chargebacks is fully reserved for at the time when sales revenues are recognized.

The Company obtains product inventory reports from major wholesalers to aid in analyzing the reasonableness of the chargeback allowance and to monitor whether wholesaler inventory levels do not significantly exceed customer demand. The Company assesses the reasonableness of its chargeback allowance by applying a product chargeback percentage that is based on a combination of historical activity and current price and mix expectations to the quantities of inventory on hand at the wholesalers according to wholesaler inventory reports. In addition, the Company estimates the percentage of gross sales that were generated through direct and indirect sales channels and the percentage of contract vs. non-contract revenue in the period, as these each affect the estimated reserve calculation. In accordance with its accounting policy, the Company estimates the percentage amount of wholesaler inventory that will ultimately be sold to third parties that are subject to contractual price agreements based on a trend of such sales through wholesalers. The Company uses this percentage estimate until historical trends indicate that a revision should be made. On an ongoing basis, the Company evaluates its actual chargeback rate experience, and new trends are factored into its estimates each quarter as market conditions change.

The Company ensures that chargebacks are reasonable through review of contractual obligations, historical trends and evaluation of recent activity. Furthermore, other events that could materially alter chargebacks include: changes in product pricing as a result of competitive market dynamics or negotiations with customers, changes in demand for specific products due to external factors such as competitor supply position or consumer preferences, customer shifts in buying patterns from direct to indirect through wholesalers, which could either individually or in aggregate increase or decrease the chargebacks depending on the direction and trend of the change(s).

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

Commercial Rebates   —  The Company maintains an allowance for commercial rebates that it has in place with certain customers. Commercial rebates vary by product and by volume purchased by each eligible customer. The Company tracks sales by product number for each eligible customer and then applies the applicable commercial rebate percentage, using both historical trends and actual experience to estimate its commercial rebates. The Company reduces gross sales and increases the commercial rebates allowance by the estimated commercial rebates when the Company sells its products to eligible customers. The Company reduces the commercial rebate allowance when it processes a customer request for a rebate. At each month end, the Company analyzes the allowance for commercial rebates against actual rebates processed and makes necessary adjustments as appropriate. The Company's provision for commercial rebates is fully reserved for at the time when sales revenues are recognized.

The allowance for commercial rebates takes into consideration price adjustments which are credits issued to reflect increases or decreases in the invoice or contract prices of the Company's products. In the case of a price decrease, a credit is given for products remaining in customer's inventories at the time of the price reduction. Contractual price protection results in a similar credit when the invoice or contract prices of the Company's products increase, effectively allowing customers to purchase products at previous prices for a specified period of time. Amounts recorded for estimated shelf-stock adjustments and price protections are based upon specified terms with direct customers, estimated changes in market prices, and estimates of inventory held by customers. The Company regularly monitors these and other factors and evaluates the reserve as additional information becomes available.

The Company ensures that commercial rebates are reasonable through review of contractual obligations, review of historical trends and evaluation of recent activity. Furthermore, other events that could materially alter commercial rebates include: changes in product pricing as a result of competitive market dynamics or negotiations with customers, changes in demand for specific products due to external factors such as competitor supply position or consumer preferences, customer shifts in buying patterns from direct to indirect through wholesalers, which could either individually or in aggregate increase or decrease the commercial rebates depending on the direction and velocity of the change(s).

Product Returns   —  Certain of the Company's products are sold with the customer having the right to return the product within specified periods. Estimated return accruals are made at the time of sale based upon historical experience. Historical factors such as one-time recall events as well as pending new developments like comparable product approvals or significant pricing movement that may impact the expected level of returns are taken into account monthly to determine the appropriate accrued expense. As part of the evaluation of the liability required, the Company considers actual returns to date that are in process, the expected impact of any product recalls and the amount of wholesaler's inventory to assess the magnitude of unconsumed product that may result in product returns to the Company in the future. The product returns level can be impacted by factors such as overall market demand and market competition and availability for substitute products which can increase or decrease the pull through for sales of the Company's products and ultimately impact the level of product returns. Product returns are fully reserved for at the time when sales revenues are recognized.

The Company ensures that product returns are reasonable through inspection of historical trends and evaluation of recent activity. Furthermore, other events that could materially alter product returns include: acquisitions and integration activities that consolidate dissimilar contract terms and could impact the return

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

rate as typically the Company purchases smaller entities with less contracting power and integrates those product sales to Company contracts; and consumer demand shifts by products, which could either increase or decrease the product returns depending on the product or products specifically demanded and ultimately returned.

Accrual for Promotions and Co-Pay Discount Cards   —  From time to time the Company authorizes various retailers to run in-store promotional sales of its products. The Company accrues an estimate of the dollar amount expected to be owed back to the retailer. Additionally, the Company provides consumer co-pay discount cards, administered through outside agents to provide discounted products when redeemed. Upon release of the cards into the market, the Company records an estimate of the dollar value of co-pay discounts expected to be utilized taking into consideration historical experience.

Government Program Rebates   —  Federal law requires that a pharmaceutical distributor, as a condition of having federal funds being made available to the States for the manufacturer's drugs under Medicaid and Medicare Part B, must enter into a rebate agreement to pay rebates to state Medicaid programs for the distributor's covered outpatient drugs that are dispensed to Medicaid beneficiaries and paid for by a state Medicaid program under a fee-for-service arrangement. The Centers for Medicare and Medicaid Services ("CMS") are responsible for administering the Medicaid rebate agreements between the federal government and pharmaceutical manufacturers. Rebates are also due on the utilization of Medicaid managed care organizations ("MMCOs").

The Company also pays rebates to managed care organizations ("MCOs") for the reimbursement of a portion of the sales price of prescriptions filled that are covered by the respective plans. The liability for Medicaid, Medicare, and other government program rebates is settled in cash and is estimated at the time when sales revenues are recognized based on historical and current rebate redemption and utilization rates contractually submitted by each state's program administrator and assumptions regarding future government program utilization for each product sold; and accordingly recorded as a reduction of product sales.

Basic and Diluted Loss per Unit   —  Basic and diluted net income (loss) per unit is determined by dividing net income (loss) by the weighted average common units outstanding during the period. For all periods presented with a net loss, the units underlying the common unit options have been excluded from the calculation because their effect would be anti-dilutive. Therefore, the weighted average units outstanding used to calculate both basic and diluted loss per unit are the same for periods with a net loss.

The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding as they would be anti-dilutive at June 30, 2017:


 
  Six Months Ended
June 30,
 
 
  2018   2017  

Unit options to purchase units

    70,400     71,800  

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

Fair Value of Financial Instrument s  —  The Company's financial instruments include cash and cash equivalents, accounts receivable, accounts payable and short and long-term debt. The fair values of cash and cash equivalents, accounts receivable and accounts payable approximate book value because of the short maturity of these financial instruments. The estimated fair value of the borrowing under the term loan was approximately equal to its book value based on the borrowing rates currently available for variable rate loans (Level 2 of the fair value hierarchy).

The valuation hierarchy is composed of three levels. The classification within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The levels within the valuation hierarchy are described below:

    Level 1 — Assets and liabilities with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities.

    Level 2 — Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.

    Level 3 — Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities.

Segment Reporting   —  The Company operates in one business segment which focuses on developing and commercializing pharmaceutical products that target markets with underserved patient populations. The Company's business offerings have similar economic and other characteristics, including the nature of products, manufacturing and acquiring processes, types of customers, distribution methods and regulatory environment. The chief operating decision maker ("CODM") reviews profit and loss information on a consolidated basis to assess performance and make overall operating decisions. The consolidated financial statements reflect the financial results of the Company's one reportable operating segment. The Company has no significant revenues or tangible assets outside of the United States.

Recently Adopted Accounting Standards

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASC Topic 606, which, along with amendments issued in 2015, 2016 and 2017, supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition (ASC Topic 605), including most industry-specific revenue recognition guidance throughout the Industry Topics of the Accounting Standards Codification. ASC Topic 606 provides a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer in an amount that reflects the consideration it expects to receive in exchange for those goods or services. On January 1, 2018, the Company adopted the new revenue recognition standard for all contracts not completed as of the adoption date using the modified retrospective method. The implementation of the new revenue recognition standard did not have a material impact on the Company's consolidated financial statements. The information presented for the periods prior to January 1, 2018 has not been restated and is reported under ASC Topic 605.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities . The accounting standard

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, it includes a clarification related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The accounting guidance is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2017. The Company adopted ASU 2016-01 as of January 1, 2018, and there was no material impact on the Company's condensed consolidated financial statements resulting from the adoption of this guidance.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments . ASU 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments for debt prepayment or extinguishment costs, the maturing of a zero-coupon bond, the settlement of contingent liabilities arising from a business combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial interests obtained in a financial asset securitization. ASU 2016-15 designates the appropriate cash flow classification, including requirements to allocate certain components of these cash receipts and payments among operating, investing and financing activities. The Company adopted this standard on January 1, 2018 and adoption did not have a material impact on the consolidated financial statements.

Recent Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"), which is effective for annual reporting periods beginning after December 15, 2019 and early adoption is permitted. Under ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: 1) a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis, and 2) a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. 2016-02 must be adopted on a modified retrospective transition basis for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements. The Company is currently evaluating the impact of the new accounting standard.

In October of 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. ASU 2016-16 requires recognition of the current and deferred income tax effects of an intra-entity asset transfer, other than inventory, when the transfer occurs, as opposed to current GAAP, which requires companies to defer the income tax effects of intra-entity asset transfers until the asset has been sold to an outside party. The income tax effects of intra-entity inventory transfers will continue to be deferred until the inventory is sold. ASU 2016-16 is effective for annual periods beginning after December 15, 2018, with early adoption permitted. The standard is required to be adopted on a modified retrospective basis with a cumulative-effect adjustment recorded to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact of the new accounting standard.

In February 2018, the FASB issued ASU 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220)  — Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This standard allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act and requires certain disclosures about stranded tax effects. This standard will be effective for the Company for annual periods beginning after

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

December 15, 2018 and should be applied either in the period of adoption or retrospectively. Early adoption is permitted. The Company is currently evaluating the impact of the new accounting standard.

In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740) — Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (ASU 2018-05). This standard amends Accounting Standards Codification 740, Income Taxes (ASC 740) to provide guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the Tax Act) pursuant to Staff Accounting Bulletin No. 118, which allows companies to complete the accounting under ASC 740 within a one-year measurement period from the Tax Act enactment date. This standard is effective upon issuance. The Company is currently evaluating the impact of the new accounting standard.

Note 3. Revenues

The Company's performance obligations are to provide its pharmaceutical products based upon purchase orders from distributors. The performance obligation is satisfied at a point in time, typically upon delivery, when the customer obtains control of the pharmaceutical product. The Company invoices its customers after the products have been delivered and invoice payments are generally due within 60 days of invoice date.

The following table disaggregates revenue from contracts with customers by pharmaceutical products:


 
  Six Months Ended June 30,  
Pharmaceutical Product
  2018   2017  

Venlafaxine ER

  $ 34,484,004   $ 61,643,944  

Methylphenidate ER

    67,325,502      

Lorzone

    8,211,922     10,932,742  

Divigel

    9,932,868     8,699,971  

OB Complete

    5,100,697     5,405,691  

Other

    5,764,855     21,542,892  

Net product sales

    130,819,848     108,225,240  

Royalty revenue

    752,281     6,206,963  

License and contract revenue

    87,625     1,243,368  

Total revenues

  $ 131,659,754   $ 115,675,571  

When the Company receives consideration from a customer, or such consideration is unconditionally due from a customer prior to the transfer of products to the customer under the terms of a contract, the Company records a contract liability. The Company classifies contract liabilities as deferred revenue. The Company had no deferred revenue as of June 30, 2018. Upon adoption of ASC Topic 606, the Company did not have any contract assets or liabilities. The Company has elected to apply the exemption under paragraph 606-10-50-14(a) related to remaining performance obligations as all open purchase orders are expected to be satisfied with a period of one year from the date of the purchase order.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 3. Revenues (Continued)

Contract assets primarily relate to rights to consideration for goods or services transferred to the customer when the right is conditional on something other than the passage of time. Contract assets are transferred to accounts receivable when the rights become unconditional. The Company had no contract assets as of June 30, 2018. The Company has no costs to obtain or fulfill contracts meeting the capitalization criteria under ASC Topic 340, Other Assets and Deferred Costs.

Note 4. Accounts Receivable, Sales and Allowances

The nature of the Company's business inherently involves, in the ordinary course, significant amounts and substantial volumes of transactions and estimates relating to allowances for product returns, chargebacks, rebates, doubtful accounts and discounts given to customers. This is typical of the pharmaceutical industry and not necessarily specific to the Company. Depending on the product, the end-user customer, the specific terms of national supply contracts and the particular arrangements with the Company's wholesale customers, certain rebates, chargebacks and other credits are deducted from the Company's accounts receivable. The process of claiming these deductions depends on wholesalers reporting to the Company the amount of deductions that were earned under the terms of the respective agreement with the end-user customer (which in turn depends on the specific end-user customer, each having its own pricing arrangement, which entitles it to a particular deduction). This process can lead to partial payments against outstanding invoices as the wholesalers take the claimed deductions at the time of payment.

Accounts receivable result primarily from sales of pharmaceutical products, amounts due under revenue sharing, license and royalty arrangements, which inherently involves, in the ordinary course of business, estimates relating to allowances for product returns, chargebacks, rebates, doubtful accounts and discounts given to customers. Credit is extended based on the customer's financial condition, and, generally, collateral is not required. The Company ages its accounts receivable using the corresponding sale date of the transaction and considers accounts past due based on terms agreed upon in the transaction, which is generally 30 to 60 days for branded and generic sales, depending on the customer and the products purchased.

With the exception of the provision for doubtful accounts, which is reflected as part of selling, general and administrative expense, the provisions for the following customer reserves are reflected as a reduction of revenues in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 4. Accounts Receivable, Sales and Allowances (Continued)

Trade accounts receivable, net consists of the following:


 
  June 30,
2018
  December 31,
2017
 

Gross trade accounts receivable

             

Trade accounts receivable

  $ 114,885,880   $ 110,592,198  

Royalty accounts receivable

    3,415,614     4,002,272  

Other receivable

        184,808  

Less reserves for:

             

Chargebacks

    (27,552,116 )   (32,342,377 )

Commercial rebates

    (25,031,163 )   (39,233,419 )

Discounts and allowances

    (3,157,691 )   (3,484,587 )

Doubtful accounts

    (1,592,742 )   (2,080,938 )

Total trade accounts receivable, net

  $ 60,967,782   $ 37,637,957  

The Company recorded the following adjustments to gross product sales:


 
  Six Month Ended June 30,  
 
  2018   2017  

Gross product sales

  $ 462,651,386   $ 264,293,957  

Less provisions for:

             

Chargebacks

    (173,425,722 )   (88,899,206 )

Government rebates

    (10,342,866 )   (11,425,821 )

Commercial rebates

    (123,388,006 )   (36,704,178 )

Product returns

    (11,561,103 )   (9,813,385 )

Discounts and allowances

    (10,441,944 )   (6,639,475 )

Advertising and promotions

    (2,671,897 )   (2,586,652 )

Net product sales

  $ 130,819,848   $ 108,225,240  

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 4. Accounts Receivable, Sales and Allowances (Continued)

The activity in the Company's allowance for customer deductions against trade accounts receivable is as follows:


 
  Chargebacks   Commercial
Rebates
  Discounts
and
Allowances
  Doubtful
Accounts
  Total  

Balance at December 31, 2017

  $ 32,342,377   $ 39,233,419   $ 3,484,587   $ 2,080,938   $ 77,141,321  

Provision

    173,425,722     123,388,006     10,441,944     (239,604 )   307,016,068  

Charges processed

    (178,215,983 )   (137,590,262 )   (10,768,840 )   (248,592 )   (326,823,677 )

Balance at June 30, 2018

  $ 27,552,116   $ 25,031,163   $ 3,157,691   $ 1,592,742   $ 57,333,712  

The activity in the Company's accrued liabilities for customer deductions by account is as follows:


 
  Product
Returns
  Government
Rebates
  Total  

Balance at December 31, 2017

  $ 43,299,324   $ 14,151,714   $ 57,451,038  

Provision

    11,561,103     10,342,866     21,903,969  

Charges processed

    (9,420,719 )   (14,346,864 )   (23,767,583 )

Balance at June 30, 2018

  $ 45,439,708   $ 10,147,716   $ 55,587,424  

Provisions and utilizations of provisions activity in the current period which relate to the prior period revenues are not provided because to do so would be impracticable. The current systems and processes of the Company do not capture the chargeback and rebate settlements by the period in which the original sales transaction was recorded. The Company uses a combination of factors and applications to estimate the dollar amount of reserves for chargebacks and rebates at each month end. Variable consideration is included in the transaction price only to the extent a significant reversal in the amount of cumulative revenue recognized is not probable of occurring when the uncertainty associated with the variable consideration is subsequently resolved. The Company regularly monitors the reserves based on an analysis of the Company's product sales and most recent claims, wholesaler inventory, current pricing, and anticipated future pricing changes. If amounts are different from the estimate due to changes from estimated rates, accrual rate adjustments are considered prospectively when determining provisions in accordance with authoritative GAAP.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 5. Inventories

The components of inventories, net of allowances, are as follows:


 
  June 30,
2018
  December 31,
2017
 

Finished goods

  $ 14,685,325   $ 10,467,243  

Work in process

    3,100,430     789,413  

Raw materials and supplies

    8,239,923     5,690,214  

  $ 26,025,678   $ 16,946,870  

The Company maintains an allowance for excess and obsolete inventory, as well as inventory where its cost is in excess of its net realizable value. The activity in the allowance for excess, obsolete, and net realizable value inventory account was as follows:


 
  Six Months
Ended June 30,
2018
 

Balance at beginning of period

  $ 3,066,620  

Provision

    1,906,209  

Charges processed

    (1,730,261 )

Balance at end of period

  $ 3,242,568  

Note 6. Goodwill and Other Intangible Assets

The Company tests goodwill and indefinite-lived intangible assets for impairment annually on October 1 st , or more frequently whenever events or changes in circumstances indicate that the asset might be impaired. There were no events or changes in circumstances since October 1, 2017 for the Company to test for impairment of goodwill. The carrying value of goodwill was $152,815,716 as of June 30, 2018 and December 31, 2017.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 6. Goodwill and Other Intangible Assets (Continued)

The following table sets forth the major categories of the Company's intangible assets and the weighted-average remaining amortization period for those assets that are not already fully amortized:


June 30, 2018
 
  Gross
Carrying
Amount
  Accumulated
Amortization
  Reclassifications   Impairment   Net
Carrying
Amount
  Weighted
Average
Remaining
Amortization
Period
(Years)

Distribution Rights

  $ 98,433,377   $ (13,595,098 ) $   $   $ 84,838,279   12.5

Product Rights

    326,530,149     (79,505,983 )           247,024,166   4.5

Tradenames

    13,485,000     (1,976,326 )           11,508,674   16.6

Developed Technology

    138,133,333     (26,090,547 )           112,042,786   12.6

IPR&D

    91,300,000                 91,300,000   Indefinite Lived

  $ 667,881,859   $ (121,167,954 ) $   $   $ 546,713,905    



December 31, 2017
 
  Gross
Carrying
Amount
(restated)
  Accumulated
Amortization
  Reclassifications
(restated)
  Impairment   Net
Carrying
Amount
(restated)
  Weighted
Average
Remaining
Amortization
Period (Years)

Distribution Rights

  $ 98,433,377   $ (9,890,282 ) $   $   $ 88,543,095   13.0

Product Rights

    69,558,325     (49,902,094 )   264,100,000     (7,128,176 )   276,628,055   5.4

Tradenames

    13,485,000     (1,623,368 )             11,861,632   17.1

Developed Technology

    146,900,000     (21,077,405 )       (8,766,667 )   117,055,928   13.1

IPR&D

    412,025,436         (264,100,000 )   (56,625,436 )   91,300,000   Indefinite Lived

  $ 740,402,138   $ (82,493,149 ) $   $ (72,520,279 ) $ 585,388,710    

The gross carrying amount and accumulated amortization in the table above is inclusive of $3,786,772 of accumulated amortization for assets that have been fully impaired in 2017.

Changes in the net carrying amount of intangible assets were as follows:


 
  Distribution
Rights
  Product
Rights
  Tradenames   Developed
Technology
  IPR&D   Total  

December 31, 2017

  $ 88,543,095   $ 276,628,055   $ 11,861,632   $ 117,055,928   $ 91,300,000   $ 585,388,710  

Amortization

    (3,704,816 )   (29,603,889 )   (352,958 )   (5,013,142 )       (38,674,805 )

June 30, 2018

  $ 84,838,279   $ 247,024,166   $ 11,508,674   $ 112,042,786   $ 91,300,000   $ 546,713,905  

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 6. Goodwill and Other Intangible Assets (Continued)

As part of the Company's goodwill and intangible asset impairment assessments and when IPR&D assets are put into service, the Company estimates the fair values of the reporting unit and intangible assets using an income approach that utilizes a discounted cash flow model, or, where appropriate, a market approach. The discounted cash flow models are dependent upon Company's estimates of future cash flows and other factors. These estimates of future cash flows involve assumptions concerning (i) future operating performance, including future sales, long-term growth rates, operating margins, variations in the amounts, allocation and timing of cash flows and the probability of achieving the estimated cash flows and (ii) future economic conditions. These assumptions are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value hierarchy. The discount rates applied to the estimated cash flows for the Company's October 1, 2017 annual goodwill and indefinite-lived intangible assets impairment test ranged from 9.0% to 8.5%, respectively, depending on the overall risk associated with the particular assets and other market factors. The Company believes the discount rates and other inputs and assumptions are consistent with those that a market participant would use. Any impairment charges resulting from annual or interim goodwill and intangible asset impairment assessments are recorded to Impairment of intangible assets in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

The Company recorded impairment changes in intangibles and fixed assets related to delays in the clinical development of Ontinua ER and Generic Product "A" in the amount of $0 and $41,700,000 for the six months ended June 30, 2018 and 2017, respectively.

Amortization expense of $38,474,805 and $13,812,537 for the six months ended June 30, 2018 and 2017, respectively, was recorded as cost of goods sold. Amortization expense of $200,000 related to the intangibles assets was recorded as research and development expense for the six months ended June 30, 2018 and 2017. The amortization expense of acquired intangible assets for each of the following five years are expected to be as follows:


Years ending December 31,
  Amortization
Expense
 

Remainder of 2018

  $ 38,551,147  

2019

    76,168,534  

2020

    75,788,435  

2021

    75,367,453  

2022

    60,137,681  

Thereafter

    129,400,655  

  $ 455,413,905  

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 7. Accrued Liabilities

Accrued liabilities consist of the following:


 
  June 30,
2018
  December 31,
2017
 

Accrued product returns

  $ 45,439,708   $ 43,299,324  

Accrued royalties

    7,954,975     12,325,232  

Accrued compensation

    5,596,723     6,342,731  

Accrued government rebates

    10,147,716     14,151,714  

Accrued expenses and other liabilities

    3,383,247     5,153,356  

Customer coupons

    881,046     425,911  

Deferred revenue

    76,042     228,122  

  $ 73,479,457   $ 81,926,390  

In the ordinary course of business, the Company enters into contractual agreements with wholesalers pursuant to which the wholesalers distribute sales of Company products to customers and provide sales data to the Company. In return the wholesalers charge the Company a fee for services and other customary rebates and chargebacks based on distribution sales of Company products through the wholesalers and downstream customers.

Note 8. Financing Arrangements

The composition of the Company's debt and financing obligations is as follows:


 
  June 30,
2018
  December 31,
2017
 

CIT Bank, N.A. Term Loan, net of deferred financing costs of $6,149,564 and $6,894,816 as of June 30, 2018 and December 31, 2017, respectively

  $ 317,257,058   $ 320,605,185  

Note payable — insurance financing

    779,739      

    318,036,797     320,605,185  

Less current portion

    (6,723,757 )   (6,655,604 )

Long-term debt

  $ 311,313,040   $ 313,949,581  

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 8. Financing Arrangements (Continued)

Term Loan

As of June 30, 2018, the interest rate was 5.84% for Term A Loan and 6.34% for Term B Loan, respectively. As of December 31, 2017, the interest rate was 5.25% for Term A Loan and 5.75% for Term B Loan, respectively. The Company was in compliance with all covenants of the Term Loan Agreement as of June 30, 2018.

Note 9. Concentrations and Credit Risk

In the six months ended June 30, 2018 and 2017, a significant portion of the Company's gross product sales reported were through three customers, and a significant portion of the Company's accounts receivable as of June 30, 2018 and December 31, 2017 were due from these customers as well. The following table sets forth the percentage of the Company's gross sales and accounts receivable attributable to these customers for the periods indicated:


 
  Gross Product
Sales
 
 
  Six Months
Ended
June 30,
 
 
  2018   2017  

Amerisource Bergen

    7 %   43 %

Cardinal Health

    55 %   14 %

McKesson

    34 %   30 %

Combined Total

    96 %   87 %


 
  Gross Account
Receivables
 
 
  June 30,
2018
  December 31,
2017
 

Amerisource Bergen

    5 %   7 %

McKesson

    27 %   29 %

Cardinal

    63 %   57 %

Combined Total

    95 %   93 %

Purchasing

One supplier accounted for more than 90% of the Company's purchases of raw materials manufactured by the Company for the six months ended June 30, 2018. Four suppliers accounted for approximately 94% of the Company's purchases of raw materials manufactured by the Company for the six months ended June 30, 2017.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 9. Concentrations and Credit Risk (Continued)

The Company purchases various API of finished products at contractual minimum levels through agreements with third parties. Individually, none of these agreements are material to the Company, therefore, the Company does not believe at this time that any of the purchase obligations represent levels above the normal course of business.

Note 10.  Incentive Plans

Share-based Compensation — Osmotica Holdings S.C.Sp. 2016 Equity Incentive Plan

Option Awards

The table below summarizes the Time and Performance Award activities for the six months ended June 30, 2018:


 
  Number of Units   Weighted
Average
Exercise
Price
  Weighted
Average
Contractual
Term
 
  Time   Performance   Total

Outstanding at December 31, 2017

    36,100     36,100     72,200   $   8.3 years

Granted

              $    

Exercised

                   

Expired / Forfeited

    (900 )   (900 )   (1,800 )   640    

Outstanding at June 30, 2018

    35,200     35,200     70,400   $   8.0 years

Vested Options at June 30, 2018

    15,696         15,696   $ 641    

Note 11. Commitments and Contingencies

Operating Leases

The Company leases its New Jersey office and warehouse facilities under non-cancelable leases that expire in August 2022 and December 2023, respectively. The Company also leases office and warehouse facilities in Tampa, Florida, under non-cancelable leases that expire in October 2018. The Company also leases its Argentina office and warehouse facilities which originally expired in December 31, 2014, but the contract was amended to extend to December 31, 2020. The Company also leases its Hungary office and warehouse facilities which expired on February 15, 2017 and automatically renewed for a two-year term. The lease will continue to renew for successive two-year periods unless either party elects not to renew. The Company also leases its North Carolina office and warehouse facilities that expires on July 31, 2019. On May 23, 2018, the Company terminated one of the office and warehouse facilities lease in Tampa, Florida effective June 30, 2018.

Total rent expense charged to selling, general and administrative expenses was $302,906 and $264,132 for the six months ended June 30, 2018 and 2017, respectively. Total rent expense charged to research and development was $146,568 and $144,052 for the six months ended June 30, 2018 and 2017,

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OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 11. Commitments and Contingencies (Continued)

respectively. The table below shows the future minimum rental payments, exclusive of taxes, insurance and other costs, under the leases as follows:


Years ending December 31,
  Operating Leases  

Remainder of 2018

  $ 576,580  

2019

    1,038,212  

2020

    1,083,719  

2021

    729,086  

2022

    503,610  

Thereafter

    185,836  

  $ 4,117,044  

Capital Leases

Amortization of assets held under the capital lease is included in depreciation expense as a component of selling, general and administrative expenses. The Company has future minimum lease payments required under the capital lease together with its present value of the net minimum lease payments of $299,096 for the remainder of the year ended December 31, 2018 through December 31, 2021.

Contingent Milestone Payments

The Company has entered into strategic business agreements for the development and marketing of finished dosage form pharmaceutical products with various pharmaceutical development companies. Each strategic business agreement includes a future payment schedule for contingent milestone payments and in certain strategic business agreements, minimum royalty payments. The Company will be responsible for contingent milestone payments and minimum royalty payments to these strategic business partners based upon the occurrence of future events. Each strategic business agreement defines the triggering event of its future payment schedule, such as meeting product development progress timelines, successful product testing and validation, successful clinical studies, and various U.S. Food and Drug Administration and other regulatory approvals.

The following table lists the Company's enforceable and legally binding royalty obligations as of June 30, 2018:


 
  Royalty Obligations  

Less than 1 year

  $ 687,500  

1 to 3 years

    2,562,500  

3 to 5 years

    2,000,000  

More than 5 years

    4,083,333  

  $ 9,333,333  

The Company is engaged in various supply agreements with third parties which obligate the Company to purchase various API or finished products at contractual minimum levels. None of these agreements are

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OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 11. Commitments and Contingencies (Continued)

individually or in the aggregate material to the Company. Further, the Company does not believe at this time that any of the purchase obligations represent levels above that of normal business demands

The following table lists the Company's enforceable and legally binding purchase obligations as of June 30, 2018:


 
  Purchase Obligations  

Less than 1 year

  $ 4,000,000  

1 to 3 years

    8,000,000  

3 to 5 years

    4,000,000  

  $ 16,000,000  

Legal Proceedings

The Company is a party in legal proceedings and potential claims arising from time to time in the ordinary course of its business. The amount, if any, of ultimate liability with respect to such matters cannot be determined. Despite the inherent uncertainties of litigation, management of the Company believes that the ultimate disposition of such proceedings and exposures will not have a material adverse impact on the financial condition, results of operations, or cash flows of the Company.

Osmotica was a party to patent infringement litigation in the U.S. District Court for the Northern District of Georgia with Shire Development, LLC ("Shire") over the Company's proposed delayed-release mesalamine ANDA product which is a generic version of Shire's LIALDA®. ( Shire Development LLC et al. v. Osmotic Pharmaceutical Corp. , No. 1-12-cv-00904 (N.D. Georgia, filed March 16, 2012)). The litigation over the mesalamine product was limited to one (1) patent, U.S. Patent No. 6,773,720 (the "720 Patent"), which is directed to a particular controlled-release formulation. Absent invalidation by a generic challenger, the '720 Patent will expire on June 8, 2020.

On March 29, 2017, Osmotica sent a notice to the FDA requesting that their ANDA be withdrawn, and on March 31, 2017, Osmotica received confirmation from FDA that the ANDA was withdrawn. On May 5, 2017, Osmotica was dismissed from the litigation, as such no loss or accrual was deemed necessary.

In February 2017, a former employee of the Company filed with the Equal Employment Opportunity Commission ("EEOC") a Charge of Discrimination based on disability and sexual orientation. While the Charge of Discrimination was pending at the EEOC, the employee declared bankruptcy. In November 2017, the EEOC issued a determination of no probable cause following the filing of the Company's position statement without further investigation. This started a period of 90 days during which the former employee could bring a law suit in Federal Court to pursue the claim. On February 16, 2018, the Chapter 7 Trustee for the employee filed a lawsuit in the Federal District Court for the Northern District of Georgia alleging gender and disability discrimination and retaliation, seeking reinstatement of the employee, back pay and unspecified damages ( Chapter 7 Trustee vs. Osmotica Pharmaceutical US LLC ). On June 22, 2018, the Company and counsel for the Chapter 7 Trustee agreed to settle the matter for an immaterial amount subject to approval of the Bankruptcy Court.

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OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 11. Commitments and Contingencies (Continued)

On February 16, 2018, the Company received FDA approval for its amantadine extended release tablets under the trade name OSMOLEX ER. On that same date the Company filed in the Federal District Court for the District of Delaware a Complaint for Declaratory Judgment of Noninfringement of certain patents owned by Adamas Pharmaceuticals, Inc. (Osmotica Pharmaceutical US LLC and Vertical Pharmaceuticals, LLC vs. Adamas Pharmaceuticals, Inc. and Adamas Pharma, LLC). Adamas was served with the Complaint on February 21, 2018. Adamas filed and an answer on April 13, 2018 denying the allegations in the Complaint and reserving the ability to raise counterclaims as the litigation progresses.

On April 30, 2018, Vertical Pharmaceuticals, LLC was served with a Complaint in an action entitled State of Arkansas, ex rel, Scott Ellington, et al., v. Purdue Pharma, L.P., et al Crittenden County Circuit Court, No. CV-2018-268. The State of Arkansas brought suit against numerous manufacturers and distributors of opioid products alleging that defendants were negligent and created a public nuisance by shipping opioid products into Arkansas without proper controls and alleging violations of the Arkansas Uniform Narcotic Drug Act, Arkansas Controlled Substances Act, and the Arkansas Drug Dealer Liability Act. On July 17, 2018, the Court entered an Order dismissing Vertical from the lawsuit without prejudice.

Note 12. Income Taxes

During the six months ended June 30, 2018, the Company recognized income tax expense of $0.5 million on $1.9 million of income before income tax, compared to $4.7 million of income tax benefit on $34.8 million of loss before income tax during the comparable 2017 period.

The income tax (expense) benefit for the six months ending June 30, 2018 and for the same period in 2017 reflect significant differences in the usual relationship of income tax expense (benefit) to the income (loss) before income taxes. The primary cause of this, as well as the change in the effective income tax rate period over period, relates to the following items: the decrease in the U.S. statutory income tax rate to 21% from 34% for the six months ended June 30, 2018 and for the same period in 2017, respectively; a disproportionate change in the income tax rate for the six months ended June 30, 2018 as a result of credits from research and development when compared to the income (loss) before income taxes; and the fact that in both periods there are ordinary losses in certain foreign tax jurisdictions that the Company operates in where no tax benefit is expected to be recognized, which subsequently requires that these jurisdictions not be included in the calculation of the interim annual effective income tax rate. In addition, during the six months ended June 30, 2018 there was a discrete item of expense included in the income tax provision related to a decrease in the Argentinian statutory rate as a result of a law change. Also, for periods with income before the income tax provision favorable tax items result in a decrease in the effective income tax rate while unfavorable tax items result in an increase in the effective income tax rate. For periods with a loss before the income tax provision favorable tax items result in an increase in the effective income tax rate while unfavorable tax items result in a decrease in the effective income tax rate.

The Company assesses the realizability of the deferred tax assets at each balance sheet date based on actual and forecasted operating results in order to determine the proper amount, if any, required for a valuation allowance. As of June 30, 2018, and June 30, 2017, the Company maintains valuation allowances on deferred tax assets applicable to entities in foreign jurisdictions for which separate income tax returns are filed, where realization of the related deferred tax assets from future profitable operations is not reasonably assured.

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OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 12. Income Taxes (Continued)

The Company provides reserves for potential payments of income tax to various tax authorities or does not recognize income tax benefits related to uncertain tax positions and other issues. Tax benefits for uncertain tax positions are based on a determination of whether a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized, assuming that the matter in question will be decided based on its technical merits. The Company's policy is to record interest and penalties in the provision for income taxes.

The Company sells its products in various jurisdictions and is subject to federal, foreign, state and local taxes. While the Company believes that it has properly paid or accrued for all such taxes based on its interpretation of applicable law, tax laws are complex, and interpretations differ. As a result, on February 26, 2018, the Company filed requests to enter into Voluntary Disclosure Agreements with the States of New Jersey and Georgia related to prior and current period sales and use taxes. The ultimate liability of the Company in respect to such taxes cannot be estimated with any certainty at this time. As of this report, the outcome of these requests is not expected to be material to the Company.

For the six months ended June 30, 2018, the Company has not recorded any measurement period adjustments to the provisional estimates recorded as of December 31, 2017 in accordance with the SEC's Staff Accounting Bulletin No. 118, or SAB 118. The Company will continue to analyze the impact of the U.S. Tax Cuts and Jobs Act under SAB 118 and will record adjustments to provisional amounts as such analyses are refined.

Note 13. Related Parties

As of June 30, 2018, and December 31, 2017, the Company had a $250,000 accrued liability which comprised of quarterly advisory and monitoring fees payable to shareholders. Further, the Company leases its Argentina office and warehouse space facilities through a related party lease. The term of the operating lease is through December 31, 2020. For the six months ended June 30, 2018 and 2017, the Company incurred rent expense under this lease of $157,678 and $171,489.

In 2016 the Company entered into a two-year consulting agreement with two Vertical/Trigen shareholders. The term of the agreement requires a compensation rate of $20,833 per month and is a component of the selling, general and administrative expenses. This agreement terminated in January 2018.

Note 14. Subsequent Events

On August 2, 2018 the board of managers of the Company adopted an amendment to the Osmotica Pharmaceuticals S.C.Sp. 2016 Equity Incentive Plan which will be effective upon an initial public offering (the "IPO") of ordinary shares of Osmotica Pharmaceuticals plc. The Time Award and Performance Awards will be converted to options to purchase ordinary shares on the same basis as common units of Osmotica Pharmaceuticals S.C.Sp. will be converted to ordinary shares of Osmotica Pharmaceuticals plc with corresponding adjustments to the exercise price of the options following a series of restructuring transactions occurring immediately prior to the IPO. In connection with the conversion, the Time Awards will continue to vest as described in Note 10, and the Performance Awards will be converted into options that vest based solely on the passage of time, with the Performance Awards vesting in equal annual installments on each of the first four anniversaries of the IPO.

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OSMOTICA HOLDINGS S.C.Sp. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 14. Subsequent Events (Continued)

On August 2, 2018 the board of managers of the Company adopted the Osmotica Pharmaceuticals plc 2018 Incentive Plan which is effective upon the IPO of Osmotica Pharmaceuticals plc and will provide for the issuance of up to 4,100,000 ordinary shares. The amount of ordinary shares will be determined immediately prior to the IPO and the terms of awards under the plan will be determined by the plan Administrator.

Immediately prior to the IPO and prior to the commencement of trading of the ordinary shares of Osmotica Pharmaceuticals plc on the Nasdaq Global Market, the Company will undertake a series of restructuring transactions that will result in Osmotica Pharmaceuticals plc, which entity was acquired by the Company on April 30, 2018 for the purpose of facilitating an offering of ordinary shares in the future, being the direct parent of Osmotica Holdings S.C.Sp., with each holder of common units of Osmotica Holdings S.C.Sp. receiving approximately 42.84 ordinary shares of Osmotica Pharmaceuticals plc in exchange for each such common unit. In addition, each holder of an option to purchase common units of Osmotica Holdings S.C.Sp. will receive an option to purchase the number of ordinary shares of Osmotica Pharmaceuticals plc determined by multiplying the number of units underlying such option by approximately 42.84 (rounded down to the nearest whole share) and dividing the exercise price per unit for such option by approximately 42.84 (rounded up to the nearest whole cent). This being referred to as the "Reorganization." Until the Reorganization, Osmotica Pharmaceuticals plc will not conduct any operations (other than activities incidental to its formation, the Reorganization and the pursuit of an IPO). Upon the completion of the Reorganization, the historical consolidated financial statements of Osmotica Holdings S.C.Sp. will become the historical financial statements of Osmotica Pharmaceuticals plc.

On August 14, 2018, the Board of Directors of Osmotica Pharmaceuticals plc proposed that the corporate headquarters that is currently located in Luxembourg re-domicile to Ireland and that the Company pursue an IPO. The Osmotica Pharmaceuticals plc Board of Directors also approved, among other things, the form of the Reorganization and the transactions that would be required to effect such Reorganization; the pursuit of an IPO; the use of net proceeds that would be received from an IPO to, among other things, repay certain amounts of the Company's outstanding indebtedness under the Company's senior secured credit facilities and for working capital and other general corporate purposes; and the formation of an IPO Committee and granted the IPO Committee the ability to approve the issuance of shares in an IPO and approve the final terms of an IPO. The Reorganization is anticipated to take place immediately prior to the IPO and prior to the commencement of trading of the ordinary shares on the Nasdaq Global Market. The Company has also applied to list its ordinary shares on the Nasdaq Global Market.

On September 20, 2018, Adamas filed an amended answer to the Company's Complaint for Declaratory Judgment of Noninfringement, with counterclaims alleging infringement of certain patents included in the Company's Complaint and requesting that the court grant Adamas damages, injunctive relief and attorneys' fees.

The Company has evaluated subsequent events through August 22, 2018, the date on which these financial statements were issued and extended this evaluation through October 1, 2018. No significant subsequent events to this date would have had a material impact on the Company's financial statements as of and for the six months ended June 30, 2018 other than described above.

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Report of Independent Registered Public Accounting Firm

Board of Managers
Osmotica Pharmaceuticals Limited (formerly known as Lilydale Limited)
Dublin, Ireland

Opinion on the Financial Statements

We have audited the accompanying balance sheet of Osmotica Pharmaceuticals Limited (formerly known as Lilydale Limited) (the "Company") as of March 31, 2018 and the related statements of changes in equity for the period July 13, 2017 (date of incorporation) through December 31, 2017 and the three months in the period ended March 31, 2018, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at March 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ BDO USA, LLP

We have served as the Company's auditor since 2018.
Woodbridge, New Jersey
May 9, 2018

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OSMOTICA PHARMACEUTICALS LIMITED
(Formerly Known as Lilydale Limited)

BALANCE SHEET

(In USD)

 
  March 31,
2018
 

TOTAL ASSETS

  $  

TOTAL LIABILITIES

   
 

COMMITMENTS AND CONTINGENCIES

   
 
 

EQUITY

   
 
 

Share Capital (Ordinary shares of €1.00 each, 1,000,000 authorized and 100 issued shares)

    114  

Additional paid in capital

     

Receivable from shareholders

    (114 )

TOTAL EQUITY

     

TOTAL EQUITY AND LIABILITIES

  $  

   

See accompanying notes to financial statements

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OSMOTICA PHARMACEUTICALS LIMITED
(Formerly Known as Lilydale Limited)

STATEMENTS OF CHANGES IN EQUITY

(In USD)

 
  Share Capital    
   
   
 
 
  Number
of shares
  Amount   Additional paid
in capital
  Receivable from
shareholders'
  Total
equity
 

Issue of share capital on incorporation — July 13, 2017

    100   $ 114   $   $ (114 ) $  

Result for the period

                       

Other comprehensive income/loss for the period — currency translation

                       

Total comprehensive loss for the period

                       

December 31, 2017

    100   $ 114   $   $ (114 ) $  

Result for the period

                       

Other comprehensive income/loss for the period — currency translation

                       

Total comprehensive loss for the period

                       

March 31, 2018

    100   $ 114   $   $ (114 ) $  

   

See accompanying notes to financial statements

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OSMOTICA PHARMACEUTICALS LIMITED
(Formerly Known as Lilydale Limited)

NOTES TO FINANCIAL STATEMENTS

1. Organization and Nature of Operations

Osmotica Pharmaceuticals Limited ("the Company"), formerly known as Lilydale Limited, was incorporated as a private limited company under the laws of Ireland on July 13, 2017, with an issued share capital of €100, comprised of 100 ordinary shares with a nominal value of €1.00 each. The Company is registered in Ireland under the registration number 607944 and with its registered office located at One Spencer Dock, North Wall Quay, Dublin 1, Ireland.

The Company operates on a fiscal year ending December 31 of each year.

2. Summary of Significant Accounting Policies

Basis of Preparation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. To date, the Company has not been engaged in any business or activities except in connection with its formation and the issuance of the 100 ordinary shares at par value and the Company did not have any outstanding commitments or loss contingencies. Therefore, separate statements of operations and other comprehensive income and of cash flows have not been presented in the accompanying financial statements.

Foreign Currency

Items included in the accompanying financial statements are measured using the currency of the primary economic environment in which the entity operates, or the functional currency. The financial information is presented in U.S. Dollars ("USD"). The US Dollar/Euro exchange rate at July 13, 2017 was $1.14. Items in equity are translated at the historical rate. The effect of foreign currency adjustments was not material to the Company's financial position for any period presented.

Income Taxes

The Company will be treated as an Irish corporation for tax purposes and subject to Irish income tax.

3. Equity

The Company is authorized to issue 1,000,000 ordinary shares with a value of €1.00 each. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are capitalized and upon the closing of the associated equity transaction are reclassified to equity as a deduction, net of tax, from the proceeds.

3. Receivables from Shareholders

This relates to a receivable from the shareholders and comprises €100 which represents the amounts subscribed for the issued shares.

4. Subsequent events

On April 30, 2018, Osmotica Holdings S.C.Sp. acquired Lilydale Limited, an Irish private company with limited liability that had been organized in Ireland on July 13, 2017. Osmotica Holdings S.C.Sp. then renamed such entity Osmotica Pharmaceuticals Limited effective May 1, 2018. The Company was acquired for the purpose of facilitating an offering of ordinary shares in the future. On July 31, 2018 the Company will re-register as a public limited company and renamed Osmotica Pharmaceuticals plc. Immediately prior to an offering, the Company will undertake a series of restructuring transactions that will result in Osmotica

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OSMOTICA PHARMACEUTICALS LIMITED
(Formerly Known as Lilydale Limited)

NOTES TO FINANCIAL STATEMENTS (Continued)

4. Subsequent events (Continued)

Pharmaceuticals plc being the direct parent of Osmotica Holdings S.C.Sp., with all holders of equity interests in Osmotica Holdings S.C.Sp. becoming security holders of Osmotica Pharmaceuticals plc. This being referred to as the "Reorganization." Until the Reorganization, Osmotica Pharmaceuticals plc will not conduct any operations (other than activities incidental to its formation, the Reorganization and an offering). Upon the completion of the Reorganization, the historical consolidated financial statements of Osmotica Holdings S.C.Sp. will become the historical financial statements of Osmotica Pharmaceuticals plc.

The Company has evaluated subsequent events through May 9, 2018, the date on which these financial statements were issued. No significant subsequent events to this date would have had a material impact on the Company's financial statements as of and for the three months ended March 31, 2018 other than described above.

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OSMOTICA PHARMACEUTICALS LIMITED
(Formerly Known as Lilydale Limited)

UNAUDITED CONDENSED BALANCE SHEETS

(In USD)

 
  June 30,
2018
(unaudited)
  March 31,
2018
 

ASSETS

             

Other Assets

  $ 114   $  

TOTAL ASSETS

  $ 114      

TOTAL LIABILITIES

   
   
 

EQUITY

   
 
   
 
 

Share Capital (Ordinary shares of €1.00 each, 1,000,000 authorized and 100 issued shares)

    114     114  

Additional paid in capital

         

Receivable from shareholders

        (114 )

TOTAL EQUITY

  $ 114      

TOTAL EQUITY AND LIABILITIES

  $ 114   $  

   

See accompanying notes to unaudited condensed financial statements

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OSMOTICA PHARMACEUTICALS LIMITED
(Formerly Known as Lilydale Limited)

UNAUDITED CONDENSED STATEMENT OF CHANGES IN EQUITY

(In USD)

 
  Share Capital    
   
   
 
 
  Number
of shares
  Amount   Additional paid
in capital
  Receivable from
shareholders'
  Total
equity
 

December 31, 2017

    100   $ 114   $   $ (114 ) $  

Result for the period

                       

Settlement of subscription receivable

                  114     114  

Other comprehensive income/loss for the period — currency translation

                       

Total comprehensive loss for the period

                       

June 30, 2018

    100   $ 114   $       $ 114  

   

See accompanying notes to unaudited condensed financial statements

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OSMOTICA PHARMACEUTICALS LIMITED
(Formerly Known as Lilydale Limited)

UNAUDITED CONDENSED STATEMENT OF CASH FLOWS

(In USD)

 
  June 30, 2018  

OPERATING ACTIVITIES:

       

Changes in assets and liabilities which used cash:

       

Other Assets

  $ (114 )

Net Cash used in operating activities

  $ (114 )

FINANCING ACTIVITIES:

   
 
 

Settlement of Subscription Receivable

  $ 114  

Net Cash provided by financing activities

       

NET CHANGE IN CASH AND CASH EQUIVALENTS

  $  

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 
$

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

  $  

   

See accompanying notes to unaudited condensed financial statements

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OSMOTICA PHARMACEUTICALS LIMITED
(Formerly Known as Lilydale Limited)

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

1. Organization and Nature of Operations

Osmotica Pharmaceuticals Limited ("the Company"), formerly known as Lilydale Limited, was incorporated as a private limited company under the laws of Ireland on July 13, 2017, with an issued share capital of €100, comprised of 100 ordinary shares with a nominal value of €1.00 each. The Company is registered in Ireland under the registration number 607944 and with its registered office located at One Spencer Dock, North Wall Quay, Dublin 1, Ireland.

On April 30, 2018, Osmotica Holdings S.C.Sp. acquired Lilydale Limited, an Irish private company with limited liability that had been organized in Ireland on July 13, 2017. The total selling price was $13,400 U.S. Dollars ("USD"). Osmotica Holdings S.C.Sp. then renamed such entity Osmotica Pharmaceuticals Limited effective May 1, 2018. On July 31, 2018, Osmotica Pharmaceuticals Limited re-registered under the Irish Companies Act of 2014 as a public limited company and was renamed Osmotica Pharmaceuticals plc. Immediately prior to an offering, the Company will undertake a series of restructuring transactions that will result in Osmotica Pharmaceuticals plc being the direct parent of Osmotica Holdings S.C.Sp., with all holders of equity interests in Osmotica Holdings S.C.Sp. receiving ordinary shares of Osmotica Pharmaceuticals plc. This being referred to as the "Reorganization". Until the Reorganization, Osmotica Pharmaceuticals plc will not conduct any operations (other than activities incidental to its formation, the Reorganization and an offering). Upon the completion of the Reorganization, the historical consolidated financial statements of Osmotica Holdings S.C.Sp. will become the historical financial statements of Osmotica Pharmaceuticals plc.

Osmotica Holdings S.C.Sp. has elected to not apply pushdown accounting to the separate financial statements of the Company pursuant to the guidance in Accounting Standards Codification Topic 805, Business Combinations .

2. Summary of Significant Accounting Policies

Basis of Preparation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. To date, the Company has not been engaged in any business or activities except in connection with its formation and the issuance of the 100 ordinary shares at par value and the Company did not have any outstanding commitments or loss contingencies. Therefore, separate statements of operations and other comprehensive income and of Cash Flows have not been presented in the accompanying financial statements.

Foreign Currency

Items included in the accompanying financial statements are measured using the currency of the primary economic environment in which the entity operates, or the functional currency. The financial information is presented in U.S. Dollars ("USD"). The US Dollar/euro exchange rate at July 13, 2017 was $1.14. Items in equity are translated at the historical rate. The effect of foreign currency adjustments was not material to the Company's financial position for any period presented.

Income Taxes

The Company will be treated as an Irish corporation for tax purposes and subject to Irish Income Tax.

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OSMOTICA PHARMACEUTICALS LIMITED
(Formerly Known as Lilydale Limited)

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

Receivable from Shareholders

The balance as of March 31, 2018 relates to a receivable from the shareholders and comprises €100 which represents the amounts subscribed for the issued shares. This amount was settled at the time of the purchase of the Company by Osmotica Holdings S.C.Sp.

Other Assets

The balance as of June 30, 2018 relates to the settlement of the receivable from the former shareholders. As the Company currently does not have its own bank account, at the time of the purchase of the Company by Osmotica Holdings S.C.Sp., the former shareholders settled the receivable and are holding the $114 in an escrow account on behalf of the Company.

3. Equity

The Company is authorized to issue 1,000,000 ordinary shares with a value of €1.00 each. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are capitalized and upon the closing of the associated equity transaction are reclassified to equity as a deduction, net of tax, from the proceeds.

4. Subsequent events

In anticipation of the Reorganization, on July 26, 2018, Osmotica Holdings S.C.Sp. applied for and requested the allotment of 25,000 EURO deferred shares at €1.00 each in the capital of the Company. The shares to be issued were full paid for an aggregate subscription price of €25,000 satisfied in cash by Osmotica Holdings, S.C.Sp.

On July 31, 2018, Osmotica Pharmaceuticals Limited re-registered under the Irish Companies Act of 2014 as a public limited company and was renamed Osmotica Pharmaceuticals plc.

The Company has evaluated subsequent events through August 22, 2018, the date on which these financial statements were issued. No significant subsequent events to this date would have had a material impact on the Company's financial statements as of and for the six months ended June 30, 2018 other than described above.

F-90


Table of Contents

 

8,300,000 Shares

OSMOTICA PHARMACEUTICALS PLC

Ordinary Shares

LOGO

Jefferies   Barclays   RBC Capital Markets   Wells Fargo Securities

Through and including                             , 2018 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

   



PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.    Other Expenses of Issuance and Distribution.

The following table sets forth the estimated expenses payable by us in connection with the sale and distribution of the securities registered hereby, other than underwriting discounts or commissions. All amounts are estimates except for the SEC registration fee and the Financial Industry Regulatory Authority filing fee.


SEC registration fee

  $ 18,840  

FINRA filing fee

    23,408  

Stock exchange listing fee

    200,000  

Printing and engraving expenses

    150,000  

Legal fees and expenses

    3,156,100  

Accounting fees and expenses

    747,800  

Transfer agent and registrar fees

    160,000  

Miscellaneous fees and expenses

    43,852  

Total

  $ 4,500,000  

Item 14.    Indemnification of Directors and Officers.

To the fullest extent permitted by Irish law, our Articles of Association (which are substantially in the form attached as Exhibit 3.1 to this registration statement) will confer an indemnity on our directors and officers. However, this indemnity is limited by the Irish Companies Act, which prescribes that an advance commitment to indemnify only permits a company to pay the costs or discharge the liability of a director or corporate secretary where judgment is given in favor of the director or corporate secretary in any civil or criminal action in respect of such costs or liability, or where an Irish court grants relief because the director or corporate secretary acted honestly and reasonably and ought fairly to be excused. Any provision whereby an Irish company seeks to commit in advance to indemnify its directors or corporate secretary over and above the limitations imposed by the Irish Companies Act will be void under Irish law, whether contained in its articles of association or any contract between the company and the director or corporate secretary. This restriction does not apply to our executives who are not directors, the corporate secretary or other persons who would be considered "officers" within the meaning of that term under the Irish Companies Act.

Our Articles of Association will also contain indemnification and expense advancement provisions for persons who are not directors or our corporate secretary.

We plan to maintain directors' and officers' liability insurance, as well as other types of insurance, for our directors, officers, employees and agents, which is permitted under our Articles of Association and the Irish Companies Act.

We and certain of our subsidiaries expect to enter into indemnification agreements with our directors and executive officers providing for customary indemnification in connection with their service to us or on our behalf to the maximum extent allowed under applicable law.

Item 15.    Recent Sales of Unregistered Securities

None.

II-1


Item 16.    Exhibits and Financial Statement Schedules

(a)
Exhibits
Exhibit
No.
  Description
  1.1 * Form of Underwriting Agreement
        
  2.1 *# Business Combination Agreement, dated as of December 3, 2015, among Osmotica Holdings Corp Limited, the shareholders of Osmotica Holdings Corp Limited party thereto, Altchem Limited, Vertical/Trigen Holdings, LLC, the shareholders of Vertical/Trigen Holdings, LLC party thereto, Avista Capital Partners III GP, LP, and Osmotica Holdings S.C.Sp.
        
  2.2 *#† Stock Purchase Agreement, dated as of October 24, 2017, by and between Revitalid, Inc. and Osmotica Pharmaceutical Corp.
        
  3.1   Form of Memorandum and Articles of Association Osmotica Pharmaceuticals plc
        
  4.1   Form of Shareholders' Agreement
        
  4.2 * Form of Ordinary Share Certificate
        
  5.1   Opinion of A&L Goodbody
        
  10.1 *† License, Supply, Marketing, Distribution and Collaboration Agreement, dated as of November 24, 2003, by and between Upsher-Smith Laboratories, Inc. and Orion Corporation
        
  10.2 * First Amendment to License, Supply, Marketing, Distribution and Collaboration Agreement, dated as of May 20, 2004, by and between Upsher-Smith Laboratories, Inc. and Orion Corporation
        
  10.3 * Second Amendment to License, Supply, Marketing, Distribution and Collaboration Agreement, dated as of June 30, 2004, by and between Upsher-Smith Laboratories, Inc. and Orion Corporation
        
  10.4 *† Third Amendment to License, Supply, Marketing, Distribution and Collaboration Agreement, dated as of May 20, 2010, by and between Upsher-Smith Laboratories, Inc. and Orion Corporation
        
  10.5 *† Fourth Amendment to License, Supply, Marketing, Distribution and Collaboration Agreement, dated as of August 1, 2013, by and between Upsher-Smith Laboratories, Inc. and Orion Corporation
        
  10.6 *† Fifth Amendment to License, Supply, Marketing, Distribution and Collaboration Agreement, dated as of January 1, 2018, by and between Upsher-Smith Laboratories, Inc. and Orion Corporation
        
  10.7 *† Distribution and Supply Agreement, dated as of June 28, 2011, by and between Cipher Pharmaceuticals Inc. and Vertical Pharmaceuticals Inc.
        
  10.8 *† First Amendment to Distribution and Supply Agreement, dated as of March 27, 2012, by and between Cipher Pharmaceuticals Inc. and Vertical Pharmaceuticals Inc.
        
  10.9 *† Second Amendment to Distribution and Supply Agreement, dated as of November 21, 2013, by and between Cipher Pharmaceuticals Inc. and Vertical Pharmaceuticals Inc.
        
  10.10 *† Third Amendment to Distribution and Supply Agreement, dated as of January 1, 2015, by and between Cipher Pharmaceuticals Inc. and Vertical Pharmaceuticals Inc.
 
   

II-2


Exhibit
No.
  Description
  10.11 *† Methylphenidate Supply Agreement, effective as of March 16, 2017, by and among Mallinckrodt LLC, Osmotica Kereskedelmi es Szolgalato Kft and Osmotica Pharmaceutical Corporation
        
  10.12 *† Manufacturing and Supply Agreement, effective as of March 8, 2010, by and between Mikart, Inc. and Vertical Pharmaceuticals, Inc.
        
  10.13 *† Tablets Marketing Rights Agreement, dated as of March 10, 2010, by and between Argent Development Group, LLC and Vertical Pharmaceuticals, Inc.
        
  10.14 *† Master Manufacturing Services Agreement, dated as of August 21, 2014, by and between Patheon Pharmaceuticals Inc. and Osmotica Pharmaceutical Corp.
        
  10.15 * First Amendment to Master Manufacturing Services Agreement, dated as January 1, 2017, by and between Patheon Pharmaceuticals Inc. and Osmotica Pharmaceutical US, LLC
        
  10.16 *† Product Agreement, dated as of October 1, 2014, by and between Patheon Pharmaceuticals Inc. and Osmotica Pharmaceutical Corp.
        
  10.17 *† License Agreement dated as of August 31, 2011 by and between VOOM, LLC and Revitalid, Inc.
        
  10.18 *† Exclusive Supply Agreement, dated as of February 7, 2013, by and between Nephron Pharmaceuticals Corporation and Revitalid, Inc.
        
  10.19 *† First Amendment to Exclusive Supply Agreement, dated as October 24, 2017 by and between Nephron Pharmaceuticals Corporation and Revitalid, Inc.
        
  10.20 * Credit Agreement, dated February 3, 2016, by and among Osmotica Pharmaceutical Corp., Orbit Blocker I LLC, Orbit Blocker II LLC, Valkyrie Group Holdings, Inc., Osmotica Holdings US LLC, the lenders party thereto, and CIT Bank, N.A. as administrative agent and swingline lender
        
  10.21 * First Amendment to Credit Agreement, dated November 10, 2016, by and among Osmotica Pharmaceutical Corp., Orbit Blocker I LLC, Orbit Blocker II LLC, Valkyrie Group Holdings, Inc., Osmotica Holdings US LLC, the lenders party thereto, and CIT Bank, N.A. as administrative agent and swingline lender
        
  10.22 * Second Amendment to Credit Agreement, dated April 28, 2017, by and among Osmotica Pharmaceutical Corp., Orbit Blocker I LLC, Orbit Blocker II LLC, Valkyrie Group Holdings, Inc., Osmotica Holdings US LLC, the lenders party thereto, and CIT Bank, N.A. as administrative agent and swingline lender
        
  10.23 * Third Amendment to Credit Agreement, dated December 21, 2017, by and among Osmotica Pharmaceutical Corp., Orbit Blocker I LLC, Orbit Blocker II LLC, Valkyrie Group Holdings, Inc., Osmotica Holdings US LLC, the lenders party thereto, and CIT Bank, N.A. as administrative agent and swingline lender
        
  10.24 * Form of Director and Officer Indemnification Agreement
        
  10.25 * Form of Osmotica Holdings US LLC Director and Corporate Secretary Indemnification Agreement
        
  10.26 * Form of Nonqualified Option Award Agreement under the Osmotica Pharmaceuticals plc 2018 Incentive Plan
        
  10.27   Osmotica Pharmaceuticals plc 2018 Employee Share Purchase Plan
 
   

II-3


Exhibit
No.
  Description
  10.28 * Form of Nonqualified Option Award Agreement under the Amended and Restated Osmotica Pharmaceuticals plc 2016 Equity Incentive Plan
        
  10.29   Amended and Restated Osmotica Pharmaceuticals plc 2016 Equity Incentive Plan
        
        
  10.30   Osmotica Pharmaceuticals plc 2018 Incentive Plan
        
  10.31   Osmotica Pharmaceuticals plc 2018 Annual Cash Incentive Plan
        
  10.32 *+ Employment Agreement, dated December 3, 2015, by and between Vertical/Trigen Holdings, LLC and Brian A. Markison
        
  10.33 *+ Employment Agreement, dated December 16, 2013, by and between Vertical/Trigen Opco, LLC and James Schaub
        
  10.34 *+ Employment Agreement, dated May 2, 2016, by and between Vertical/Trigen Opco, LLC and Tina deVries
        
  21.1 * Subsidiaries of Osmotica Pharmaceuticals plc
        
  23.1   Consent of BDO USA, LLP Independent Registered Public Accounting Firm
        
  23.2   Consent of BDO USA, LLP Independent Registered Public Accounting Firm
        
  23.3   Consent of A&L Goodbody (included in Exhibit 5.1)
        
  24.1 * Powers of Attorney (included on the signature page)
        
  99.1 * Consent of Fred Weiss, Nominee for Director

*
Previously filed.

#
The Company agrees to furnish supplementally to the SEC a copy of any omitted schedule or exhibit to such agreement upon request by the SEC.

+
Indicates management contract or compensatory plan.

Portions of this exhibit have been omitted pursuant to a confidential treatment request.

(b)
Financial Statement Schedules

All schedules are omitted because they are not applicable or the required information is included in the financial statements or notes thereto.

Item 17.    Undertakings

The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in

II-4


connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes:

    (1)  That for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

    (2)  That for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-5



SIGNATURES

Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Bridgewater, New Jersey, on the 1 st day of October, 2018.

  OSMOTICA PHARMACEUTICALS PLC

 

By:

 

/s/ BRIAN MARKISON


      Name:   Brian Markison

      Title:   Chief Executive Officer

POWER OF ATTORNEY

Pursuant to the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities and on the dates indicated:

Signature
 
Title
 
Date

 

 

 

 

 
/s/ BRIAN MARKISON

Brian Markison
  Chief Executive Officer (Principal Executive Officer) and Chairman of the Board of Directors   October 1, 2018

*

Andrew Einhorn

 

Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

 

October 1, 2018

*

David Burgstahler

 

Director

 

October 1, 2018

*

Sriram Venkataraman

 

Director

 

October 1, 2018

*

Carlos Sielecki

 

Director

 

October 1, 2018

*

Juan Vergez

 

Director

 

October 1, 2018

II-6


Signature
 
Title
 
Date

 

 

 

 

 
/s/ CHRISTOPHER KLEIN


Christopher Klein
  Authorized Representative in the United States   October 1, 2018
*By:   /s/ CHRISTOPHER KLEIN

Christopher Klein
Attorney-in-fact
   

II-7




Exhibit 3.1

 

A PUBLIC COMPANY LIMITED BY SHARES

 

CONSTITUTION

 

OF

 

OSMOTICA PHARMACEUTICALS PUBLIC LIMITED COMPANY

 

(adopted on [ · ] 2018)

 



 

COMPANIES ACT 2014

 

A PUBLIC COMPANY LIMITED BY SHARES

 

MEMORANDUM OF ASSOCIATION

 

OF

 

OSMOTICA PHARMACEUTICALS PUBLIC LIMITED COMPANY

 

1.                                       The name of the Company is Osmotica Pharmaceuticals public limited company.

 

2.                                       The Company is a public limited company for the purposes of Part 17 of the Companies Act 2014.

 

3.                                       The objects for which the Company is established are:

 

3.1.                            To carry on the business of a holding company and to coordinate the administration, finances and activities of any subsidiary companies or associated companies, to do all lawful acts and things whatsoever that are necessary or convenient in carrying on the business of such a holding company and in particular to carry on, in all its branches, the business of a management services company, to act as managers and to direct or coordinate the management of other companies or of the business, property and estates of any company or person and to undertake and carry out all such services in connection therewith as may be deemed necessary or appropriate by the Company’s board of directors and to exercise its powers as a shareholder of other companies.

 

3.2.                            To carry on the business of a pharmaceuticals company and to research, develop, design, manufacture, produce, supply, buy, sell, distribute, import, export, provide, promote and otherwise deal in pharmaceuticals, active pharmaceutical ingredients and dosage pharmaceuticals and other devices or products of a pharmaceutical, medicinal or healthcare character and to hold intellectual property rights and to do all things usually done by persons carrying on the above mentioned activities or any of them or likely to be required in connection with any such activities.

 

3.3.                            To invest in pharmaceutical and related assets, including, amongst other items, investments in pharmaceutical companies, products, businesses, divisions, technologies, devices, sales force and other marketing capabilities, development projects and related activities, licences, intellectual and similar property rights, premises and equipment, royalty rights and all other assets needed to operate a pharmaceuticals business.

 

3.4.                            To establish, maintain and operate laboratories for the purposes of carrying on chemical, physical and other research in medicine, chemistry, industry or other unrelated or related fields.

 

3.5.                            To invest (including long-term investments in, and acquisitions of, the shares or other securities or ownership interests in other companies) any monies of the Company in such investments and in such manner as may from time to time be determined, and to hold, sell or deal with such investments and generally to purchase, take on lease or in exchange or otherwise acquire any real and personal property and rights or privileges.

 

3.6.                            To develop and turn to account any land acquired by the Company or in which it is interested and in particular by laying out and preparing the same for building purposes, constructing, altering, pulling down, decorating, maintaining, fitting up and improving buildings and conveniences, and by planting, paving, draining, farming, cultivating, letting on building lease or building agreement and by advancing money to and entering into contracts and arrangements of all kinds with builders, tenants and others.

 

1



 

3.7.                            To acquire and hold shares and stocks of any class or description, debentures, debenture stocks, bonds, bills, mortgages, obligations, investments, partnership interests, limited partnership interests, trust interests, membership interests and other securities or ownership interests of all descriptions and of any kind issued or guaranteed by any company or undertaking of whatever nature and wheresoever constituted or carrying on business or issued or guaranteed by any government, state, dominion, colony, sovereign ruler, commissioners, trust, public, municipal, local or other authority or body of whatever nature and wheresoever situated and investments, securities and property of all descriptions and of any kind, including real and chattel real estates, mortgages, reversions, assurance policies, contingencies and choses in action.

 

3.8.                            To remunerate by cash payments or allotment of shares or securities or other ownership interests (including rights to acquire shares or securities or other ownership interests) of the Company credited as fully paid up or otherwise any person or company for services rendered or to be rendered to the Company or any parent or subsidiary body corporate whether in the conduct or management of its business, or in placing or assisting to place or guaranteeing the placing of any of the shares of the Company’s capital, or any debentures or other securities of the Company or in or about the formation or promotion of the Company.

 

3.9.                            To purchase for investment property of any tenure and any interest therein, and to make advances upon the security of land or other similar property or any interest therein.

 

3.10.                     To acquire by purchase, exchange, lease, fee, farm grant or otherwise, either for an estate in fee simple or for any less estate or other estate or interest, whether immediate or reversionary and whether vested or contingent, any lands, tenements or hereditaments of any tenure, whether subject or not to any charges or encumbrances, and to hold, farm, work and manage and to let, sublet, mortgage or charge land and buildings of any kind, reversions, interests, annuities, life policies, and any other property real or personal, movable or immovable, either absolutely or conditionally, and either subject or not to any mortgage, charge, ground rent or other rents or encumbrances.

 

3.11.                     To erect or secure the erection of buildings or other structures of any kind with a view of occupying or letting them or otherwise utilising them and to enter into any contracts or leases and to grant any licences necessary to effect the same.

 

3.12.                     To maintain and improve any lands, tenements or hereditaments acquired by the Company or in which the Company is interested, in particular by decorating, maintaining, furnishing, fitting up and improving houses, shops, flats, maisonettes and other buildings and structures and to enter into contracts and arrangements of all kinds with tenants and others.

 

3.13.                     To sell, exchange, mortgage (with or without power of sale), assign, turn to account or otherwise dispose of and generally deal with the whole or any part of the property, shares, stocks, securities, estates, rights or undertakings of the Company, real property, chattels real or personal, movable or immovable, either in whole or in part.

 

3.14.                     To take part in the management, supervision, or control of the business or operations of any company or undertaking, and for that purpose to appoint and remunerate any directors, accountants, or other experts or agents to act as consultants, supervisors and agents of other companies or undertakings and to provide managerial, advisory, technical, design, purchasing and selling services and any other services deemed appropriate by the Company.

 

3.15.                     To make, draw, accept, endorse, negotiate, issue, execute, discount and otherwise deal with bills of exchange, promissory notes, letters of credit, circular notes, and other negotiable or non-negotiable or transferable or non-transferrable instruments.

 

3.16.                     To redeem, purchase, or otherwise acquire in any manner permitted by law any shares in the Company’s capital or other securities or ownership interests of any kind issued by the Company.

 

2



 

3.17.                     To guarantee, support or secure whether by personal covenant or by mortgaging or charging all or any part of the undertaking, property and assets (present and future) and uncalled capital of the Company or by both such methods, or by any other method whatsoever, the performance of the obligations of, and the repayment or payment of the principal amounts of and the premiums, interest, dividends and other amounts due on or with respect to any security of any person, firm or company, including any company which is for the time being the Company’s holding company (as defined by section 8 of the Companies Act 2014) or subsidiary (as defined by section 7 of the Companies Act 2014) or another subsidiary as defined by the said section of the Company’s holding company (as defined by section 8 of the Companies Act 2014) or otherwise associated with the Company in business notwithstanding the fact that the Company may not receive any consideration, advantage or benefit, direct or indirect from entering into such guarantee or other arrangement or transaction contemplated herein.

 

3.18.                     To lend the funds of the Company with or without security and at interest or free of interest.

 

3.19.                     To raise or borrow or secure the payment of money, including by the issue of bonds, debentures or debenture stock, perpetual or redeemable, or by mortgage, charge, lien or pledge upon the whole or any part of the undertaking, property, assets or rights of the Company, present or future, including its uncalled capital and generally in any other manner as the directors shall from time to time determine and to enter into or issue interest and currency hedging and swap agreements, forward rate agreements, interest and currency futures or options and other forms of financial instruments, and to purchase, redeem or pay off any of the foregoing and to guarantee any or all of the liabilities of the Company, any other company or any other person, and any debentures, debenture stock or other securities may be issued at a discount, premium or otherwise, and with any special privileges as to redemption, surrender, transfer, drawings, allotments of shares, attending and voting at general meetings of the Company, appointment of directors and otherwise.

 

3.20.                     To accumulate capital for any of the purposes of the Company, and to appropriate any of the Company’s assets to specific purposes, either conditionally or unconditionally, and to admit any class or section of those who have any dealings with the Company to any share in the profits thereof or in the profits of any particular branch of the Company’s business or to any other special rights, privileges, advantages or benefits.

 

3.21.                     To reduce the share capital of the Company in any manner permitted by law.

 

3.22.                     To make gifts or grant bonuses to officers or other persons who are or have been in the employment of the Company and to allow any such persons to have the use and enjoyment of such property, chattels or other assets belonging to the Company upon such terms as the Company shall think fit.

 

3.23.                     To establish and maintain or procure the establishment and maintenance of any pension or superannuation fund (whether contributory or otherwise) for the benefit of and to give or procure the giving of donations, gratuities, pensions, annuities, allowances, emoluments or charitable aid to any persons who are or were at any time in the employment or service of the Company or any of its predecessors in business, or of any company which is a subsidiary of the Company or who may be or have been directors or officers of the Company, or of any such other company as aforesaid, or any persons in whose welfare the Company or any such other company as aforesaid may be interested and the wives, husbands, widows, widowers, families, relatives or dependants of any such persons, and to make payments towards insurance and assurance and to form and contribute to provident and benefit funds for the benefit of any such persons and to remunerate any person, firm or company rendering services to the Company or of any company which is a subsidiary of the Company, whether by cash payment, gratuities, pensions, annuities, allowances, emoluments or by the allotment of shares or securities of the Company credited as paid up in full or in part or otherwise.

 

3.24.                     To employ experts to investigate and examine into the conditions, prospects, value, character and circumstances of any business concerns, undertakings, assets, property or rights.

 

3



 

3.25.                     To insure the life of any person who may, in the opinion of the Company, be of value to the Company, as having or holding for the Company interests, goodwill, or influence or otherwise and to pay the premiums on such insurance.

 

3.26.                     To distribute either upon a distribution of assets or division of profits among the Members of the Company in kind any property of the Company, and in particular any shares, debentures or securities of other companies belonging to the Company or of which the Company may have the power of disposing.

 

3.27.                     To give, whether directly or indirectly, and whether by means of a loan, guarantee, the provision of security or otherwise, any financial assistance for the purpose of or in connection with a purchase or subscription made or to be made by any person of or for any shares in the Company, or, where the Company is a subsidiary company, in its holding company.

 

3.28.                     To do and carry out all or any of the foregoing or following objects in any part of the world and either as principals, agents, contractors, trustees or otherwise, and either by or through agents, trustees or otherwise and either alone or in partnership or in conjunction with any other company, firm or person, provided that nothing herein contained shall empower the Company to carry on the business of insurance.

 

3.29.                     To apply for, purchase or otherwise acquire any patents, brevets d’invention, licences, trademarks, trade names, copyrights, industrial designs, know-how, concessions and other forms of intellectual property rights and the like conferring any exclusive or non-exclusive or limited or contingent rights to use, or any secret or other information as to any invention or process of the Company, or the acquisition of which may seem calculated directly or indirectly to benefit the Company, and to use, exercise, develop, or grant licences in respect of, or otherwise turn to account the property, rights or information so acquired.

 

3.30.                     To enter into partnership or into any arrangement for sharing profits, union of interests, co-operation, joint venture, reciprocal concession or otherwise with any person or company.

 

3.31.                     To acquire and undertake the whole or any part of the undertaking, business, property and liabilities of any person or company.

 

3.32.                     To adopt such means of making known the Company and its products and services as may seem expedient.

 

3.33.                     To acquire and carry on any business carried on by a subsidiary or a holding company of the Company or another subsidiary of a holding company of the Company.

 

3.34.                     To promote any company or companies for the purpose of acquiring all or any of the property and liabilities of this Company or for any other purpose which may seem directly or indirectly calculated to benefit this Company.

 

3.35.                     To amalgamate with, merge with or otherwise become part of or associated with any other company or association in any manner permitted by law.

 

3.36.                     To make voluntary dispositions of all or any part of the property and rights of the Company and to make gifts thereof or gratuitous payments either for no consideration or for a consideration less than the market value of such property or rights or the amount of cash payment or by all or any such methods.

 

3.37.                     To receive voluntary dispositions of all or any part of the undertakings, properties, assets or rights of any other corporation and to receive gifts thereof or gratuitous payments either for no consideration or for a consideration less than the market value of such property or rights or the amount of cash payment or by all or any such methods.

 

3.38.                     To do and carry out all such other things, except the issuing of policies of insurance, as may be deemed by the Company capable of being carried on in connection with the above objects or any of them or calculated to enhance the value of or render profitable any of the Company’s undertakings, properties, assets or rights.

 

4



 

And it is hereby declared that (i) the word “company” in this clause, except where used in reference to this Company, shall be deemed to include any person, partnership, limited partnership, limited liability partnership, limited liability company, other corporate body, trust or other body of persons whether incorporated or not incorporated and whether domiciled in Ireland or elsewhere and that the objects of the Company as specified in each of the foregoing paragraphs of this clause shall be separate and distinct objects and shall not be in anyway limited or restricted by reference to or inference from the terms of any other paragraph or the name of the Company and (ii)  any phrase introduced by the terms “including”, “include”, “in particular” or any similar expression shall be construed as illustrative and shall not limit the sense of the words preceding those terms.

 

4.                                       The liability of each Member is limited to the amount from time to time unpaid on such Member’s Shares.

 

5.                                       The authorised share capital of the Company is €25,000 and US$4,400,000 divided into 25,000 Euro Deferred Shares of €1.00 each, 400,000,000 Ordinary Shares of US$0.01 each and 40,000,000 Preferred Shares of US$0.01 each.

 

6.                                       Notwithstanding any other provision of these Memorandum and Articles of Association, amendments to this paragraph of the Memorandum of Association, and amendments to Articles 17, 67.1, 76, 90, 92, 112, 156-159 (inclusive), 194, and 196-198 (inclusive) may only be made with the prior approval of the holders of at least 75% in nominal value of the issued Ordinary Shares of the Company which carry an entitlement to vote at a general meeting of the Company.

 

7.                                       The shares forming the capital, increased or reduced, may be increased or reduced and be divided into such classes and issued with any special rights, privileges and conditions or with such qualifications as regards preference, dividend, capital, voting or other special incidents, and be held upon such terms as may be attached thereto or as may from time to time be provided by the original or any substituted or amended Articles of Association and regulations of the Company for the time being, but so that where shares are issued with any preferential or special rights attached thereto such rights shall not be alterable otherwise than pursuant to the provisions of the Company’s Articles of Association for the time being.

 

5


 

COMPANIES ACT 2014

 

A PUBLIC COMPANY LIMITED BY SHARES

 

ARTICLES OF ASSOCIATION

 

OF

 

OSMOTICA PHARMACEUTICALS PUBLIC LIMITED COMPANY

 

6



 

TABLE OF CONTENTS

 

PRELIMINARY

9

REGISTERED OFFICE

13

SHARE CAPITAL; ISSUE OF SHARES

13

ORDINARY SHARES

14

EURO DEFERRED SHARES

14

PREFERRED SHARES

15

ISSUE OF WARRANTS

16

CERTIFICATES FOR SHARES

16

REGISTER OF MEMBERS

16

TRANSFER OF SHARES

17

REDEMPTION AND REPURCHASE OF SHARES

19

VARIATION OF RIGHTS OF SHARES

19

LIEN ON SHARES

20

CALLS ON SHARES

21

FORFEITURE

22

NON-RECOGNITION OF TRUSTS

23

TRANSMISSION OF SHARES

23

AMENDMENT OF MEMORANDUM OF ASSOCIATION; CHANGE OF LOCATION OF REGISTERED OFFICE; AND ALTERATION OF CAPITAL

23

CLOSING REGISTER OF MEMBERS OR FIXING RECORD DATE

24

GENERAL MEETINGS

25

NOTICE OF GENERAL MEETINGS

25

PROCEEDINGS AT GENERAL MEETINGS

26

VOTES OF MEMBERS

30

PROXIES AND CORPORATE REPRESENTATIVES

31

DIRECTORS

32

DIRECTORS’ AND OFFICERS’ INTERESTS

33

 

7



 

POWERS AND DUTIES OF DIRECTORS

34

MINUTES

35

DELEGATION OF THE BOARD’S POWERS

35

CHAIRPERSON AND EXECUTIVE OFFICERS

36

PROCEEDINGS OF DIRECTORS

37

RESIGNATION AND DISQUALIFICATION OF DIRECTORS

38

APPOINTMENT, ROTATION AND NOMINATION OF DIRECTORS

38

SECRETARY

40

SEAL

40

DIVIDENDS, DISTRIBUTIONS AND RESERVES

40

CAPITALISATION

41

ACCOUNTS

42

AUDIT

43

NOTICES

43

UNTRACED HOLDERS

45

DESTRUCTION OF DOCUMENTS

46

WINDING UP

46

INDEMNITY

47

FINANCIAL YEAR

48

SHAREHOLDER RIGHTS PLAN

48

BUSINESS COMBINATION

48

EXCLUSIVE JURISDICTION

54

 

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PRELIMINARY

 

1.                                      Sections 43(2), 43(3), 65(2)-(7), 77-81, 83(3), 94(1), 95(1), 96(2)-(11), 124, 125, 126(2) to (8), 144(3)-(4), 148(2), 158-165, 178(2), 180(5), 181(1), 181(6), 182(2), 182(5), 183(3), 186(c)(i), 187, 188, 193, 218(3)-(5), 229, 230, 338(5)-(6), 618(1)(b), 620(8), 1090, 1092, and 1113 of the Companies Act shall not apply to the Company.  The provisions of the Companies Act which are stated therein to apply to a public limited company, save to the extent that its constitution is permitted to provide or state otherwise, will apply to the Company subject to the alterations contained in these Articles, and will, so far as not inconsistent with these Articles, bind the Company and its Members.

 

2.

 

2.1.                            In these Articles:

 

“1990 Regulations”

 

The Companies Act 1990 (Uncertificated Securities) Regulations 1996 (S.I. No. 68 of 1996) as may be amended from time to time.

 

 

 

“address”

 

includes any number or address used for the purposes of communication by way of electronic mail or other electronic communication.

 

 

 

“Adoption Date”

 

means [ · ] 2018.

 

 

 

“Articles” or “Articles of Association”

 

means these articles of association of the Company, as amended from time to time by Special Resolution or in accordance with paragraph 6 of the Memorandum.

 

 

 

“Assistant Secretary”

 

means any person appointed by the Board from time to time to assist the Secretary.

 

 

 

“Auditors”

 

means the persons for the time being performing the duties of the statutory auditors of the Company.

 

 

 

“Board”

 

means the board of Directors for the time being of the Company.

 

 

 

“Chairperson”

 

means the chairperson of the Board from time to time and/or chairperson of a general meeting of the Company as the context may require.

 

 

 

“clear days”

 

means, in relation to a period of notice, that period excluding the day when the notice is given or deemed to be given and the day for which notice is being given or on which an action or event for which notice is being given is to occur or take effect.

 

 

 

“Companies Act”

 

means the Irish Companies Act 2014 and every statutory modification, replacement and re-enactment thereof for the time being in force.

 

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“Company”

 

means Osmotica Pharmaceuticals plc.

 

 

 

“Court”

 

means the Irish High Court.

 

 

 

“CSD Regulation”

 

means any regulation of the European Parliament and of the Council on improving securities settlement in the European Union and on central securities depositories and amending Directive 98/26/EC.

 

 

 

“Derivative Transaction”

 

means any agreement, arrangement, interest or understanding entered into by, or on behalf or for the benefit of, any Proponent or any of its affiliates or associates, whether record or beneficial: (A) the value of which is derived in whole or in part from the value of any class or series of Shares or other securities of the Company, (B) which otherwise provides any direct or indirect opportunity to gain or share in any gain derived from a change in the value of securities of the Company, (C) the effect or intent of which is to mitigate loss, manage risk or benefit of security value or price changes with respect to any securities of the Company, or (D) which provides the right to vote or increase or decrease the voting power of such Proponent, or any of its affiliates or associates, with respect to any securities of the Company, which agreement, arrangement, interest or understanding may include, without limitation, any option, warrant, debt position, note, bond, convertible security, swap, stock appreciation right, short position, profit interest, hedge, right to dividends, voting agreement, performance-related fee or arrangement to borrow or lend shares (whether or not subject to payment, settlement, exercise or conversion in any such class or series), and any proportionate interest of such Proponent in the securities of the Company held by any general or limited partnership, or any limited liability company, of which such Proponent is, directly or indirectly, a general partner or managing member.

 

 

 

“Directors”

 

means the directors for the time being of the Company.

 

 

 

“dividend”

 

includes dividends, final dividends, interim dividends and bonus dividends.

 

 

 

“electronic communication”

 

shall have the meaning given to those words in the Electronic Commerce Act 2000.

 

 

 

“electronic signature”

 

shall have the meaning given to those words in the Electronic Commerce Act 2000.

 

 

 

“Enterprise”

 

means the Company and any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise or entity which a person is or was serving at

 

10



 

 

 

the request of the Company.

 

 

 

“Exchange”

 

means any securities exchange or other system on which the Shares of the Company may be listed or otherwise authorised for trading from time to time.

 

 

 

“Exchange Act”

 

means the Securities Exchange Act of 1934 of the United States of America.

 

 

 

“IAS Regulation”

 

means Regulation (EC) No. 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of internal accounting standards.

 

 

 

“Member”

 

means a person who has agreed to become a member of the Company and whose name is entered in the Register of Members as a registered holder of Shares.

 

 

 

“Memorandum”

 

means the memorandum of association of the Company as amended from time to time by Special Resolution or in accordance with paragraph 6 of the Memorandum.

 

 

 

“month”

 

means a calendar month.

 

 

 

“Official”

 

means a director, officer, secretary, employee, trustee, agent, partner, managing member, fiduciary or other official of the Company or another Enterprise.

 

 

 

“Ordinary Resolution”

 

means an ordinary resolution of the Company’s Members within the meaning of section 191 of the Companies Act.

 

 

 

“paid-up”

 

means paid-up in accordance with the Companies Act as to the nominal value and any premium payable in respect of the issue of any Shares and includes credited as paid-up.

 

 

 

“Proponent”

 

shall have the meaning given to that term in Article 90.4.

 

 

 

“Redeemable Shares”

 

means redeemable shares in accordance with the Companies Act.

 

 

 

“Register of Members” or “Register”

 

means the register of Members of the Company maintained by or on behalf of the Company, in accordance with the Companies Act.

 

 

 

“registered office”

 

means the registered office for the time being of the Company.

 

11



 

“Seal”

 

means the seal of the Company, if any, and includes every duplicate seal.

 

 

 

“Secretary”

 

means the person appointed by the Board to perform any or all of the duties of secretary of the Company and includes an Assistant Secretary and any person appointed by the Board or the Secretary to perform the duties of secretary of the Company, in each case, when acting in the capacity of the secretary of the Company.

 

 

 

“Share” and “Shares”

 

means a share or shares in the capital of the Company.

 

 

 

“Special Resolution”

 

means a special resolution of the Company’s Members within the meaning of section 191 of the Companies Act.

 

 

 

“Sponsor Holders”

 

means each of Avista Capital Holdings, L.P. and Altchem Limited and their respective affiliates, and Sponsor Holder means either of them.

 

2.2.                                      In these Articles (unless otherwise specified):

 

2.2.1.                  words importing the singular number include the plural number and vice-versa;

 

2.2.2.                  words importing the feminine gender include the masculine gender and the neuter and vice-versa;

 

2.2.3.                  words importing persons include any company, partnership or other body of persons, whether corporate or not, any trust and any government, governmental body or agency or public authority, whether of Ireland or elsewhere and references to a company, except where used in reference to the Company, shall be deemed to include any person, partnership, limited partnership, limited liability partnership, limited liability company, other corporate body, trust or other body of persons whether incorporated or not incorporated and whether domiciled in Ireland or elsewhere;

 

2.2.4.                  expressions referring to “written” and “in writing” shall be construed, unless the contrary intention appears, as including references to printing, lithography, photography and any other modes of representing or reproducing words in a visible form except as provided in these Articles and/or where it constitutes writing in electronic form sent to the Company;

 

2.2.5.                  expressions referring to execution of any document shall include any mode of execution whether under seal or under hand or any mode of electronic signature;

 

2.2.6.                  references to provisions of any law or regulation shall be construed as references to those provisions as amended, modified, re-enacted or replaced from time to time;

 

2.2.7.                  any phrase introduced by the terms “including”, “include”, “in particular” or any similar expression shall be construed as illustrative and shall not limit the sense of the words preceding those terms;

 

2.2.8.                  reference to “officer” or “officers” in these Articles means any executive that has been designated by the Company as an “officer” and, for the avoidance of doubt, shall not have the

 

12



 

meaning given to such term in the Companies Act and any such officers shall not constitute officers of the Company within the meaning of section 2(1) of the Companies Act;

 

2.2.9.                  headings are inserted for reference only and shall be ignored in construing these Articles; and

 

2.2.10.           references to US$, USD, $ or dollars shall mean United States dollars, the lawful currency of the United States of America and references to €, euro, or EUR shall mean the euro, the lawful currency of Ireland.

 


REGISTERED OFFICE

 

3.                                      The registered office shall be at such place in Ireland as the Board from time to time shall decide.

 


SHARE CAPITAL; ISSUE OF SHARES

 

4.                                      The authorised share capital of the Company is €25,000 and US$4,400,000 divided into 25,000 Euro Deferred Shares of €1.00 each, 400,000,000 Ordinary Shares of US$0.01 each and 40,000,000 Preferred Shares of US$0.01 each.

 

5.                                      Subject to the provisions of these Articles relating to new Shares, the Shares shall be at the disposal of the Directors, and they may (subject to the provisions of the Companies Act) allot, issue, grant options over or otherwise dispose of them to such persons, on such terms and conditions and at such times as they may consider to be in the best interests of the Company and its Members, but so that no Share shall be issued at a discount save in accordance with sections 71(4) and 1026 of the Companies Act, and so that, in the case of Shares offered to the public for subscription, the amount payable on application on each such Share shall not be less than one-quarter of the nominal amount of the Share and the whole of any premium thereon. To the extent permitted by the Companies Act, Shares may also be allotted by a committee of the Directors or by any other person where such committee or person is so authorised by the Directors.

 

6.                                      Subject to any requirement to obtain the approval of Members under any laws, regulations or the rules of any Exchange, the Board is authorised, from time to time, to grant such persons, for such periods and upon such terms as the Board deems advisable, options or awards to purchase or subscribe for any number of Shares of any class or classes or of any series of any class and other securities or ownership interests of the Company as the Board may deem advisable, and to cause warrants or other appropriate instruments evidencing such options or awards to be issued.

 

7.

 

7.1.                            The Directors are, for the purposes of section 1021 of the Companies Act, generally and unconditionally authorised to exercise all powers of the Company to allot and issue relevant securities (as defined by the said section 1021) up to the amount of the Company’s authorised but unissued share capital and to allot and issue any Shares acquired by or on behalf of the Company pursuant to the provisions of the Companies Act and held as treasury shares and, unless it is renewed or a longer period of time is allowed under applicable law, this authority shall expire five years from the Adoption Date.

 

7.2.                            The Directors are hereby empowered pursuant to sections 1022 and 1023(3) of the Companies Act to allot equity securities (as defined by the said section 1023) for cash pursuant to the authority conferred by Article 7.1 as if section 1022 of the Companies Act did not apply to any such allotment.

 

7.3.                             The Company may before the expiry of the authorities conferred by Articles 7.1 and/or 7.2 make an offer or agreement which would or might require relevant securities (as defined in section 1021 of the Companies Act) and/or equity securities (as defined in section 1023 of the Companies Act), as the case may be, to be allotted after such expiry and the Board may allot relevant securities and/or equity securities in pursuance of such an offer or agreement as if the authorities conferred by Articles 7.1 and/or 7.2 had not expired.

 

13



 

7.4.                            The Company may issue permissible letters of allotment (as defined by section 1019 of the Companies Act) to the extent permitted by the Companies Act.

 

8.                                      The Company may pay commission to any person in consideration of any person subscribing or agreeing to subscribe, whether absolutely or conditionally, for the Shares in the Company or procuring or agreeing to procure subscriptions, whether absolute or conditional, for any Shares in the Company on such terms and, subject to the provisions of the Companies Act and to such conditions as the Board may determine including by paying cash or allotting and issuing fully or partly paid Shares or any combination of the two. The Company may also on any issue of Shares pay such brokerage as may be lawful.

 

ORDINARY SHARES

 

9.                                      The rights and restrictions attaching to the Ordinary Shares shall be as follows:

 

9.1.                            subject to the right of the Company to set record dates for the purposes of determining the identity of Members entitled to notice of and/or to vote at a general meeting and any rules or regulations applicable to the conduct of any general meeting of the Company, the right to attend and speak at any general meeting of the Company and to exercise one vote per Ordinary Share held at any general meeting of the Company;

 

9.2.                            the right to participate pro rata in all dividends declared by the Company with respect to the Ordinary Shares; and

 

9.3.                            the right, in the event of the Company’s winding up, to participate pro rata with all other Ordinary Shares in the total assets of the Company.

 

10.                               The rights attaching to the Ordinary Shares shall be subject to the terms of issue of any series or class of Preferred Shares allotted by the Directors from time to time in accordance with Article 17.

 

11.                               Unless the Board specifically resolves to treat such acquisition as a purchase for the purposes of the Companies Act, an Ordinary Share shall be deemed to be a Redeemable Share on, and from the time of, the existence or creation of an agreement, transaction or trade between the Company (including any agent or broker acting on behalf of the Company) and any third party pursuant to which the Company acquires or will acquire Ordinary Shares, or an interest in Ordinary Shares, from such third party and the Company is hereby authorised to enter into any such agreement, transaction or trade. In these circumstances, the acquisition of such Shares or interest in Shares by the Company shall constitute the redemption of a Redeemable Share in accordance with the Companies Act. No resolution, whether special or otherwise, shall be required to be passed to deem any Ordinary Share a Redeemable Share, or to authorise the redemption of such a Redeemable Share and once deemed to be a Redeemable Share such share shall be redeemable at the instance of the Company.

 

12.                               All Ordinary Shares shall rank pari passu with each other in all respects.

 

EURO DEFERRED SHARES

 

13.                               The holders of the Euro Deferred Shares shall not be entitled to receive any dividend or distribution and shall not be entitled to receive notice of, nor to attend, speak or vote at, any general meeting of the Company. On a return of assets, whether on liquidation or otherwise, the Euro Deferred Shares shall entitle the holder thereof only to the repayment of the amounts paid up on such shares after repayment of the capital paid up on the Ordinary Shares plus the payment of $5,000,000 on each of the Ordinary Shares and the holders of the Euro Deferred Shares (as such) shall not be entitled to any further participation in the assets or profits of the Company.

 

14.                               The Company has the irrevocable authority at any time after the Adoption Date to:

 

14



 

14.1.                     acquire all or any of the fully paid Euro Deferred Shares otherwise than for valuable consideration in accordance with section 102 of the Companies Act and without obtaining the sanction of the holders thereof;

 

14.2.                     appoint any person to execute on behalf of the holders of the Euro Deferred Shares remaining in issue (if any) a transfer thereof and/or an agreement to transfer the same otherwise than for valuable consideration to the Company or to such other person as the Company may nominate;

 

14.3.                     cancel any acquired Euro Deferred Shares; and

 

14.4.                     pending such acquisition and/or transfer and/or cancellation, retain the certificate (if any) for such Euro Deferred Shares.

 

15.                               In accordance with section 1040(3) of the Companies Act, the Company shall, not later than three (3) years after any acquisition by it of any Euro Deferred Shares as aforesaid, cancel such shares (except those which, or any interest of the Company in which, it shall have previously disposed of) and reduce the amount of the share capital by the nominal value of the shares so cancelled and the Board may take such steps as are required to enable the Company to carry out its obligations under that section without complying with sections 84 and 85 of the Companies Act, including passing resolutions in accordance with section 1040(5) of the Companies Act.

 

16.                               Neither the acquisition by the Company otherwise than for valuable consideration of all or any of the Euro Deferred Shares nor the redemption thereof nor the cancellation thereof by the Company in accordance with these Articles shall constitute a variation or abrogation of the rights or privileges attached to the Euro Deferred Shares, and accordingly the Euro Deferred Shares or any of them may be so acquired, redeemed and cancelled without any such consent or sanction on the part of the holders thereof. The rights conferred upon the holders of the Euro Deferred Shares shall not be deemed to be varied or abrogated by the creation of further Shares ranking in priority thereto or pari passu therewith.

 

PREFERRED SHARES

 

17.

 

17.1.                     The Directors are authorised to issue all or any of the authorised but unissued Preferred Shares from time to time in one or more classes or series, and to fix for each such class or series such voting power, full or limited, or no voting power, and such designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Directors providing for the issuance of such class or series, including (but not limited to) the authority to provide that any such class or series may be:

 

17.1.1.                          redeemable at the option of the Company, or the holders, or both, with the manner of the redemption to be set by the Directors, and redeemable at such time or times, including upon a fixed date, and at such price or prices as the Directors may determine;

 

17.1.2.                          entitled to receive dividends (which may be cumulative or non-cumulative) at such rates, on such conditions and at such times as the Directors may determine, and which may be payable in preference to, or in such relation to, the dividends payable on any other class or classes of Shares or any other series as the Directors may determine;

 

17.1.3.                          entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the Company as the Directors may determine; or

 

17.1.4.                          convertible into, or exchangeable for, Shares of any other class or classes of Shares, or of any other series of the same or any other class or classes of Shares, of the Company at such price or prices or at such rates of exchange and with such adjustments as the Directors may determine.

 

15



 

17.2.                     The Directors may at any time before the allotment of any Preferred Share by further resolution in any way amend the designations, preferences, rights, qualifications, limitations or restrictions, or vary or revoke the designations of such Preferred Shares.

 

18.                               The rights conferred upon the holder of any pre-existing Shares in the share capital of the Company shall be deemed not to be varied by the creation, issue and allotment of Preferred Shares in accordance with Article 17.

 

ISSUE OF WARRANTS

 

19.                               The Board may issue warrants to subscribe for any class of Shares or other securities of the Company on such terms as it may from time to time determine.

 

CERTIFICATES FOR SHARES

 

20.                               Unless otherwise provided for by the Board or the rights attaching to or by the terms of issue of any particular Shares, or to the extent required by any Exchange, depository or any operator of any clearance or settlement system or by law, no person whose name is entered as a Member in the Register of Members shall be entitled to receive a share certificate for any Shares of any class held by him or her (nor on transferring a part of holding, to a certificate for the balance).

 

21.                               Any share certificate, if issued, shall specify the number of Shares in respect of which it is issued and the amount paid thereon or the fact that they are fully paid, as the case may be, and may otherwise be in such form as shall be determined by the Board. Such certificates may be under Seal. All certificates for Shares shall be consecutively numbered or otherwise identified and shall specify the Shares to which they relate. The name and address of the person to whom the Shares represented thereby are issued, with the number of Shares and date of issue, shall be entered in the Register of Members. All certificates surrendered to the Company for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of Shares shall have been surrendered and cancelled. The Board may authorise certificates to be issued with the Seal and authorised signature(s) affixed by some method or system of mechanical or electronic process. In respect of a Share or Shares held jointly by several persons, the Company shall not be bound to issue a certificate or certificates to each such person, and the issue and delivery of a certificate or certificates to one of several joint holders shall be sufficient delivery to all such holders.

 

22.                               If a share certificate is defaced, worn out, lost or destroyed, it may be renewed on such terms (if any) as to evidence and indemnity and on the payment of such expenses reasonably incurred by the Company in investigating such evidence, as the Board may prescribe, and, in the case of defacement or wearing out, upon delivery of the old certificate.

 

REGISTER OF MEMBERS

 

23.                               The Company shall maintain or cause to be maintained a Register of its Members in accordance with the Companies Act.

 

24.                               If the Board considers it necessary or appropriate, the Company may establish and maintain a duplicate Register or Registers of Members at such location or locations within or outside Ireland as the Board thinks fit. The original Register of Members shall be treated as the Register of Members for the purposes of these Articles and the Companies Act.

 

25.                               The Company, or any agent(s) appointed by it to maintain any duplicate Register of Members in accordance with these Articles shall, as soon as practicable and on a regular basis record, or procure the recording of, in the original Register of Members, all transfers of Shares effected on any duplicate Register of Members and shall at all times maintain the original Register of Members in such manner as to show at all times the Members for the time being and the Shares respectively held by them, in all respects in accordance with the Companies Act.

 

26.                               The Company shall not be bound to register more than four (4) persons as joint holders of any Share. If any Share shall stand in the names of two (2) or more persons, the person first named in the Register of Members shall be

 

16



 

deemed the sole holder thereof as regards service of notices and, subject to the provisions of these Articles, all or any other matters connected with the Company.

 

TRANSFER OF SHARES

 

27.                               Subject to such of the restrictions of these Articles and to such of the conditions of issue or transfer as may be applicable, all transfers of Shares shall be effected by an instrument in writing (an “ instrument of transfer ”) in such form as the Board or the Secretary may approve. All such instruments of transfer must be left at the registered office or at such other place as the Board or the Secretary may specify and all such instruments of transfer shall be retained by the Company.

 

28.

 

28.1.                     In the case of transfers to Cede & Co (or to any successor thereto, or to any other affiliate or nominee of The Depositary Trust Company or of any successor to The Depositary Trust Company) the instrument of transfer shall not be effective until executed by:

 

28.1.1.                          the Secretary (or such person as may be nominated by the Secretary for this purpose) on behalf of the Company; and

 

28.1.2.                          by the transferor or alternatively by or on behalf of the transferor by the Secretary (or such person as may be nominated by the Secretary for this purpose) on behalf of the Company, and the Company shall be deemed to have been irrevocably appointed agent for the transferor of such Share or Shares with full power to execute, complete and deliver in the name of and on behalf of the transferor of such Share or Shares all such transfers of Shares held by the Members in the share capital of the Company.

 

28.2.                     In the case of transfers other than those to Cede & Co (or to any successor thereto, or to any other affiliate or nominee of The Depositary Trust Company or of any successor to The Depositary Trust Company), the instrument of transfer of any Share shall be executed by the transferor or alternatively for and on behalf of the transferor by the Secretary (or such other person as may be nominated by the Secretary for this purpose) on behalf of the Company, and the Secretary (or relevant nominee), acting on behalf of the Company shall be deemed to have been irrevocably appointed agent for the transferor of such Share or Shares with full power to execute, complete and deliver in the name of and on behalf of the transferor of such Share or Shares all such transfers of Shares held by the Members in the share capital of the Company.

 

28.3.                     An instrument of transfer need not be executed by the transferee except to the extent required by the Companies Act. Any document which records the name of the transferor, the name of the transferee, the class and number of Shares agreed to be transferred and the date of the agreement to transfer the Shares, shall, once executed in accordance with this Article, be deemed to be a proper instrument of transfer for the purposes of section 94 of the Companies Act.

 

28.4.                     The transferor shall be deemed to remain the holder of the Share until the name of the transferee is entered on the Register in respect thereof, and neither the title of the transferee nor the title of the transferor shall be affected by any irregularity or invalidity in the proceedings in reference to the sale should the Board so determine.

 

28.5.                     The Company, at its absolute discretion and insofar as the Companies Act or any other applicable law permits, may, or may procure that a subsidiary of the Company shall, pay Irish stamp duty arising on a transfer of Shares on behalf of the transferor or transferee of such Shares of the Company. If stamp duty resulting from the transfer of Shares in the Company which would otherwise be payable by the transferor or transferee is paid by the Company or any subsidiary of the Company on behalf of the transferor or transferee, then in those circumstances, the Company shall, on its behalf or on behalf of its subsidiary (as the case may be), be entitled, but not required, to (i) seek reimbursement of the stamp duty from the transferor or transferee, (ii) set-off the stamp duty against any dividends payable to the transferor or transferee of those Shares or (iii) claim a first and permanent lien on the Shares on which stamp duty has

 

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been paid by the Company or its subsidiary for the amount of stamp duty paid. The Company’s lien shall extend to all dividends paid on those Shares.

 

28.6.                     Notwithstanding the provisions of these Articles and subject to any CSD Regulation or any regulations made under section 1086 of the Companies Act or the 1990 Regulations (including any modification thereof or any regulations in substitution therefor made under the Companies Act or otherwise), title to any Shares may also be evidenced and transferred without a written instrument in accordance with any CSD Regulation or section 1086 of the Companies Act or any regulations made thereunder or the 1990 Regulations (including any modification thereof or any regulations in substitution therefor made under the Companies Act or otherwise). The Board shall have power to permit any class of Shares to be held in uncertificated form and to implement any arrangements they think fit for such evidencing and transfer which accord with such regulations and in particular shall, where appropriate, be entitled to disapply or modify all or part of the provisions in these Articles with respect to the requirement for written instruments of transfer and share certificates (if any), in order to give effect to such regulations.

 

29.                               The Board may, without assigning any reason for its decision, decline to register any transfer of any Share which is not a fully paid Share. The Board may also, without assigning any reason, refuse to register a transfer of any Share unless:

 

29.1.                       the instrument of transfer is fully and properly completed and is lodged with the Company at the registered office or at such other place as the Board or the Secretary may specify, accompanied by the certificate(s) for the Shares (if any) to which it relates (which shall upon registration of the transfer be cancelled) and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer;

 

29.2.                     the instrument of transfer is in respect of only one class of Shares;

 

29.3.                     a registration statement under the Securities Act of 1933 (as amended) of the United States of America is in effect with respect to such transfer or such transfer is exempt from registration and, if requested by the Board, a written opinion from counsel reasonably acceptable to the Board is obtained to the effect that such transfer is exempt from registration;

 

29.4.                     the instrument of transfer is properly stamped (in circumstances where stamping is required);

 

29.5.                     in the case of a transfer to joint holders, the number of joint holders to which the Share is to be transferred does not exceed four;

 

29.6.                     it is satisfied, acting reasonably, that all applicable consents, authorisations, permissions or approvals of any governmental body or agency in Ireland or any other applicable jurisdiction required to be obtained under relevant law prior to such transfer have been obtained; and

 

29.7.                     it is satisfied, acting reasonably, that the transfer would not violate the terms of any agreement to which the Company (or any of its subsidiaries) and the transferor are party or subject.

 

30.                               If the Board shall refuse to register a transfer of any Share, it shall, within two (2) months after the date on which the transfer was lodged with the Company, send to each of the transferor and the transferee notice of such refusal.

 

31.                               The Company shall not be obligated to register any transfer to an individual under 18 years of age or to a person in respect of whom an order has been made by a competent court or official on the grounds that he or she is or may be suffering from mental disorder or is otherwise incapable of managing his or her affairs or under other legal disability.

 

32.                               Upon every transfer of Shares, the certificate (if any) held by the transferor shall be given up to be cancelled, and shall forthwith be cancelled accordingly, and subject to Article 20 a new certificate may be issued without charge to the transferee in respect of the Shares transferred to him or her, and if any of the Shares included in the certificate so given up shall be retained by the transferor, a new certificate in respect thereof may be issued to him or her without charge.

 

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REDEMPTION AND REPURCHASE OF SHARES

 

33.                               Subject to the provisions of Chapter 6 of Part 3 and Chapter 5 of Part 17 of the Companies Act and the other provisions of this Article 33, and without prejudice to Article 17, the Company may:

 

33.1.                     pursuant to section 66(4) of the Companies Act, allot and issue any Shares of the Company which are to be redeemed or are liable to be redeemed at the option of the Company or the Member on such terms and in such manner as may be determined by the Board;

 

33.2.                     redeem Shares of the Company on such terms as may be contained in, or be determined pursuant to the provisions of, these Articles. Subject as aforesaid, the Company may cancel any Shares so redeemed or may hold them as treasury shares (as defined in section 106(1) of the Companies Act) and re-issue such treasury shares as Shares of any class or classes or cancel them;

 

33.3.                     subject to or in accordance with the provisions of the Companies Act and without prejudice to any relevant special rights attached to any class of Shares, pursuant to section 105 and Chapter 5 of Part 17 of the Companies Act, acquire any of its own Shares (including any Redeemable Shares and without any obligation to acquire on any pro rata basis as between Members or Members of the same class) and may cancel any Shares so acquired or hold them as treasury shares (as defined in section 106(1) of the Companies Act) and may re-issue any such Shares as Shares of any class or classes or cancel them; or

 

33.4.                     convert any of its Shares into Redeemable Shares provided that the total number of Shares which shall be redeemable pursuant to this authority shall not exceed the limit in section 1071(b) of the Companies Act. No resolution of Members, whether special or otherwise, shall be required to be passed to convert any of the Shares into Redeemable Shares.

 

34.                               The Company may make a payment in respect of the redemption or purchase of its own Shares in any manner permitted by the Companies Act.

 

35.                               The holder of the Shares being redeemed or purchased shall be bound to deliver up to the Company, at its registered office or such other place as the Board shall specify, the certificate(s) (if any) thereof for cancellation and thereupon the Company shall pay to him or her the purchase or redemption monies or consideration in respect thereof.

 

VARIATION OF RIGHTS OF SHARES

 

36.                               Without prejudice to the authority conferred on the Directors pursuant to Article 17 to issue Preferred Shares in the capital of the Company, if at any time the share capital of the Company is divided into different classes or series of Shares, the rights attached to any class or series (unless otherwise provided by the terms of issue of the Shares of that class or series) may be varied or abrogated with the consent in writing of the holders of a majority of the issued Shares of that class or series entitled to vote on such variation or abrogation, or with the sanction of an Ordinary Resolution passed at a general meeting of the holders of the Shares of that class or series.

 

37.                               The provisions of these Articles relating to general meetings of the Company shall apply mutatis mutandis to every such general meeting of the holders of one class or series of Shares except that the necessary quorum shall be one or more persons holding or representing by proxy at least a majority of the issued Shares of the class or series.

 

38.                               The rights conferred upon the holders of the Shares of any class or series issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the Shares of that class or series, be deemed to be varied by (i) the creation or issue of further Shares ranking pari passu therewith; (ii) a purchase or redemption by the Company of its own Shares; or (iii) the creation or issue for value (as determined by the Board) of further Shares ranking as regards participation in the profits or assets of the Company or otherwise in priority to them. For the avoidance of doubt:

 

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38.1.                     the issue, redemption or purchase of any of the 25,000 Euro Deferred Shares of €1.00 each or the 40,000,000 Preferred Shares of US$0.01 each shall not constitute a variation of the rights of the holders of Ordinary Shares; and

 

38.2.                     the issue of Preferred Shares or any class or series of Preferred Shares which rank pari passu with, or junior to, any existing Preferred Shares or class or series of Preferred Shares shall not constitute a variation of the existing Preferred Shares or class or series of Preferred Shares.

 

LIEN ON SHARES

 

39.                               The Company shall have a first and paramount lien on every Share (not being a fully paid Share) for all monies (whether presently payable or not) payable at a fixed time or called in respect of that Share. The Board, at any time, may declare any Share to be wholly or in part exempt from the provisions of this Article 39. The Company’s lien on a Share shall extend to all monies payable in respect of it.

 

40.                               The Company may sell in such manner as the Board determines any Share on which the Company has a lien if a sum in respect of which the lien exists is presently payable and is not paid within fourteen (14) clear days after notice demanding payment, stating that if the notice is not complied with the Share may be sold, has been given to the holder of the Share or to the person entitled to it by reason of the death, bankruptcy or insolvency of the holder or otherwise by operation of law or regulation (whether of Ireland or otherwise).

 

41.                               To give effect to a sale, the Board may authorise some person to execute an instrument of transfer of the Share(s) sold to, or in accordance with the directions of, the transferee. The transferee shall be entered in the Register as the holder of the Share(s) comprised in any such transfer and he or she shall not be bound to see to the application of the purchase monies nor shall his or her title to the Share(s) be affected by any irregularity in, or invalidity of, the proceedings in reference to the sale, and after the name of the transferee has been entered in the Register, the remedy of any person aggrieved by the sale shall be in damages only and against the Company exclusively.

 

42.                               The net proceeds of the sale, after payment of the costs, shall be applied in payment of so much of the sum for which the lien exists as is presently payable and any residue (upon surrender to the Company for cancellation of the certificate for the Shares sold and subject to a like lien for any monies not presently payable as existed upon the Shares before the sale) shall be paid to the person entitled to the Shares at the date of the sale.

 

43.                               Whenever any law for the time being of any country, state or place imposes or purports to impose any immediate or future or possible liability upon the Company to make any payment or empowers any government or taxing authority or government official to require the Company to make any payment in respect of any Shares registered in the Register as held either jointly or solely by any Member or in respect of any dividends, bonuses or other monies due or payable or accruing due or which may become due or payable to such Member by the Company on, or in respect of, any Shares registered as mentioned above or for or on account or in respect of any Member and whether in consequence of:

 

(a)                                                the death of such Member;

 

(b)                                                the non-payment of any income tax or other tax by such Member;

 

(c)                                                 the non-payment of any estate, probate, succession, death, stamp or other duty by the executor or administrator of such Member or by or out of his or her estate; or

 

(d)                                                any other act or thing,

 

in every such case (except to the extent that the rights conferred upon holders of any class of Shares renders the Company liable to make additional payments in respect of sums withheld on account of the foregoing):

 

43.1.                     the Company shall be fully indemnified by such Member or his or her executor or administrator from all liability;

 

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43.2.                     the Company shall have a lien upon all dividends and other monies payable in respect of the Shares registered in the Register as held either jointly or solely by such Member for all monies paid or payable by the Company as referred to above in respect of such Shares or in respect of any dividends or other monies thereon or for or on account or in respect of such Member under or in consequence of any such law, together with interest at the rate of fifteen percent (15%) per annum (or such other rate as the Board may determine) thereon from the date of payment to the date of repayment, and the Company may deduct or set off against such dividends or other monies so payable any monies paid or payable by the Company as referred to above together with interest at the same rate;

 

43.3.                     the Company may recover as a debt due from such Member or his or her executor or administrator (wherever constituted) any monies paid by the Company under or in consequence of any such law and interest thereon at the rate and for the period referred to above in excess of any dividends or other monies then due or payable by the Company; and

 

43.4.                     the Company may, if any such money is paid or payable by it under any such law as referred to above, refuse to register a transfer of any Shares by any such Member or his or her executor or administrator until such money and interest is set off or deducted as referred to above or, in the case that it exceeds the amount of any such dividends or other monies then due or payable by the Company, until such excess is paid to the Company.

 

44.                               Subject to the rights conferred upon the holders of any class of Shares, nothing in Article 43 will prejudice or affect any right or remedy which any law may confer or purport to confer on the Company. As between the Company and every such Member as referred to above (and, his or her executor, administrator and estate, wherever constituted), any right or remedy which such law shall confer or purport to confer on the Company shall be enforceable by the Company.

 

CALLS ON SHARES

 

45.                               Subject to the terms of allotment, the Board may make calls upon the Members in respect of any monies unpaid on their Shares and each Member (subject to receiving at least fourteen (14) clear days’ notice specifying when and where payment is to be made) shall pay to the Company as required by the notice the amount called on his or her Shares. A call may be required or permitted to be paid in instalments. A call may be revoked before receipt by the Company of a sum due thereunder, in whole or in part, and payment of a call may be postponed in whole or in part.

 

46.                               A call shall be deemed to have been made at the time when the resolution of the Board authorising the call was passed.

 

47.                               A person on whom a call is made shall (in addition to a transferee) remain liable notwithstanding the subsequent transfer of the Share in respect of which the call is made.

 

48.                               The joint holders of a Share shall be jointly and severally liable to pay all calls in respect thereof.

 

49.                               If a call remains unpaid after it has become due and payable, the person from whom it is due and payable shall pay interest on the amount unpaid from the day it became due until it is paid at the rate fixed by the terms of allotment of the Share or in the notice of the call or, if no rate is fixed, at the appropriate rate (as defined by the Companies Act), but the Board may waive payment of the interest wholly or in part.

 

50.                               An amount payable in respect of a Share on allotment or at any fixed date, whether in respect of nominal value or by way of premium, shall be deemed to be a call and, if it is not paid, the provisions of these Articles shall apply as if that amount had become due and payable by virtue of a call.

 

51.                               Subject to the terms of allotment, the Board may make arrangements on the issue of Shares for a difference between the holders in the amounts and times of payment of calls on their Shares.

 

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52.                               The Directors may, if they think fit, receive from any Member willing to advance the same all or any part of the monies uncalled and unpaid upon any Shares held by him or her, and upon all or any of the monies so advanced may pay (until the same would, but for such advance, become payable) interest at such rate as may be agreed upon between the Directors and the Member paying such sum in advance.

 

FORFEITURE

 

53.                               If a Member fails to pay any call or instalment of a call on the day appointed for payment thereof, the Directors, at any time thereafter during such times as any part of the call or instalment remains unpaid, may serve a notice on him or her requiring payment of so much of the call or instalment as is unpaid together with any interest which may have accrued.

 

54.                               The notice shall state a further day (not earlier than the expiration of fourteen (14) clear days from the date of service of the notice) on or before which the payment required by the notice is to be made, and shall state that in the event of non-payment at or before the time appointed, the Shares in respect of which the call was made will be liable to be forfeited.

 

55.                               If the requirements of any such notice as aforesaid are not complied with, then at any time thereafter before the payment required by the notice has been made, any Shares in respect of which the notice has been given may be forfeited by a resolution of the Directors to that effect. The forfeiture shall include all dividends or other monies payable in respect of the forfeited Shares and not paid before forfeiture. The Board may accept a surrender of any Share liable to be forfeited hereunder.

 

56.                                On the trial or hearing of any action for the recovery of any money due for any call, it shall be sufficient to prove that the name of the Member sued is entered in the Register as the holder, or one of the holders, of the Shares in respect of which such debt accrued, that the resolution making the call is duly recorded in the minute book and that notice of such call was duly given to the Member sued, in pursuance of these Articles, and it shall not be necessary to prove the appointment of the Directors who made such call nor any other matters whatsoever, but the proof of the matters aforesaid shall be conclusive evidence of the debt.

 

57.                               A forfeited Share may be sold or otherwise disposed of on such terms and in such manner as the Directors think fit and, at any time before a sale or disposition, the forfeiture may be cancelled on such terms as the Directors think fit. Where for the purposes of its disposal, such a Share is to be transferred to any person, the Board may authorise some person to execute an instrument of transfer of the Share to that person. The Company may receive the consideration, if any, given for the Share on any sale or disposition thereof and may execute a transfer of the Share in favour of the person to whom the Share is sold or disposed of and thereupon he or she shall be registered as the holder of the Share and shall not be bound to see to the application of the purchase money, if any, nor shall his or her title to the Share be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, sale or disposal of the Share.

 

58.                               A person whose Shares have been forfeited shall cease to be a Member in respect of the forfeited Shares, but nevertheless shall remain liable to pay to the Company all monies which, at the date of forfeiture, were payable by him or her to the Company in respect of the Shares, without any deduction or allowance for the value of the Shares at the time of forfeiture but his or her liability shall cease if and when the Company shall have received payment in full of all such monies in respect of the Shares.

 

59.                               A statement in writing that the maker of the statement is a Director or the Secretary of the Company, and that a Share in the Company has been duly forfeited on the date stated in the statement, shall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled to the Share.

 

60.                               The provisions of these Articles as to forfeiture shall apply in the case of non-payment of any sum which, by the terms of issue of a Share, becomes payable at a fixed time, whether on account of the nominal value of the Share or by way of premium, as if the same had been payable by virtue of a call duly made and notified.

 

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61.                               The Directors may accept the surrender of any Share which the Directors have resolved to have been forfeited upon such terms and conditions as may be agreed and, subject to any such terms and conditions, a surrendered Share shall be treated as if it has been forfeited.

 

NON-RECOGNITION OF TRUSTS

 

62.                               The Company shall not be obligated to recognise any person as holding any Share upon any trust (except as is otherwise provided in these Articles or to the extent required by law) and the Company shall not be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent, future, or partial interest in any Share, or any interest in any fractional part of a Share, or (except only as is otherwise provided by these Articles or the Companies Act) any other rights in respect of any Share except an absolute right to the entirety thereof in the registered holder. This shall not preclude the Company from requiring the Members or a transferee of Shares to furnish the Company with information as to the beneficial ownership of any Share when such information is reasonably required by the Company.

 

TRANSMISSION OF SHARES

 

63.                               If a Member dies, the survivor or survivors where the deceased was a joint holder, and the legal personal representatives of the deceased where he or she was a sole holder or the only survivor of joint holders, shall be the only persons recognised by the Company as having any title to his or her interest in the Shares; but nothing herein contained shall release the estate of any deceased holder from any liability in respect of any Share which had been jointly held by him or her solely or jointly with other persons.

 

64.                               A person becoming entitled to a Share in consequence of the death, bankruptcy, liquidation or insolvency of a Member, or otherwise becoming entitled to a Share by operation of any law, directive or regulation (whether of Ireland, the European Union, or any other jurisdiction) may elect, upon such evidence of title being produced as the Directors or the Secretary (or such other person as may be nominated by the Secretary for this purpose) may reasonably require at any time and from time to time, and subject as further provided in this Article, either to become the holder of the Share or to have some person nominated by him or her registered as the transferee of such Share. If he or she elects to become the holder of the Share, he or she shall give notice to the Company to that effect and, where the Directors or the Secretary (or such other person as may be nominated by the Secretary for this purpose) are satisfied with the evidence of title produced to them, they may register such person as the holder of the Share, subject to the other provisions of these Articles and of the Companies Act. If he or she elects to have another person registered as the transferee of the relevant Share, he or she shall execute an instrument of transfer of the Share to that person.  All of these Articles relating to the transfer of Shares shall apply to the notice or instrument of transfer as if it were an instrument of transfer executed by the relevant Member and the event giving rise to the entitlement of the relevant person to the Shares had not occurred.

 

65.                               A person becoming entitled to a Share by transmission shall have the rights to which he or she would be entitled if he or she were the holder of the Share (including the right to receive and give a valid discharge for any dividends, distributions or other moneys payable on or in respect of the Share), except that, before being registered as the holder of the Share, he or she shall not be entitled in respect of it to receive notices of, or to attend or vote at, any meeting of the Company or at any separate meeting of holders of any class of Shares in the Company. The Directors or the Secretary (or such other person as may be nominated by the Secretary for this purpose), at any time, may give notice requiring any such person to elect either to be registered himself or herself as the holder of the Share or to transfer the Share and, if the notice is not complied with within ninety (90) days, the Directors or the Secretary (or such other person as may be nominated by the Secretary for this purpose) thereupon may withhold payment of all dividends, bonuses or other monies payable in respect of the Share until the requirements of the notice have been complied with.

 

AMENDMENT OF MEMORANDUM OF ASSOCIATION;
CHANGE OF LOCATION OF REGISTERED OFFICE; AND
ALTERATION OF CAPITAL

 

66.                               The Company may by Ordinary Resolution (or as otherwise provided in these Articles, or determined by the Board, or otherwise permitted under applicable law):

 

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66.1.                      divide its share capital into several classes and attach to them respectively any preferential, deferred, qualified or special rights, privileges or conditions;

 

66.2.                      increase the authorised share capital by such sum to be divided into Shares of any nominal value;

 

66.3.                      consolidate and divide all or any of the Shares into Shares of a larger nominal value than the existing Shares;

 

66.4.                      subdivide the Shares, or any of them, into Shares of a smaller nominal value, so however, that in the sub-division the proportion between the amount paid and the amount, if any, unpaid on each reduced Share shall be the same as it was in the case of the Share from which the reduced Share is derived (and so that the Board may determine that, as between the holders of the Shares resulting from such sub-division, one or more of the Shares may have, as compared with the others, any such preferred, deferred or other rights or be subject to any such restrictions as the Company has power to attach to unissued or new Shares);

 

66.5.                      cancel any Shares which have not been taken or agreed to be taken by any person and diminish the amount of the Company’s share capital by the amount of the Shares so cancelled;

 

66.6.                      increase the nominal value of any of the Shares by the addition to them of any undenominated capital;

 

66.7.                      reduce the nominal value of any of the Shares by the deduction from them of any part of that value, subject to the crediting of the amount of the deduction to undenominated capital, other than the share premium account;

 

66.8.                      convert any undenominated capital into Shares for allotment as bonus shares to holders of existing Shares; and/or

 

66.9.                      subject to applicable law, change the currency denomination of its share capital.

 

67.                               Subject to the provisions of the Companies Act and to paragraph 6 of the Memorandum, the Company may:

 

67.1.                     by Special Resolution (or as otherwise required or permitted by applicable law and/or paragraph 6 of the Memorandum) change its name, alter or add to the Memorandum with respect to any objects, powers or other matters specified therein or alter or add to these Articles;

 

67.2.                     by Special Resolution (or as otherwise required or permitted by these Articles and applicable law (including, without limitation, section 83 of the Companies Act)) reduce its issued share capital and any capital redemption reserve fund, share premium account or undenominated capital account. In relation to such reductions, the Company may by Special Resolution (or as otherwise required or permitted by these Articles and applicable law) determine the terms upon which the reduction is to be effected, including in the case of a reduction of part only of any class of Shares, those Shares to be affected; and

 

67.3.                     by resolution of the Directors, change the location of its registered office.

 

68.                               Where any difficulty arises in regard to any alteration or reorganisation of the share capital of the Company, the Board may settle the same as they think expedient and in particular, may arrange to sell any Shares representing fractions for the best price reasonably obtainable to any person and distribute the proceeds of sale in due proportion among those Members, and the Board may authorise any person to execute an instrument of transfer of the Shares to, or in accordance with the directions of, the purchaser. The transferee shall not be bound to see to the application of the purchase money nor shall his or her title to the Shares be affected by any irregularity in or invalidity of the proceedings in reference to the sale.

 

CLOSING REGISTER OF MEMBERS OR FIXING RECORD DATE

 

69.                               For the purpose of determining Members entitled to notice of or to vote at any meeting of Members or any adjournment thereof, or Members entitled to receive payment of any dividend, or in order to make a determination of Members for any other proper purpose, the Board may provide, subject to the requirements of section 174 of

 

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the Companies Act, that the Register of Members shall be closed for transfers at such times and for such periods, not exceeding in the whole thirty (30) days in each year, as it may determine. If the Register of Members shall be so closed for the purpose of determining Members entitled to notice of, or to vote at, a meeting of Members, such Register of Members shall be so closed for at least five (5) days immediately preceding such meeting and the record date for such determination shall be the date of the closure of the Register of Members.

 

70.                               In lieu of, or apart from, closing the Register of Members, the Board may fix in advance a date as the record date (a) for any such determination of Members entitled to notice of or to vote at a meeting of the Members, which record date shall not be more than sixty (60) days before the date of such meeting, and (b) for the purpose of determining the Members entitled to receive payment of any dividend or other distribution, or in order to make a determination of Members for any other proper purpose, which record date shall not be more than sixty (60) days prior to the date of payment of such dividend or other distribution or the taking of any action to which such determination of Members is relevant.

 

71.                               If the Register of Members is not so closed and no record date is fixed for the determination of Members entitled to notice of or to vote at a meeting of Members, the date immediately preceding the date on which notice of the meeting is deemed given under these Articles shall be the record date for such determination of Members. Where a determination of Members entitled to vote at any meeting of Members has been made as provided in these Articles, such determination shall apply to any adjournment thereof; provided, however, that the Directors may fix a new record date of the adjourned meeting, if they think fit.

 

GENERAL MEETINGS

 

72.                               The Board shall convene and the Company shall hold annual general meetings in accordance with the requirements of the Companies Act.

 

73.                               The Board may, whenever it thinks fit, and shall, on the requisition in writing of Members holding such number of Shares as is prescribed by, and made in accordance with the Companies Act, convene a general meeting in the manner required by the Companies Act. All general meetings other than annual general meetings shall be called extraordinary general meetings. Where any provision of the Companies Act confers rights on the members of a company to convene a general meeting without first directing the board of directors to convene a general meeting and expresses such rights to apply save where a company’s articles of association or constitution provides otherwise, such rights shall not apply to the Members of the Company.

 

74.                               The Company shall in each year hold a general meeting as its annual general meeting in addition to any other meeting in that year, and shall specify the meeting as such in the notice calling it. Not more than fifteen (15) months shall elapse between the date of one annual general meeting of the Company and that of the next. Each general meeting shall be held at such time and place as designated by the Board and as specified in the notice of meeting.  Subject to section 176 of the Companies Act, all general meetings may be held outside of Ireland.

 

75.                               The Board may authorise the Secretary to postpone or cancel any general meeting called in accordance with the provisions of these Articles (other than a meeting requisitioned by the Members in accordance with the Companies Act or the postponement or cancellation of which would be contrary to the Companies Act, law or a Court order pursuant to the Companies Act) if the Board considers that, for any reason, it is impractical or unreasonable to hold the general meeting, provided that notice of postponement or cancellation is given to each Member before the time for such meeting. Fresh notice of the date, time and place for any postponed meeting shall be given to each Member in accordance with the provisions of these Articles.

 

NOTICE OF GENERAL MEETINGS

 

76.                               Subject to the provisions of the Companies Act allowing a general meeting to be called by shorter notice, an annual general meeting, and an extraordinary general meeting called for the passing of a Special Resolution, shall be called on at least twenty-one (21) clear days’ notice and all other extraordinary general meetings shall be called on at least fourteen (14) clear days’ notice. Such notice shall state the date, time, place of the meeting and the general nature of the business to be considered. Every notice shall specify such other details as are required by applicable law or the relevant code, rules and regulations applicable to the listing of the Shares on any Exchange.

 

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77.                               A general meeting of the Company shall, whether or not the notice specified in Article 76 has been given and whether or not the provisions of the Articles regarding general meetings have been complied with, be deemed to have been duly convened if applicable law so permits and it is so agreed by the Auditors and by all the Members entitled to attend and vote thereat or by their proxies.

 

78.                               The notice convening an annual general meeting shall specify the meeting as such, and the notice convening a meeting to pass a Special Resolution shall specify the intention to propose a resolution as a Special Resolution. Notice of every general meeting shall be given in any manner permitted by these Articles to all Members.

 

79.                               There shall appear with reasonable prominence in every notice of general meeting of the Company a statement that a Member entitled to attend and vote is entitled to appoint one or more proxies to attend and vote instead of him or her and that a proxy need not be a Member of the Company.

 

80.                               The accidental omission to give notice of a general meeting to, or the non-receipt of notice of a meeting by, any person entitled to receive notice shall not invalidate the proceedings of that meeting.

 

81.                               In cases where instruments of proxy are sent out with notices, the accidental omission to send such instrument of proxy to, or the non-receipt of such instrument of proxy by, any person entitled to receive notice shall not invalidate the notice or any resolution passed or any proceeding at any such meeting. A Member present, either in person or by proxy, at any general meeting of the Company or of the holders of any class of Shares in the Company will be deemed to have received notice of that meeting and, where required, of the purpose for which it was called.

 

PROCEEDINGS AT GENERAL MEETINGS

 

82.                               The business of annual general meetings shall include:

 

82.1.                     the consideration of the Company’s statutory financial statements and the report of the Directors and the report of the Auditors on those statements and that report;

 

82.2.                      the review by the Members of the Company’s affairs;

 

82.3.                      the appointment or re-appointment of the Auditors;

 

82.4.                      the authorisation of the Directors to approve the remuneration of the Auditors; and

 

82.5.                      the election and re-election of Directors.

 

83.                               No business shall be transacted at any general meeting unless a quorum is present. One or more Members present in person or by proxy (whether or not such Member actually exercises his voting rights in whole, in part or at all at the relevant general meeting) holding not less than a majority of the issued and outstanding Shares of the Company entitled to vote at the meeting in question shall be a quorum.

 

84.                               If within 15 minutes (or such longer time not exceeding one hour as the Chairperson of the meeting may decide to wait) after the time appointed for the holding of the meeting a quorum is not present, or if during the meeting a quorum ceases to be present, the meeting (i) if convened on the requisition of Members, shall be dissolved; and (ii) in any other case, shall stand adjourned to the same day in the next week or to such other day and at such other time and place as the Chairperson (or, in default, the Board) may, subject to the provisions of the Companies Act, determine. If at such adjourned meeting a quorum is not present within 15 minutes after the time appointed for holding it the adjourned meeting shall be dissolved.

 

85.                               If the Board wishes to make this facility available to Members for any or all general meetings of the Company, a Member may participate in any general meeting of the Company by means of a telephone, video, electronic or similar communication equipment by way of which all persons participating in such meeting can communicate with each other simultaneously and instantaneously and such participation shall be deemed to constitute presence in person at the meeting.

 

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86.                               Each Director and the Auditors shall be entitled to attend and speak at any general meeting of the Company.

 

87.                               The Chairperson, or in his absence, some other Director nominated by the Directors shall preside at every general meeting of the Company, but if at any meeting neither the Chairperson, nor such other Director, is present within fifteen minutes after the time appointed for the holding of the meeting, or if none of them are willing to act as Chairperson, the Directors present shall choose some Director present to be Chairperson, or if no Director is present, or if all the Directors present decline to take the chair, the Members present shall choose some Member present to be Chairperson.

 

88.                               The Chairperson of the meeting may, and shall if so directed by the meeting (upon the passage of an Ordinary Resolution), adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished, or which might have been transacted, at the meeting from which the adjournment took place. When a general meeting is adjourned for thirty (30) days or more, notice of the adjourned meeting shall be given as in the case of an original meeting; save as aforesaid it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned general meeting. Without prejudice to any other power of adjournment which the Chairperson of the meeting may have under these Articles, at common law or otherwise, the Chairperson may, without the consent of the meeting, adjourn the meeting from time to time (or indefinitely) and from place to place if he or she decides that it is necessary or appropriate to do so in order to: (a) secure the proper and orderly conduct of the meeting; (b) give all persons entitled to do so an opportunity of attending the meeting; (c) give all persons entitled to do so a reasonable opportunity of speaking and voting at the meeting; or (d) ensure that the business of the meeting is properly concluded or disposed of, including (without limitation) for the purpose of determining the result of a poll.

 

89.

 

89.1.                     Subject to the Companies Act, a resolution may only be put to a vote at a general meeting of the Company or of any class of Members if:

 

(a)                                 it is specified in the notice of meeting;

 

(b)                                 it is proposed by or at the direction of the Board;

 

(c)                                  it is proposed at the direction of a court of competent jurisdiction;

 

(d)                                 it is proposed pursuant to, and in accordance with, the procedures and requirements of Article 90 or 155;

 

(e)                                  it is proposed on the requisition in writing of such number of Members as is prescribed by, and is made in accordance with, section 178(3) of the Companies Act;

 

(f)                                   the Chairperson of the meeting decides that the resolution may properly be regarded as within the scope of the meeting; or

 

(g)                                  it has not been withdrawn by the Chairperson in accordance with Article 89.2.

 

89.2.                     The Chairperson of the meeting may, at his sole discretion, withdraw any resolution to be put to a vote at a general meeting of the Company or of any class of Members and such withdrawal shall not invalidate the proceedings of such meeting and shall be without prejudice to any other resolutions to be put to a vote at such general meeting of the Company or any class of Members.

 

89.3.                     No amendment may be made to a resolution, at or before the time when it is put to a vote, unless the Chairperson of the meeting decides that the amendment or the amended resolution may properly be put to a vote at that meeting.

 

89.4.                     If the Chairperson of the meeting rules a resolution or an amendment to a resolution admissible or out of order (as the case may be), the proceedings of the meeting or on the resolution in question shall not be

 

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invalidated by any error in his or her ruling. Any ruling by the Chairperson of the meeting in relation to a resolution or an amendment to a resolution shall be final and conclusive.

 

90.

 

90.1.                     For business to be properly requested by a Member to be brought before a general meeting, (other than nominations of directors, which may only be made in accordance with Article 155.1) the Member must:

 

(a)                                 be a Member of the Company at the time of the giving of the notice for such general meeting;

 

(b)                                 be entitled to vote at such meeting; and

 

(c)                                  have given timely and proper notice in writing to the Secretary in accordance with this Article 90.

 

90.2.                      To be timely for an annual general meeting, a Member’s notice to the Secretary must be delivered to or mailed and received at the registered office of the Company: (i) with respect to the first annual general meeting of the Company as a public limited company, not later than the 10 th  day following the day on which public announcement of the date of such annual general meeting is first made by the Company; and (ii) with respect to all other annual general meetings, not less than ninety (90) days nor (except for shareholder proposals subject to Rule14a-8(e)(3) of the Exchange Act) more than one hundred and twenty (120) days prior to the first anniversary of the date of the notice convening the preceding year’s annual general meeting; provided, however, that if the date of the annual general meeting is changed by more than thirty (30) days from the first anniversary date of the preceding year’s annual general meeting, the Member’s notice must be so received not earlier than one hundred and twenty (120) days prior to such annual general meeting and not later than the close of business on the later of (x) the 90 th  day prior to such annual general meeting or (y) the 10 th  day following the day on which a public announcement of the date of the annual general meeting is first made. In no event shall the adjournment or postponement of any annual general meeting, or the public announcement of such an adjournment or postponement, commence a new time period (or extend any time period) for the giving of a Member’s notice to the Secretary pursuant to this Article 90.2.

 

90.3.                      To be timely for a general meeting (other than an annual general meeting), a Member’s notice to the Secretary must be delivered to or mailed and received at the registered office of the Company not less than ninety (90) days nor (except for shareholder proposals subject to Rule14a-8(e)(3) of the Exchange Act) more than one hundred and twenty (120) days prior to the date of such meeting or, if the first public announcement of the date of such meeting is less than 100 days prior to the date of such meeting, the 10 th  day following the date on which public announcement is first made of the date of the general meeting. In no event shall the adjournment or postponement of any general meeting, or the public announcement of such an adjournment or postponement, commence a new time period (or extend any time period) for the giving of a Member’s notice to the Secretary pursuant to this Article 90.3.

 

90.4.                     To be in proper written form, a Member’s notice shall set forth as of the date of the notice and as to the Member giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (each, a Proponent and collectively, the Proponents) as to each matter such Member proposes to bring before the meeting:

 

(a)                                                a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting;

 

(b)                                                the name and address, in the case of a Member as it appears on the Register of Members, of each Proponent;

 

(c)                                                 date(s) upon which each Proponent acquired such Shares;

 

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(d)                                                the class, series and number of Shares which are beneficially owned by each Proponent and their respective affiliates or associates or others acting in concert therewith;

 

(e)                                                 any option, warrant, convertible security, share appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of Shares or with a value of each Proponent;

 

(f)                                                  any proxy, contract, arrangement, understanding, or relationship pursuant to which each Proponent has a right to vote any class or series of Shares;

 

(g)                                                 any rights to dividends on the Shares beneficially owned by each Proponent that are separated or separable from the underlying Shares;

 

(h)                                                any proportionate interest in the Shares held, directly or indirectly, by a general or limited partnership in which each Proponent is a general partner or, directly or indirectly, beneficially owns an interest in a general partner of such general or limited partnership;

 

(i)                                                    any performance-related fees (other than an asset-based fee) that each Proponent is entitled to based on any increase or decrease in the value of the Shares, including without limitation any such interests held by members of each Proponent’s immediate family sharing the same household

 

(j)                                                   any significant equity interests, derivative or short interests in any principal competitor of the Company held by each Proponent;

 

(k)                                                any direct or indirect interest of each Proponent in any contract with the Company, any affiliate of the Company or any principal competitor of the Company (including, in any such case, any employment agreement, collective bargaining agreement or consulting agreement);

 

(l)                                                    any agreement, arrangement, understanding, relationship or otherwise, including any repurchase or similar so-called “stock borrowing” agreement or arrangement, involving each Proponent, directly or indirectly, the purpose or effect of which is to mitigate loss to, reduce the economic risk (of ownership or otherwise) of any class or series of the Shares by, manage the risk of share price changes for, or increase or decrease the voting power of, each Proponent with respect to any class or series of the Shares, or which provides, directly or indirectly, the opportunity to profit or share in any profit derived from any decrease in the price or value of any class or series of the Shares;

 

(m)                                            any material interest of each Proponent, or of any other person on whose behalf such business is raised, in such business;

 

(n)                                                a description of any agreement, arrangement or understanding (whether oral or in writing) with respect to such nomination or proposal between or among each Proponent and any of its affiliates or associates, and any others (including their names) acting in concert, or otherwise under the agreement, arrangement or understanding, with any of the foregoing;

 

(o)                                                a representation that each Proponent is holders of record or beneficial owners, as the case may be, of Shares entitled to vote at the meeting and intend to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice (with respect to a notice under Article 155) or to propose the business that is specified in the notice (with respect to a notice under Article 90);

 

(p)                                                a representation as to whether each Proponent intends to deliver a proxy statement and form of proxy to holders of a sufficient number of holders of the Company’s voting shares to elect such nominee or nominees (with respect to a notice under Article 155) or to carry such proposal (with respect to a notice under Article 90);

 

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(q)                                                to the extent known by any Proponent, the name and address of any other Member supporting the proposal on the date of such Member’s notice;

 

(r)                                                   a description of all Derivative Transactions by each Proponent during the previous twelve (12) month period, including the date of the transactions and the class, series and number of securities involved in, and the material economic terms of, such Derivative Transactions; and

 

(s)                                                  any other information relating to each Proponent that would be required to be disclosed in a proxy statement and form of proxy or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in a contested election pursuant to Regulation 14A of the Exchange Act.

 

90.5.                     The Chairperson shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Article and, if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.

 

91.                                Except where a greater majority is required by the Companies Act or where these Articles provide otherwise, any question proposed for a decision of the Members at any general meeting of the Company or a decision of any class of Members at a separate meeting of any class of Shares shall be decided by an Ordinary Resolution.

 

92.                                At any general meeting, a resolution put to the vote of the meeting shall be decided on a poll. The Board or the Chairperson may determine the manner in which the poll is to be taken and the manner in which the votes are to be counted.

 

93.                                A poll demanded on the election of the Chairperson or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time as the Chairperson of the meeting directs, and any business other than that on which a poll has been demanded may be proceeded with pending the taking of the poll.

 

94.                                No notice need be given of a poll not taken immediately. The result of the poll shall be deemed to be the resolution of the general meeting at which the poll was demanded. On a poll, a Member entitled to more than one vote need not use all his or her votes or cast all the votes he or she uses in the same way.

 

95.                                If authorised by the Board, any vote taken by written ballot may be satisfied by a ballot submitted by electronic and/or telephonic transmission, provided that any such electronic or telephonic submission must either set forth or be submitted with information from which it can be determined that the electronic or telephonic submission has been authorised by the Member or proxy.

 

96.                                The Board may adopt such rules, regulations and procedures for the conduct of any meeting of the Members as it deems appropriate. Except to the extent inconsistent with any applicable rules, regulations or procedures adopted by the Board, the Chairperson of any meeting may adopt such rules, regulations and procedures for the meeting, and take such actions with respect to the conduct of the meeting, as the Chairperson of the meeting deems appropriate. The rules, regulations and procedures adopted may include, without limitation, ones that (i) establish an agenda or order of business, (ii) are intended to maintain order and safety at the meeting, (iii) contain limitations on attendance at or participation in the meeting to Members of record of the Company, their duly authorised proxies or such other persons as the Chairperson of the meeting shall determine, (iv) contain restrictions on entry to the meeting after the time fixed for its commencement and (v) limit the time allotted to Member questions or comments.

 

VOTES OF MEMBERS

 

97.                                Subject to any rights or restrictions for the time being attached to any class or classes of Shares, every Member present in person or by proxy shall have one vote for each Share registered in his or her name in the Register of Members.

 

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98.                                In the case of joint holders of record the vote of the senior holder who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the Register of Members.

 

99.                                A Member of unsound mind, a Member who has made an enduring power of attorney, or in respect of whom an order has been made by any court, having jurisdiction in cases of unsound mind, may vote by his or her committee, donee of an enduring power of attorney, receiver, guardian or other person appointed by the foregoing court, and any such committee, donee of an enduring power of attorney, receiver, guardian or other persons appointed by the foregoing court may vote by proxy.

 

100.                         No Member shall be entitled to vote at any general meeting unless he or she is registered as a Member on the record date for such meeting.

 

101.                         No objection shall be raised to the qualification of any voter except at the general meeting or adjourned general meeting at which the vote objected to is given or tendered and every vote not disallowed at such general meeting shall be valid for all purposes. Any such objection made in due time shall be referred to the Chairperson of the general meeting whose decision shall be final and conclusive.

 

102.                         Unless the Board decides otherwise, no Member shall be entitled to be present or vote at any meeting either personally or by proxy until such Member has paid all calls due and payable on every Share held by him or her whether alone or jointly with any other person together with interest and expenses (if any) to the Company.

 

103.                         Resolutions in writing signed by all of the Members may be validly passed only prior to the completion of the initial public offering of the Company’s ordinary shares on the Nasdaq Stock Exchange. For the avoidance of doubt, upon completion of the initial public offering of the Company’s ordinary shares on the Nasdaq Stock Exchange, any resolution or action required or permitted to be passed or taken by the Members may be effected only at a duly convened annual or extraordinary general meeting of Members and may not be effected by any resolution or consent in writing by such Members.

 

PROXIES AND CORPORATE REPRESENTATIVES

 

104.                         Votes may be given either personally or by proxy. A Member may appoint more than one proxy or the same proxy under one or more instruments to attend and vote at a meeting and may appoint a proxy to vote both in favour of and against the same resolution in such proportion as specified in the instrument appointing the proxy.

 

105.

 

105.1.              Every Member entitled to attend and vote at a general meeting may appoint a proxy to attend, speak and vote on his or her behalf and may appoint more than one proxy to attend, speak and vote at the same meeting. The appointment of a proxy or corporate representative shall be in such form and may be accepted by the Company at such place and at such time as may be specified in the notice convening the meeting or in any other information sent to the Members by or on behalf of the Board in relation to the meeting, subject to applicable requirements of the United States Securities and Exchange Commission and any Exchange on which the Shares are listed.

 

105.2.              Without limiting the foregoing, the Board or the Secretary may from time to time permit appointments of a proxy to be made by means of an electronic or internet communication or facility and may in a similar manner permit supplements to, or amendments or revocations of, any such electronic or internet communication or facility to be made. For the avoidance of doubt, such appointments of proxy made by electronic or internet communications (as permitted by the Board or the Secretary) will be deemed to be deposited at the place specified for such purpose once received by the Company. The Board or the Secretary may in addition prescribe the method of determining the time at which any such electronic or internet communication or facility is to be treated as deposited at the place specified for such purpose. The Board may treat any such electronic or internet communication or facility which purports to be or is expressed to be sent on behalf of a Member as sufficient evidence of the authority of the person sending that instruction to send it on behalf of that Member.

 

106.                         Any body corporate which is a Member of the Company may authorise such person or persons as it thinks fit to act as its representative at any meeting of the Company or of any class of Members of the Company and the person or persons so authorised shall be entitled to exercise the same powers on behalf of the body corporate

 

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which he or she represents as that body corporate could exercise if it were an individual Member of the Company. The Company may require evidence from the body corporate of the due authorisation of such person or persons to act as the representative of the relevant body corporate.

 

107.                         An appointment of proxy relating to more than one meeting (including any adjournment thereof) having once been received by the Company for the purposes of any meeting shall not require to be delivered, deposited or received again by the Company for the purposes of any subsequent meeting to which it relates.

 

108.                         Receipt by the Company of an appointment of proxy in respect of a meeting shall not preclude a Member from attending and voting at the meeting or at any adjournment thereof which attendance and voting will automatically cancel any proxy previously submitted.

 

109.                         An appointment of proxy shall be valid, unless the contrary is stated therein, for any adjournment of the meeting as well as for the meeting to which it relates.

 

110.                         A vote given in accordance with the terms of an appointment of proxy or a resolution authorising a representative to act on behalf of a body corporate shall be valid notwithstanding the death or insanity of the principal, or the revocation of the appointment of proxy or of the authority under which the proxy was appointed or of the resolution authorising the representative to act or transfer of the Share in respect of which the proxy was appointed or the authorisation of the representative to act was given, provided that no notice in writing (whether in electronic form or otherwise) of such death, insanity, revocation or transfer shall have been received by the Company at the registered office before the commencement of the meeting or adjourned meeting at which the appointment of proxy is used or at which the representative acts.

 

111.                         The Board may send, at the expense of the Company and subject to applicable law (including the rules and regulations of the United States Securities and Exchange Commission), by post, electronic mail or otherwise, to the Members forms for the appointment of a proxy (with or without stamped envelopes for their return) for use at any general meeting or at any class meeting, either in blank or nominating any one or more of the Directors or any other persons in the alternative.

 

DIRECTORS

 

112.                         The number of Directors on the Board shall be not less than three (3) nor more than fifteen (15). The authorised number of Directors (within such fixed maximum and fixed minimum numbers) shall be determined solely by the Board and, for the avoidance of doubt, shall not require approval or ratification by the Company in general meeting.

 

113.                         The remuneration to be paid to the Directors shall be such remuneration as the Directors in their sole discretion shall determine. The Directors shall also be entitled to be paid their travelling, hotel and other expenses properly incurred by them in going to, attending and returning from meetings of the Directors, or any committee of the Directors, or general meetings of the Company, or otherwise in connection with the business of the Company, or to receive a fixed allowance in respect thereof as may be determined by the Board from time to time, or a combination partly of one such method and partly the other. The amount, rate or basis of the remuneration or expenses to be paid to the Directors shall not require approval or ratification by the Company in general meeting. A Director is expressly permitted (for the purposes of section 228(1)(d) of the Companies Act) to use the Company’s property pursuant to or in connection with: the exercise or performance of his duties, functions and powers as Director or employee; the terms of any contract of service or employment or letter of appointment; and, or in the alternative, any other usage authorised by the Directors (or a person authorised by the Directors) from time to time; and including in each case for a Director’s own benefit or for the benefit of another person.

 

114.                         The Board may approve additional remuneration to any Director undertaking any special work or services for, or undertaking any special mission on behalf of, the Company other than his or her ordinary routine work as a Director. Any fees paid to a Director who is also counsel or solicitor to the Company, or otherwise serves it in a professional capacity, shall be in addition to his or her remuneration as a Director.

 

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115.                         The salary or remuneration of a Director appointed to hold employment or executive office may be a fixed sum of money, or wholly or in part governed by business done or profits made, or as otherwise decided by the Board (including, for the avoidance of doubt, by the Board acting through a duly authorised Board committee), and may be in addition to or instead of a fee payable to such Director for his or her services as Director pursuant to these Articles.

 

116.                         Members of special or standing committees may be allowed like compensation for service on any such committees or for attending committee meetings, or both.

 

DIRECTORS’ AND OFFICERS’ INTERESTS

 

117.                         A Director or an officer of the Company who is in any way, whether directly or indirectly, interested in a contract, transaction or arrangement or proposed contract, transaction or arrangement with the Company shall, in accordance with section 231 of the Companies Act, declare the nature of his or her interest at the first opportunity either (a) at a meeting of the Board at which the question of entering into the contract, transaction or arrangement is first taken into consideration, if the Director or officer of the Company knows this interest then exists, or in any other case, at the first meeting of the Board after learning that he or she is or has become so interested or (b) by providing a general notice to the Directors declaring that he or she is a Director or an officer of, or has an interest in, a person and is to be regarded as interested in any transaction or arrangement made with that person, and after giving such general notice it shall not be necessary to give special notice relating to any particular transaction.

 

118.                         A Director may hold any other office or place of profit with the Company (other than the office of its Auditors) in conjunction with his or her office of Director for such period and on such terms as to remuneration and otherwise as the Board may determine.

 

119.                         Nothing in section 228(1)(e) of the Companies Act shall restrict a Director from entering into any commitment which has been approved by the Board or has been approved pursuant to such authority as may be delegated by the Board in accordance with these Articles. It shall be the duty of each Director to obtain the prior approval of the Board, before entering into any commitment permitted by sections 228(1)(e)(ii) and 228(2) of the Companies Act.

 

120.                         A Director may act by himself or herself or by his or her firm in a professional capacity for the Company (other than as its Auditors) and he or she or his or her firm shall be entitled to remuneration for professional services as if he or she were not a Director.

 

121.                         A Director may be or become a director, managing director, joint managing director, deputy managing director, executive director, manager or other officer or member of any other entity or otherwise interested in any entity promoted by the Company or in which the Company may be interested as member or otherwise, and no such Director shall be accountable to the Company for any remuneration or other benefits received by him or her as a Director, managing director, joint managing director, deputy managing director, executive director, manager or other officer or member of such other entity; provided that he or she has declared the nature of his or her position with, or interest in, such entity to the Board in accordance with Article 117 and this has been approved by a majority of the disinterested Directors, notwithstanding the fact that the disinterested Directors may represent less than a quorum.

 

122.                         Nothing in section 228(1)(d) or section 228(1)(f) of the Companies Act shall restrict a Director from engaging directly or indirectly in the same or similar business activities or lines of business as the Company or any of its subsidiaries. To the fullest extent permitted by applicable law, the Company renounces any interest or expectancy of the Company and its subsidiaries in, or in being offered an opportunity to participate in, business opportunities that may from time to time be presented to Directors other than in their role as directors of the Company, even if the opportunity is one that the Company or its subsidiaries might reasonably be expected to have pursued or had the ability or desire to pursue if granted the opportunity to do so. The Directors shall have no duty to communicate or offer such business opportunity to the Company and, to the fullest extent permitted by applicable law, shall not be deemed to have breached any fiduciary or other duty solely by reason of the fact that such Director pursues or acquires such business opportunity, directs such business opportunity to another person or fails to present such business opportunity, or information regarding such business opportunity, to the Company or any of its subsidiaries. A business opportunity shall not be deemed to be an opportunity of the Company if it is an

 

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opportunity that the Company is not financially able or contractually permitted or legally able to undertake, or that is, by its nature, not in line with the Company’s business or is of no advantage to it or is one in which the Company has no interest or reasonable prospect.

 

123.                         No person shall be disqualified from the office of Director or from being an officer of the Company or prevented by such office from contracting with the Company, either as vendor, purchaser or otherwise, nor shall any such contract or any contract or transaction entered into by or on behalf of the Company in which any Director or officer of the Company shall be in any way interested be or be liable to be avoided, nor shall any Director or officer of the Company so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or transaction by reason of such Director or officer of the Company holding office or of the fiduciary relation thereby established; provided that:

 

123.1.              he or she has declared the nature of his or her interest in such contract or transaction to the Board in accordance with Article 117; and

 

123.2.              the contract or transaction is approved by a majority of the disinterested Directors, notwithstanding the fact that the disinterested Directors may represent less than a quorum.

 

124.                         A Director may be counted in determining the presence of a quorum at a meeting of the Board which authorises or approves the contract, transaction or arrangement in which he or she is interested and he or she shall be at liberty to vote in respect of any contract, transaction or arrangement in which he or she is interested, provided that the nature of the interest of any Director in any such contract or transaction shall be disclosed by him or her in accordance with Article 117, at or prior to its consideration and any vote thereon.

 

125.                         For the purposes of Article 117:

 

125.1.              a general notice given to the Directors that a Director is to be regarded as having an interest of the nature and extent specified in the notice in any transaction or arrangement in which a specified person or class of persons is interested shall be deemed to be a disclosure that the Director has an interest in any such transaction of the nature and extent so specified;

 

125.2.              an interest of which a Director has no knowledge and of which it is unreasonable to expect him or her to have knowledge shall not be treated as an interest of his or hers; and

 

125.3.              a copy of every declaration made and notice given under Article 117 shall be entered within three (3) days after the making or giving thereof in a book kept for this purpose. Such book shall be open for inspection without charge by any Director, Secretary, the Auditors or Member of the Company at the registered office and shall be produced at every general meeting of the Company and at any meeting of the Directors if any Director so requests in sufficient time to enable the book to be available at the meeting.

 

POWERS AND DUTIES OF DIRECTORS

 

126.                         The business of the Company shall be managed by the Directors, who may pay all expenses incurred in promoting and registering the Company and may exercise all such powers of the Company as are not, by the Companies Act or by these Articles, required to be exercised by the Company in general meeting, subject, nevertheless, to any of these Articles and to the provisions of the Companies Act. No resolution made by the Company in general meeting shall invalidate any prior act of the Directors that would have been valid if that resolution had not been made.

 

127.                         The Board shall have the power to appoint and remove officers and executives on such terms as the Board sees fit and to give such titles and delegate such responsibilities to those officers and executives as it sees fit.

 

128.                         The Company may exercise the powers conferred by section 44 of the Companies Act with regard to having an official seal for use abroad and such powers shall be vested in the Directors.

 

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129.                         Unless otherwise ordered by the Board, the chief executive officer shall have the authority to exercise the voting powers conferred by shares of any other company held or owned by the Company in such manner in all respects as he or she thinks fit and in particular they may exercise their voting powers in favour of any resolution appointing the Directors or any of them as director or officers of such other company or providing for the payment of remuneration or pensions to the directors or officers of such other company. The Board may from time to time confer like powers upon any other person or persons.

 

130.                         All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments and all receipts for money paid to the Company shall be signed, drawn, accepted, endorsed or otherwise executed, as the case may be, by such person or persons and in such manner as the Directors shall from time to time by resolution determine.

 

131.                         The Directors may from time to time authorise such person or persons as they see fit to perform all acts, including, without prejudice to the foregoing, to effect a transfer of any shares, bonds, or other evidences of indebtedness or obligations, subscription rights, warrants, and other securities in another company in which the Company holds an interest and to issue the necessary powers of attorney for the same; and each such person is authorised on behalf of the Company to vote such securities, to appoint proxies with respect thereto, and to execute consents, waivers and releases with respect thereto, or to cause any such action to be taken.

 

132.                         The Board may exercise all powers of the Company to borrow money and to mortgage or charge its undertaking, property and uncalled capital or any part thereof and to issue debentures, debenture stock, mortgages, bonds or such other securities whether outright or as security for any debt, liability or obligation of the Company or of any third party.

 

133.                         The Directors may procure the establishment and maintenance of or participate in, or contribute to, any non-contributory or contributory pension or superannuation fund, scheme or arrangement or life assurance scheme or arrangement for the benefit of, and pay, provide for or procure the grant of donations, gratuities, pensions, allowances, benefits or emoluments to any persons (including Directors or officers) who are or shall have been at any time in the employment or service of the Company or of any company which is or was a subsidiary or holding company of the Company or of any predecessor in business of the Company or any such subsidiary or holding company and the wives, husbands, widows, widowers, families, relatives or dependants of any such persons. The Directors may also procure the establishment and subsidy of or subscription to and support of any institutions, associations, clubs, funds or trusts calculated to be for the benefit of any such persons as aforesaid or otherwise to advance the interests and well-being of the Company or of any such other company as aforesaid or its Members, and payments for or towards the issuance of any such persons as aforesaid and subscriptions or guarantees of money for charitable or benevolent objects or for any exhibition or for any public, general or useful object; provided that any Director shall be entitled to retain any benefit received by him or her under this Article 133, subject only, where the Companies Act requires, to disclosure to the Members and the approval of the Company in general meeting.

 

134.                         The Board may from time to time provide for the management of the affairs of the Company in such manner as it shall think fit and the specific delegation provisions contained in the Articles shall not limit the general powers conferred by these Articles.

 

MINUTES

 

135.                         The Board shall cause minutes to be made in books kept for the purpose of all (i) appointments of officers and committees made by the Board; and (ii) resolutions and proceedings at meetings of (a) the Company or of the holders of any class of Shares and (b) the Board and of committees of the Board, including in each case the names of the Directors and others present at each meeting. Any such minutes, if signed by the Chairperson of the meeting at which the proceedings were held or by the Chairperson of the next succeeding meeting or the Secretary, shall be prima facie evidence of the matters stated in them.

 

DELEGATION OF THE BOARD’S POWERS

 

136.                         The Board may delegate any of its powers (with power to sub-delegate) to any committee consisting of one or more Directors and/or (if thought fit) one or more other persons.  The Board may also delegate to any Director,

 

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officer or member of the management of the Company or any of its subsidiaries such of its powers as it considers desirable to be exercised by him or her. The Board may also designate one or more persons as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee.  Any such delegation may be made subject to any conditions the Board may impose, and either collaterally with or to the exclusion of its own powers, and may be revoked or altered. Subject to any such conditions, the proceedings of a committee shall be governed by the Articles regulating the proceedings of Directors, so far as they are capable of applying.  Each committee shall keep regular minutes and report to the Board when required. Unless otherwise determined by the Board, the quorum necessary for the transaction of any business at any committee meeting shall be a majority of the members of such committee.  Where a provision of the Articles refers to the exercise of a power, authority or discretion by the Board and that power, authority or discretion has been delegated by the Board to a committee, the provision shall be construed as permitting the exercise of the power, authority or discretion by the committee.

 

137.                         The Board may, by power of attorney or otherwise, appoint any person to be the agent of the Company on such conditions as the Board may determine, provided that the delegation is not to the exclusion of its own powers and may be revoked by the Board at any time.

 

138.                         The Board may, by power of attorney or otherwise, appoint any company, firm, person or body of persons, whether nominated directly or indirectly by the Board, to be the attorney or authorised signatory of the Company for such purpose and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Board under these Articles) and for such period and subject to such conditions as they may think fit, and any such powers of attorney or other appointment may contain such provisions for the protection and convenience of persons dealing with any such attorneys or authorised signatories as the Board may think fit and may also authorise any such attorney or authorised signatory to delegate all or any of the powers, authorities and discretions vested in him or her.

 

CHAIRPERSON AND EXECUTIVE OFFICERS

 

139.                         The Board may elect any Director as Chairperson of the Board and determine the period for which he or she is to hold office.

 

140.                         In addition to the Chairperson, the Directors and the Secretary, the Company may appoint such other officers, including executive officers, as the Board may from time to time determine and, without limitation to the foregoing, the Board may appoint any person (whether or not a Director) to fill the following positions: chief executive officer, chief financial officer, general counsel, president, treasurer and controller. Any person may hold more than one of the foregoing positions.

 

141.                         Any person elected or appointed pursuant to Articles 139 and 140 shall hold his or her office or other position for such period and on such terms as the Board may determine and the Board may revoke or vary any such election or appointment at any time by resolution of the Board. Any such revocation or variation shall be without prejudice to any claim for damages that such person may have against the Company or the Company may have against such person for any breach of any contract of service between him or her and the Company which may be involved in such revocation or variation. If any such office or other position becomes vacant for any reason, the vacancy may be filled by the Board.

 

142.                         Except as provided in the Companies Act or these Articles, the powers and duties of any person elected or appointed to any office or executive or official position pursuant to Articles 139 and 140 shall be such as are determined from time to time by the Board.

 

143.                         Any officer may resign at any time by giving written notice to the Company. The resignation is effective without acceptance when the notice is given to the Company, unless a later effective date is specified in the notice.

 

144.                         The use of the word “officer”, “director” (save where the relevant person is a Director for the purposes of these Articles) (or similar words) in the title of any executive or other position shall not be deemed to imply that the person holding such executive or other position is an “officer” or “director” of the Company within the meaning of the Companies Act.

 

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PROCEEDINGS OF DIRECTORS

 

145.                         Except as otherwise provided by these Articles, the Directors shall meet together for the despatch of business, convening, adjourning and otherwise regulating their meetings and procedures as they think fit. Questions arising at any meeting shall be decided by a majority of votes of the Directors present at a meeting at which there is a quorum. Each Director shall have one vote.

 

146.                         Regular meetings of the Board may be held at such times and places as may be provided for in resolutions adopted by the Board. No additional notice of a regularly scheduled meeting of the Board shall be required.

 

147.                         A Director may, and the Secretary on the requisition of a Director shall, at any time summon a meeting of the Directors by at least 24 hours’ notice (or, if notice is mailed, at least four calendar days’ notice) in writing to every Director, unless notice is waived by all the Directors either at, before or after the meeting is held and, provided further, if notice is given in person, by telephone, cable, telex, telecopy or email, the same shall be deemed to have been given on the day it is delivered to the Directors or transmitting organisation, as the case may be. The accidental omission to give notice of a meeting of the Directors to, or the non-receipt of notice of a meeting by, any person entitled to receive notice shall not invalidate the proceedings of that meeting. The presence of a Director at a meeting of the Directors shall be deemed to be a waiver of any failure to give due notice of such meeting unless such Director states that he or she is not waiving any such failure promptly following the calling to order of such meeting. Notice of a Board meeting shall be deemed to be duly given to a Director if it is given to such Director personally or by word of mouth or sent in writing to his or her last known address or any other address given to the Company by such Director for such purpose or given by electronic communications to an address for the time being notified to the Company by the Director. In this Article “address,” in relation to documents in electronic form, includes any number or address used for the supply of documents in electronic form.

 

148.                         The quorum necessary for the transaction of the business of the Board shall be a majority of the Directors in office. If a quorum shall not be present at any meeting of the Board, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.

 

149.                         The continuing Directors may act notwithstanding any vacancy in their body, but if and so long as their number is reduced below the number fixed by or pursuant to these Articles as the minimum number of Directors, the continuing Directors or Director may act for the purpose of increasing the number of Directors to that number, or of summoning a general meeting of the Company, but for no other purpose. If there is/are no Director or Directors able or willing to act, any two Members may summon a general meeting for the purpose of appointing Directors. Any Director so appointed shall hold office (subject to these Articles) only until the dissolution of the annual general meeting next following such appointment unless such Director is re-elected during such meeting.

 

150.                         If no Chairperson is elected, or if at any meeting the Chairperson is not present within five (5) minutes after the time appointed for holding the same, the Directors present may choose one of their number to be the Chairperson of the meeting or proceed without a Chairperson of the meeting.

 

151.                         All acts done by any meeting of the Directors or of a committee of Directors shall, notwithstanding that it be afterwards discovered that there was some defect in the appointment of any Director, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and qualified to be a Director.

 

152.                         Members of the Board or of any committee thereof may participate in a meeting of the Board or of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting. Unless otherwise determined by the Directors, the meeting shall be deemed to be held at the place where the telephone call or similar communication was initiated.

 

153.                         A resolution or other document in writing (in electronic form or otherwise), signed (whether by electronic signature, advanced electronic signature or otherwise as approved by the Directors) by all the Directors entitled to

 

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receive notice of a meeting of Directors or of a committee of Directors, and to vote on the relevant resolution or matter, shall be as valid and effectual as if it had been passed at a meeting of Directors or (as the case may be) a committee of Directors duly convened and held and may consist of several documents in the like form each signed by one or more Directors, and such resolution or other document or documents when duly signed may be delivered or transmitted (unless the Directors shall otherwise determine either generally or in any specific case) by facsimile transmission, electronic mail or some other similar means of transmitting the content of documents.

 

RESIGNATION AND DISQUALIFICATION OF DIRECTORS

 

154.                         The office of a Director shall be vacated ipso facto:

 

154.1.               on the death of a Director;

 

154.2.              if he or she resigns his or her office, on the date on which notice of his or her resignation is delivered to the registered office or tendered at a meeting of the Board or on such later date as may be specified in such notice;

 

154.3.              if he or she ceases to be a Director by virtue of any provision of the Companies Act, is removed from office pursuant to these Articles or the Companies Act or becomes prohibited by law from being a Director;

 

154.4.              if he or she becomes bankrupt, has an interim receiving order made against him or her, makes any arrangement or compounds with his or her creditors generally or applies to the court for an interim order in connection with a voluntary arrangement under any legislation relating to insolvency;

 

154.5.              if the health of the Director is such that, in the opinion of a majority of the other Directors, he or she can no longer be reasonably regarded as possessing adequate decision making capacity;

 

154.6.              in the case of a Director who holds executive office, his or her appointment to such office is terminated or expires and the Board resolves that such Director’s office be vacated;

 

154.7.              if he or she is absent, without permission of the Board, from Board meetings for six consecutive months and the Board resolves that his or her office be vacated; or

 

154.8.              if the Director is requested to resign in writing by not less than a majority of the other Directors provided always that this Article 154.8 shall only apply if neither of the Sponsor Holders holds 10% or more of the entire issued share capital of the Company.

 

155.                         A resolution of the Board declaring a Director to have vacated office pursuant to this Article shall be conclusive as to the fact and grounds of vacation stated in the resolution.

 

APPOINTMENT, ROTATION AND NOMINATION OF DIRECTORS

 

156.

 

156.1.              No person shall be appointed a Director unless nominated in accordance with the provisions of this Article 156. Nominations of persons for election to the Board at a general meeting may be made:

 

(a)                                 by or at the direction of the Board or a committee thereof;

 

(b)                                 with respect to election at a general meeting, by any Member who holds Shares carrying the general right to vote at general meetings of the Company, who is a Member at the time of the giving of the required notice of the relevant general meeting provided for in these Articles and at the time of the relevant general meeting, and who has given timely and proper notice in writing to the Secretary in accordance with Article 156.2 and 156.3;

 

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(c)                                  with respect to election at an extraordinary general meeting requisitioned in accordance with section 178(3) of the Companies Act, by a Member or Members who hold Shares carrying the general right to vote at general meetings of the Company and who make such nomination in the written requisition of the extraordinary general meeting in accordance with these Articles, including Article 156.3, and the provisions of the Companies Act relating to nominations of Directors and the proper bringing of special business before an extraordinary general meeting,

 

(sub-clauses (b) and (c) being the exclusive means for a Member to make nominations of persons for election to the Board).

 

156.2.              For nominations of persons for election as Directors at a general meeting to be timely, a Member’s notice must comply with the requirements of Article 90.2 or 90.3 (as applicable).

 

156.3.              To be in proper written form, a Member’s notice for nomination(s) of person(s) for election pursuant to Article 156.1(b), or in the case of nomination(s) of person(s) for election pursuant to Article 156.1(c), a Member’s written requisition of the extraordinary general meeting, must, in addition to any other applicable requirements, set forth:

 

(d)                                 as to each person whom the Member proposes to nominate for election or re-election as a Director, all information relating to such person that is required to be disclosed in solicitations for proxies for election of directors, or is otherwise required, in each case pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and

 

(e)                                  as to the Member giving the notice and each Proponent, the information required in Article 90.4.

 

156.4.              The Chairperson of the meeting shall determine whether a nomination was made in accordance with the procedures prescribed by these Articles, and if he or she should determine that such nomination was not made in accordance with such procedures, he or she shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. Any such ruling by the Chairperson of the meeting shall be final and conclusive.

 

156.5.              The Company may require any proposed nominee to furnish such other information as it may reasonably require, including the completion of any questionnaires, to determine the eligibility of such proposed nominee to serve as a Director and the impact that such service would have on the ability of the Company to satisfy the requirements of laws, rules, regulations and listing standards applicable to the Company or its Directors.

 

157.                         At every annual general meeting of the Company, all of the Directors shall retire from office unless re-elected in accordance with Article 156.5. A Director retiring at a meeting shall retain office until the close of that meeting (including any adjournment thereof). Each Director shall be eligible to stand for re-election at an annual general meeting.

 

158.                         Directors will be elected by way of Ordinary Resolution of the Company in general meeting, provided that if the number of Director nominees exceeds the number of Directors (as determined by the Board) to be elected at such meeting (a “contested election”), each of those nominees shall be voted upon as a separate resolution and the Directors shall be elected by a plurality of the votes of the Shares present in person or represented by proxy at any such meeting and entitled to vote on the election of Directors. For the purposes of this Article 158, “elected by a plurality” means the election of those Director nominees, equal in number to the number of positions to be filled at the relevant general meeting (as determined by the Board), that received the highest number of votes in the contested election. Cumulative voting is prohibited in the election of Directors.

 

159.                         Notwithstanding any other provision of these Articles, the Directors may appoint a person who is willing to act to be a Director, either to fill a casual vacancy or as an additional Director, provided that the appointment does not cause the number of Directors to exceed the number prescribed by the Board in accordance with Article 112. A

 

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casual vacancy shall include, without limitation, a vacancy that results from the death, resignation, retirement, disqualification or removal of a Director.

 

160.                         The Company may, by Ordinary Resolution, of which notice has been given in accordance with section 146 of the Companies Act, remove any Director before the expiration of his or her period of office notwithstanding anything in these Articles or in any agreement between the Company and such Director. Such removal shall be without prejudice to any claim such Director may have for damages for breach of any contract of service between him or her and the Company.

 

SECRETARY

 

161.                         The Board shall appoint the Secretary and may appoint one or more persons to be a joint, deputy or Assistant Secretary at such remuneration (if any) and on such terms as the Board sees fit and any person so appointed may be removed by the Board at any time.

 

162.                         The duties of the Secretary shall be those prescribed by the Companies Act, together with such other duties as shall from time to time be prescribed by the Board, and in any case, shall include the making and keeping of records of the votes, doings and proceedings of all meetings of the Members and the Board of the Company, and committees, and the authentication of records of the Company.

 

163.                         A provision of the Companies Act or these Articles requiring or authorising a thing to be done by or to a Director and the Secretary shall not be satisfied by its being done by or to the same person acting both as Director and as, or in the place of, the Secretary.

 

SEAL

 

164.                         The Company may, if the Board so determines, have a Seal (including any official seals kept pursuant to the Companies Act) which shall only be used by the authority of the Board or by a duly authorised committee of the Board and every instrument to which the Seal has been affixed shall be signed by any person who shall be either a Director or the Secretary or some other person authorised by the Board, either generally or specifically, for that purpose.

 

165.                         The Company may have for use in any place or places outside Ireland a duplicate Seal or Seals, each of which shall be a duplicate of the Seal of the Company, except, in the case of a seal for use in sealing documents creating or evidencing securities issued by the Company, for the addition on its face of the word “Securities” and, if the Board so determines, with the addition on its face of the name of every place where it is to be used.

 

DIVIDENDS, DISTRIBUTIONS AND RESERVES

 

166.                         The Company in general meeting may by Ordinary Resolution declare dividends, but no dividends shall exceed the amount recommended by the Board. Subject to the Companies Act, the Board may, from time to time, pay such interim dividends as appear to it to be justified by the profits of the Company available for distribution. The Board may direct that any dividend declared by the Company in general meeting or by the Board in accordance with these Articles, may be paid wholly or partly by the distribution of specific assets and in particular of paid up shares, debentures or debenture stocks of any other company or in any one or more of such ways.  Where any difficulty arises in regard to such distribution, the Board may settle the same as they think expedient, and in particular may issue fractional certificates or ignore fractions, fix the value for distribution of such specific assets or any part thereof and may determine that cash payments shall be made to any Members upon the footing of the value so fixed, in order to adjust the rights of all the parties, and may vest any such specific assets in trustees as may seem expedient to the Board.

 

167.                         Subject to the Companies Act, the Board may from time to time declare dividends (including interim dividends) and distributions on Shares outstanding and authorise payment of the same out of the funds of the Company lawfully available therefore and in any currency chosen at its discretion.

 

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168.                         The Board may, before recommending or declaring any dividends or distributions, set aside such sums as it thinks proper as a reserve or reserves which shall, as directed by the Board, be applicable for any purpose of the Company and pending such application may, as directed by the Board, be employed in the business of the Company or be invested in such investments as the Directors may lawfully determine. The Directors may also, without placing the same to reserve, carry forward any profits which they may think it prudent not to dividend or distribute.

 

169.                         No dividend, interim dividend or distribution shall be paid otherwise than in accordance with the provisions of section 117 of the Companies Act.

 

170.                         Subject to the rights of persons, if any, entitled to Shares with special rights as to dividends or distributions, if dividends or distributions are to be declared on a class of Shares, they shall be declared and paid according to the amounts paid or credited as paid on the Shares of such class outstanding on the record date for such dividend or distribution as determined in accordance with these Articles.

 

171.                         The Directors may deduct from any dividend payable to any Member all sums of money (if any) immediately payable by him or her to the Company in relation to his or her Shares.

 

172.                         Any dividend, distribution, interest or other monies payable in cash in respect of Shares may be paid by cheque or warrant sent through the post, or sent by any electronic or other means of payment, directed to the registered address of the holder or, in the case of joint holders, to the holder who is first named on the Register of Members or to such person and to such address as such holder or joint holders may in writing direct. Every such cheque or warrant, electronic or other payment shall be made payable to the order of the person to whom it is sent and payment of the cheque or warrant shall be a good discharge to the Company. Any one of two or more joint holders may give effectual receipts for any dividends, bonuses, or other monies payable in respect of the Share held by them as joint holders. Any such dividend or other distribution may also be paid by any other method (including payment in a currency other than US$, electronic funds transfer, direct debit, bank transfer or by means of a relevant system) which the Directors consider appropriate and any Member who elects for such method of payment shall be deemed to have accepted all of the risks inherent therein. The debiting of the Company’s account in respect of the relevant amount shall be evidence of good discharge of the Company’s obligations in respect of any payment made by any such methods.

 

173.                         No dividend or distribution shall bear interest against the Company.

 

174.                         All unclaimed dividends or other monies payable by the Company in respect of a Share may be invested or otherwise made use of by the Board for the benefit of the Company until claimed. If the Directors so resolve, subject to applicable law, any dividend which has remained unclaimed for twelve (12) years from the date of its declaration shall be forfeited and cease to remain owing by the Company. The payment by the Directors of any unclaimed dividend or other monies payable in respect of a Share into a separate account shall not constitute the Company a trustee in respect thereof.

 

175.                         If, in respect of a dividend or other amount payable in respect of a Share (i) a cheque, warrant or money order is returned undelivered or left uncashed or (ii) a transfer made by or through a bank transfer system and/or other funds transfer system(s) fails or is not accepted, on two consecutive occasions, or one occasion and reasonable enquiries have failed to establish another address or account of the person entitled to the payment, the Company shall not be obliged to send or transfer a dividend or other amount payable in respect of such Share to such person until he or she notifies the Company of an address or account to be used for such purpose.

 

CAPITALISATION

 

176.                         Without prejudice to any powers conferred on the Directors as aforesaid, and subject to the Board’s authority to issue and allot Shares under Article 7, the Board may:

 

176.1.              resolve to capitalise an amount standing to the credit of reserves (including, without limitation, a share premium account, undenominated capital account, capital redemption reserve and profit and loss account), whether or not available for distribution;

 

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176.2.              appropriate the sum resolved to be capitalised to the Members in proportion to the nominal amount of Shares held by them respectively and apply that sum on their behalf in or towards paying up in full unissued Shares or debentures of a nominal amount equal to that sum, and allot the Shares or debentures, credited as fully paid, to the Members (or as the Board may direct) in those proportions, or partly in one way and partly in the other, but the share premium account, undenominated capital account, capital redemption reserve and profits that are not available for distribution may, for the purposes of this Article 176, only be applied in paying up unissued Shares to be allotted to Members credited as fully paid;

 

176.3.              make any arrangements it thinks fit to resolve a difficulty arising in the distribution of a capitalised reserve, including that where Shares or debentures become distributable in fractions, the Board may deal with the fractions as it thinks fit;

 

176.4.              authorise a person to enter (on behalf of all the Members concerned) into an agreement with the Company providing for the allotment to the Members respectively, credited as fully paid, of Shares or debentures to which they may be entitled on the capitalisation and any such agreement made under this authority being effective and binding on all those Members; and

 

176.5.              generally do all acts and things required to give effect to the resolution of the Board.

 

177.                         Any such capitalisation will not require approval or ratification by the Members of the Company.

 

ACCOUNTS

 

178.                         The Board shall, in accordance with Chapter 2 of Part 6 of the Companies Act, cause to be kept adequate accounting records, whether in the form of documents, electronic form or otherwise, that:

 

178.1.              correctly record and explain the transactions of the Company;

 

178.2.              will at any time enable the financial position of the Company to be determined with reasonable accuracy;

 

178.3.              will enable the Board to ensure that any financial statements of the Company comply with the requirements of the Companies Act and any directors’ report, required to be prepared under the Acts, comply with the requirements of the Companies Act and, where applicable, Article 4 of the IAS Regulation;

 

178.4.              will record all sums of money received and expended by the Company and the matters in respect of which the receipt or expenditure takes place, all sales and purchases of goods by the Company and the assets and liabilities of the Company; and

 

178.5.              will enable the financial statements of the Company to be readily and properly audited.

 

179.                         Accounting records shall be kept on a continuous and consistent basis and entries therein shall be made in a timely manner and be consistent from year to year. The Company may send by post, electronic mail or any other means of electronic communication a summary financial statement to its Members or persons nominated by any Member. The Company may meet, but shall be under no obligation to meet, any request from any of its Members to be sent additional copies of its full report and accounts or summary financial statement or other communications with its Members.

 

180.                         The accounting records shall be kept at the registered office of the Company or, subject to the provisions of the Companies Act, at such other place as the Directors think fit and shall be open at all reasonable times to the inspection of the Directors.

 

181.                         Accounting records shall not be deemed to be kept as required by Articles 178 to 180 if there are not kept such accounting records as are necessary to give a true and fair view of the state of the Company’s affairs and to explain its transactions.

 

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182.                         In accordance with the provisions of the Companies Act, the Board may from time to time cause to be prepared and to be laid before the Company in general meeting profit and loss accounts, balance sheets, group accounts (if any) and such other reports and accounts as may be required by law.

 

183.                         A copy of every balance sheet (including every document required by law to be annexed thereto) which is to be laid before the annual general meeting of the Company together with a copy of the Directors’ report and Auditors’ report shall be sent by post, electronic mail or any other means of communication (electronic or otherwise), not less than twenty-one (21) clear days before the date of the annual general meeting, to every person entitled under the provisions of the Companies Act to receive them; provided that in the case of those documents sent by electronic mail or any other means of electronic communication, such documents shall be sent with the consent of the recipient, to the address of the recipient notified to the Company by the recipient for such purposes.

 

AUDIT

 

184.                         Auditors shall be appointed and their duties regulated in accordance with Part 6, Chapter 18 of the Companies Act or any statutory amendment thereof, any other applicable law and such requirements not inconsistent with the Companies Act as the Board may from time to time determine.

 

NOTICES

 

185.                         Any notice to be given, served, sent or delivered pursuant to these Articles shall be in writing (whether in electronic form or otherwise).

 

185.1.             A notice or document to be given, served, sent or delivered in pursuance of these Articles, and the annual report of the Company, may be given to, served on or delivered to any Director, Member or committee member by the Company:

 

(a)                                   by handing same to their authorised agent;

 

(b)                                   by delivering same to their registered address;

 

(c) by sending same by the post in a pre-paid cover addressed to their registered address; or

 

(d)                                   by sending, with the consent of the Director, Member or committee member to the extent required by law, same by means of electronic mail or other means of electronic communication approved by the Directors or the Secretary (or such other person as may be nominated by the Secretary for this purpose), to the address of the Director, Member or committee member notified to the Company by the Director, Member or committee member for such purpose (or if not so notified, then to the address of the Director, Member or committee member last known to the Company). A notice or document may be sent by electronic means to the fullest extent permitted by the Companies Act.

 

185.2.             For the purposes of these Articles and the Companies Act, a document, including the Company’s financial statements and the directors’ and auditor’s reports thereon, shall be deemed to have been sent to a Director, Member or committee member if a notice is given, served, sent or delivered to the Director, Member or committee member and the notice specifies the website or hotlink or other electronic link at or through which the Director, Member or committee member may obtain a copy of the relevant document.

 

185.3.             Where a notice or document is given, served or delivered pursuant to sub-paragraph 184.1(a) or 184.1(b) of this Article, the giving, service or delivery thereof shall be deemed to have been effected at the time the same was handed to the Director, Member or committee member or his or her authorised agent, or left at his or her registered address (as the case may be).

 

185.4.             Where a notice or document is given, served or delivered pursuant to sub-paragraph 184.1(c) of this Article, the giving, service or delivery thereof shall be deemed to have been effected at the expiration of

 

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twenty-four (24) hours after the cover containing it was posted. In proving service or delivery it shall be sufficient to prove that such cover was properly addressed, stamped and posted.

 

185.5.             Where a notice or document is given, served or delivered pursuant to sub-paragraph 184.1(d) of this Article, the giving, service or delivery thereof shall be deemed to have been effected at the expiration of forty-eight (48) hours after despatch.

 

185.6.             Every legal personal representative, committee, receiver, curator bonis or other legal curator, assignee in bankruptcy, examiner or liquidator of a Member shall be bound by a notice given as aforesaid if sent to the last registered address of such Member, or, in the event of notice given or delivered pursuant to sub-paragraph 184.1 (d), if sent to the address notified to the Company by the Member for such purpose notwithstanding that the Company may have notice of the death, lunacy, bankruptcy, liquidation or disability of such Member.

 

185.7.             Notwithstanding anything contained in this Article to the contrary, the Company shall not be obliged to take account of or make any investigations as to the existence of any suspension or curtailment of postal services within or in relation to all or any part of any jurisdiction.

 

185.8.             Any requirement in these Articles for the consent of a Member in regard to the receipt by such Member of electronic mail or other means of electronic communications approved by the Directors, including the receipt of the Company’s annual report, statutory financial statements and the Directors’ and auditor’s reports thereon, shall be deemed to have been satisfied where the Company has written to the Member informing him or her of its intention to use electronic communications for such purposes and the Member has not, within four (4) weeks of the issue of such notice, served an objection in writing on the Company to such proposal. Where a Member has given, or is deemed to have given, his/her consent to the receipt by such Member of electronic mail or other means of electronic communications approved by the Directors, she/he may revoke such consent at any time by requesting the Company to communicate with him or her in documented form; provided, however, that such revocation shall not take effect until five (5) days after written notice of the revocation is received by the Company. No such consent shall be necessary, and to the extent it is necessary, such consent shall be deemed to have been given, if electronic communications are permitted to be used under the rules and regulations of the United States Securities and Exchange Commission or any Exchange on which the Shares or other securities of the Company are listed.

 

185.9.             Without prejudice to the provisions of sub-paragraphs 185.1 (a) and 185.1(b) of this Article, if at any time by reason of the suspension or curtailment of postal services in any territory, the Company is unable effectively to convene a general meeting by notices sent through the post, a general meeting may be convened by a public announcement (as defined below) and such notice shall be deemed to have been duly served on all Members entitled thereto at noon (New York time) on the day on which the said public announcement is made. In any such case the Company shall put a full copy of the notice of the general meeting on its website. A “public announcement” shall mean disclosure in a press release reported by a financial news service or in a document publicly filed by the Company with the United States Securities and Exchange Commission pursuant to sections 13, 14 or 15(d) of the Exchange Act and the rules and regulations promulgated thereunder.

 

186.                        Notice may be given by the Company to the joint holders of a Share by giving the notice to the joint holder whose name stands first in the Register in respect of the Share and notice so given shall be sufficient notice to all the joint holders.

 

187.

 

187.1.              Every person who becomes entitled to a Share shall, before his or her name is entered in the Register in respect of the Share, be bound by any notice in respect of that Share which has been duly given to a person from whom he or she derives his or her title.

 

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187.2.              A notice may be given by the Company to the persons entitled to a Share in consequence of the death or bankruptcy of a Member by sending or delivering it, in any manner authorised by these Articles for the giving of notice to a Member, addressed to them at the address, if any, supplied by them for that purpose. Until such an address has been supplied, a notice may be given in any manner in which it might have been given if the death or bankruptcy had not occurred.

 

188.                         The signature (whether electronic signature, an advanced electronic signature or otherwise) to any notice to be given by the Company may be written (in electronic form or otherwise) or printed.

 

189.                         A Member present, either in person or by proxy, at any meeting of the Company or the holders of any class of Shares in the Company shall be deemed to have received notice of the meeting and, where requisite, of the purposes for which it was called.

 

UNTRACED HOLDERS

 

190.

 

190.1.              Subject to applicable law, the Company shall be entitled to sell, at the best price reasonably obtainable, any Share or stock of a Member or any Share or stock to which a person is entitled by transmission if and provided that:

 

(a)                              for a period of twelve (12) years (not less than three (3) dividends having been declared and paid) no cheque or warrant sent by the Company through the post in a prepaid letter addressed to the Member or to the person entitled by transmission to the Share or stock at his or her address on the Register or other than the last known address given by the Member or the person entitled by transmission to which cheques and warrants are to be sent has been cashed and no communication has been received by the Company from the Member or the person entitled by transmission; and

 

(b)                              at the expiration of the said period of twelve (12) years, the Company has given notice by advertisement in a leading newspaper circulating in the area in which the address referred to in paragraph (a) of this Article is located of its intention to sell such Share or stock; and

 

(c)                               the Company has not during the further period of three (3) months after the date of the advertisement and prior to the exercise of the power of sale received any communication from the Member or person entitled by transmission.

 

190.2.              To give effect to any such sale, the Company may appoint any person to execute as transferor an instrument of transfer of such Share or stock and such instrument of transfer shall be as effective as if it had been executed by the Member or person entitled by transmission to such Share or stock. The Company shall account to the Member or other person entitled to such Share or stock for the net proceeds of such sale by carrying all monies in respect thereof to a separate account which shall be a permanent debt of the Company and the Company shall be deemed to be a debtor and not a trustee in respect thereof for such Member or other person. Monies carried to such separate account may either be employed in the business of the Company or invested in such investments (other than shares of the Company or its holding company if any) as the Directors may from time to time think fit.

 

190.3.               To the extent necessary in order to comply with any laws or regulations to which the Company is subject in relation to escheatment, abandonment of property or other similar or analogous laws or regulations (“ Applicable Escheatment Laws ”), the Company may deal with any Share of any Member and any unclaimed cash payments relating to such Share in any manner which it sees fit, including transferring or selling such Share and transferring to third parties any unclaimed cash payments relating to such Share.

 

190.4.               The Company may only exercise the powers granted to it in paragraph 190.1 above in circumstances where it has complied with, or procured compliance with, the required procedures (as set out in the

 

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Applicable Escheatment Laws) with respect to attempting to identify and locate the relevant member of the Company.

 

190.5.               Any stock transfer form to be executed by the Company in order to sell or transfer a Share pursuant to Article 190.1 may be executed in accordance with Article 28.1.

 

DESTRUCTION OF DOCUMENTS

 

191.                         Subject to applicable law, the Company may destroy:

 

191.1.              any dividend mandate or any variation or cancellation thereof or any notification of change of name or address, at any time after the expiry of two (2) years from the date such mandate variation, cancellation or notification was recorded by the Company;

 

191.2.              any instrument of transfer of Shares which has been registered, at any time after the expiry of six (6) years from the date of registration; and

 

191.3.              any other document on the basis of which any entry in the Register was made, at any time after the expiry of six (6) years from the date an entry in the Register was first made in respect of it,

 

and it shall be presumed conclusively in favour of the Company that every share certificate (if any) so destroyed was a valid certificate duly and properly sealed and that every instrument of transfer so destroyed was a valid and effective instrument duly and properly registered and that every other document destroyed hereunder was a valid and effective document in accordance with the recorded particulars thereof in the books or records of the Company provided always that:

 

(a)                                 the foregoing provisions of this Article shall apply only to the destruction of a document in good faith and without express notice to the Company (by a Member or a court) that the preservation of such document was relevant to a claim;

 

(b)                                 nothing contained in this Article shall be construed as imposing upon the Company any liability in respect of the destruction of any such document earlier than as aforesaid or in any case where the conditions of proviso (a) above are not fulfilled; and

 

(c)                                  references in this Article to the destruction of any document include references to its disposal in any manner.

 

WINDING UP

 

192.                         If the Company shall be wound up and the assets available for distribution among the Members as such shall be insufficient to repay the whole of the paid up or credited as paid up share capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the Members in proportion to the capital paid up or credited as paid up at the commencement of the winding up on the Shares held by them respectively. If in a winding up the assets available for distribution among the Members shall be more than sufficient to repay the whole of the share capital paid up or credited as paid up at the commencement of the winding up, the excess shall be distributed among the Members in proportion to the capital at the commencement of the winding up paid up or credited as paid up on the said Shares held by them respectively. Notwithstanding the foregoing, this Article shall not affect the rights of the Members holding Shares issued upon special terms and conditions.

 

192.1.              In case of a sale by the liquidator under section 601 of the Companies Act, the liquidator may by the contract of sale agree so as to bind all the Members, for the allotment to the Members directly, of the proceeds of sale in proportion to their respective interests in the Company and may further, by the contract, limit a time at the expiration of which obligations or Shares not accepted or required to be sold shall be deemed to have been irrevocably refused and be at the disposal of the Company, but so that nothing herein contained shall be taken to diminish, prejudice or affect the rights of dissenting Members conferred by the said section.

 

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192.2.              The power of sale of the liquidator shall include a power to sell wholly or partially for debentures, debenture stock, or other obligations of another company, either then already constituted or about to be constituted for the purpose of carrying out the sale.

 

193.                         If the Company is wound up, the liquidator, with the sanction of a Special Resolution and any other sanction required by the Companies Act, may divide amongst the Members in specie or kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not), and, for such purpose, may value any assets and determine how the division shall be carried out as between the Members or different classes of Members. The liquidator, with the like sanction, may vest the whole or any part of such assets in trustees upon such trusts for the benefit of the contributories as, with the like sanction, he or she determines, but so that no Member shall be compelled to accept any assets upon which there is a liability.

 

INDEMNITY

 

194.

 

194.1.              Subject to the provisions of, and so far as may be permitted by, the Companies Act, every Director and Secretary shall be entitled to be indemnified by the Company against all costs, charges, losses, expenses and liabilities incurred by him or her in the execution and discharge of his or her duties or in relation thereto, or in his or her capacity as an officer, including any liability incurred by him in defending any proceedings, civil or criminal, which relate to anything done or omitted or alleged to have been done or omitted by him as a director, officer or employee of the Company and in which judgement is given in his or her favour (or the proceedings are otherwise disposed of without any finding or admission of any material breach of duty on his or her part) or in which he or she is acquitted or in connection with any application under any statute for relief from liability in respect of any such act or omission in which relief is granted to him by the Court.

 

194.2.              As far as permissible under the Companies Act, the Company shall indemnify any current or former Official (excluding any Director or Secretary in respect only of their role as Director or Secretary of the Company) against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, other than an action by or in the right of the Enterprise in respect of which the Official serves or has served as an Official, to which he or she was, is or is threatened to be, made a party by reason of the fact that he or she is or was such an Official, provided always that the indemnity contained in this Article 194.2 shall not extend to any matter which would render it void pursuant to the Companies Act.

 

194.3.              In the case of any threatened, pending or completed action, suit or proceeding by or in the right of an Enterprise in respect of which a current or former Official serves or has served, the Company shall indemnify, to the fullest extent permitted by the Companies Act, each person indicated in Article 194.2 against expenses, including attorneys’ fees actually and reasonably incurred in connection with the defence or the settlement thereof, except no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for fraud or dishonesty in the performance of his or her duty to the relevant Enterprise unless and only to the extent that the Court or the court in which such action or suit was brought shall determine upon application that despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the Court shall deem proper.

 

194.4.              As far as permissible under the Companies Act, expenses, including attorneys’ fees, incurred in defending any action, suit or proceeding referred to in this Article shall be paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of a written affirmation by or on behalf of the Director, Secretary, Official or other indemnitee of a good faith belief that the criteria for indemnification have been satisfied and a written undertaking to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Company as authorised by these Articles.

 

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194.5.              It being the policy of the Company that indemnification of the persons specified in this Article shall be made to the fullest extent permitted by law, the indemnification provided by this Article shall not be deemed exclusive (a) of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Memorandum, Articles, any agreement, any insurance purchased by the Company, any vote of Members or disinterested Directors, or pursuant to the direction (however embodied) of any court of competent jurisdiction, or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, (b) of the power of any Enterprise to indemnify any Official, to the same extent and in the same situations and subject to the same determinations as are hereinabove set forth with respect to a Director, Secretary or Official or (c) of any amendments or replacements of the Companies Act which permit for greater indemnification of the persons specified in this Article and any such amendment or replacement of the Companies Act shall hereby be incorporated into these Articles. As used in this Article 194.5, references to the “Company” include all constituent companies in a consolidation or merger in which the Company or any predecessor to the Company by consolidation or merger was involved. The indemnification provided by this Article shall continue as to a person who has ceased to be a Director, executive, officer or trustee and shall inure to the benefit of the heirs, executors, and administrators of such a person.

 

194.6.              The Directors shall have power to purchase and maintain for any Director, the Secretary or other officers or employees of the Company insurance against any such liability as referred to in section 235 of the Companies Act and such insurance in respect of Officials as the Directors deem to be appropriate.

 

194.7.              The Company may additionally indemnify any employee or agent of the Company or any director, executive, officer, employee or agent of any of its subsidiaries to the fullest extent permitted by law.

 

FINANCIAL YEAR

 

195.                         The financial year of the Company shall be as prescribed by the Board from time to time.

 

SHAREHOLDER RIGHTS PLAN

 

196.                         The Board is hereby expressly authorised to adopt any shareholder rights plan, or similar plan, agreement or arrangement pursuant to which, under circumstances provided therein, some or all Members will have rights to acquire Shares or interests in Shares, upon such terms and conditions as the Board deems expedient and in the best interests of the Company.

 

BUSINESS COMBINATION

 

197.

 

197.1.                        The Company may not engage in any business combination, or vote, consent, or otherwise act to authorise a subsidiary of the Company to engage in any business combination, with, with respect to, proposed by or on behalf of, or pursuant to any written or oral agreement, arrangement, relationship, understanding, or otherwise with, any interested Member of the Company or any affiliate or associate of the interested Member for a period of three (3) years following the date that the Member became an interested Member unless:

 

(a)                        prior to the date that the Member became an interested Member, the business combination was approved by a committee of the Board formed in accordance with Article 197.3; or

 

(b)                        at or following the date that the Member became an interested Member, the business combination is approved by a committee of the Board formed in accordance with Article 197.3 and is authorized by a Special Resolution of the Members. In determining whether the Special Resolution has been adopted by the general meeting, votes cast with respect to Shares of interested Members and their affiliates and associates shall not be taken into account.

 

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197.2.               If a good faith definitive proposal regarding a business combination is made in writing to the Board, a committee of the Board formed in accordance with Article 197.3 shall consider and take action on the proposal and respond in writing within thirty (30) days after receipt of the proposal by the Company, setting forth its decision regarding the proposal.

 

197.3.               When a business combination is proposed pursuant to this Article 197, the Board shall promptly form a committee composed solely of one or more disinterested Directors. The committee shall take action on the proposal by the affirmative vote of a majority of committee members. No larger proportion or number of votes shall be required. Notwithstanding anything in these Articles to the contrary, subject to applicable law, the committee shall not be subject to any direction or control by the Board with respect to the committee’s consideration of, or any action concerning, a business combination pursuant to this Article 197. If the Board has no disinterested Directors, the Board shall select three or more disinterested persons to be committee members. Committee members shall act in accordance with the standard of conduct applicable to the Directors and shall be indemnified in accordance with Article 194. For purposes of this Article 197.3, a Director or person is “disinterested” if the Director or person is neither an officer nor an employee, nor has been an officer or employee within five (5) years preceding the formation of the committee pursuant to this Article 197.3, of the Company or of a related company.

 

197.4.               This Article 197 may only be amended in accordance with paragraph 6 of the Memorandum. In determining whether the relevant resolution has been approved by the requisite majority, votes cast with respect to Shares of interested Members and their affiliates and associates shall not be taken into account. Notwithstanding any such amendment, unless determined otherwise by the Board, this Article 197 (as its stands prior to any such amendment) shall apply to any business combination of the Company with an interested Member who became an interested Member before the effective date of the amendment of this Article 197.

 

197.5.               As used in this Article 197 only, the term:

 

(i)              “affiliate” means a person that directly or indirectly controls, is controlled by, or is under common control with, a specified person;

 

(ii)           “associate”, when used to indicate a relationship with any person, means any of the following:

 

(a)                  any company of which the person is an officer or partner or is, directly or indirectly, the beneficial owner of fifteen percent (15%) or more of any class or series of shares entitled to vote or other equity interest;

 

(b)                  any trust or estate in which the person has a substantial beneficial interest or as to which the person serves as trustee or executor or in a similar fiduciary capacity; or

 

(c)                   any relative or spouse of the person, or any relative of the spouse, residing in the home of the person;

 

(iii)        “beneficial owner”, when used with respect to shares or other securities, includes, but is not limited to, any person who, directly or indirectly through any written or oral agreement, arrangement, relationship, understanding, or otherwise, has or shares the power to vote, or direct the voting of, the shares or securities or has or shares the power to dispose of, or direct the disposition of, the shares or securities, except that:

 

(a)                  a person shall not be deemed the beneficial owner of shares or securities tendered pursuant to a tender or exchange offer made by the person or any of the person’s affiliates or associates until the tendered shares or securities are accepted for purchase or exchange; and

 

(b)                  a person shall not be deemed the beneficial owner of shares or securities with respect to which the person has the power to vote or direct the voting arising solely from a revocable proxy given in response to a proxy solicitation required to be made and made in accordance

 

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with the applicable rules and regulations under the Exchange Act and is not then reportable under that act on a Schedule 13D or comparable report, or, if the company is not subject to the rules and regulations under the Exchange Act, would have been required to be made and would not have been reportable if the company had been subject to the rules and regulations;

 

(iv)       “beneficial ownership” includes, but is not limited to, the right to acquire shares or securities through the exercise of options, warrants, or rights, or the conversion of convertible securities, or otherwise. The shares or securities subject to the options, warrants, rights, or conversion privileges held by a person shall be deemed to be outstanding for the purpose of computing the percentage of outstanding shares or securities of the class or series owned by the person, but shall not be deemed to be outstanding for the purpose of computing the percentage of the class or series owned by any other person. A person shall be deemed the beneficial owner of shares and securities beneficially owned by any relative or spouse of the person or any relative of the spouse, residing in the home of the person, any trust or estate in which the person owns fifteen percent (15%) or more of the total beneficial interest or serves as trustee or executor or in a similar fiduciary capacity, any company in which the person owns fifteen percent (15%) or more of the equity, and any affiliate of the person.

 

When two or more persons act or agree to act as a partnership, limited partnership, syndicate, or other group for the purposes of acquiring, owning, or voting shares or other securities of a company, all members of the partnership, syndicate, or other group are deemed to constitute a “person” and to have acquired beneficial ownership, as of the date they first so act or agree to act together, of all shares or securities of the company beneficially owned by the person;

 

(v)          “business combination” means any of the following:

 

(a)              any merger, acquisition, scheme of arrangement or amalgamation of the Company or any subsidiary of the Company with (1) the interested Member or (2) any other company (whether or not itself an interested Member of the Company) that is, or after the merger would be, an affiliate or associate of the interested Member, but excluding (x) the merger of a wholly owned subsidiary of the Company into the Company, (y) the merger of two or more wholly owned subsidiaries of the Company, or (z) the merger of a company, other than an interested Member or an affiliate or associate of an interested Member, with a wholly owned subsidiary of the Company pursuant to which the surviving company, immediately after the merger, becomes a wholly owned subsidiary of the Company;

 

(b)              any exchange of Shares or other securities of the Company or any subsidiary of the Company or money, or other property, for shares, other securities, money, or property of (1) the interested Member or (2) any other company (whether or not itself an interested Member of the Company) that is, or after the exchange would be, an affiliate or associate of the interested Member, but excluding the exchange of shares of a company, other than an interested Member or an affiliate or associate of an interested Member, pursuant to which the company, immediately after the exchange, becomes a wholly owned subsidiary of the Company;

 

(c)               any sale, lease, exchange, mortgage, pledge, transfer, or other disposition (in a single transaction or a series of transactions), other than sales of goods or services in the ordinary course of business, to or with the interested Member or any affiliate or associate of the interested Member, other than to or with the Company or a wholly owned subsidiary of the Company, of assets of the Company or any subsidiary of the Company (1) having an aggregate market value equal to ten percent (10%) or more of the aggregate market value of all the assets, determined on a consolidated basis, of the Company, (2) having an aggregate market value equal to ten percent (10%) or more of the aggregate market value of all the outstanding Shares of the Company, or (3) representing ten percent (10%) or more of the earning power or net income, determined on a consolidated basis, of the Company, except a cash dividend or distribution paid or made pro rata to all Members of the Company;

 

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(d)              the issuance or transfer by the Company or any subsidiary of the Company (in a single transaction or a series of transactions) of any shares of, or other ownership interests in, the Company or any subsidiary of the Company that have an aggregate market value equal to five percent (5%) or more of the aggregate market value of all the outstanding Shares of the Company to the interested Member or any affiliate or associate of the interested Member, except pursuant to the exercise of warrants or rights to purchase shares offered, or a dividend or distribution paid or made, pro rata to all Members of the Company other than for the purpose, directly or indirectly, of facilitating or effecting a subsequent transaction that would have been a business combination if the dividend or distribution had not been made;

 

(e)               the adoption of any plan or proposal for the liquidation or dissolution of the Company, or any reincorporation of the Company in another jurisdiction, proposed by or on behalf of, or pursuant to any written or oral agreement, arrangement, relationship, understanding, or otherwise with, the interested Member or any affiliate or associate of the interested Member;

 

(f)                any reclassification of securities (including, without limitation, any bonus shares or share split, reverse share split, or other distribution of shares in respect of shares), recapitalisation of the Company, merger of the Company with any subsidiary of the Company, exchange of Shares of the Company with any subsidiary of the Company, or other transaction (whether or not with or into or otherwise involving the interested Member), proposed by or on behalf of, or pursuant to any written or oral agreement, arrangement, relationship, understanding, or otherwise with, the interested Member or any affiliate or associate of the interested Member, that has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class or series of shares entitled to vote, or securities that are exchangeable for, convertible into, or carry a right to acquire shares entitled to vote, of the Company or any subsidiary of the Company that is, directly or indirectly, owned by the interested Member or any affiliate or associate of the interested Member, except as a result of immaterial changes due to fractional share adjustments; or

 

(g)               any receipt by the interested Member or any affiliate or associate of the interested Member of the benefit, directly or indirectly (except proportionately as a Member of the Company), of any loans, advances, guarantees, pledges, or other financial assistance, or any tax credits or other tax advantages provided by or through the Company or any subsidiary of the Company;

 

(vi)                      “company” means a corporation, limited liability company, partnership, limited partnership, joint venture, association, business trust, estate, trust, enterprise, and any other legal or commercial entity;

 

(vii)                   “control”, including the terms “controlling”, “controlled by”, and “under common control with”, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise. A person’s beneficial ownership of fifteen percent (15%) or more of the voting power of a company’s outstanding shares entitled to vote in the election of directors creates a presumption that the person has control of the company. Notwithstanding the foregoing, a person is not considered to have control of a company if the person holds voting power, in good faith, as an agent, bank, broker, nominee, custodian, or trustee for one or more beneficial owners who do not individually or as a group have control of the company;

 

(viii)                “governing body” means the body of a company selected by its owners that has the ultimate power to determine the company’s policies and control its activities; and

 

(ix)                      “interested Member” means any person (including for this purpose any persons acting in concert with that person (as that term is defined in the Takeover Rules issued pursuant to the Irish Takeover Panel Act 1997)) that is (1) the beneficial owner, directly or indirectly, of fifteen percent (15%) or more of the voting power of the outstanding Shares entitled to vote of the

 

51



 

Company or (2) an affiliate or associate of the Company that, at any time within the three (3) year period immediately before the date on which it is sought to be determined whether such person is an interested Member, was the beneficial owner, directly or indirectly, of fifteen percent (15%) or more of the voting power of the then outstanding Shares entitled to vote of the Company.

 

If a person who has not been a beneficial owner of fifteen percent (15%) or more of the voting power of the outstanding Shares entitled to vote of the Company immediately prior to an acquisition of Shares by, or recapitalisation of, the Company or similar action shall become a beneficial owner of fifteen percent (15%) or more of the voting power solely as a result of the share acquisition, recapitalisation, or similar action, the person shall not be deemed to be the beneficial owner of fifteen percent (15%) or more of the voting power for purposes of (1) or (2) above, unless:

 

(a)                        the share acquisition, recapitalisation, conversion, or similar action was proposed by or on behalf of, or pursuant to any agreement, arrangement, relationship, understanding, or otherwise (whether or not in writing) with, the person or any affiliate or associate of the person; or

 

(b)                        the person thereafter acquires beneficial ownership, directly or indirectly, of outstanding Shares entitled to vote of the Company and, immediately after the acquisition, is the beneficial owner, directly or indirectly, of fifteen percent (15%) or more of the voting power of the outstanding Shares entitled to vote of the Company.

 

(x)                         an “interested Member” does not include:

 

(a)                                 the Company or any of its subsidiaries;

 

(b)                                 either of the Sponsor Holders;

 

(c)                                  a savings, employee stock ownership, or other employee benefit plan of the Company or its subsidiary, or a fiduciary of the plan when acting in a fiduciary capacity pursuant to the plan; or

 

(d)                                 a licensed broker/dealer or licensed underwriter who (1) purchases Shares of the Company solely for purposes of resale to the public and (2) is not acting in concert with an interested Member.

 

Shares beneficially owned by a plan described in clause (b) or by a fiduciary of a plan described in clause (b), pursuant to the plan, are not deemed to be beneficially owned by a person who is a fiduciary of the plan;

 

(xi)                      “market value”, when used in reference to shares or other property of any company, means the following:

 

(a)                               in the case of shares, the average closing sale price of a share during the thirty (30) trading days immediately preceding the date in question:

 

(1)                                  on the composite tape for Nasdaq Stock Market listed shares; or

 

(2)                                  if the shares are not quoted on the composite tape or not listed on the Nasdaq Stock Market, on the principal United States securities exchange registered under Exchange Act on which the shares are listed; or

 

(3)                                  if the shares are not listed on any such exchange, on any system then in use.

 

52



 

If no quotation under clauses (1) through (3) is available, then the market value is the fair market value on the date in question of the shares as determined in good faith by the governing body of the company.

 

(b)                               in the case of property other than cash or shares, the fair market value of the property on the date in question as determined in good faith by the governing body of the company.

 

(xii)                   “parent” of a specified company means a company that directly, or indirectly through related companies, owns more than fifty percent (50%) of the voting power of the shares or other ownership interests entitled to vote for directors or other members of the governing body of the specified company;

 

(xiii)                “person” includes a natural person and a company;

 

(xiv)               “related company” of a specified company means:

 

(a)                               a parent or subsidiary of the specified company;

 

(b)                               another subsidiary of a parent of the specified company;

 

(c)                                a limited liability company owning, directly or indirectly, more than fifty percent (50%) of the voting power of the shares entitled to vote for directors of the specified company;

 

(d)                               a limited liability company having more than fifty percent (50%) of the voting power of its membership interests entitled to vote for members of its governing body owned directly or indirectly by the specified company;

 

(e)                                a limited liability company having more than fifty percent (50%) of the voting power of its membership interests entitled to vote for members of its governing body owned directly or indirectly either (1) by a parent of the specified company or (2) a limited liability company owning, directly or indirectly, more than fifty percent (50%) of the voting power of the shares entitled to vote for directors of the specified company; or

 

(f)                                 a company having more than fifty percent (50%) of the voting power of its shares entitled to vote for directors owned directly or indirectly by a limited liability company owning, directly or indirectly, more than fifty percent (50%) of the voting power of the shares entitled to vote for directors of the specified company;

 

(xv)                  “security” means a note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in a profit-sharing agreement, collateral trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, put, call, straddle, option, or privilege on a security, certificate of deposit, or group or index of securities, including an interest therein or based on the value thereof, put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, an interest or instrument commonly known as a “security”; or a certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. The term:

 

(a)                               includes both a certificated and an uncertificated security;

 

(b)                               does not include an insurance or endowment policy or annuity contract under which an insurance company promises to pay a fixed or variable sum of money either in a lump sum or periodically for life or other specified period;

 

53



 

(c)                                does not include an interest in a contributory or non-contributory pension or welfare plan subject to the United States Employee Retirement Income Security Act of 1974, as amended;

 

(d)                               includes as an “investment contract,” among other contracts, an interest in a limited partnership and a limited liability company and an investment in a viatical settlement or similar agreement; and

 

(e)                                does not include any equity interest of a closely held corporation or other entity with not more than thirty-five (35) holders of the equity interest of such entity offered or sold pursuant to a transaction in which one hundred percent (100%) of the equity interest of such entity is sold as a means to effect the sale of the business of the entity if the transaction has been negotiated on behalf of all purchasers and if all purchasers have access to inside information regarding the entity before consummating the transaction; and

 

(xvi)               “subsidiary” of a specified company means a company having more than fifty percent (50%) of the voting power of its shares or other ownership interests entitled to vote for directors or other members of the governing body of the company owned directly, or indirectly through related companies, by the specified company.

 

EXCLUSIVE JURISDICTION

 

198.

 

198.1.                        Save in the case of any actions brought by, or on behalf of, or against, the Company relating to US securities law, unless the Board or one of its duly authorised committees approves the selection of an alternate forum, the courts of Ireland shall, to the fullest extent permitted by applicable law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any Director, officer or other employee of the Company to the Company or the Members, (iii) any action asserting a claim against the Company arising pursuant to any provision of Irish law or this Constitution and (iv) any action to interpret, apply, enforce or determine the validity of this Constitution (each an “ Irish Proceeding ”).

 

198.2.                        If any action the subject matter of an Irish Proceeding is filed in a court outside the jurisdiction of Ireland (a “ Foreign Action ”), in the name of any person or entity (a “ Claiming Party ”) without the prior approval of the Board or one of its duly authorised committees in the manner described above in Article 198.1, such Claiming Party shall be deemed to have consented to (i) the jurisdiction of the courts of Ireland in connection with any action brought by the Company in any such courts to enforce Article 198.1 above  (an “ Enforcement Action ”) and (ii) having service of process made upon such Claiming Party in any such Enforcement Action by service upon such Claiming Party’s counsel in the Foreign Action as agent for such Claiming Party.

 

198.3.                        Any person or entity purchasing or otherwise acquiring any interest in Share(s) of the Company shall be deemed to have notice of and consented to the provisions of this Article 198 and waived any argument relating to the inconvenience of the forums referenced above in connection with any Irish Proceeding.

 

54



 

We, the corporate body whose name and address is subscribed, wish to be formed into a company in pursuance of this memorandum of association, and we agree to take the number of shares in the capital of the Company set opposite our respective names.

 

 

 

Number of shares

 

Name, Address and Description

 

taken by the

 

of the Subscriber

 

Subscriber

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For and on behalf of

 

 

 

 

Dated

 

 

Witness to the above signature:

 

 

 

 

 

Name:

 

Address:

 

Occupation:

 

55




Exhibit 4.1

 

SHAREHOLDERS AGREEMENT

 

DATED AS OF

 

[   ], 2018

 

AMONG

 

OSMOTICA PHARMACEUTICALS PLC

 

ACP HOLDCO (OFFSHORE), L.P.

 

ACP III AIV, L.P.

 

ALTCHEM LIMITED

 

ORBIT CO-INVEST A-I LLC

 

ORBIT CO-INVEST 1 LLC

 

ORBIT CO-INVEST II LLC

 

ORBIT CO-INVEST III LLC

 

AND

 

THE MANAGEMENT SHAREHOLDERS IDENTIFIED HEREIN

 



 

TABLE OF CONTENTS

 

ARTICLE 1 DEFINITIONS

1

 

 

Section 1.01.

 

Definitions

1

 

 

 

 

ARTICLE 2 CORPORATE GOVERNANCE

8

 

 

Section 2.01.

 

Composition of the Board

8

 

 

 

 

Section 2.02.

 

Additional Provisions

9

 

 

 

 

Section 2.03.

 

Exculpation

9

 

 

 

 

Section 2.04.

 

Indemnification

10

 

 

 

 

Section 2.05.

 

Primary Obligation

11

 

 

 

 

ARTICLE 3 TRANSFERS AND RESTRICTIONS ON TRANSFER

12

 

 

Section 3.01.

 

Co-Invest Vehicle Participation; Aggregation of Interests

12

 

 

 

 

Section 3.02.

 

General Restrictions on Transfer

13

 

 

 

 

Section 3.03.

 

Restrictions on Transfer by Management Shareholders

13

 

 

 

 

Section 3.04.

 

Management Permitted Transferees

14

 

 

 

 

ARTICLE 4 REGISTRATION RIGHTS

15

 

 

Section 4.01.

 

Demand Registration

15

 

 

 

 

Section 4.02.

 

Piggyback Registration

17

 

 

 

 

Section 4.03.

 

Shelf Registration

19

 

 

 

 

Section 4.04.

 

Lock-Up Agreements

20

 

 

 

 

Section 4.05.

 

Registration Procedures

21

 

 

 

 

Section 4.06.

 

Indemnification by the Company

25

 

 

 

 

Section 4.07.

 

Indemnification by the Participating Shareholders

26

 

 

 

 

Section 4.08.

 

Conduct of Indemnification Proceedings

26

 

 

 

 

Section 4.09.

 

Contribution

27

 

 

 

 

Section 4.10.

 

Cooperation by the Company

28

 

 

 

 

Section 4.11.

 

Restriction on Company Grants of Subsequent Registration Rights

28

 

 

 

 

Section 4.12.

 

Assignment of Registration Rights

28

 

 

 

 

ARTICLE 5 ACCOUNTING AND TAX MATTERS

29

 

 

Section 5.01.

 

Books and Records; Financial Reports

29

 

 

 

 

Section 5.02.

 

Tax Returns

29

 

 

 

 

Section 5.03.

 

Accounting Methods; Elections

29

 

 

 

 

Section 5.04.

 

United States Federal Income Tax Classification

29

 

 

 

 

ARTICLE 6 CERTAIN COVENANTS AND AGREEMENTS

30

 

 

Section 6.01.

 

Confidentiality

30

 

i



 

Section 6.02.

 

Directors’ and Officers’ Insurance

31

 

 

 

 

Section 6.03.

 

No Exclusive Duty to Company

31

 

 

 

 

ARTICLE 7 MISCELLANEOUS

33

 

 

Section 7.01.

 

Binding Effect; Assignability; Benefit

33

 

 

 

 

Section 7.02.

 

Notices

33

 

 

 

 

Section 7.03.

 

Waiver; Amendment; Termination

34

 

 

 

 

Section 7.04.

 

Non-Recourse

35

 

 

 

 

Section 7.05.

 

Governing Law; Venue

35

 

 

 

 

Section 7.06.

 

WAIVER OF JURY TRIAL

36

 

 

 

 

Section 7.07.

 

Specific Enforcement; Cumulative Remedies

36

 

 

 

 

Section 7.08.

 

Entire Agreement

36

 

 

 

 

Section 7.09.

 

Severability

36

 

 

 

 

Section 7.10.

 

Counterparts; Effectiveness

37

 

ii


 

THIS SHAREHOLDERS AGREEMENT (this “ Agreement ”), dated as of [   ], 2018, is entered into by and among Osmotica Pharmaceuticals plc, a public limited company incorporated under the laws of Ireland with registration number 607944 and registered office at 25-28 North Wall Quay, Dublin 1, Ireland (together with its successors, the “ Company ”), ACP Holdco (Offshore), L.P., a Bermuda exempted limited partnership (“ ACP Offshore ”), ACP III AIV, L.P., a Bermuda exempted limited partnership (the “ VCOC ”, and together with ACP Offshore, the “ Avista Shareholder ”), Altchem Limited (the “ Altchem Shareholder ”), and each of Altchem, on the one hand, and the Avista Shareholder, collectively, on the other hand, a “ Sponsor ”), Orbit Co-Invest A-I LLC, a Delaware LLC (“ Orbit A-1 ”), Orbit Co-Invest I LLC, a Delaware LLC (“ Orbit 1 ”) and Orbit Co-Invest III, LLC (“ Orbit 3 ”, and together with Orbit A-1 and Orbit 1, the “ Co-Invest Vehicles ”), the shareholders listed on Annex A hereto as Management Shareholders, and the Persons who on becoming shareholders of the Company execute and deliver a Joinder Agreement, substantially as set forth on Annex A hereto (a “ Joinder Agreement ”) (each of the foregoing a “ Shareholder ” and collectively, the “ Shareholders ”).

 

WHEREAS, the Company was formed pursuant to the Irish Companies Act 2014 on July 13, 2017;

 

WHEREAS, in connection with the contemplated initial public offering (the Offering ”) of the Company’s Ordinary Shares (as defined below), the board of directors of the Company (the “ Board ”) has approved this Agreement at a meeting of the Board on August 14, 2018;

 

WHEREAS, this Agreement shall be effective upon the consummation of the IPO (as defined below) (the “ Effective Time ”) ;

 

WHEREAS, Schedule A hereto sets forth the names of and the number of Equity Securities owned by each Shareholder as of the date hereof, and the Company shall update Schedule A from time to time to reflect any issuances or Transfers of Equity Securities;

 

WHEREAS, the parties believe that it is in the best interests of the Company and the Shareholders to set forth herein their agreements on certain matters relating to the governance of the Company and the rights and obligations of the Shareholders; and

 

NOW, THEREFORE, in consideration of the promises and mutual agreements contained herein and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

 

ARTICLE 1

 

DEFINITIONS

 

Section 1.01.                           Definitions .

 

(a)                                  The following terms, as used herein, have the following meanings:

 

Affiliate ” means, with respect to any Person, any other Person who, directly or indirectly, Controls such first Person or is Controlled by said Person or is under common Control

 



 

with said Person; provided , that no Shareholder shall be deemed an Affiliate of any other Shareholder solely by reason of an investment in, or holding Equity Securities of, the Company.

 

Altchem Co-Invest Vehicles ” means Orbit A-I LLC (to the extent that it remains Controlled by the Altchem Shareholder or one of its Controlled Affiliates) or any other co-investment vehicle controlled by the Altchem Shareholder or one of its Controlled Affiliates and that holds Equity Securities from and after the Effective Date, collectively referred to as “Altchem Co-Invest Vehicles”; provided , that the Altchem Shareholder and its Permitted Transferees shall in no event be deemed to be an Altchem Co-Invest Vehicle.

 

Avista Co-Invest Vehicle ” means any of Orbit 1, Orbit 3 and any other co-investment vehicle controlled by the Avista Shareholder or one of its controlled Affiliates and that holds Equity Securities from or after the Effective Date, collectively referred to as “Avista Co-Invest Vehicles”; provided , that the Avista Shareholder and their Permitted Transferees shall in no event be deemed to be an Avista Co-Invest Vehicle.

 

Business means, from time to time, the marketing, distribution, manufacturing or sale of branded and generic pharmaceutical products of the Company and/or of Subsidiaries of the Company at such time or which products have been presented to the Board or board of directors of the Subsidiaries of the Company for future marketing, distribution, manufacturing or sale at prior to such time; provided , that “Business” includes any business that develops or commercializes osmotic-based drug delivery technology in the United States or Canada.

 

Business Day means any day except a Saturday, Sunday or other day on which commercial banks in New York City, New York and Dublin, Ireland are authorized or required by applicable law to close.

 

Company Competitor means (a) any Person that is reasonably determined by the Board to be a competitor of the Company or any of its Subsidiaries in any material respect and (b) any Affiliate of any such Person specified in clause (a).  For purposes hereof, without limiting the foregoing, any Person with, or whose Affiliate has, substantial operations in the Business shall be presumed to be a Company Competitor unless the Board otherwise determines; provided , however , that for purposes of this Agreement, no private equity fund, including the Sponsors (or any of their respective Affiliates), shall be deemed a Company Competitor solely due to its direct or indirect investment in a portfolio company of such Person where such portfolio company would be deemed a Company Competitor.

 

Constitution ” means the constitution of the Company, as the same may be amended from time to time, a copy of which is attached as Exhibit B hereto, as the same may be amended from time to time as permitted hereunder.

 

Control , ” “ Controlled ” and “ Controlling ” mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

 

Equity Securities ’’ means, without duplication, (i) the Ordinary Shares, and (ii) any other securities convertible into or exchangeable or exercisable for, or options, warrants or other

 

2



 

rights to acquire, Ordinary Shares, or any other equity or equity-linked security issued by the Company.

 

Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

Family Member ” means, with respect to any Person who is an individual, any spouse (or partner by civil union or registered domestic partnership), lineal descendants (including adoptive relationships), or siblings.

 

FINRA ” means the Financial Industry Regulatory Authority, Inc.

 

Governmental Authority ” means any federal, state, local or foreign governmental authority, department, commission, board, bureau, agency, court, instrumentality or judicial or regulatory body or entity.

 

Incentive Plan ” means the Company’s 2018 Equity Incentive Plan, as the same may be amended, modified or supplemented.

 

IPO ” means the initial Public Offering registered on Form S-1 (or any successor form under the Securities Act).

 

Management Affiliated Entity ” means, as to any Management Person, (i) any vehicle or entity (excluding a Co-Invest Vehicle) that holds Equity Securities on behalf or for the direct or indirect benefit of such Management Person or their Permitted Transferee, and (ii) any Shareholder that would be or qualify as a Permitted Transferee of such Person if such Person was a Shareholder.

 

Management Person ” means any current or former employee, officer, director or consultant of the Company or any of its Subsidiaries that holds Equity Securities of the Company, either directly or indirectly through a Management Affiliated Entity or a Co-Invest Vehicle.

 

Management Shareholders means (a) the shareholders listed on Annex A hereto and (b) any Shareholder in its capacity as (i) a Management Person, (ii) a Management Affiliated Entity, or (iii) any Permitted Transferee of (i) or (ii).

 

Option ” means an option to purchase Ordinary Shares granted pursuant to the Incentive Plan.

 

Ordinary Shares ” means the ordinary shares of $0.01 each in the capital of the Company, with such rights and preferences as set forth in the Constitution.

 

Permitted Transferee ” means, (a) with respect to any Management Person, (i) any executor, administrator or testamentary trustee of such Management Person’s estate if such Management Person dies, (ii) any Family Member receiving Equity Securities of such Management Person by will, intestacy laws or the laws of descent or survivorship, (iii) any trustee of a trust (including an inter vivos trust) of which there are no principal beneficiaries

 

3



 

other than such Management Person or one or more Family Members of such Management Person or (iv) any investment vehicle which is 100% wholly owned by a Management Person, one or more Family Members of such Management Person, or a trust described in clause (iii) above, (b) with respect to any Management Affiliated Entity, the employee, officer, director or consultant of the Company or any of its Subsidiaries that qualifies such Shareholder as a Management Affiliated Entity, (c) with respect to the Altchem Shareholder or its Permitted Transferees, (i) as to any individual owner of the Altchem Shareholder or such Permitted Transferee, the Persons described in clause (a)(i) through (iv) of this definition, mutatis mutandis ; provided , that , any such Permitted Transferee of the Altchem Shareholder pursuant to this subsection (i) shall hold Equity Securities in the Company indirectly through the Altchem Shareholder or through a vehicle Controlled by the Altchem Shareholder; and (ii) any Affiliate of the Altchem Shareholder or such Permitted Transferees, (d) with respect to the Avista Shareholder or its Permitted Transferees, an investment fund that is a parallel fund (but not a successor fund) or alternative investment vehicle of the Avista Shareholder with the same or Affiliated general partner as the Avista Shareholder or a direct or indirect wholly-owned Subsidiary of the Avista Shareholder or such parallel fund or alternate investment vehicle, (e) with respect to the Avista Co-Invest Vehicles, the Avista Shareholder, its Permitted Transferees and any other Avista Co-Invest Vehicle, (f) with respect to the members of the Avista Co-Invest Vehicles, (i) any Affiliate of such member other than a Company Competitor; (ii) the Avista Shareholder; and (iii) any current or prospective limited partners of the Avista Shareholder or of other investment funds managed by the Avista Shareholder or any of its Affiliates; provided , that, any such Permitted Transferee of the members of the Avista Co-Invest Vehicles pursuant to this clause (f) shall hold Equity Securities in the Company indirectly through the Avista Shareholder or through a vehicle Controlled by the Avista Shareholder (except in the case that the Avista Shareholder is the Permitted Transferee, in which case it shall be permitted to hold Equity Securities in the Company directly), and (g) with respect to the Altchem Co- Invest Vehicle, the Altchem Shareholder and its Permitted Transferees and any other Altchem Co-Invest Vehicle; provided , however, that no “portfolio company” (as such term is customarily used among institutional investors) of the Avista Shareholder or any entity Controlled by any portfolio company of the Avista Shareholder shall constitute a Permitted Transferee of the Avista Shareholder, an Avista Co-Invest Vehicle, or the members of an Avista Co-Invest Vehicle; provided , further , however, that in no event shall (A) the Company or any of its Subsidiaries, or (B) any Company Competitor (whether or not an Affiliate of the transferring Shareholder), constitute a “Permitted Transferee”.

 

Person ” means any individual, corporation, limited liability company, partnership, association, trust or other entity or organization, including a Governmental Authority and, where the context so permits, the legal representatives, successors in interest and permitted assigns of such Person.

 

Proceeding ” means an investigation, action, suit, arbitration or other proceeding, whether civil or criminal.

 

Proportion ” means the percentage derived by dividing the amount of Ordinary Shares to be transferred by any Sponsor or its Affiliates, by the total amount of Ordinary Shares held by all of the Sponsors and their Affiliates before such proposed Transfer.

 

4



 

Public Offering ” means an underwritten public offering of Ordinary Shares pursuant to an effective registration statement under the Securities Act, other than pursuant to a registration statement on Form S-4 or Form S-8 or any similar or successor form.

 

Registrable Securities ” means at any time, any equity securities (other than non-participating, non-convertible preferred share) of the Company held by any other Shareholders; provided , that Registrable Securities shall not include any shares (i) the sale of which has been registered pursuant to the Securities Act and which shares have been sold pursuant to such registration, (ii) which have been sold or are eligible to be sold or distributed pursuant to Rule 144 or Rule 145 without limitation, (iii) which have been registered for resale pursuant to an effective Registration Statement on a Form S-8 (or any successor or similar form), or (iv) which represent less than 1% of the outstanding Ordinary Shares of the Company.

 

Registration Expenses means any and all expenses incident to the performance of or compliance with any registration or marketing of securities, including all (i) registration and filing fees, and all other fees and expenses payable in connection with the listing of securities on any securities exchange or automated interdealer quotation system, (ii) fees and expenses of compliance with any securities or “ blue sky ” laws (including reasonable fees and disbursements of counsel in connection with “ blue sky ” qualifications of the securities registered), (iii) expenses in connection with the preparation, printing, mailing and delivery of any Registration Statements, prospectuses and other documents in connection therewith and any amendments or supplements thereto, (iv) security engraving and printing expenses, (v) internal expenses of the Company (including all salaries and expenses of its officers and employees performing legal or accounting duties), (vi) fees and disbursements of counsel for the Company and customary fees and expenses for independent certified public accountants retained by the Company (including the expenses relating to any comfort letters or costs associated with the delivery by independent certified public accountants of any comfort letters to be provided pursuant to Section 4.05(h)  hereof), (vii) fees and expenses of any special experts retained by the Company in connection with such registration, (viii) fees and out-of-pocket expenses of one counsel for each of the Sponsors (including the reasonable fees and expenses of one counsel collectively for the Avista Co-Invest Vehicles and one counsel for the Altchem Co-Invest Vehicle), and any other “local” counsel required to render legal opinions on behalf of any such Sponsor, (ix) fees and expenses in connection with any review of the underwriting arrangements or other terms of the offering, and all fees and expenses of any “ qualified independent underwriter ” required to participate in any offering, including reasonable fees and expenses of any counsel thereto, (x) fees and disbursements of underwriters customarily paid by issuers or sellers of securities, but excluding any underwriting fees, discounts and commissions attributable to the sale of Registrable Securities, (xi) costs of printing and producing underwriting agreements, any “ blue sky ” or legal investment memoranda and any selling agreements and other documents in connection with the offering, sale or delivery of the Registrable Securities, (xii) transfer agents’ and registrars’ fees and expenses and the fees and expenses of any other agent or trustee appointed in connection with such offering, (xiii) expenses relating to any analyst or investor presentations or any “ road shows ” undertaken in connection with the registration, marketing or selling of the Registrable Securities, (xiv) fees and expenses payable in connection with any ratings of the Registrable Securities, including expenses relating to any presentations to rating agencies, and (xv) all other reasonable costs and expenses incurred by the Company or its officers in connection with their compliance with Section 4.01 and Section 4.11 hereof.

 

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Registration Statement ” shall mean any registration statement of the Company, under the Securities Act which permits the public offering of any of the Registrable Securities pursuant to the provisions of this Agreement, including the prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

 

Requisite Consent ” means the prior written consent of each of the Sponsors, for so long as such Sponsor holds at least ten (10%) of the shares of Ordinary Shares then outstanding.

 

Rule 144 ” means Rule 144 (or any successor provision) under the Securities Act.

 

Rule 145 ” means Rule 145 (or any successor provision) under the Securities Act.

 

SEC means the Securities and Exchange Commission.

 

Securities Act means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

Subsidiary means, with respect to any specified Person, any other Person in which such specified Person, directly or indirectly through one or more Affiliates or otherwise, beneficially owns at least fifty percent (50%) of the ownership interest (determined by equity or economic interests) in, or the voting control of, such other Person.

 

Transfer ” means, with respect to any Equity Securities, (i) when used as a verb, to sell, assign, dispose of, exchange, pledge, encumber, hypothecate or otherwise transfer such Equity Securities or any participation or interest therein, whether directly or indirectly, or agree or commit to do any of the foregoing, and (ii) when used as a noun, a direct or indirect sale, assignment, disposition, exchange, pledge, encumbrance, hypothecation, or other transfer of such Equity Securities or any participation or interest therein or any agreement or commitment to do any of the foregoing.

 

(b)                                  Each of the following terms is defined in the Section set forth opposite such term:

 

TERM

 

SECTION

Agreement

 

Preamble

Altchem Shareholder

 

Preamble

Altchem Designees

 

Section 2.01(a)

Altchem DIK

 

Section 3.01(b)

Avista

 

Preamble

Avista Designees

 

Section 2.01(a)

Avista DIK

 

Section 3.01(a)

Avista Shareholder

 

Preamble

Board

 

Recitals

Company

 

Preamble

Confidential Information

 

Section 6.01(a)

Confidentiality Affiliates

 

Section 6.01(a)

 

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TERM

 

SECTION

Coordination Committee

 

Section 3.02(a)

Damages

 

Section 4.06

Demand Maximum Offering Size

 

Section 4.01(d)

Demand Registration

 

Section 4.01(a)

Determination Time

 

Section 3.03(a)

Effective Time

 

Recitals

Indemnified Party

 

Section 4.08

Indemnifying Party

 

Section 4.08

Indemnity Obligations

 

Section 2.05

Inspectors

 

Section 4.05(g)

IPO Lock-Up Period

 

Section 4.04(a)

Joinder Agreement

 

Preamble

LuxCo

 

Section 5.02

Offering

 

Recitals

Piggyback Maximum Offering Size

 

Section 4.02(b)

Piggyback Registration

 

Section 4.02(a)

Records

 

Section 4.05(g)

Registering Shareholders

 

Section 4.01(a)(ii)

Relative Ownership Percentage

 

Section 3.03(a)

Requesting Shareholders

 

Section 4.01(a)

Shelf Registration

 

Section 4.03(a)

Shelf Request

 

Section 4.03(a)

Shareholder

 

Preamble

Shareholders

 

Preamble

Sponsor Designees

 

Section 2.01(a)(ii)

Sponsor Parties

 

Section 2.05

Sponsors

 

Preamble

Underwritten Shelf Take-down

 

Section 4.03(b)

Unrestricted Securities

 

Section 3.03(b)

Unwinding Event

 

Section 3.04(b)

Withdrawing Holders

 

Section 4.04(c)

 

(c)                                   Other Definitional and Interpretive Matters .  Unless otherwise expressly provided, for purposes of this Agreement, the following rules of interpretation shall apply:

 

Calculation of Time .  When calculating the period before which, within which or after which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded.  If the last day of such period is a non- Business Day, the period in question shall end on the next succeeding Business Day.

 

Dollars .  Any reference in this Agreement to “$” means U.S. dollars.

 

Annexes/Exhibits/Schedules .  The Annexes, Exhibits and Schedules to this Agreement are hereby incorporated and made a part hereof and are an integral part of this Agreement.  Any

 

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capitalized terms used in any Annex, Exhibit or Schedule but not otherwise defined therein shall be defined as set forth in this Agreement.

 

Gender and Number .  Any reference in this Agreement to gender shall include all genders, and words imparting the singular number only shall include the plural and vice versa.

 

Headings .  The provision of a Table of Contents, the division of this Agreement into Articles, Sections and other subdivisions and the insertion of headings are for convenience of reference only and shall not affect or be utilized in construing or interpreting this Agreement.  All references in this Agreement to any “ Article ” or “ Section ” are to the corresponding Article or Section of this Agreement unless otherwise specified.

 

Herein .  The words such as herein hereinafter hereof and “ hereunder ” refer to this Agreement as a whole and not merely to a subdivision in which such words appear unless the context otherwise requires.

 

Other .  The words “ include ” “ includes ” and “ including ” when used herein shall be deemed in each case to be followed by the words “ without limitation. ” The phrases “ provided to ” “ furnished to ” and phrases of similar import when used herein, unless the context otherwise requires, shall mean that a true, correct and complete copy of the information or material referred to has been provided to the party to whom such information or material is to be provided.  The word “ extent ” in the phrase “ to the extent ” means the degree to which a subject or other thing extends, and such phrase does not mean simply “ if .

 

ARTICLE 2

 

CORPORATE GOVERNANCE

 

Section 2.01.                           Composition of the Board .

 

(a)                                  Subject to the applicable law, the Avista Shareholder, shall have the right to nominate two directors to the Board of the Company (the Avista Designees ”).

 

(b)                                  Subject to the applicable law, the Altchem Shareholder shall have the right to nominate two directors for appointment to the Board of the Company (the Altchem Designees and, together with the Avista Designees, the Sponsor Designees ”).

 

(c)                                   (i) In the event that any Sponsor (and its Affiliates) ceases to beneficially own Ordinary Shares that equal at least twenty percent (20%) of the Ordinary Shares then outstanding, such Sponsor shall no longer have the right to nominate for appointment two Sponsor Designees and shall have the right to nominate for appointment only one Sponsor Designee, and (ii) in the event that any Sponsor (and its Affiliates) cease to beneficially own Ordinary Shares that equal at least ten percent (10%) of the Ordinary Shares then outstanding, such Sponsor shall no longer have the right to nominate any Sponsor Designees.

 

(d)                                  The Company shall use all reasonable efforts to facilitate the appointment of the Sponsor Designees pursuant to this Section 2.01 to be elected as members of the Board, and to permit the Sponsors to remove, replace or change their Sponsor Designees from time to

 

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time and fill vacancies created by reason of death, removal or resignation of such Sponsor Designees, including by calling a general or special meeting of shareholders of the Company for the purpose of voting on any appointment, removal, replacement or change.

 

(e)                                   Until such time as any of the Sponsors (together with its Affiliates) individually ceases beneficially to own Ordinary Shares that equal at least ten percent (10%) of the Ordinary Shares then outstanding, each Sponsor and each Co-Invest Vehicle shall, at any time it is then entitled to vote for the election of directors to the Board, vote all of its Equity Securities that are entitled to vote or execute proxies or written consents, as the case may be, and take all other necessary action (including causing the Company to call a special meeting of Shareholders) in order to ensure that the composition of the Board is as set forth in this Section 2.01 .

 

(f)                                    The Company shall reimburse each Sponsor Designee for all reasonable out-of-pocket expenses incurred in connection with the attendance by such Sponsor Designee at meetings of the Board or any committee thereof, including, without limitation, travel, lodging and meal expenses.

 

Section 2.02.                           Additional Provisions .

 

(a)                                  Subject to the confidentiality obligations of Shareholders pursuant to Section 6.01 of this Agreement and to the fiduciary duties of each of the Sponsor Designees, the Company agrees and acknowledges that the Sponsor Designees may share confidential, non-public information about the Company with the Sponsors.

 

(b)                                  (i)                                      The Company covenants and agrees to, until such time as such Sponsor ceases to beneficially own Ordinary Shares that equal less than ten percent (10%) of the outstanding Ordinary Shares, (i) deliver to each of the Sponsors with reasonable promptness, such information and data, including, but not limited to, any information necessary to assist each of the Sponsors in preserving its qualification as a “venture capital operating company” as defined in the regulations promulgated under the Employment Retirement Income Security Act of 1974 by the United States Department of Labor, with respect of the Company and each of its subsidiaries from time to time may be reasonably requested by such Sponsor and (ii) cause its and its Subsidiaries’ officers, directors, employees, auditors and other agents to (a) afford the officers, employees, auditors and other agents of such Sponsor, during normal business hours and upon reasonable notice, reasonable access and consultation rights at all reasonable times to its officers, employees, auditors, legal counsel, properties, offices, plants and other facilities and to all books and records, and (b) afford such Sponsor the opportunity to discuss the Company’s affairs, finances and accounts with the Company’s officers from time to time as each such Sponsor may reasonably request.

 

(c)                                   At the Effective Time, the limited partnership agreement of LuxCo, as in effect immediately prior to the Effective Time, shall be amended and restated to reflect a wholly-owned subsidiary of the Company and substantially in the form attached hereto as Exhibit C .

 

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Section 2.03.                           Exculpation .

 

(a)                                  Without limiting the scope or application of Section 2.04 and to the full extent permitted by applicable law, no Indemnified Party (as defined below) shall be liable, in damages or otherwise, to the Company, the Shareholders or any of their Affiliates for any act or omission performed or omitted by any of them in good faith (including any act or omission performed or omitted by any of them in reliance upon and in accordance with the opinion or advice of experts, including of legal counsel as to matters of law, of accountants as to matters of accounting, or of investment bankers or appraisers as to matters of valuation), except with respect to (i) any act taken by such Indemnified Party purporting to bind the Company that such Indemnified Party did not reasonably believe to have been taken in accordance with this Agreement (or authorized by the Board), or (ii) any act or omission with respect to which such Indemnified Party was grossly negligent or engaged in intentional misconduct.

 

(b)                                  The provisions of this Agreement, to the extent that they restrict, modify or eliminate the duties and liabilities of an Indemnified Party otherwise existing at law or in equity, are agreed by the parties hereto to replace such other duties and liabilities of such Indemnified Party, to the maximum extent permitted by applicable law.

 

Section 2.04.                           Indemnification .

 

(a)                                  To the fullest extent permitted by applicable law, the Company shall and does hereby agree to indemnify and hold harmless and pay all judgments and claims against (i) each director of the Company and (ii) each officer of the Company, and their respective Affiliates, officers, directors, employees, shareholders, partners, managers and members (each, an “ Indemnified Party ”), each of which shall be a third-party beneficiary of this Agreement solely for purposes of this Section 2.04 and Section 2.05 ), from and against any loss or damage incurred by such Indemnified Party, for any act or omission taken or suffered by such Indemnified Party in good faith (including any act or omission taken or suffered by any of them in reliance upon and in accordance with the opinion or advice of experts, including of legal counsel as to matters of law, of accountants as to matters of accounting, or of investment bankers or appraisers as to matters of valuation) in connection with the Board or the Company’s business, including costs and reasonable attorneys’ fees and any amount expended in the settlement of any claims or loss or damage, except with respect to (i) any act taken by such Indemnified Party purporting to bind the Company that has not been authorized pursuant to this Agreement or (ii) any act or omission with respect to which such Indemnified Party was grossly negligent or engaged in intentional misconduct.

 

(b)                                  The satisfaction of any indemnification obligation pursuant to Section 2.04(a)  shall be from and limited to Company assets (including insurance and any agreements pursuant to which the Company, the Board and their respective officers or employees are entitled to indemnification) and no Shareholder, in such capacity, shall be subject to personal liability therefor.

 

(c)                                   Expenses reasonably incurred by an Indemnified Party in defense or settlement of any claim that may be subject to a right of indemnification hereunder shall be advanced by the Company prior to the final disposition thereof upon receipt of an undertaking by or on behalf of such Indemnified Party to repay such amount to the extent that it shall be

 

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determined upon final adjudication after all possible appeals have been exhausted that such Indemnified Party is not entitled to be indemnified hereunder.

 

(d)                                  The Company may purchase and maintain insurance, on behalf of all Indemnified Parties and other Persons against any liability which may be asserted against, or expense which may be incurred by, any such Person in connection with the Company’s activities, whether or not the Company would have the power to indemnify such Person against such liabilities under the provisions of this Agreement.

 

(e)                                   Promptly after receipt by an Indemnified Party of notice of the commencement of any Proceeding, such Indemnified Party shall, if a claim for indemnification in respect thereof is to be made against the Company, give written notice to the Company of the commencement of such Proceeding; provided , however , that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Company of its obligations under this Section 2.04 , except to the extent that the Company is actually prejudiced by such failure to give notice.  In case any such Proceeding is brought against an Indemnified Party (other than a derivative suit in right of the Company or the Board), the Company will be entitled to participate in and to assume the defense thereof to the extent that the Company may wish, with counsel reasonably satisfactory to such Indemnified Party.  After notice from the Company to such Indemnified Party of the Company’s election to assume the defense of such Proceeding, the Company will not be liable for expenses subsequently incurred by such Indemnified Party in connection with the defense thereof.  The Company will not consent to entry of any judgment or enter into any settlement of such Proceeding that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party a release from all liability in respect of such Proceeding and the related claim.

 

(f)                                    The right to indemnification and the advancement of expenses conferred in this Section 2.04 shall not be exclusive of any other right which any Person may have or hereafter acquire under any statute, agreement, bylaw, vote of the Board or otherwise.  The rights conferred upon any Indemnified Party in Section 2.03 and Section 2.04 shall be contract rights that vest upon the occurrence or alleged occurrence of any act or omission giving rise to any Proceeding or threatened Proceeding and such rights shall continue as to any Indemnified Party who has ceased to be a director or officer and shall inure to the benefit of such Indemnified Party’s heirs, executors and administrators.  Any amendment, alteration or repeal of Section 2.03 and Section 2.04 that adversely affects any right of any Indemnified Party or its successors shall be prospective only and shall not limit or eliminate any such right with respect to any Proceeding involving any occurrence or alleged occurrence of any action or omission to act that took place prior to such amendment, alteration or repeal.

 

Section 2.05.                           Primary Obligation .  With respect to any Indemnified Party who is employed, retained or otherwise associated with, or appointed or nominated by, the Board, any Sponsor or any of their respective Affiliates and who acts or serves as a director, officer, manager, fiduciary, employee, consultant, advisor or agent of, for or to the Board, the Company or any of its Subsidiaries, the Company or its Subsidiaries shall be primarily liable for all indemnification, reimbursements, advancements or similar payments (the “ Indemnity Obligations ”) afforded to such Indemnified Party acting in such capacity or capacities on behalf or at the request of the Board, the Company or any of their respective Subsidiaries, in such

 

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capacity, whether the Indemnity Obligations are created by law, organizational or constituent documents, contract (including this Agreement) or otherwise.  Notwithstanding the fact that such Sponsors or any of its Affiliates, other than the Company (such Persons, together with its and their heirs, successors and assigns, the “ Sponsor Parties ”), may have concurrent liability to an Indemnified Party with respect to the Indemnity Obligations, the Company hereby agrees that in no event shall the Company or any of their respective Subsidiaries have any right or claim against any of the Sponsor Parties for contribution or have rights of subrogation against any Sponsor Parties through an Indemnified Party for any payment made by the Company or any of its Subsidiaries with respect to any Indemnity Obligation.  In addition, the Company hereby agrees that in the event that any Sponsor Parties pay or advance to an Indemnified Party any amount with respect to an Indemnity Obligation, the Company will, or will cause its Subsidiaries to, as applicable, promptly reimburse such Sponsor Parties for such payment or advance upon request.

 

ARTICLE 3

 

TRANSFERS AND RESTRICTIONS ON TRANSFER

 

Section 3.01.                           Co-Invest Vehicle Participation; Aggregation of Interests .

 

(a)                                  Notwithstanding anything in this Agreement to the contrary, in connection with any Transfer of Equity Securities by the Avista Shareholder or its Permitted Transferees (including under Section 4.01 , Section 4.02 or Section 4.03 ), such Transfers shall (and the Avista Shareholder shall cause such Transfer to) include a number of Equity Securities held by each of the Avista Co-Invest Vehicles equal to Avista’s Proportion multiplied by the number of Equity Securities held by such Avista Co-Invest Vehicle as of immediately prior to such Transfer, and any and all references to Transfers by the Avista Shareholder or Sponsor (as such term relates to or refers to the Avista Shareholder) shall be deemed to refer to both the Avista Shareholder and the Avista Co-Invest Vehicles; provided , that this Section 3.01(a)  shall not apply to Transfers by the Avista Shareholder to its Permitted Transferees or a “distribution-in-kind” made by an Avista Shareholder or its partners or members (an “ Avista DIK ”).

 

(b)                                  Notwithstanding anything in this Agreement to the contrary, in connection with any Transfer of Equity Securities by the Altchem Shareholder or its Permitted Transferees (including under Section 4.01 , 4.02 or 4.03 ), such Transfers shall (and the Altchem Shareholder shall cause such Transfer to) include a number of Equity Securities held by each of the Altchem Co-Invest Vehicles equal to Altchem’s Proportion multiplied by the number of Equity Securities held by such Altchem Co-Invest Vehicle as of immediately prior to such Transfer, and any and all references to Transfers by the Altchem Shareholder or Sponsor (as such term relates to or refers to the Altchem Shareholder) shall be deemed to refer to both the Altchem Shareholder and the Altchem Co-Invest Vehicles; provided , that this Section 3.01(b)  shall not apply to Transfers by the Altchem Shareholder to its Permitted Transferees or a “distribution-in-kind” made by an Altchem Shareholder or its partners or members (an “ Altchem DIK ”).

 

(c)                                   All Equity Securities held by a Shareholder and its Permitted Transferees shall be aggregated together for purposes of determining the availability of any rights under this

 

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Agreement (and for the avoidance of doubt, Permitted Transferees will be subject to the restrictions and obligations under this Agreement, and the applicable Shareholder shall (without limiting any liability a Permitted Transferee may have) be responsible for its Permitted Transferees’ compliance therewith).  In addition, other than for purposes of Section 3.01 , (i) Equity Securities held by the Avista Co-Invest Vehicles shall be attributed or aggregated together for purposes of determining the rights and obligations of the Avista Shareholders and any such Equity Securities held by the Avista Co-Invest Vehicles shall be included in the numerator or denominator for purposes of determining the rights or obligations of the Avista Shareholder, and (ii) Equity Securities held by the Altchem Co-Invest Vehicles shall be attributed or aggregated together for purposes of determining the rights and obligations of the Altchem Shareholder and any such Equity Securities held by the Altchem Co-Invest Vehicles shall be included in the numerator or denominator for purposes of determining the rights or obligations of the Altchem Shareholder.

 

Section 3.02.                           General Restrictions on Transfer .

 

(a)                                  Each Shareholder understands and agrees that the Equity Securities held by it have not been registered under the Securities Act and are restricted securities under the Securities Act.  No Shareholder shall Transfer any Equity Securities (or solicit any offers in respect of any Transfer of any Equity Securities), except in compliance with the Securities Act, any other applicable securities or “ blue sky ” laws and any restrictions on Transfer contained in this Agreement or any other provisions set forth in any other agreements or instruments pursuant to which such Equity Securities were issued.

 

(b)                                  Following the IPO, the Sponsors shall create a coordination committee (the Coordination Committee ”), which shall not be a committee of the Board, and will maintain such committee until the earlier of (i) the first anniversary of the IPO or (ii) until such time as the Sponsors have consummated a first registered secondary sale after the IPO of any of their respective Registrable Securities.  During the one (1) year period following the IPO, the Coordination Committee shall facilitate coordination of dispositions by the Sponsors of any Equity Securities held by the Sponsors, and any Sponsor wishing to Transfer any Equity Securities during such period shall consult with and obtain the approval of the Coordination Committee prior to taking such action or entering into any definitive agreement with respect to such action; provided , however , that the foregoing shall not apply to an Avista DIK or an Altchem DIK.  Each Sponsor shall be permitted to designate one representative (who may, but need not, be a director of the Company) to participate on the Coordination Committee, and shall be permitted to remove and replace such designee from time to time.  The procedures governing the conduct of the Coordination Committee shall be established from time to time by consent of the Sponsors; provided , that such procedures shall not discriminate against any particular designee or designees in any material way.  For the avoidance of doubt, for the purposes of this Section 3.02(b) , references to Sponsors shall include their respective Permitted Transferees.

 

Section 3.03.                           Restrictions on Transfer by Management Shareholders .  Notwithstanding anything in this Agreement to the contrary:

 

(a)                                  Following the IPO, until such time as the Sponsors have Transferred at least 50% of the Equity Securities owned by the Sponsors immediately prior to the IPO, no

 

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Management Shareholder shall Transfer any Equity Securities (other than to Permitted Transferees pursuant to Section 3.04 or with the Requisite Consent) to the extent that such Transfer would result in the Relative Ownership Percentage (as defined below) of such Management Shareholder immediately following the effective time of such Transfer (the “ Determination Time ”) being less than the Relative Ownership Percentage of the Sponsors immediately following the Determination Time.  For purposes of this Section 3.03(a) , “ Relative Ownership Percentag e means:

 

with respect to a Management Shareholder, a fraction (expressed as a percentage), (A) the numerator of which is the number of Equity Securities other than unvested options to purchase Ordinary Shares (“ Unrestricted Securities ”) owned by such Management Shareholder immediately following the Determination Time, and (B) the denominator of which is the sum of (x) the number of Unrestricted Securities owned by such Management Shareholder immediately following the IPO and (y) the number of Equity Securities owned by such Management Shareholder that were not Unrestricted Securities immediately following the IPO but that have subsequently become Unrestricted Securities; and

 

with respect to the Sponsors and each of their respective Co-Invest Vehicles, a fraction (expressed as a percentage), (A) the numerator of which is the aggregate number of Equity Securities owned by the Sponsors and the Co-Invest Vehicles immediately following the Determination Time and (B) the denominator of which is the aggregate number of Equity Securities owned by the Sponsors and the Co-Invest Vehicles immediately following the IPO .

 

(b)                                  Any attempt by a Management Shareholder to Transfer any Equity Securities not in compliance with this Section 3.03 shall be null and void and have no force or effect, and the Company shall not, and shall cause any transfer agent not to, give any effect in the Company’s share records to such attempted Transfer.  The parties hereto acknowledge that the transfer restrictions contained herein are reasonable and in the best interests of the Company.

 

Section 3.04.                           Management Permitted Transferees .

 

(a)                                  Subject to Section 3.01 , any Management Shareholder may at any time Transfer any or all of its Equity Securities to a Permitted Transferee without the consent of any Person and without compliance with Section 3.03 , so long as such Permitted Transferee shall have agreed in writing to be bound by the terms of this Agreement by executing a Joinder Agreement.  Such Management Shareholder must give prior written notice to the Company of any proposed Transfer to a Permitted Transferee, including the identity of such proposed Permitted Transferee and such other documentation reasonably requested by the Company, to ensure compliance with the terms of this Agreement.

 

(b)                                  If, while a Permitted Transferee holds any Equity Securities, a Permitted Transferee ceases to qualify as a Permitted Transferee in relation to the initial transferring Management Shareholder from whom or which such Permitted Transferee or any previous Permitted Transferee of such initial transferring Management Shareholder received such shares (an Unwinding Event ”), then:

 

14



 

(i)                                      The relevant initial transferor Management Shareholder shall forthwith notify the other Shareholders and the Company of the pending occurrence of such Unwinding Event; and

 

(ii)                                   immediately following such Unwinding Event, without limiting any other rights or remedies, such initial transferor Management Shareholder shall take all actions necessary to effect a Transfer of all the Equity Securities held by the relevant Affiliate either back to such Management Shareholder or, pursuant to this Section 3.04 , to another Person that qualifies as an Affiliate of such initial transferring Management Shareholder.

 

ARTICLE 4

 

REGISTRATION RIGHTS

 

Section 4.01.                           Demand Registration .

 

(a)                                  At any time after the six month anniversary of the consummation by the Company of the IPO, if the Company shall receive a written request from either or both Sponsors holding outstanding Registrable Securities for itself and its respective Co-Invest Vehicles (such requesting Persons, the Requesting Shareholders ”) that the Company effect the registration under the Securities Act of all or any portion of such Requesting Shareholders’ Registrable Securities, and specifying the intended method of disposition thereof, then the Company shall promptly give notice of such requested registration (each such request shall be referred to herein as a “ Demand Registration ”) at least  ten (10) days prior to the anticipated filing date of the Registration Statement relating to such Demand Registration to the other Sponsor, if applicable, and any other Shareholder that holds Registrable Securities, and thereupon shall use its reasonable best efforts to effect, as expeditiously as possible, the registration under the Securities Act of:

 

(i)                                      all Registrable Securities for which the Requesting Shareholders have requested registration under this Section 4.01 , and

 

(ii)                                   subject to the restrictions set forth in Section 4.01(d) , all other Registrable Securities that any other Shareholders that hold Registrable Securities (all such Shareholders, together with the Requesting Shareholders, the Registering Shareholders ”) have requested the Company to register by request received by the Company within five (5) Business Days after any non-initiating Sponsor received the Company’s notice of the Demand Registration, or any other Shareholder pursuant to and in accordance with Section 4.02 , all to the extent necessary to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be registered; provided that no Person may participate in any Registration Statement pursuant to this Section 4.01(a)  unless such Person agrees to sell their Registrable Securities to the underwriters selected as provided in Section 4.05(f)  on the same terms and conditions as apply to the Requesting Shareholders; provided , further , that no such Registering Shareholders shall be required to make any representations or warranties, or provide any indemnity, in connection with any such registration other than representations and warranties (or indemnities with respect thereto) as to (i) such Person’s ownership of his, her or its Registrable Securities to be transferred free and clear of all liens,

 

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claims, and encumbrances, (ii) such Person’s power and authority to effect such transfer, and (iii) such matters pertaining to compliance with securities laws by such Registering Shareholders as may be reasonably requested; provided , further , that the obligation of such Person to indemnify pursuant to any such underwriting arrangements shall be several, not joint and several, among such Persons selling Registrable Securities, and the liability of each such Person will be in proportion thereto; provided , further , that such liability will be limited to the net proceeds received by such Person from the sale of his, her or its Registrable Securities pursuant to such registration; provided , further , that , notwithstanding anything to the contrary herein, the number of Registrable Securities that a Shareholder may request to include in a Demand Registration (including pursuant to Section 4.02 ) cannot exceed the number of Registrable Securities, determined by multiplying the aggregate number of Registrable Securities held by such Shareholder by a fraction, the numerator of which is the number of Registrable Securities that the Requesting Shareholder proposes to sell in such Demand Registration and the denominator of which is the total number of Registrable Securities held by such Requesting Shareholder prior to such Demand Registration, and provided , further , that the Company shall not be obligated to effect a Demand Registration unless the aggregate gross proceeds expected to be received from the sale of the Registrable Securities requested to be included by all Registering Shareholders in such Demand Registration are at least $25,000,000.

 

(b)                                  At any time prior to the effective date of the Registration Statement relating to such registration, a majority of the Requesting Shareholders (measured by the number of Registrable Securities proposed to be sold by all Requesting Shareholders and not by the number of Requesting Shareholders) may revoke such request without liability to any of the other Registering Shareholders, by providing a notice to the Company revoking such request.  The decision as to whether to consummate and as to the terms of any Demand Registration shall be made by a majority of the Requesting Shareholders (measured by the number of Registrable Securities proposed to be sold by all Requesting Shareholders and not by the number of Requesting Shareholders) in their sole and absolute discretion.

 

(c)                                   The Company shall be liable for and pay all Registration Expenses in connection with each Demand Registration, regardless of whether such Registration is effected; provided that holders of Registrable Securities shall pay all underwriting discounts, selling commissions and share transfer taxes applicable to the sale of their respective Registrable Securities, but fees and disbursements of their respective counsel shall be borne and paid by the Company as a Registration Expense.

 

(d)                                  If a Demand Registration involves a Public Offering and the managing underwriter advises the Company and the Requesting Shareholders that, in its view, the number of Registrable Securities that the Registering Shareholders and the Company propose to include in such registration exceeds the largest number of Registrable Securities that can be sold without having an adverse effect on such offering, including the price at which such Registrable Securities can be sold (the Demand Maximum Offering Size ”), the Company shall include in such registration, in the priority listed below, up to the Demand Maximum Offering Size:

 

(i)                                      first, all Registrable Securities requested to be registered by the Registering Shareholders (the Registrable Securities in this clause (i) allocated, if necessary for the offering not to exceed the Demand Maximum Offering Size, pro rata among the Requesting

 

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Shareholders and the other holders of Registrable Securities on the basis of the relative number of Registrable Securities so requested to be included in such registration by each); and

 

(ii)                                   second, all Registrable Securities proposed to be registered by the Company.

 

(e)                                   The Company may defer the filing (but not the preparation) of a Registration Statement, or suspend the continued use of a Registration Statement, required by Section 4.01 for a period of up to sixty (60) days after the request to file a Registration Statement if at the time the Company receives the request to register Registrable Securities, the Company or any of its Subsidiaries are engaged in confidential negotiations or other confidential business activities, disclosure of which would be required in such Registration Statement (but would not be required if such Registration Statement were not filed), and the Board determines in good faith, after consultation with external legal counsel, that such disclosure would have a material adverse effect on the Company or its business or on the Company’s ability to effect a proposed material acquisition, disposition, financing, reorganization, recapitalization or similar transaction.  A deferral of the filing of a Registration Statement, or the suspension of the continued use of a Registration Statement, pursuant to this Section 4.01(e) , shall be promptly lifted, and the requested Registration Statement shall be filed as expeditiously as possible, in the case of a deferral, if the negotiations or other activities are disclosed or terminated.  In order to defer the filing of a Registration Statement, or suspend the continued use of a Registration Statement, pursuant to this Section 4.01(e), the Company shall promptly (but in any event within five (5) days), upon determining to seek such deferral or suspension, deliver to each Requesting Shareholder a certificate signed by Board stating that the Company is deferring such filing, or suspending the continued use of a Registration Statement, pursuant to this Section 4.01(e)  and a general statement of the reason for such deferral or suspension, as the case may be, and an approximation of the anticipated delay.  The Company may defer the filing, or suspend the continued use of, a particular Registration Statement pursuant to this Section 4.01(e)  no more than twice in any twelve month period; provided , that there must be an interim period of at least sixty (60) days between the end of one deferral or suspension period and the beginning of a subsequent deferral or suspension period.  In the event the Company exercises its rights under this Section 4.01(e) , the Company shall, within ten (10) days following receipt by the holders of Registrable Securities of the notice of deferral or suspension, as the case may be, update the deferred or suspended Registration Statement as may be necessary to permit the holders of Registrable Securities to resume use thereof in connection with the offer and sale of their Registrable Securities in accordance with applicable law.

 

Section 4.02.                           Piggyback Registration .

 

(a)                                  If the Company proposes to register any Equity Securities under the Securities Act (whether for itself or otherwise in connection with a sale of securities by another Person (including a Demand Registration by a Sponsor), but other than (i) in connection with a Shelf Registration and any resale of Registrable Securities by a Sponsor pursuant to a Shelf Registration, which shall be governed by the terms of Section 4.03 , (ii) a registration on a Form S-4 in connection with a direct or indirect acquisition by the Company of another Person, (iii) a registration on a Form S-8, or (iv) the IPO (unless the Sponsors are participating therein as selling equityholders), the Company shall at each such time give prompt written notice at least

 

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ten (10) days prior to the anticipated filing date of the Registration Statement relating to such registration to each Shareholder holding Registrable Securities hereunder, which notice shall set forth such Shareholder’s rights under this Section 4.02 and shall offer such Shareholder the opportunity to include in such Registration Statement all or any portion of the Registrable Securities held by such Shareholder (a “ Piggyback Registration ”), subject to the restrictions set forth herein, including the second to last proviso in Section 4.01(a)(ii)  above.  Upon the request of any such Shareholder made within ten (10) days after the receipt of notice from the Company (which request shall specify the number of Registrable Securities intended to be registered by such Shareholder), the Company shall use its reasonable best efforts to effect the registration under the Securities Act of all Registrable Securities that the Company has been so requested to register by all such Shareholders (subject to the last proviso of Section 4.01(a)(ii)  above) with rights to require registration of Registrable Securities hereunder, to the extent required to permit the disposition of the Registrable Securities so to be registered; provided , that if such registration involves a Public Offering, all such Shareholders requesting to be included in the Company’s registration must sell their Registrable Securities to the underwriters selected as provided in Section 4.05(f)  on the same terms and conditions as apply to the Company or any other selling equityholders; provided , however , that no such Person shall be required to make any representations or warranties, or provide any indemnity, in connection with any such registration other than representations and warranties (or indemnities with respect thereto) as to (i) such Person’s ownership of his, her or its Registrable Securities to be transferred free and clear of all liens, claims, and encumbrances, (i) such Person’s power and authority to effect such transfer, and (ii) such matters pertaining to compliance with securities laws by such Person as may be reasonably requested; provided , further , that the obligation of such Person to indemnify pursuant to any such underwriting arrangements shall be several, not joint and several, among such Persons selling Registrable Securities, and the liability of each such Person will be in proportion thereto, and provided , further, that such liability will be limited to, the net proceeds received by such Person from the sale of his, her or its Registrable Securities pursuant to such registration.  If, at any time after giving notice of its intention to register any Registrable Securities pursuant to this Section 4.02(a)  and prior to the effective date of the Registration Statement filed in connection with such registration, the Company or the initiating holders, as applicable, shall decide for any reason and in its sole and absolute discretion not to register such securities, the Company shall give notice to all such Shareholders and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such registration.  No registration effected under this Section 4.02 shall relieve the Company of its obligations to effect a Demand Registration to the extent required by Section 4.01 .  The Company shall be liable for and pay all Registration Expenses in connection with each Piggyback Registration, regardless of whether such registration is effected.

 

(b)                                  If a Piggyback Registration involves a Public Offering (other than any Demand Registration, in which case the provisions with respect to priority of inclusion in such offering set forth in Section 4.01(d)  shall apply) and the managing underwriter advises the Company that, in its view, the number of Registrable Securities that the Company and all selling equityholders propose to include in such registration exceeds the largest number of Registrable Securities that can be sold without having an adverse effect on such offering, including the price at which such Registrable Securities can be sold (the “ Piggyback Maximum Offering Size ), the Company shall include in such registration, in the following priority, up to the Piggyback Maximum Offering Size:

 

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(i)                                      first, such number of Registrable Securities proposed to be registered for the account of the Company, if any, as would not cause the offering to exceed the Piggyback Maximum Offering Size; and

 

(ii)                                   second, all Registrable Securities requested to be included in such registration by any Shareholders pursuant to this Section 4.02 (the Registrable Securities in this clause (ii) allocated, if necessary for the offering not to exceed the Piggyback Maximum Offering Size, pro rata among such Shareholders based on their relative number of Registrable Securities requested to be included in the Piggyback Registration).

 

Section 4.03.                           Shelf Registration .

 

(a)                                  At any time after the 12 month anniversary of the consummation by the Company of the IPO, upon receipt of a written request (the Shelf Request ”) from either or both Sponsors (for themselves and their respective Co-Invest Vehicles) that the Company file a “shelf” Registration Statement pursuant to Rule 415 under the Securities Act (the Shelf Registration ”) on Form S-3 (or any successor form to Form S-3, or any similar short-form registration statement), covering the resale of Registrable Securities, the reasonably anticipated gross proceeds from all resales covered thereunder of which would exceed $25,000,000, the Company shall (i) within five (5) days of the receipt by the Company of such notice, give written notice of such proposed registration to any non-requesting Sponsor, and (ii) use its reasonable best efforts, consistent with the terms of this Agreement, to cause the Shelf Registration to be filed with the SEC as soon as practicable (but in no event later than thirty (30) days following its receipt of the Shelf Request) and to include all Registrable Securities held by such requesting Sponsor to be registered on such form for the offering together with all or such portion of the Registrable Securities of any non-requesting Sponsor joining in such request as are specified in a written request received by the Company within ten (10) days after receipt of such written notice from the Company and (iii) use its reasonable best efforts, consistent with the terms of this Agreement, to cause such Shelf Registration to be declared effective by the SEC as soon as possible.  As soon as reasonably practicable after the IPO, the Company will use its reasonable best efforts, consistent with the terms of this Agreement, to qualify for and remain eligible to use Form S-3 registration or a similar short-form registration.  The provisions of Section 4.05 shall be applicable to each sale of Registrable Securities from a Shelf Registration initiated under this Section 4.03 and any subsequent resale of Registrable Securities pursuant thereto; provided, that the gross proceeds from such sales equal at least $25,000,000.

 

(b)                                  In connection with any proposed firmly underwritten resale of Registrable Securities, including by underwritten “block trade”, which is not pursuant to a Demand Registration under Section 4.01 and with respect to which such Shelf Registration is expressly being utilized to effect such resale (an Underwritten Shelf Take-down ”) pursuant to a Shelf Registration, each Sponsor agrees, in an effort to conduct any such Underwritten Shelf Take-Down in the most efficient and organized manner, to coordinate with the other Sponsor participating in such Shelf Take-Down prior to initiating any sales efforts and cooperate with such other Sponsor as to the terms of such Underwritten Shelf Take-Down, including the aggregate amount of securities to be sold and the number of Registrable Securities to be sold by each participating Sponsor.  In furtherance of the foregoing, the Company shall give prompt notice to the non-initiating Sponsor (if such Sponsor’s Registrable Securities are included in the

 

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Shelf Registration) of the receipt of a request from the initiating Sponsor (whose Registrable Securities are included in the Shelf Registration) of a proposed Underwritten Shelf Take-Down under and pursuant to the Shelf Registration and, notwithstanding anything to the contrary contained herein, will provide such non-initiating Sponsor a period of two (2) Business Days to participate in such Underwritten Shelf Take-Down, subject to the terms negotiated by and applicable to the initiating Sponsor and subject to “ cutback ” limitations set forth in Section 4.01(d)  as if the subject Underwritten Shelf Take-Down was being effected pursuant to a Demand Registration.  All such Sponsors electing to be included in an Underwritten Shelf Take-down must sell their Registrable Securities to the underwriters selected as provided in Section 4.05(f)  on the same terms and conditions as apply to any other selling equityholders; provided , however, that no such Person shall be required to make any representations or warranties, or provide any indemnity, in connection with any such registration other than representations and warranties (or indemnities with respect thereto) as to (i) such Person’s ownership of his, her or its Registrable Securities to be transferred free and clear of all liens, claims, and encumbrances, (ii) such Person’s power and authority to effect such transfer, and (iii) such matters pertaining to compliance with securities laws by such Person as may be reasonably requested; provided , further , however , that the obligation of such Person to indemnify pursuant to any such underwriting arrangements shall be several, not joint and several, among such Persons selling Registrable Securities, and the liability of each such Person will be in proportion thereto, and provided , further, that such liability will be limited to the net proceeds received by such Person from the sale of his, her or its Registrable Securities pursuant to such registration.

 

(c)                                   The Company shall be liable for and pay all Registration Expenses in connection with each Shelf Registration, regardless of whether such Shelf Registration is effected, and any Underwritten Shelf Take-Down; provided , that holders of Registrable Securities shall each pay their pro rata portion of all underwriting discounts, selling commissions, and share transfer taxes applicable to the sale of Registrable Securities, but fees and disbursements of their respective counsel shall be borne and paid by the Company as a Registration Expense.

 

(d)                                  Notwithstanding anything to the contrary contained herein, no Management Shareholder will be entitled to participate with respect to any shelf registration effected pursuant to this Section 4.03 or with respect to any resales of securities pursuant to any shelf registration.  For the avoidance of doubt, this Section 4.03(d)  shall not apply to any Management Shareholder to the extent of any such Person’s interests held in a Co-Invest Vehicle.

 

Section 4.04.                           Lock-Up Agreements .

 

(a)                                  In connection with each underwritten Public Offering, including any Underwitten Shelf Take-down, and if reasonably requested by the applicable managing underwriter, each of the Company and the Shareholders agree not to effect any public sale or private offer or distribution (other than a distribution-in-kind pro rata to all shareholders, limited partners or members, as the case may be, of such Shareholder) of any Registrable Securities during the ten (10) days prior to the consummation of such Public Offering and during such time period after the consummation of such Public Offering, not to exceed ninety (90) days (one-hundred and eighty (180) days in the case of the IPO (the “ IPO Lock-Up Period ”)) as may be

 

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requested by the managing underwriter; provided , that such lock-up agreements are also required from all directors and executive officers and from all Shareholders who hold at least five percent (5%) of the Registrable Securities; provided , further , that each such director, executive officer or Shareholder referenced in the foregoing proviso, shall enter into such lock-up agreements if so required.  Notwithstanding the foregoing, this Section 4.04 shall not apply to any sale by a Shareholder or a director or officer of a Shareholder of Equity Securities acquired in open market transactions or block purchases by such Shareholder or its Affiliates subsequent to the IPO or with respect to any Rule 10b5-1 sale program approved by the Board for the benefit of any director or officer of the Company.  Any discretionary waiver or reduction of the requirements under the foregoing provisions made by the Company or the applicable lead managing underwriters shall apply to each Shareholder on a pro rata basis.

 

(b)                                  Notwithstanding anything herein to the contrary, if the Company shall, at any time, register under the Securities Act an offering and sale of Registrable Securities held by the Shareholders for sale to the public pursuant to an underwritten Public Offering, the Company shall not, without the prior written consent of the lead underwriters for such offering, effect any public sale or distribution of securities similar to those being registered, or any securities convertible into or exercisable or exchangeable for such securities, for such period as shall be determined by the lead underwriters and that is for the same period and on substantially similar terms as agreed to by the Sponsors.

 

(c)                                   At any time following the IPO, either Sponsor that, together with its Affiliates, holds less than five percent (5%) of the then outstanding vested Equity Securities may elect (on behalf of itself and its Affiliates (collectively, the “ Withdrawing Holders ”) , by written notice to the Company, to withdraw from the provisions of this ARTICLE 4 and as a result of such withdrawal, such Withdrawing Holders shall no longer be entitled to the rights, nor be subject to the obligations, of Section 4.01 through Section 4.12 and the Equity Securities held by the Withdrawing Holders shall conclusively be deemed thereafter not to be “ Registrable Securities ” under this Agreement.  No withdrawal pursuant to this Section 4.04(c)  shall release or limit any Withdrawing Holder from its indemnification and contribution rights and obligations, if any, pursuant to Sections 4.06 , 4.07 , 4.08 and 4.09 herein.

 

Section 4.05.                           Registration Procedures .  Whenever any Shareholders request that any Registrable Securities be registered pursuant to Sections 4.01 , 4.02 or 4.03 hereof, subject to the provisions of such Sections, the Company shall use its reasonable best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof as quickly as practicable, and, in connection with any such request:

 

(a)                                  The Company shall, as expeditiously as possible, and, if the Company is not qualified for the use of Form S-3, no later than thirty (30) days from the date of receipt by the Company of the written request, prepare and file with the SEC a Registration Statement on any form for which the Company then qualifies and the managing underwriter, if any, and the holders of a majority of the Registrable Securities to be registered thereunder shall deem appropriate and which form shall be available for the sale of the Registrable Securities to be registered thereunder in accordance with the intended method of distribution thereof, and use its reasonable best efforts to cause such filed Registration Statement to become and remain effective for a period of not less than one-hundred and eighty (180) days or in the case of a Shelf

 

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Registration, not less than two years (or such shorter period in which all of the Registrable Securities of the Registering Shareholders included in such registration statement shall have actually been sold thereunder); provided , however , that such one-hundred and eighty (180) day period or two year period, as applicable, shall be extended for a period of time equal to the period any Shareholder refrains from selling any securities included in such registration at the request of an underwriter and in the case of any Shelf Registration, subject to compliance with applicable SEC rules, such two year period shall be extended, if necessary, to keep the Registration Statement effective until all such Registrable Securities are sold.

 

(b)                                  Prior to filing a Registration Statement or prospectus or any amendment or supplement thereto, the Company shall furnish to each participating Shareholder and each underwriter, if any, of the Registrable Securities covered by such Registration Statement copies of such Registration Statement as proposed to be filed, and thereafter the Company shall furnish to such Shareholder and underwriter, if any, such number of copies of such Registration Statement, each amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein), the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 or Rule 430A under the Securities Act and such other documents as such Shareholder or underwriter may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Shareholder.

 

(c)                                   After the filing of the Registration Statement, the Company shall (i) promptly notify each Shareholder holding Registrable Equity Securities covered by such Registration Statement of the time when such Registration Statement has been declared effective or a supplement or amendment to any prospectus forming a part of such Registration Statement has been filed, (ii) cause the related prospectus to be supplemented by any required prospectus supplement, and, as so supplemented, to be filed pursuant to Rule 424 under the Securities Act and shall incorporate such information as the managing underwriter or underwriters and each of the Sponsors agree should be included therein relating to the plan of distribution; provided , that in the event the Registrable Securities being sold for either of the Sponsors are less than 50% of the Registrable Securities of the other Sponsor, then the agreement of the Sponsor who holds such lesser amount of Registrable Securities being sold, shall not be required under this Section 4.05(c) , (ii) comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement during the applicable period in accordance with the intended methods of disposition by the Registering Shareholders thereof set forth in such Registration Statement or supplement to such prospectus and (iii) promptly notify each Registering Shareholder holding Registrable Securities covered by such Registration Statement of any stop order issued or threatened by the SEC or any state securities commission and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered.

 

(d)                                  The Company shall use its reasonable best efforts to (i) register or qualify the Registrable Securities covered by such Registration Statement under such other securities or “ blue sky ” laws of such jurisdictions in the United States as any Registering Shareholder holding such Registrable Securities reasonably (in light of such Shareholder’s intended plan of distribution) requests and (ii) cause such Registrable Securities to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business

 

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and operations of the Company and do any and all other acts and things that may be reasonably necessary or advisable to enable such Shareholder to consummate the disposition of the Registrable Securities owned by such Registering Shareholder; provided that the Company shall not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 4.05(d) , (B) subject itself to taxation in any such jurisdiction or (C) consent to general service of process in any such jurisdiction.

 

(e)                                   The Company shall immediately notify each Registering Shareholder holding such Registrable Securities covered by such Registration Statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the occurrence of an event requiring the preparation of a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and promptly prepare and make available to each such Registering Shareholder and file with the SEC any such supplement or amendment.

 

(f)                                    Except for a Demand Registration and Underwritten Shelf Take-down, the Board shall have the right to select the underwriter or underwriters in connection with any Public Offering.  In connection with the offering of Registrable Securities pursuant to a Demand Registration or Underwritten Shelf Take-down, the holders of a majority of the Registrable Securities to be registered in a Demand Registration or Underwritten Shelf Take-down shall select the underwriter or underwriters.  In connection with any Public Offering, the Company shall enter into customary agreements (including an underwriting agreement in customary form, provided that the scope of the indemnity contained in such underwriting agreement on the part of the selling Shareholders is not more extensive than the indemnity described in Section 4.07 hereof), provided that such agreements are consistent with this Agreement, and take all such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities in any such Public Offering, including the engagement of a “qualified independent underwriter” in connection with the qualification of the underwriting arrangements with FINRA.  The Company shall make such representations and warranties to the holders of Registrable Securities being registered, and the underwriters or agents, if any, in form, substance and scope as are customarily made by issuers in secondary underwritten public offerings and take any other actions as the Sponsors, or the managing underwriter or underwriters, if any, reasonably request in order to expedite or facilitate the registration and disposition of such Registrable Securities.  Each Shareholder participating in such underwriting shall also enter into such agreement, provided that the terms of any such agreement are consistent with this Agreement.

 

(g)                                   Upon execution of confidentiality agreements in form and substance reasonably satisfactory to the Company, the Company shall make available for inspection by any Registering Shareholder and any underwriter participating in any disposition pursuant to a Registration Statement being filed by the Company pursuant to this Section 4.05 and any attorney, accountant or other professional retained by any such Registering Shareholder or underwriter (collectively, the “ Inspectors ”) , all financial and other records, pertinent corporate documents and properties of the Company (collectively, the Records ”) as shall be reasonably necessary or desirable to enable them to exercise their due diligence responsibility, and cause the

 

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Company’s officers, directors and employees to supply all information reasonably requested by any Inspectors in connection with such Registration Statement.  Records that the Company determines, in good faith, to be confidential and that it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in such Registration Statement or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction or is otherwise required by law.  Each Shareholder agrees that at the time that such Shareholder is a Registering Shareholder, information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it or its Affiliates as the basis for any market transactions in Equity Securities unless and until such information is made generally available to the public, and further agrees that, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, it shall give notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential.

 

(h)                                  The Company shall cause to be furnished to each Registering Shareholders and to each such underwriter, if any, a signed counterpart, addressed to such Registering Shareholder or underwriter, of (i) an opinion or opinions of counsel to the Company and (ii) a comfort letter or comfort letters from the Company’s independent public accountants, each in customary form and covering such matters of the kind customarily covered by opinions or comfort letters, as the case may be, as a majority of such Shareholders or the managing underwriter therefor reasonably requests.

 

(i)                                      The Company shall otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, an earnings statement or such other document that shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder.  The Company shall cooperate with each seller of Registrable Securities and each underwriter, if any, participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings to be made with FINRA.

 

(j)                                     The Company may require each such Registering Shareholder, by written notice given to each such Registering Shareholder not less than ten (10) days prior to the filing date of such Registration Statement, to promptly, and in any event within seven (7) days after receipt of such notice, furnish in writing to the Company such information regarding the distribution of the Registrable Securities as the Company may from time to time reasonably request and such other information as may be legally required in connection with such registration.  Each holder of Registrable Securities agrees to furnish such information to the Company and cooperate with the Company as reasonably necessary to enable the Company to comply with the provisions of this Agreement.

 

(k)                                  Each Shareholder agrees that at the time that such Shareholder is a Registering Shareholder, upon receipt of any written notice from the Company of the occurrence of any event requiring the preparation of a supplement or amendment of a prospectus relating to the Registrable Securities covered by a registration statement that is required to be delivered under the Securities Act so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state

 

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any material fact required to be stated therein or to make the statements therein not misleading, such Shareholder shall forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Shareholder’s receipt of the copies of a supplemented or amended prospectus, and, if so directed by the Company, such Shareholder shall deliver to the Company all copies, other than any permanent file copies then in such Shareholder’s possession, of the most recent prospectus covering such Registrable Securities at the time of receipt of such notice.  If the Company shall give such notice, the Company shall extend the period during which such Registration Statement shall be maintained effective (including the period referred to in Section 4.05(a) ) by the number of days during the period from and including the date of the giving of notice pursuant to Section 4.05(e)  to the date when the Company shall make available to such Shareholder a prospectus supplemented or amended to conform with the requirements of Section 4.05(e) .

 

(l)                                      The Company shall use its reasonable best efforts to list all Registrable Securities covered by such Registration Statement on any securities exchange or quotation system on which any of the Registrable Securities are then listed or traded and if none of the Registrable Securities are so listed, on any securities exchange or quotation system on which similar securities issued by the Company are then listed, and if no such similar securities are listed, on any national securities exchange.

 

(m)                              The Company shall have appropriate officers of the Company (i) prepare and make presentations at any “ road shows ” and before analysts and rating agencies, as the case may be, (ii) take other reasonable actions to obtain ratings for any Registrable Securities and (iii) otherwise use their reasonable best efforts to cooperate as requested by the underwriters in the offering, marketing or selling of the Registrable Securities.

 

Section 4.06.                           Indemnification by the Company .  The Company shall indemnify and hold harmless each Shareholder, its officers, directors, employees, managers, members, partners and agents, and each Person, if any, who controls any such Persons within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages, liabilities and expenses (including reasonable expenses of investigation and reasonable attorneys’ fees and expenses) (“ Damages ”) caused by or relating to any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or prospectus relating to the Registrable Securities (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary or free writing prospectus, or caused by or relating to any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or caused by or related to any violation or alleged violation of the Securities Act or Exchange Act, except insofar as such Damages are caused by or related to any such untrue statement or omission or alleged untrue statement or omission so made in reliance upon and in conformity with information furnished in writing to the Company by such Shareholder or on such Shareholder’s behalf expressly for use therein, provided that, with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus, or in any prospectus, as the case may be, the indemnity agreement contained in this paragraph shall not apply to the extent that any Damages result from the fact that a current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) was not sent or given to the Person asserting any such Damages at or prior to the written confirmation of

 

25



 

the sale of the Registrable Securities concerned to such Person if it is determined that the Company has provided such prospectus to such Shareholder and it was the responsibility of such Shareholder to provide such Person with a current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) and such current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) would have cured the defect giving rise to such Damages.

 

Section 4.07.                           Indemnification by the Participating Shareholders .  Each Shareholder, at the time that such Shareholder is a Registering Shareholder holding Registrable Securities included in any Registration Statement agrees, severally but not jointly, to indemnify and hold harmless from and against all Damages the Company, its officers, directors and agents and each Person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (i) with respect to information furnished in writing to the Company by such Shareholder or on such Shareholder’s behalf expressly for use in any Registration Statement or prospectus relating to the Registrable Securities, or any amendment or supplement thereto, or any preliminary prospectus or (ii) to the extent that any Damages result from the fact that a current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) was not sent or given to the Person asserting any such Damages at or prior to the written confirmation of the sale of the Registrable Securities concerned to such Person if it is determined that it was the responsibility of such Shareholder to provide such Person with a current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) and such current copy of the prospectus (or such amended or supplemented prospectus, as the case may be) was available to such Shareholder and would have cured the defect giving rise to such Damages.  As a condition to including Registrable Securities in any Registration Statement filed in accordance with Section 4.01 through Section 4.12 , the Company may require that it shall have received an undertaking reasonably satisfactory to it from any underwriter to indemnify and hold it harmless to the extent customarily provided by underwriters with respect to similar securities.  No Shareholder shall be liable under this Section 4.07 for any Damages in excess of the net proceeds realized by such Shareholder in the sale of Registrable Securities of such Shareholder to which such Damages relate.

 

Section 4.08.                           Conduct of Indemnification Proceedings .  If any proceeding (including any governmental investigation) shall be instituted involving any Indemnified Party in respect of which indemnity may be sought pursuant to Sections 4.01 through 4.12 , such Indemnified Party shall promptly notify the Person against whom such indemnity may be sought (the Indemnifying Party ”) in writing and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Party, and shall assume the payment of all fees and expenses, provided that the failure of any Indemnified Party so to notify the Indemnifying Party shall not relieve the Indemnifying Party of its obligations hereunder except to the extent that the Indemnifying Party is materially prejudiced by such failure to notify.  In any such proceeding, any Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) in the reasonable judgment of such Indemnified Party, representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them.  It is understood that, in connection with any proceeding or related proceedings in the same jurisdiction, the Indemnifying Party shall not

 

26



 

be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) at any time for all such Indemnified Parties, and that all such fees and expenses shall be reimbursed as they are incurred.  In the case of any such separate firm for the Indemnified Parties, such firm shall be designated in writing by the Indemnified Parties.  The Indemnifying Party shall not be liable for any settlement of any proceeding effected without its written consent, which consent shall not be unreasonably withheld, but if settled with such consent, or if there be a final judgment for the plaintiff, the Indemnifying Party shall indemnify and hold harmless such Indemnified Parties from and against any Damages (to the extent stated above) by reason of such settlement or judgment.  Without the prior written consent of the Indemnified Party, no Indemnifying Party shall effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability arising out of such proceeding.

 

Section 4.09.                           Contribution .

 

(a)                                  If the indemnification provided for in Section 4.06 to Section 4.08 is unavailable to the Indemnified Parties or insufficient in respect of any Damages (other than by reason of the exceptions provided herein), then each such Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Damages, as between the Company on the one hand and each such Shareholder on the other, in such proportion as is appropriate to reflect the relative fault of the Company and of each such Shareholder in connection with such statements or omissions, as well as any other relevant equitable considerations.  The relative fault of the Company on the one hand and of each such Shareholder on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

 

(b)                                  The Company and the Shareholders agree that it would not be just and equitable if contribution pursuant to this Section 4.09 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph.  The amount paid or payable by an Indemnified Party as a result of the Damages referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim.  Notwithstanding the provisions of this Section 4.08, no Shareholder shall be required to contribute any amount in excess of the amount by which the net proceeds realized by such Shareholder in the sale of Registrable Securities of such Shareholder to which such Damages relate exceeds the amount of any Damages that such Shareholder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.  No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.  Subject to the foregoing and as among the Shareholders, each Shareholder’s obligation to contribute pursuant to this Section 4.08 is several in the proportion

 

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that the proceeds of the offering received by such Shareholder bears to the total proceeds of the offering received by all such Registering Shareholders and not joint.

 

Section 4.10.                           Cooperation by the Company .  With a view to making available to the Shareholders the benefits of certain rules and regulations of the SEC that may at any time permit the sale of securities to the public without registration, the Company agrees to use its reasonable best efforts to:

 

(a)                                  make and keep public information available, as those terms are defined in Rule 144, at all times after the effective date that the Company becomes subject to the reporting requirements of the Securities Act or the Exchange Act;

 

(b)                                  file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements);

 

(c)                                   furnish to any Shareholder, so long as such Shareholder owns any Registrable Securities, upon request by such Shareholder, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company for a Public Offering), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements) or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and (iii) such other reports and documents of the Company and other information in the possession of or reasonably obtainable by the Company as a Shareholder may reasonably request in availing itself of any rule or regulation of the SEC allowing a Shareholder to sell any such securities without registration; and

 

(d)                                  upon the reasonable request of any Shareholder, and subject always to the fiduciary duties of the directors to the Company and to applicable law, instruct the transfer agent in writing that it shall rely on the written legal opinion of such Shareholder’s counsel, and that the transfer agent shall act in accordance with the reasonable written instructions of such Shareholder’s counsel, with respect to any transfer of Equity Securities.

 

Section 4.11.                           Restriction on Company Grants of Subsequent Registration Rights .  So long as any Sponsor holds any Registrable Securities in respect of which registration rights provided for in Section 4.01 of this Agreement remain in effect, the Company will not, directly or indirectly, without the Requisite Consent, grant to any Person or agree to otherwise become obligated in respect of (i) the rights of registration in the nature or substantially in the nature of those set forth in Section 4.01 of this Agreement that would have priority over or parity with the Registrable Securities with respect to the inclusion of such securities in any registration or (ii) demand registration rights exercisable prior to such time as the Sponsors can first exercise their rights under Section 4.01 .

 

Section 4.12.                           Assignment of Registration Rights .  Following the IPO, the registration rights granted pursuant to Section 4.01 through Section 4.10 shall not be assignable, except to a Permitted Transferee.

 

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ARTICLE 5

 

ACCOUNTING AND TAX MATTERS

 

Section 5.01.                           Books and Records; Financial Reports .  At all times during the existence of the Company, the Company shall maintain, at its registered office, books of account for the Company.  Subject to reasonable confidentiality restrictions and other reasonable standards, in each case established by the Board, and subject at all times to the fiduciary duties of the directors and officers of the Company and to applicable law, the Company shall, and shall cause its and its Subsidiaries’ officers, directors, employees, auditors and other agents to, for as long as any Sponsor’s Relative Ownership Percentage is at least ten percent (10%), (a) afford the officers, employees, auditors and other agents of such Sponsor, during normal business hours and upon reasonable written notice to the Company, reasonable access and consultation rights at all reasonable times to the officers, auditors, legal counsel of the Company and its Subsidiaries, employees, properties, offices, plants and other facilities of the Company’s Subsidiaries, and to all books and records of the Company and its Subsidiaries, and (b) afford such Sponsor the opportunity to discuss the Company’s and its Subsidiaries’ affairs, finances and accounts with the officers of the Company and its Subsidiaries from time to time as each such Sponsor may reasonably request and such officers shall give due consideration to any advice or views provided by such Sponsor.

 

Section 5.02.                           Tax Returns .  The Board, at the expense of the Company, shall cause Osmotica Holdings S.C.SP., a special limited partnership (société en commandite spéciale) pursuant to the Luxembourg law dated 10 August 1915 on commercial companies (art. 22-1 et seq., as amended from time to time) (“ LuxCo ”) to endeavor to cause the preparation and timely filing (including extensions) of all tax returns for any period prior to the Effective Time.  Each Shareholder shall furnish to the Company all pertinent information in its possession that is necessary to enable LuxCo’s tax returns to be prepared and filed.

 

Section 5.03.                           Accounting Methods; Elections .  The Board shall cause LuxCo to determine the accounting methods and conventions to be used in the preparation of LuxCo’s tax returns and shall cause LuxCo to make any and all elections under the tax laws of the United States and any other relevant jurisdictions as to the treatment of items of income, gain, loss, deduction and credit of LuxCo, or any other method or procedure related to the preparation of LuxCo’s tax returns, in each case, for any period prior to the Effective Time; provided , however , that the Company shall elect to be classified as an association taxable as a corporation pursuant to United States Treasury Regulations Section 301.7701-3(a) for United States federal and applicable state and local income tax purposes, and none of the Board, the Shareholders or LuxCo shall take any action inconsistent therewith.

 

Section 5.04.                           United States Federal Income Tax Classification .  The Shareholders intend, and the Company shall cause LuxCo, not to take any position inconsistent with, treating LuxCo  as an association taxable as a corporation for United States federal, state and local income and franchise tax purposes for any period prior to the Effective Time.

 

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ARTICLE 6

 

CERTAIN COVENANTS AND AGREEMENTS

 

Section 6.01.                           Confidentiality .

 

(a)                                  Each Shareholder agrees that it shall (and shall cause its Affiliates, and its and their officers, directors, employees, partners, legal counsel, accountants, tax advisors, agents and representatives (collectively, the “ Confidentiality Affiliates ”) to) (i) hold confidential and not disclose (other than by a Shareholder to its Confidentiality Affiliates having a reasonable need to know in connection with the permitted purposes hereunder), without the prior approval of the Board, all confidential or proprietary written, recorded or oral information or data (including research, developmental, engineering, manufacturing, technical, marketing, sales, financial, operating, performance, cost, business and process information or data, know how and computer programming and other software techniques) provided or developed by the Company and any of its Subsidiaries, another Shareholder or its Confidentiality Affiliates in connection herewith or with the Business, whether such confidentiality or proprietary status is indicated orally or in writing or in a context in which any of the Company and any of its Subsidiaries or the disclosing Shareholder or any of their Confidentiality Affiliates reasonably communicated, or the receiving Shareholder or its Confidentiality Affiliates should reasonably have understood, that the information should be treated as confidential, whether or not the specific words “ confidential ” or “ proprietary ” are used (“ Confidential Information ”) and (ii) use such Confidential Information only for the purposes of performing its obligations hereunder to which it is a party and carrying on the business of the Company and monitoring its investment in the Company; provided , however , that Shareholders may disclose any such Confidential Information on a confidential basis to (x) current and prospective lenders in connection with a loan or prospective loan to the Company, after such lender has entered into a non-disclosure agreement reasonably acceptable to the Board, (y) and, in connection with a Transfer of Equity Securities in the Company permitted under this Agreement, to prospective purchasers of such Equity Securities, after such prospective purchaser has entered into a non-disclosure agreement reasonably acceptable to the Board, as well as to such prospective purchaser’s legal counsel, auditors, agents and representatives, and (z) to the Sponsor’s respective Co-Invest Vehicles and to the members of such Co-Invest Vehicles; provided , further , that any Person to which a Sponsor discloses Confidential Information pursuant to clause (z) shall be deemed a Confidentiality Affiliate of such Sponsor.  Notwithstanding the foregoing, the Avista Shareholder may disclose any such Confidential Information on a confidential basis to limited partners or prospective limited partners or investors of the Avista Shareholder or its Confidentiality Affiliates (including any prospective investors in one of its Co-Invest Vehicles), subject to such limited partners or prospective limited partners or investors having an obligation or having agreed to, maintain the confidentiality of any such Confidential Information; provided , however , that the Avista Shareholder shall not (and shall cause its Confidentiality Affiliates and its limited partners or prospective limited partners or investors of such Shareholder or its Confidentiality Affiliates not to) disclose any Confidential Information to any Person that is a Company Competitor.  Each Shareholder agrees that it shall be responsible and liable for any breach of this Section 6.01 by its Confidentiality Affiliates and its limited partners or prospective limited partners or investors of such Shareholder or its Confidentiality Affiliates (as if such

 

30


 

Confidentiality Affiliates, limited partners or prospective limited partners or investors were parties to and bound by the provisions of this Section 6.01 by which such Shareholder is bound), and that, subject to the fiduciary duties of the directors of the Company, either Sponsor may direct the Company in its enforcement of such obligations without the need for any consent or approval of the other Sponsor or the Board where the breach or alleged breach involves the other Sponsor or its Confidentiality Affiliates.

 

(b)                                  The obligations contained in Section 6.01(a)  shall not apply, or shall cease to apply, to Confidential Information if or when, and to the extent that, such Confidential Information (i) was, or becomes through no breach of the receiving Shareholder’s obligations hereunder, known to the public, (ii) becomes known to the receiving Shareholderr or its Confidentiality Affiliates from other sources under circumstances not involving any breach of any confidentiality obligation between such source and the disclosing Shareholder’s or discloser’s Confidentiality Affiliates or a third party, (iii) is independently developed by the receiving Shareholder or its Confidentiality Affiliates, or (iv) is required to be disclosed by law, governmental regulation or applicable legal process; provided , that to the extent permitted by law, such Shareholder shall notify the Company promptly of such request or requirement so that the Company may seek an appropriate protective order or other appropriate relief (it being understood that either Sponsor may direct the Company in such efforts of such obligations without the need for any consent or approval of the other Sponsor or the Board where the other Sponsor or one of its Confidentiality Affiliates is the disclosing party); provided , further , that in the absence of a protective order or other appropriate relief, such Shareholder shall use commercially reasonable efforts to obtain an order or other assurance that confidential treatment will be accorded to such portion of the information required to be disclosed as the Company shall designate.

 

Section 6.02.                           Directors’ and Officers’ Insurance .  The Company shall purchase, within a reasonable period following the date of this Agreement, and maintain for such periods as the Board shall in good faith determine, at its expense, insurance in an amount determined in good faith by the Board to be appropriate, on behalf of any person who after the date of this Agreement is or was a director, manager or officer of the Company or any Subsidiary, or is or was serving at the request of the Board, the Company or any Subsidiary as a director, manager, officer, or agent of another limited company, corporation, partnership, joint venture, trust or other enterprise, including any direct or indirect subsidiary of the Company, against any expense, liability or loss asserted against such Person and incurred by such Person in any such capacity, or arising out of such Person’s status as such, subject to customary exclusions.  The provisions of this Section 6.02 shall survive any termination of this Agreement.

 

Section 6.03.                           No Exclusive Duty to Company .  In recognition that the Sponsors and their respective Permitted Transferees currently have, and will or may in the future have or will consider acquiring, investments in numerous companies with respect to which the Sponsors (or their Affiliates, associated investment funds, portfolio companies or employees, as applicable) and their respective Permitted Transferees may serve as an advisor, a director or in some other capacity, and in recognition that the Sponsors (or their Affiliates, associated investment funds, portfolio companies or employees, as applicable) and their respective Permitted Transferees may have a myriad of duties to various investors and partners, and in anticipation that the Company, on the one hand, and a Sponsor (or their Affiliates, associated investment funds, portfolio

 

31



 

companies or employees, as applicable) and its Permitted Transferees on the other hand, may engage in the same or similar activities or lines of business and have an interest in the same areas of corporate opportunities, and in recognition of the benefits to be derived by the Company hereunder and in recognition of the difficulties which may confront the Sponsors and their respective Permitted Transferees in determining the full scope of its duties in any particular situation, subject to and to the fullest extent permitted by applicable law, the provisions of this Section 6.03 are set forth to regulate, define and guide the conduct of certain affairs of the Company as they may involve the Sponsors and their respective Permitted Transferees.  Subject to and to the full extent permitted by law, and notwithstanding any other provision of this Agreement or in any agreement contemplated herein or applicable provision of law or equity or otherwise, except as a Sponsor may otherwise agree in writing after the date hereof:

 

(a)                                  the Sponsors (or their one or more Affiliates, associated investment funds, portfolio companies or employees, as applicable) and their respective Permitted Transferees will have the right:

 

(i)                                      to directly or indirectly engage in any business (including any business activities or lines of business that are the same as or similar to those pursued by, or competitive with, the Sponsors or any of its Subsidiaries) or invest, own or deal in equity securities of any other Person so engaged in any business;

 

(ii)                                   to directly or indirectly do business with any client or customer of the Sponsors or any of its Subsidiaries;

 

(iii)                                to take any other action that a Sponsor (or their Affiliates, associated investment funds, portfolio companies or employees, as applicable) and its Permitted Transferees believe in good faith is necessary or appropriate to fulfill their obligations as described in the first sentence of this Section 6.03 ; and

 

(iv)                               not to present potential transactions, matters or business opportunities to the Company or any of its Subsidiaries, and to pursue, directly or indirectly, any such opportunity for itself, and to direct any such opportunity to another Person.

 

(b)                                  the Sponsors (or their Affiliates, associated investment funds, portfolio companies or employees, as applicable) and their respective Permitted Transferees will have no duty (contractual or otherwise) to communicate or present any corporate opportunities to the Company or any of its Subsidiaries or to refrain from any actions specified in Section 6.03(a) , and the Company, on their own behalf and on behalf of their respective Affiliates, hereby renounces and waives any right to require the Sponsors (or their Affiliates, associated investment funds, portfolio companies or employees, as applicable) and their Permitted Transferees to act in a manner inconsistent with the provisions of this Section 6.03 .

 

(c)                                   the Sponsors (or their Affiliates, associated investment funds, portfolio companies or employees, as applicable) and their respective Permitted Transferees shall not be liable to the Company or any of its Subsidiaries for breach of any duty (contractual or otherwise) by reason of any activities or omissions of the types referred to in this Section 6.03 or by reason of its or their participation therein.

 

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ARTICLE 7

 

MISCELLANEOUS

 

Section 7.01.                           Binding Effect; Assignability; Benefit .

 

(a)                                  This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representatives and permitted assigns.  Any Shareholder that ceases to beneficially own any Equity Securities shall cease to be bound by the terms hereof (other than as expressly set forth herein or with respect to Section 6.01 or ARTICLE 7 ).

 

(b)                                  Other than as expressly set forth herein, neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by any party hereto pursuant to any Transfer of Equity Securities or otherwise.

 

(c)                                   Except for Sections 4.06 , 4.07 , 4.08 , 4.09 , 6.02 , 6.03 , Section 7.04 , 7.05 , 7.06 and 7.07 , nothing in this Agreement, expressed or implied, is intended to confer on any Person other than the parties hereto, and their respective heirs, successors, legal representatives and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement.

 

Section 7.02.                           Notices .

 

(a)                                  In the event a notice or other document is required to be sent hereunder to the Company, the Board, or any Shareholder or legal representative of a Shareholder, such notice or other document shall be made in writing by hand-delivery, registered or certified first-class mail, facsimile, email, or air courier guaranteeing overnight delivery to such party at the following addresses (or at such other address as shall be given in writing by any party to the others):

 

(i)                                      in the case of the Company:

 

Osmotica Pharmaceuticals plc

[   ]

Attention: [   ]

Facsimile No.: [   ]

 

with a copy (which shall not constitute notice) to:

 

Ropes & Gray LLP

Prudential Tower, 800 Boylston Street

Boston, MA 02199-3600

Attention: Craig Marcus

Email: Craig.Marcus@ropesgray.com

 

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And

 

[   ]

Attention: [   ]

Facscimile: [  ]

 

(ii)                                   in the case of the Board:

 

Board of Directors of Osmotica Pharmaceuticals plc

[   ]

Attention: [   ]

Facsimile No.: [   ]

 

with a copy (which shall not constitute notice) to:

 

Ropes & Gray LLP

Prudential Tower, 800 Boylston Street

Boston, MA 02199-3600

Attention: Craig Marcus

Email: Craig.Marcus@ropesgray.com

 

And

 

[   ]

Attention: [   ]

Facscimile: [  ]

 

(iii)                                if to any Shareholder, to the address, e-mail address or facsimile set forth on the books of the Company or any other address or facsimile number as a party may hereafter specify for such purpose to the Company.

 

(b)                                  The Company, the Board, or any Shareholder or their respective legal representatives may effect a change of address for purposes of this Agreement by giving notice of such change to the Company, and the Company shall, upon the request of any such Person, notify the other parties hereto of such change in the manner provided herein.  Until such notice of change of address is properly given, the addresses set forth herein shall be effective for all purposes.

 

(c)                                   All notices given in accordance with this Section 7.02 shall be deemed to have been duly given: when delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when sent, if sent via email; when transmission confirmation is received, if sent by facsimile; and on the next business day, if timely delivered to an air courier guaranteeing overnight delivery.

 

Section 7.03.                           Waiver; Amendment; Termination .

 

(a)                                  No provision of this Agreement may be waived, amended or otherwise modified except by an instrument in writing executed by (i) the Company and (ii) with the

 

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Requisite Consent; provided , however , that any waiver, amendment or modification that adversely affects Management Shareholders disproportionately as compared to the Sponsors (taking into account and considering the rights of Management Shareholders prior to such amendment or modification), shall require the prior written consent of the holders of a majority of the Ordinary Shares then held by the Management Shareholders; provided , further , that any waiver, amendment or modification that materially and adversely affects a Shareholder disproportionately as compared to all other Shareholders, shall require the prior written consent of a majority-in-interest of such Shareholders so adversely affected; provided , further , that no update of any Schedule hereto shall be deemed to constitute an amendment to this Agreement.

 

(b)                                  This Agreement shall terminate at such time that there are no Registrable Securities, except for the provisions of Sections 4.06 , 4.07 , 4.08 and 4.09 and all of this ARTICLE 7 .

 

Section 7.04.                           Non-Recourse .  Notwithstanding anything that may be expressed or implied in this Agreement, the Company and each Shareholder covenant, agree and acknowledge that no recourse under this Agreement or any documents or instruments delivered in connection with this Agreement in respect of each Shareholder’s obligations under this Agreement or any documents or instruments delivered in connection with this Agreement shall be had against any current or future director, officer, employee, general or limited partner or member or equity holder of any Shareholder or of any Affiliate or assignee thereof (in their capacity as such and not, as the case may be, in their capacity as a director or officer of the Company), whether by the enforcement of any assessment or by any legal or equitable proceeding, or by virtue of any statute, regulation or other applicable law, it being expressly agreed and acknowledged that no personal liability whatsoever shall attach to, be imposed on or otherwise be incurred by any current or future officer, agent or employee of any Shareholder or any current or future member or equity holder of any Shareholder or any current or future director, officer, employee, partner or member or equity holder of any Shareholder or of any Affiliate or assignee thereof (in their capacity as such and not, as the case may be, in their capacity as a director or officer of the Company), as such for any obligation of any Shareholder under this Agreement or any documents or instruments delivered in connection with this Agreement for any claim based on, in respect of or by reason of such obligations or their creation.

 

Section 7.05.                           Governing Law; Venue .  All issues and questions concerning the construction, validity, interpretation and enforceability of this Agreement and the exhibits and schedules hereto, and their negotiation, execution, performance or nonperformance, interpretation, termination, construction and all matters based upon, arising out of or related to any of the foregoing, whether arising in law or equity, shall be governed by, and construed in accordance with, the laws of the New York, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.  Any legal action or proceeding with respect this Agreement shall be brought in the courts of the United States District Court for the Southern District of New York or any other competent court of the State of New York, and, by execution and delivery of this Agreement, each party hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the exclusive jurisdiction of such courts.  Each party irrevocably waives any objection which it may now or hereafter have to the laying of venue of the aforesaid actions or proceedings arising out

 

35



 

of or in connection with this Agreement in the courts referred to in this paragraph and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum.  Each party agrees that service of process upon such party in any action shall be effective if notice is given in accordance with Section 7.02 .

 

Section 7.06.                           WAIVER OF JURY TRIAL .  EACH OF THE SHAREHOLDERS HEREBY IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING (INCLUDING COUNTERCLAIMS) RELATING TO OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE TRANSACTIONS OR RELATIONSHIPS HEREBY CONTEMPLATED OR OTHERWISE IN CONNECTION WITH THE ENFORCEMENT OF ANY RIGHTS OR OBLIGATIONS HEREUNDER.

 

Section 7.07.                           Specific Enforcement; Cumulative Remedies .  The parties hereto acknowledge that money damages may not be an adequate remedy for violations of this Agreement and that any party, in addition to any other rights and remedies which the parties may have hereunder or at law or in equity, may, in his or its sole discretion, apply to a court of competent jurisdiction for specific performance or injunction or such other relief as such court may deem just and proper in order to enforce this Agreement or prevent any violation hereof and, to the extent permitted by applicable law, each party waives any objection to the imposition of such relief.  All rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise or beginning of the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such rights, powers or remedies by such party.

 

Section 7.08.                           Entire Agreement .  This Agreement, together with all agreements referenced to herein and any schedules, exhibits and other documents referred to herein or therein constitute the entire agreement and understanding among the parties hereto in respect of the subject matter hereof and thereof and supersede all prior and contemporaneous arrangements, agreements and understandings, both oral and written, whether in term sheets, presentations or otherwise among the parties hereto, or between any of them, with respect to the subject matter hereof and thereof.

 

Section 7.09.                           Severability .

 

(a)                                  If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated.  Upon such a determination, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner so that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.

 

(b)                                  To the extent the terms of the Constitution or any other constitutive documents of the Company are contradictory to, or inconsistent with, the terms of this

 

36



 

Agreement, the terms of this Agreement shall, to the extent permitted by law, supersede such conflicting or inconsistent terms.  All terms of the Constitution and any other constitutive documents not contradictory to, or inconsistent with, the terms of this Agreement shall remain in full force and effect.

 

Section 7.10.                           Counterparts; Effectiveness .  This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

37



 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

 

 

OSMOTICA PHARMACEUTICALS PLC

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

[Signature Page to Shareholders Agreement]

 



 

 

ALTCHEM LIMITED

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

[Signature Page to Shareholders Agreement]

 



 

 

ACP HOLDCO (OFFSHORE), L.P.

 

By: ACP III AIV GP, Ltd.

 

Its: General Partner

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

[Signature Page to Shareholders Agreement]

 


 

 

ACP III AIV, L.P.

 

By: ACP III AIV GP, Ltd.

 

Its: General Partner

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

[Signature Page to Shareholders Agreement]

 



 

 

ORBIT CO-INVEST I, LLC

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

[Signature Page to Shareholders Agreement]

 



 

 

ORBIT CO-INVEST III, LLC

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

[Signature Page to Shareholders Agreement]

 



 

 

ORBIT CO-INVEST A-I LLC

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

[Signature Page to Shareholders Agreement]

 



 

 

 

 

Jarret Miller

 

[Signature Page to Shareholders Agreement]

 



 

 

HARPUA, L.L.C

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

[Signature Page to Shareholders Agreement]

 


 

 

 

 

Brian Markison

 

[Signature Page to Shareholders Agreement]

 



 

 

 

 

JD Schaub

 

[Signature Page to Shareholders Agreement]

 



 

 

ALASKA TRUST COMPANY, AS
TRUSTEE OF THE STEVEN SQUASHIC
2013 NON-GRANTOR ALASKA TRUST
DATED SEPTEMBER 11, 2013

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

[Signature Page to Shareholders Agreement]

 



 

 

PREMIER TRUST, INC., AS TRUSTEE
OF THE KEVIN HUDY 2013 NON-
GRANTOR NEVADA TRUST DATED
SEPTEMBER 18, 2013

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

[Signature Page to Shareholders Agreement]

 



 

 

 

 

Christopher Klein

 

[Signature Page to Shareholders Agreement]

 



 

 

 

 

David Purdy

 

[Signature Page to Shareholders Agreement]

 



 

 

 

 

Rich Buecheler

 

[Signature Page to Shareholders Agreement]

 



 

Annex A

 

Management Shareholders

 

1.               Brian Markison

2.               JD Schaub

3.               Alaska Trust Company, as Trustee of the Steven Squashic 2013 Non-Grantor Alaska Trust dated September 11, 2013

4.               Premier Trust, Inc., as Trustee of the Kevin Hudy 2013 Non-Grantor Nevada Trust dated September 18, 2013

5.               Christopher Klein

6.               David Purdy

7.               Rich Buecheler

8.               Jarret Miller

9.               Harpua, L.L.C

 

[Signature Page to Shareholders Agreement]

 




Exhibit 5.1

 

A&L Goodbody Solicitors

Dublin

International Financial Services Centre

Belfast

 

25-28 North Wall Quay, Dublin 1

London

 

D01 H104

New York

 

T +353 1 649 2000

San Francisco

 

Dx: 29 Dublin | www.algoodbody.com

Palo Alto

 

Date

   1 October 2018

 

 

Our Ref

   01424430

 

Osmotica Pharmaceuticals plc

25-28 North Wall Quay

Dublin 1

Ireland

 

Re: Osmotica Pharmaceuticals plc (the Company )

 

Dear Sirs

 

We are acting as Irish counsel to the Company, a public limited company incorporated under the laws of Ireland (registered number 607944), in connection with the initial public offering (the Transaction ) by the Company of up to 9,545,000 ordinary shares in its capital with a nominal value of US$0.01 per share (the Ordinary Shares ) pursuant to a registration statement on Form S-1 (File No. 333-227357) originally filed by the Company with the U.S. Securities and Exchange Commission (the SEC ) on 9 May 2018, as amended (the Registration Statement ), under the Securities Act of 1933, as amended and the prospectus contained therein (the Prospectus , together with the Registration Statement, the Registration Documents ).

 

The Ordinary Shares will be issued pursuant to an underwriting agreement to be entered into between the Company and Barclays Capital Inc., Jefferies, LLC and RBC Capital Markets, LLC as representatives for the several underwriters named therein (the Underwriting Agreement , and together with the Registration Documents, the Transaction Documents ).

 

In connection with the Opinion, we have examined and relied upon copies of:

 

·                                     the Transaction Documents;

 

·                                     a copy of the minutes of a meeting of the Board of Directors of the Company (the Board ) held on 14 August  2018; and

 

·                                     a copy of the draft resolutions of the pricing committee of the Board to be passed in substantially the same form prior to the Transaction becoming effective.

 

In addition, we have examined and relied upon:

 

·                                     legal searches against the Company on 1 October 2018 on the file of the Company maintained by the Registrar of Companies in Dublin, the Judgments Office of the High Court and the Central Office of the High Court (the Searches ); and

 

·                                     such other corporate records of the Company as we have deemed necessary as a basis for the opinions hereinafter expressed.

 

Terms not defined herein shall have the meaning respectively assigned to them in the Transaction Documents.

 

PM Law · CE Gill · EM FitzGerald · JG Grennan · J Coman · PD White · VJ Power · LA Kennedy · SM Doggett · B McDermott · C Duffy · PV Maher · S O’Riordan · MP McKenna · KA Feeney M Sherlock · EP Conlon · E MacNeill · KP Allen · EA Roberts · C Rogers · G O’Toole · JN Kelly · N O’Sullivan · MJ Ward · AC Burke · D Widger · C Christle · S O’Croinin · JW Yarr · DR Baxter A McCarthy · JF Whelan · JB Somerville · MF Barr · AM Curran · A Roberts · M Dale · RM Moore · D Main · J Cahir · M Traynor · PM Murray · N Ryan · P Walker · K Furlong · PT Fahy · M Rasdale D Inverarity · M Coghlan · DR Francis · A Casey · B Hosty · M O’Brien · K Killalea · L Mulleady · K Ryan · E Hurley · G Stanley · D Dagostino · E Keane · C Clarkin · R Grey · R Lyons · J Sheehy · C Morrissey C McLoughlin · C Carroll · SE Carson · P Diggin · J Williams · A O’Beirne · MD Cole · G Conheady · J Dallas · SM Lynch · M McElhinney · C Owens

 

Consultants: SW Haughey · Professor JCW Wylie · AF Browne · MA Greene · AV Fanagan · JA O’Farrell · IB Moore

 



 

1                                          Opinion

 

Subject to the below qualifications and assumptions and to any matters not disclosed to us, we are of the opinion that the issue of the Ordinary Shares, in accordance with the terms of the Registration Statement and the Prospectus, has been duly authorised by all necessary corporate action of the Company and on the allotment and issuance of the Ordinary Shares and the subscription and payment therefor by the relevant subscribers in the manner contemplated by the Registration Statement, the Prospectus and the Underwriting Agreement, the Ordinary Shares will be validly issued, fully paid and non-assessable (which term, when used herein, means that no further sums are required to be paid in connection with the issue of the Ordinary Shares by the holders thereof).

 

2                                    Assumptions

 

For the purposes of giving this Opinion we have assumed:

 

2.1                          the authenticity of all documents submitted to us as originals and the completeness and conformity to the originals of all copies of documents of any kind furnished to us;

 

2.2                          that the copies produced to us of minutes of meetings and/or of resolutions are true copies and correctly record the proceedings of such meetings and/or the subject-matter which they purport to record and that any meetings referred to in such copies were duly convened and held and that all resolutions set out in such minutes were duly passed as described in such minutes and remain in full force and effect;

 

2.3                          the genuineness of the signatures and seals on all original and copy documents which we have examined;

 

2.4                          the truth and accuracy as to factual matters of the contents of the corporate certificate of the Secretary of the Company dated the date of this Opinion;

 

2.5                          that there are no agreements or arrangements in existence which in any way amend or vary the terms of the Transaction;

 

2.6                          the accuracy and completeness of all information appearing on public records;

 

2.7                          the accuracy and completeness of the information disclosed in the Searches and that such information is accurate as of the date of this opinion and has not since the time of such search or enquiry been altered;

 

2.8                          that there has been no alteration in the status or condition of the Company as disclosed by the Searches;

 

2.9                          the absence of fraud on the part of the Company and its respective officers, employees, agents and advisers and that the Company has entered into the Transaction in good faith, for its legitimate business purposes, for good consideration, and that it derives commercial benefit from the Transaction commensurate with the risks undertaken by it in the Transaction;

 

2.10                   that any Ordinary Shares offered under the Registration Statement will be in consideration of the receipt by the Company prior to the issue of the Ordinary Shares pursuant thereto of either cash or the release of a liability of the Company for a liquidated sum, at least equal to the nominal value of such Ordinary Shares and any premium required to be paid up on the Ordinary Shares pursuant to their terms of issue;

 

2.11                   that all securities issued and sold under the Registration Statement will be issued and sold in compliance with all applicable laws (other than Irish law), including applicable federal and state securities laws, in the manner stated in the Registration Statement and the appropriate prospectus supplement;

 

2.12                   that the Underwriting Agreement will have been duly authorised and validly executed and delivered by the Company and the other parties thereto;

 

2



 

2.13                   that, at the time of issue of the Ordinary Shares, the authority of the Company and the directors of the Company to issue the Ordinary Shares, as provided for in the Irish Companies Act 2014 (the Companies Act ) and the Constitution of the Company, is in full force and effect;

 

2.14                   that the issue of the Ordinary Shares will be in compliance with the Companies Act, the Irish Takeover Panel Act, 1997, Takeover Rules 2013, and all other applicable Irish company, takeover, securities, market abuse, insider dealing laws and other rules and regulations;

 

2.15                   that, as at the time of the issuance of the Ordinary Shares, such issuance shall not be in contravention or breach of any agreement, undertaking, arrangement, deed or covenant affecting the Company or to which the Company is a party or otherwise bound or subject; and

 

2.16                   that the Registration Documents do not constitute (and are not intended/required to constitute) a prospectus within the meaning of Part 23 of the Companies Act and that no offer of securities to the public is made, or will be made, that required the publication of a prospectus pursuant to Irish prospectus law in general, or in particular pursuant to the Prospectus (Directive 2003/71/EC) Regulations 2005 of Ireland (as amended).

 

In rendering this Opinion we have confined ourselves to matters of Irish law. We express no opinion on any laws other than the laws of Ireland (and the interpretation thereof) in force as at the date hereof. This Opinion speaks only as of its date. We are not under any obligation to update this Opinion from time to time, nor to notify you of any change of law, facts or circumstances referred to or relied upon in the giving of this Opinion.

 

This Opinion is given solely for the benefit of the addressee of this Opinion and may not be relied upon by any other person without our prior written consent, provided, however, that it may be relied upon by persons entitled to rely on it pursuant to applicable provisions of US federal securities laws.

 

This Opinion is also strictly confined to the matters expressly stated herein and is not to be read as extending by implication or otherwise to any other matter.

 

We hereby consent to the filing of this Opinion with the SEC as an exhibit to the Registration Statement and any amendments thereto and to the use of our name therein under the caption “Legal Matters”.

 

The Opinion is governed by and construed in accordance with the laws of Ireland.

 

Yours faithfully

 

 

 

/s/ A&L Goodbody

 

 

3




Exhibit 10.27

 

OSMOTICA PHARMACEUTICALS PLC

2018 EMPLOYEE SHARE PURCHASE PLAN

 

1.                                       Defined Terms

 

Exhibit A , which is incorporated by reference, defines certain terms used in the Plan and sets forth certain operational rules related to those terms.

 

2.                                       Purpose of Plan

 

The Plan is intended to enable Eligible Employees to use payroll deductions to purchase Shares in offerings under the Plan, and thereby acquire an interest in the future of the Company.  During any time in which the Administrator, in its discretion, determines that the Plan is not able to satisfy the requirements under Section 423, the Plan shall not be treated as an “employee stock purchase plan” under Section 423, but the Administrator shall still be able to grant Options hereunder.  If, or as of such time as, the Administrator, in its discretion, determines that the Plan is able to satisfy the requirements under Section 423 and that it will operate the Plan in accordance with such requirements, the Plan is intended to qualify as an “employee stock purchase plan” under Section 423 and will be operated and construed accordingly.  In any event, the Plan is intended to be exempt from the application and requirements of Section 409A of the Code, and is to be construed accordingly.

 

3.                                       Options to Purchase Shares

 

Subject to adjustment pursuant to Section 16 of the Plan, the aggregate number of Shares available for purchase pursuant to the exercise of Options granted under the Plan to Eligible Employees will be 1,550,000 Shares.  The Shares to be delivered upon exercise of Options under the Plan may be either authorized but unissued Shares, treasury Shares, or Shares acquired in an open-market transaction.  If any Option granted under the Plan expires or terminates for any reason without having been exercised in full or ceases for any reason to be exercisable in whole or in part, the unpurchased Shares subject to such Option will again be available for purchase pursuant to the exercise of Options under the Plan.  If, on an Exercise Date, the total number of Shares that would otherwise be subject to Options granted under the Plan exceeds the number of Shares then available under the Plan (after deduction of all Shares for which Options have been exercised or are then outstanding), the Administrator shall make a pro rata allocation of the Shares remaining available for the Option grants in as uniform a manner as shall be practicable and as it shall determine to be equitable.  In such event, the Administrator shall give written notice to each Participant of such reduction of the number of Options affected thereby and shall similarly reduce the rate of payroll deductions, if necessary.

 

4.                                       Eligibility

 

(a)                                  Eligibility Requirements Subject to Section 13 of the Plan, and the exceptions and limitations set forth in Sections 4(b) and (c) and 6 of the Plan, or as may be provided elsewhere in the Plan, each Employee (i) who has been continuously employed by the Company

 



 

or a Designated Subsidiary, as applicable, for a period of at least thirty (30) days as of the first day of an Option Period, (ii) whose customary Employment with the Company or a Designated Subsidiary, as applicable, is for more than five (5) months per calendar year, (iii) who customarily works twenty (20) hours or more per week, and (iv) who satisfies the requirements set forth in the Plan will be an Eligible Employee.

 

(b)                                  Five Percent Shareholders No Employee may be granted an Option under the Plan if, immediately after the Option is granted, the Employee would own (or pursuant to Section 424(d) of the Code would be deemed to own) shares possessing five percent (5%) or more of the total combined voting power or value of all classes of shares of the Company or of its Parent or Subsidiaries, if any.

 

(c)                                   Additional Requirements The Administrator may, for Option Periods that have not yet commenced, establish additional or different eligibility requirements not inconsistent with Section 423.

 

5.                                       Option Periods

 

The Plan will generally be implemented by a series of separate offerings referred to as “ Option Periods ”.  Unless otherwise determined by the Administrator, the Option Periods will be successive periods of approximately six (6) months commencing on the first Business Day in January and July of each year, anticipated to be on or around January 1 and July 1, and ending approximately six (6) months later on the last Business Day in June or December, as applicable, of each year, anticipated to be on or around June 30 and December 31, as applicable, of each year.  The last Business Day of each Option Period will be an “ Exercise Date ”.  The Administrator may change the Exercise Date and the commencement date, ending date and duration of the Option Periods to the extent permitted by Section 423, provided, however, that no Option may be exercised after 27 months from its grant date.

 

6.                                       Option Grant

 

Subject to the limitations set forth in Sections 4 and 10 of the Plan and the Maximum Share Limit, on the first day of an Option Period, each Participant automatically will be granted an Option to purchase Shares on the Exercise Date; provided , however , that no Participant will be granted an Option under the Plan that permits the Participant’s right to purchase Shares under the Plan and under all other employee stock purchase plans of the Company and its Parent and Subsidiaries, if any, to accrue at a rate that exceeds $25,000 in Fair Market Value (or such other maximum as may be prescribed from time to time by the Code) for each calendar year during which any Option granted to such Participant is outstanding at any time, as determined in accordance with Section 423(b)(8) of the Code.

 

7.                                       Method of Participation

 

(a)                                  Payroll Deduction and Participation Authorization .  To participate in an Option Period, an Eligible Employee must execute and deliver to the Administrator a payroll deduction and participation authorization form in accordance with the procedures prescribed by and in a form acceptable to the Administrator and, in so doing, the Eligible Employee will thereby become a Participant as of the first day of such Option Period.  Such an Eligible

 

2



 

Employee will remain a Participant with respect to subsequent Option Periods until his or her participation in the Plan is terminated as provided herein.  Such payroll deduction and participation authorization must be delivered not later than ten (10) Business Days immediately prior to the first day of an Option Period, or such other time as specified by the Administrator.

 

(b)                                  Changes to Payroll Deduction Authorization for Subsequent Option Periods .  A Participant’s payroll deduction authorization will remain in effect for subsequent Option Periods unless the Participant files a new authorization not later than ten (10) Business Days immediately prior to the first day of the subsequent Option Period, or such other time as specified by the Administrator, or the Participant’s Option is cancelled pursuant to Section 13 or 14 of the Plan.

 

(c)                                   Changes to Payroll Deduction Authorization for Current Option Period During an Option Period, a Participant’s payroll deduction authorization may be reduced once, but may not be increased.  Any reduction to a Participant’s payroll deduction authorization must be delivered to the Administrator in accordance with the procedures prescribed by, and in a form acceptable to, the Administrator and will be effective as soon as administratively practicable.  If a Participant’s payroll deduction authorization is reduced to zero percent (0%) during an Option Period, the Participant will be deemed to have canceled his or her Option and terminated his or her payroll deduction authorization.  Upon such termination and cancellation, the balance in the Participant’s Account will be returned to the Participant, without interest, as soon as administratively practicable thereafter and the Participant’s participation in the Plan will thereupon terminate, unless the Participant has delivered a new payroll deduction authorization for the subsequent Option Period in accordance with the rules of Section 7(b) above.  A Participant may also terminate his or her payroll deduction authorization during an Option Period by canceling his or her Option in accordance with Section 13 of the Plan.

 

(d)                                  Payroll Deduction Percentage Each payroll deduction authorization will request payroll deductions as a whole percentage from one (1) to ten percent (10%) of an employee’s Eligible Compensation each payroll period.

 

(e)                                   Payroll Deduction Account All payroll deductions made pursuant to this Section 7 will be credited to the Participant’s Account.  Amounts credited to a Participant’s Account will not be required to be set aside in trust or otherwise segregated from the Company’s general assets.

 

8.                                       Method of Payment

 

A Participant must pay for Shares purchased upon the exercise of an Option with accumulated payroll deductions credited to the Participant’s Account.

 

9.                                       Purchase Price

 

The Purchase Price of Shares issued pursuant to the exercise of an Option on each Exercise Date will be eighty-five percent (85%) (or such greater percentage specified by the Administrator to the extent permitted under Section 423) of the lesser of (a) the Fair Market Value of a Share on the date on which the Option was granted pursuant to Section 6 of the Plan

 

3



 

( i.e. , the first day of the Option Period) and (b) the Fair Market Value of a Share on the date on which the Option is deemed exercised pursuant to Section 10 of the Plan ( i.e. , the Exercise Date).

 

10.                                Exercise of Options

 

(a)                                  Purchase of Shares Subject to the limitations set forth in Section 6 of the Plan and this Section 10, with respect to each Option Period, on the applicable Exercise Date, each Participant will be deemed to have exercised his or her Option and the accumulated payroll deductions in the Participant’s Account will be applied to purchase the greatest number of Shares (rounded down to the nearest whole share) that can be purchased with such Account balance at the applicable Purchase Price; provided, however, that no more than 5,000 Shares may be purchased by a Participant on any Exercise Date, or such lesser number as the Administrator may prescribe in accordance with Section 423 (the “ Maximum Share Limit ”).  As soon as practicable thereafter, Shares so purchased will be placed, in book-entry form, into a record keeping account in the name of the Participant.  No fractional shares will be purchased pursuant to the exercise of an Option under the Plan; any accumulated payroll deductions in a Participant’s Account that are not sufficient to purchase a whole share will be retained in the Participant’s Account for the subsequent Option Period, subject to earlier withdrawal by the Participant as provided in Section 13 hereof.

 

(b)                                  Return of Account Balance Except as provided in Section 10(a) with respect to fractional shares, any amount of payroll deductions in a Participant’s Account that is not used for the purchase of Shares, whether because of the Participant’s withdrawal from participation in an Option Period or for any other reason, will be returned to the Participant (or his or her designated beneficiary or legal representative, as applicable), without interest, as soon as administratively practicable after such withdrawal or other event, as applicable.  If the Participant’s accumulated payroll deductions on the Exercise Date of an Option Period would otherwise enable the Participant to purchase Shares in excess of the Maximum Share Limit or the maximum Fair Market Value set forth in Section 6 of the Plan, the excess of the amount of the accumulated payroll deductions over the aggregate Purchase Price of the Shares actually purchased will be returned to the Participant, without interest, as soon as administratively practicable after such Exercise Date.

 

11.                                Interest

 

No interest will be payable on any amount held in the Account of any Participant.

 

12.                                Taxes

 

Payroll deductions will be made on an after-tax basis.  The Administrator will have the right, as a condition to exercising an Option, to make such provision as it deems necessary to satisfy its obligations to withhold federal, state, local income or other taxes incurred by reason of the purchase or disposition of Shares under the Plan.  In the Administrator’s discretion and subject to applicable law, such tax obligations may be paid in whole or in part by delivery of Shares to the Company, including Shares purchased under the Plan, valued at Fair Market Value, but not in excess of the maximum withholding amount consistent with the Option being subject to equity accounting treatment under the Accounting Rules.

 

4



 

13.                                Cancellation and Withdrawal

 

(a)                                  Cancellation of Payroll Deduction Authorization A Participant who holds an Option under the Plan may cancel all (but not less than all) of his or her Option and terminate his or her payroll deduction authorization by notice delivered to the Administrator in accordance with the procedures prescribed by, and in a form acceptable to, the Administrator.  To be effective with respect to an upcoming Exercise Date, such cancellation notice must be delivered not later than ten (10) Business Days prior to such Exercise Date (or such other time as specified by the Administrator).  Upon such termination and cancellation, the balance in the Participant’s Account will be returned to the Participant, without interest, as soon as administratively practicable thereafter.

 

(b)                                  401(k) Hardship Withdrawal A Participant who makes a hardship withdrawal from a 401(k) Plan will be deemed to have terminated his or her payroll deduction authorization for subsequent payroll dates relating to the then current Option Period as of the date of such hardship withdrawal and amounts accumulated in the Participant’s Account as of such date will be returned to the Participant, without interest, as soon as administratively practicable thereafter.  An Employee who has made a hardship withdrawal from a 401(k) Plan will not be permitted to participate in Option Periods commencing after the date of his or her hardship withdrawal until the first Option Period that begins at least six months after the date of his or her hardship withdrawal.

 

14.                                Termination of Employment or Death of Participant

 

Upon the termination of a Participant’s employment with the Company or a Designated Subsidiary, as applicable, for any reason or the death of a Participant during an Option Period prior to an Exercise Date or in the event the Participant ceases to qualify as an Eligible Employee, the Participant will cease to be a Participant, any Option held by him or her under the Plan will be deemed canceled, the balance in the Participant’s Account will be returned to the Participant (or his or her estate or designated beneficiary in the event of the Participant’s death), without interest, as soon as administratively practicable thereafter, and the Participant will have no further rights under the Plan.

 

15.                                Equal Rights; Participant’s Rights Not Transferable

 

All Participants granted Options in an offering under the Plan will have the same rights and privileges, consistent with the requirements set forth in Section 423.  Any Option granted under the Plan will be exercisable during the Participant’s lifetime only by him or her and may not be sold, pledged, assigned, or transferred in any manner.  In the event any Participant violates or attempts to violate the terms of this Section 15, as determined by the Administrator in its sole discretion, any Options held by him or her may be terminated by the Company and, upon the return to the Participant of the balance of his or her Account, without interest, all of the Participant’s rights under the Plan will terminate.

 

16.                                Change in Capitalization; Corporate Transaction

 

(a)                                  Change in Capitalization .  In the event of any change in the outstanding Shares by reason of a share dividend, share split, reverse share split, split-up, recapitalization, merger,

 

5



 

consolidation, reorganization, or other capital change, the aggregate number and type of Shares available under the Plan, the number and type of Shares granted under any outstanding Options, the maximum number and type of Shares purchasable under any outstanding Option, and the purchase price per Share under any outstanding Option will be appropriately adjusted; provided , that any such adjustment shall be made in a manner that complies with Section 423.

 

(b)                                  Corporate Transaction In the event of a Corporate Transaction, the Administrator may, in its discretion, (i) if the Company is merged with or acquired by another corporation, provide that each outstanding Option will be assumed or exchanged for a substitute Option granted by the acquiror or successor corporation or by a parent or subsidiary of the acquiror or successor corporation, (ii) cancel each outstanding Option and return the balances in Participants’ Accounts to the Participants, and/or (iii) pursuant to Section 18 of the Plan, terminate the Option Period on or before the date of the proposed sale, merger or similar transaction.

 

17.                                Administration of Plan

 

The Plan will be administered by the Administrator, which will have the authority to interpret the Plan, determine eligibility under the Plan, prescribe forms, rules and procedures relating to the Plan and otherwise do all things necessary or appropriate to carry out the purposes of the Plan.  All determinations and decisions by the Administrator regarding the interpretation or application of the Plan will be final and binding on all Participants and all persons.

 

The Administrator may specify the manner in which the Company and/or Employees are to provide notices and forms under the Plan, and may require that such notices and forms be submitted electronically.

 

18.                                Amendment and Termination of Plan; Separate Offerings; Sub-Plans

 

(a)                                  Amendment The Board reserves the right at any time or times to amend the Plan to any extent and in any manner it may deem advisable; provided , however , that any amendment that would be treated as the adoption of a new plan for purposes of Section 423 will have no force or effect unless approved by the shareholders of the Company within 12 months before or after its adoption.

 

(b)                                  Termination .   The Board reserves the right at any time or times to suspend or terminate the Plan.  In connection therewith, the Board may provide, in its sole discretion, either that outstanding Options will be exercisable either at the Exercise Date for the applicable Option Period or on such earlier date as the Board may specify (in which case such earlier date will be treated as the Exercise Date for the applicable Option Period), or that the balance of each Participant’s Account will be returned to the Participant, without interest.

 

(c)                                   Separate Offerings; Sub-Plans Notwithstanding the foregoing or any provision of the Plan to the contrary, consistent with the requirements of Section 423, the Administrator may, in its sole discretion, amend the terms of the Plan, or an offering, and/or provide for separate offerings under the Plan in order to, among other things, reflect the impact of local law outside of the United States as applied to one or more Eligible Employees of a Designated

 

6



 

Subsidiary and may, where appropriate, establish one or more sub-plans to reflect such amended provisions.

 

19.                                Approvals

 

Shareholder approval of the Plan will be obtained prior to the date that is 12 months after the date of Board approval.  In the event that the Plan has not been approved by the shareholders of the Company prior to August 9, 2019, all Options to purchase Shares under the Plan will be cancelled and become null and void.

 

Notwithstanding anything herein to the contrary, the obligation of the Company to issue and deliver Shares under the Plan will be subject to the approval required of any governmental authority in connection with the authorization, issuance, sale or transfer of such Shares and to any requirements of any national securities exchange applicable thereto, and to compliance by the Company with other applicable legal requirements in effect from time to time.

 

20.                                Participants’ Rights as Shareholders and Employees

 

A Participant will have no rights or privileges as a shareholder of the Company and will not receive any dividends in respect of any Shares covered by an Option granted hereunder until such Option has been exercised, full payment has been made for such Shares, and the Shares have been issued to the Participant.

 

Nothing contained in the provisions of the Plan will be construed as giving to any Employee the right to be retained in the employ of the Company or any Designated Subsidiary or as interfering with the right of the Company or any Designated Subsidiary to discharge, promote, demote or otherwise re-assign any Employee from one position to another within the Company or any Designated Subsidiary at any time.

 

21.                                Restrictions on Transfer; Information Regarding Disqualifying Dispositions.

 

Shares purchased under the Plan by a Participant may be subject to such restrictions on transfer, sale, pledge or alienation of such Shares as determined by the Administrator from time to time.

 

By electing to participate in the Plan, each Participant agrees to provide such information about any transfer of Shares acquired under the Plan that occurs within two years after the first day of the Option Period in which such Shares were acquired and within one year after the acquisition of such Shares as may be requested by the Company or any Designated Subsidiary in order to assist it in complying with applicable tax laws.

 

22.                                Governing Law

 

The Plan will be governed by and administered in accordance with the Irish Companies Act 2014 (as may be amended, replaced and/or consolidated in the future), and with the applicable requirements of the stock exchanges or other trading systems on which the Shares are listed or entered for trading and the Code, in each case as determined by the Administrator.  Except as otherwise provided under a sub-plan described in Section 18(c) or as provided in the

 

7



 

first sentence of this Section 22, the domestic substantive laws of Delaware govern the provisions of the Plan and of Options under the Plan and all claims or disputes arising out of or based upon the Plan or any Options under the Plan or relating to the subject matter hereof or thereof without giving effect to any choice or conflict of laws provision or rule that would cause the application of the domestic substantive laws of any other jurisdiction.

 

23.                                Effective Date and Term

 

The Plan will become effective upon adoption of the Plan by the Board and no rights will be granted hereunder after the earliest to occur of (a) the Plan’s termination by the Company, (b) the issuance of all Shares available for issuance under the Plan or (c) the day before the 10-year anniversary of the date the Board approves the Plan.

 

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EXHIBIT A

Definition of Terms

 

The following terms, when used in the Plan, will have the meanings and be subject to the provisions set forth below:

 

“401(k) Plan”:   A savings plan qualifying under Section 401(k) of the Code that is sponsored by the Company or one of its Subsidiaries for the benefit of its employees.

 

“Account”:  A payroll deduction account maintained in the Participant’s name on the books of the Company.

 

“Accounting Rules”:  Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor provision.

 

“Administrator”:   The Compensation Committee, except that the Compensation Committee may delegate (i) to one or more of its members (or one or more other members of the Board, including the full Board) such of its duties, powers and responsibilities as it may determine and (ii) to such Employees or other persons as it determines such ministerial tasks as it deems appropriate.  In the event of any delegation described in the preceding sentence, the term “Administrator” will include the person or persons so delegated to the extent of such delegation.

 

Affiliate Any corporation or other entity that stands in a relationship to the Company that would result in the Company and such corporation or other entity being treated as a single employer under Sections 414(b) or 414(c) of the Code, except that such sections shall be applied by substituting “at least 50%” for “at least 80%” wherever applicable.  The Company may at any time by amendment provide that different ownership thresholds apply.

 

“Board”:   The Board of Directors of the Company.

 

“Business Day”:  Any day on which the national stock exchange on which the Shares are traded is available and open for trading.

 

“Code”:   The U.S. Internal Revenue Code of 1986, as from time to time amended and in effect, or any successor statute as from time to time in effect.

 

“Company”:   Osmotica Pharmaceuticals plc, a public limited company registered under the Irish Companies Act 2014.

 

“Corporate Transaction”:  A (i) a consolidation, merger or similar transaction or series of related transactions, including a sale or other disposition of Shares, in which the Company is not the surviving corporation or which results in the acquisition of all or substantially all of the Company’s then-outstanding Shares by a single person or entity or by a group of persons and/or entities acting in concert, including by way of a court ordered scheme of arrangement; (ii) a sale or transfer of all or substantially all of the Company’s assets; (iii) a dissolution or liquidation of the Company; or (iv) a “change in control event” as that term is defined in the regulations under

 

9



 

Section 409A of the Code.  For the avoidance of doubt, an initial public offering shall not constitute a Change in Control.  Where a Corporate Transaction involves a tender offer that is reasonably expected to be followed by a merger described in clause (i) as determined by the Administrator, the Corporate Transaction shall be deemed to have occurred upon consummation of the tender offer.

 

“Designated Subsidiary”:  A Subsidiary of the Company that has been designated by the Board or the Compensation Committee of the Board from time to time as eligible to participate in the Plan as set forth on Exhibit B to the Plan.  For the avoidance of doubt, any Subsidiary of the Company shall be eligible to be designated as a Designated Subsidiary hereunder.

 

“Effective Date”:   The date set forth in Section 23 of the Plan.

 

“Eligible Employee”:   Any Employee who meets the eligibility requirements set forth in Section 4 of the Plan.

 

“Employee”:   Any person who is employed by the Company or a Designated Subsidiary.  For the avoidance of doubt, independent contractors and consultants are not “Employees”.

 

Eligible Compensation :   Regular base salary, regular wages and overtime payments.  Eligible Compensation will not be reduced by any income or employment tax withholdings or any contributions by the Employee to a 401(k) Plan or a plan under Section 125 of the Code, but will be reduced by any contributions made on the Employee’s behalf by the Company or any Subsidiary to any deferred compensation plan or welfare benefit program now or hereafter established.

 

“Exercise Date”:  The date set forth in Section 5 of the Plan or otherwise designated by the Administrator with respect to a particular Option Period on which a Participant will be deemed to have exercised the Option granted to him or her for such Option Period.

 

“Fair Market Value”:  As of a particular date, (i) the closing price for a Share reported on the Nasdaq Global Market (or any other national securities exchange on which the Shares are then listed) for that date or, if no closing price is reported for that date, the closing price on the immediately preceding date on which a closing price was reported or (ii) in the event that the Shares are not traded on a national securities exchange, the fair market value of a Share determined by the Administrator consistent with the rules of Section 422 and Section 409A of the Code to the extent applicable.

 

“Maximum Share Limit”:   The meaning set forth in Section 10 of the Plan.

 

“Option”:   An option granted pursuant to the Plan entitling the holder to acquire Shares upon payment of the Purchase Price per Share.

 

“Option Period”:  An offering period established in accordance with Section 5 of the Plan.

 

10



 

“Parent”:  A “parent corporation” as defined in Section 424(e) of the Code.

 

“Participant”:   An Eligible Employee who elects to enroll in the Plan.

 

“Plan”:   The Osmotica Pharmaceuticals plc 2018 Employee Share Purchase Plan, as from time to time amended and in effect.

 

“Purchase Price”:  The price per Share with respect to an Option Period determined in accordance with Section 9 of the Plan.

 

“Section 423”:  Section 423 of the Code and the regulations thereunder.

 

“Share”:   An ordinary share of the Company, nominal value $0.01 per share.

 

“Subsidiary”:   On and after the date the Plan is operated as a plan intended to qualify as an “employee stock purchase plan” under Section 423, a “Subsidiary” shall be limited to a “subsidiary corporation” as defined in Section 424(f) of the Code.  Prior to such date, a “Subsidiary” may also include a subsidiary of the Company that would be described in the first sentence of Section 1.409A-1(b)(5)(iii)(E) of the Treasury Regulations.

 

11



 

EXHIBIT B

Designated Subsidiaries

 

Designated Subsidiaries as of the date of adoption of the Plan by the Board are listed below:

 

Osmotica Pharmaceutical Corp.

 

12




Exhibit 10.29

 

AMENDED AND RESTATED OSMOTICA PHARMACEUTICALS PLC

2016 EQUITY INCENTIVE PLAN

 

AMENDED AND RESTATED EFFECTIVE AS OF AUGUST 14, 2018

 



 

TABLE OF CONTENTS

 

 

 

Page No.

 

 

 

 

SECTION 1. PURPOSE

1

 

 

SECTION 2. ADMINISTRATION

1

 

 

SECTION 3. ELIGIBILITY

1

 

 

SECTION 4. SHARES SUBJECT TO PLAN

2

 

 

 

a.

Basic Limitation

2

 

b.

Additional Shares

2

 

 

 

 

SECTION 5. AWARDS

2

 

 

 

a.

Types of Awards

2

 

b.

Award Agreements

2

 

c.

No Rights as a Shareholder

3

 

 

 

 

SECTION 6. OPTIONS

3

 

 

 

a.

Grant of Options

3

 

b.

Option Award Agreements

3

 

c.

Method of Exercise

3

 

 

 

 

SECTION 7. STOCK APPRECIATION RIGHTS

3

 

 

 

a.

Generally

3

 

b.

Stock Appreciation Rights Award Agreements

4

 

 

 

 

SECTION 8. RESTRICTED STOCK

4

 

 

 

a.

Generally

4

 

b.

Restricted Stock Award Agreement

4

 

c.

Voting Rights

4

 

d.

Section 83(b) Election

4

 

 

 

 

SECTION 9. PHANTOM SHARES

5

 

 

 

a.

Generally

5

 

b.

Settlement of Phantom Shares

5

 

 

 

 

SECTION 10. OTHER SHARE-BASED AWARDS

5

 

 

SECTION 11. PAYMENT FOR SHARES

5

 

 

 

a.

General Rule

5

 

i



 

 

b.

Surrender of Shares

5

 

c.

Discretion of Board

6

 

 

 

 

SECTION 12. TERMINATION OF SERVICE

6

 

 

 

a.

Termination for Cause

6

 

b.

Termination Due to Death or Disability

6

 

c.

Termination Without Cause

6

 

d.

Termination for any Other Reason

6

 

e.

Leave of Absence

6

 

 

 

 

SECTION 13. ADJUSTMENT OF SHARES

7

 

 

 

a.

General

7

 

b.

Mergers and Consolidations

7

 

 

 

 

SECTION 14. SECURITIES LAW REQUIREMENTS

8

 

 

SECTION 15. GENERAL TERMS

8

 

 

 

a.

Nontransferability of Awards

8

 

b.

Restrictions on Transfer of Shares

8

 

c.

Settlement of Awards

8

 

d.

Compliance with Section 409A of the Code

8

 

e.

Withholding Requirements

9

 

f.

No Guarantees Regarding Tax Treatment

9

 

g.

No Retention Rights or Right to Awards

10

 

h.

Severability

10

 

i.

No Constraint on Corporate Action

10

 

j.

Successors

10

 

k.

Unfunded Plan

10

 

 

 

 

SECTION 16. DURATION AND AMENDMENTS

11

 

 

 

a.

Term of the Plan

11

 

b.

Right to Amend or Terminate the Plan

11

 

c.

Effect of Termination

11

 

d.

Modification, Extension and Assumption of Awards

11

 

 

 

 

SECTION 17. DEFINITIONS

11

 

 

SECTION 18. MISCELLANEOUS

14

 

 

 

a.

Choice of Law

14

 

b.

Adoption

15

 

ii



 

AMENDED AND RESTATED OSMOTICA PHARMACEUTICALS PLC

 

2016 EQUITY INCENTIVE PLAN

 

INTRODUCTION

 

The Plan has been amended and restated by the Board in connection with the Reorganization (as such term is defined in the Company’s Form S-1 filed on May 9, 2018). In connection with the Reorganization, options to purchase common units of Osmotica Holdings S.C.Sp. were converted into options to purchase Shares.

 

SECTION 1.  PURPOSE.

 

The purpose of the Plan is to attract and retain the best available personnel, to provide additional incentive to persons who provide services to the Company’s Subsidiaries, and to promote the success of the business operated by the Company’s Subsidiaries. Unless the context otherwise requires, capitalized terms used herein are defined in Section 17 . The Plan is a “compensatory benefit plan” within the meaning of Rule 701 under the Securities Act, and all Awards granted under the Plan are intended to qualify for an exemption from the registration requirements under the Securities Act, including, without limitation, pursuant to Rule 701 of the Securities Act or Regulation D.

 

SECTION 2.  ADMINISTRATION.

 

The Plan shall be administered by the Board. The Board shall have full authority and sole discretion to take any actions it deems necessary or advisable for the administration and operation of the Plan, subject to the terms and conditions of the Plan, including, without limitation, the right to construe and interpret the provisions of the Plan or any Award, to provide for any omission in the Plan, to resolve any ambiguity or conflict under the Plan or any Award, to accelerate vesting of or otherwise waive any requirements applicable to any Award, to extend the term or any period of exercisability of any Award, to modify the purchase price or Exercise Price under any Award, to establish terms or conditions applicable to any Award and to review any decisions or actions made or taken by the Board. All decisions, interpretations and other actions of the Board shall be final and binding on all Participants and other persons deriving their rights from a Participant. Notwithstanding anything to the contrary herein, no action taken by the Board shall adversely affect in any material respect the rights granted to any Participant under any outstanding Award without such Participant’s written consent.

 

SECTION 3.  ELIGIBILITY.

 

The Board is authorized to grant Awards to directors (including, non-employee directors) and consultants of the Company or any of its Subsidiaries and to employees, directors (including non-employee directors) and managers (including non-employee managers) of any Subsidiaries of the Company; provided , that Options and Stock Appreciation Rights may only be granted to those employees, directors and consultants with respect to whom the Company is an “eligible issuer”

 

1



 

within the meaning of Section 409A. Employees, managers, directors and consultants who have been granted Awards shall be Participants in the Plan with respect to such Awards. The designation of an individual as a Participant in any year shall not require that the Board designate such individual to receive an Award in any other year or to receive the same type or amount of Award in any other year.

 

SECTION 4.  SHARES SUBJECT TO PLAN.

 

a.                                       Basic Limitation .  Subject to Section 13 , the maximum number of Shares that may be issued pursuant to Awards under the Plan is 3,212,607 Shares (the “ Basic Limitation ”). Where an Award is granted in tandem, the number of Shares charged against the Basic Limitation shall be the maximum number of Shares that may be issued pursuant to the Award.

 

b.                                       Additional Shares .  In the event that any outstanding Award expires, is cancelled or otherwise terminated without consideration (i.e., Shares or cash) therefor, any rights to acquire Shares allocable to the unexercised or unvested portion of such Award shall not be available for re-issuance under the Plan. Subject to compliance with applicable law, in the event that Shares issued under the Plan are reacquired by the Company pursuant to any forfeiture provision without consideration (i.e., Shares or cash) therefor, such Shares shall not be available for re-issuance under the Plan.

 

SECTION 5.  AWARDS.

 

a.                                       Types of Awards .  The Board may, in its sole discretion, make Awards of one or more of the following: Options, Stock Appreciation Rights, Restricted Stock, Phantom Shares and Other Share-Based Awards. The Company shall make Awards directly or cause one or more of its Subsidiaries to make Awards; provided , however , that the Company shall be responsible for causing any such Subsidiary to comply with the terms of any Award and the Plan. Awards may be granted singly or in tandem.

 

b.                                       Award Agreements .  Each Award made under the Plan shall be evidenced by an Award Agreement (which need not be identical) in a form approved by the Board, and no Award shall be valid without any such agreement. An Award shall be subject to all applicable terms and conditions of the Plan and to any other terms and conditions which the Board in its sole discretion deems appropriate for inclusion in the Award Agreement, provided such terms and conditions are not inconsistent with the Plan. Accordingly, in the event of any conflict between the provisions of the Plan and any such Award Agreement, the provisions of the Plan shall prevail. Each Award Agreement shall provide, in addition to any terms and conditions required to be provided in such agreement pursuant to any other provision of this Plan, the following terms:

 

(i)                                      Number of Shares . The number of Shares subject to the Award, if any, which number shall be subject to adjustment in accordance with Section 13 .

 

(ii)                                   Price . Where applicable, each Award Agreement shall designate the price, if any, to acquire any Shares underlying the Award, which price shall be payable in a form described in Section 11 and subject to adjustment pursuant to Section 13 .

 

2



 

(iii)                                Vesting . Each Award Agreement shall specify the dates and events on which all or any installment of the Award shall be vested and nonforfeitable.

 

c.                                        No Rights as a Shareholder .  A Participant, or a transferee of a Participant, shall have no rights as a shareholder with respect to any Shares covered by an Award until Shares are actually issued in the name of such person (or if Shares will be held in street name, to a broker who will hold such Shares on behalf of such person), except as set forth in Section 8(c)  or as may be set forth in the Award Agreement.

 

SECTION 6.  OPTIONS.

 

a.                                       Grant of Options .  The Board may, in its sole discretion, grant Options. All Options shall be nonqualified stock options. The Plan does not provide for the grant of “incentive stock options” within the meaning of Section 422 of the Code.

 

b.                                       Option Award Agreements .  Each agreement evidencing an Award of an Option shall contain the following information, which shall be determined by the Board in its sole discretion:

 

(i)                                      Exercise Price .  Each Award Agreement shall state the per Share exercise price (the “ Exercise Price ”), which shall not be less than 100% of the Fair Market Value of a Share on the date of grant unless such Option otherwise would satisfy Section 409A, and except in the case provided by Section 13 .

 

(ii)                                   Exercisability .  Each Award Agreement shall specify the dates and events when all or any installment of the Option becomes exercisable.

 

(iii)                                Term .  Each Award Agreement shall state the term of each Option (including the circumstances under which such Option will expire prior to the stated term thereof), which shall not exceed 10 years from the date of grant.

 

c.                                        Method of Exercise .  Options shall be exercised by the delivery of a notice of exercise to the Company or an agent designated by the Company in a form specified or accepted by the Board, or by complying with any alternative procedures which may be authorized by the Board, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares (including satisfaction of any applicable tax withholding). As soon as practicable after receipt of written notification of exercise, full payment (including satisfaction of any applicable tax withholding) and satisfaction of any other conditions set forth in the applicable Award Agreement, the Company shall deliver to the Participant evidence of issuance of the Shares. The Company, at the Board’s election and in its sole discretion, may settle any Options requested to be exercised in Shares or cash.

 

SECTION 7.  STOCK APPRECIATION RIGHTS.

 

a.                                       Generally .  The Board may, in its sole discretion, grant “Stock Appreciation Rights”. A Stock Appreciation Right means a right to receive a payment in cash, Shares or a combination thereof, in the sole discretion of the Board, in an amount equal to the excess of (i) the Fair Market Value, or other specified valuation, of a number of Shares on the date the right is exercised over (ii) the base value (as determined by the Board and specified in any Award Agreement). If a Stock

 

3



 

Appreciation Right is granted in tandem with or in substitution for an Option, the designated Fair Market Value in the Award Agreement shall reflect the Fair Market Value of the Shares underlying the Awards on the date the Option is granted.

 

b.                                       Stock Appreciation Rights Award Agreements .  Each agreement evidencing an Award of Stock Appreciation Rights shall contain the following information, which shall be determined by the Board in its sole discretion:

 

(i)                                      Base Value .  Each Award Agreement shall specify the base value of the Shares above which a Participant shall be entitled to share in the appreciation in the value of such Shares. The per Share initial base value shall not be less than 100% of the Fair Market Value of a Share on the date of grant unless such Stock Appreciation Right otherwise would satisfy Section 409A, and except in the case provided by Section 13 .

 

(ii)                                   Exercisability .  Each Award Agreement shall specify how all or any portion of a Stock Appreciation Right shall be exercisable.

 

(iii)                                Term .  Each Award Agreement shall state the term of each Stock Appreciation Right (including the circumstances under which such Stock Appreciation Right will expire prior to the stated term thereof), which shall not exceed 10 years from the date of grant.

 

SECTION 8.  RESTRICTED STOCK

 

a.                                       Generally .  The Board is hereby authorized to grant Shares that are subject to a risk of forfeiture and, subject to compliance with applicable law, that contain such other restrictions, including restrictions on transferability, as the Board shall determine. Such Awards shall be known as a “ Restricted Stock ”.

 

b.                                       Restricted Stock Award Agreement .  Each agreement evidencing an Award of Restricted Stock shall specify the Restriction Period and such other terms, including vesting, term and transfer restrictions, as determined by the Board in its sole discretion. If Restricted Stock will be granted or the restrictions shall have lapsed upon the achievement of performance goals over a performance period, such Award of Restricted Stock shall be referred to as “ Performance Stock ”.

 

c.                                        Voting Rights .  Unless otherwise determined by the Board and set forth in a Participant’s Award Agreement, to the extent permitted or required by law, as determined by the Board, Participants holding Restricted Stock granted hereunder shall not have the right to exercise voting rights with respect to Restricted Stock during the Restriction Period.

 

d.                                       Section 83(b) Election .  The Board may provide in an Award Agreement that the Award of Restricted Stock is conditioned upon the Participant making or refraining from making an election with respect to the Award under Section 83(b) of the Code. If a Participant makes an election pursuant to Section 83(b) of the Code concerning an Award of Restricted Stock, the Participant shall be required to file promptly a copy of such election with the Company.

 

4



 

SECTION 9.  PHANTOM SHARES.

 

a.                                       Generally .  The Board may, in its sole discretion, grant Phantom Shares, where in each case one Phantom Share shall be a notional account representing one Share.

 

b.                                       Settlement of Phantom Shares .  Phantom Shares shall be settled in Shares unless the Award Agreement expressly provides for settlement of all or a portion of the Phantom Shares in cash equal to the Fair Market Value of the Shares that would otherwise be issued in settlement of such Phantom Shares. Shares issued to settle a Phantom Share may be issued with or without payment or consideration therefor, except as may be required by applicable law or the Board, in its sole discretion, as set forth in the Award Agreement. The Board may, in its sole discretion, establish a program to permit participants to defer payments and dividends made in respect of Phantom Shares.

 

SECTION 10.  OTHER SHARE-BASED AWARDS.

 

The Board may, in its sole discretion, grant Awards of Shares and Awards that are valued, in whole or in part, by reference to, or are otherwise based on the Fair Market Value of, Shares, including, without limitation, dividend equivalent rights and other phantom awards (an “ Other Share-Based Award ”). Such Other Share-Based Awards shall be in such form and dependent on such conditions as the Board shall determine, including, without limitation, the right to receive one or more Shares (or the equivalent cash value of such Shares) upon the completion of a specified period of Service, the occurrence of an event and/or the attainment of performance objectives. The Board shall determine to whom and when Other Share-Based Awards will be made, the number of Shares to be awarded under (or otherwise related to) such Other Share-Based Awards, whether such Other Share-Based Awards shall be settled in cash, Shares, additional Awards or other securities or property and all other terms and conditions of such Awards (including, without limitation, the vesting provisions thereof and provisions ensuring that all Shares so awarded and issued shall be fully paid and non-assessable). Each Other Share-Based Award grant shall be evidenced by an Award Agreement, which shall conform to the requirements of the Plan.

 

SECTION 11.  PAYMENT FOR SHARES.

 

a.                                       General Rule .  The Exercise Price of Options and/or the purchase price (if any) of Shares issuable under the Plan shall be payable in cash or personal check at the time when such Shares are purchased, except as otherwise provided in this Section 11 .

 

b.                                       Surrender of Shares.   Only to the extent permitted by the Board, in its sole discretion, with respect to Participant who is an employee of a Subsidiary of the Company, all or any part of the Exercise Price, the purchase price or any applicable withholding requirements may be paid by surrendering, or attesting to the ownership of, Shares that have fully vested, and are already owned by the Participant.  Such Shares shall be surrendered to the Company in good form for transfer and shall be valued at their Fair Market Value on the date when the Option is exercised or payment is made (or, in the case of any applicable withholding requirements, Fair Market Value on the date the tax is to be determined). The Participant shall not surrender, or attest to the ownership of, Shares in payment of any portion of the purchase price (or withholding) if such action would cause the Company or any Subsidiary thereof to recognize a compensation expense (or additional

 

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compensation expense) with respect to the applicable Award for financial reporting purposes, unless the Board consents thereto.

 

c.                                        Discretion of Board .  The Board may authorize any other method of payment for the Exercise Price of Options that it determines, in its sole discretion; it being understood that, to the extent the Board permits any such other method of payment, it shall not be bound to permit such alternative method of payment for the remainder of any such Award or with respect to any other Award or Participant under the Plan.

 

SECTION 12.  TERMINATION OF SERVICE.

 

a.                                       Termination for Cause . Unless otherwise provided in an Award Agreement, in the event that a Participant’s Service is terminated for Cause, all Awards, including vested Options and Stock Appreciation Rights, held by the Participant shall terminate and be forfeited without consideration, effective on the date the Participant’s Service is terminated for Cause.

 

b.                                       Termination Due to Death or Disability.   Unless otherwise provided in an Award Agreement, in the event that a Participant’s Service is terminated due to death or Disability, (i) all unvested Awards held by the Participant shall terminate and be forfeited without consideration effective as of the date the Participant’s Service is terminated and (ii) all vested Options and Stock Appreciation Rights shall terminate and be forfeited on the earlier of (a) one (1) year following the termination of Service and (b) the expiration of the term of such Options or Stock Appreciation Rights, as applicable.

 

c.                                        Termination Without Cause .  Unless otherwise provided in an Award Agreement, in the event that a Participant’s Service is terminated by the applicable Subsidiary of the Company without Cause and other than as provided in Section 12.b. , (i) all unvested Awards held by the Participant shall, subject to compliance with applicable law, terminate and be forfeited without consideration effective as of the date the Participant’s Service is terminated and (ii) all vested Options and Stock Appreciation Rights shall terminate and be forfeited on the earlier of (a) the date the term of such Options or Stock Appreciation Rights, as applicable, expires and (b) sixty (60) days following the termination of the Participant’s Service.

 

d.                                       Termination for any Other Reason .  Unless otherwise provided in an Award Agreement, in the event that a Participant’s Service is terminated for any reason other than pursuant to Sections 12.a. through c. above, (i) all unvested Awards held by the Participant shall, subject to compliance with applicable law, terminate and be forfeited without consideration effective as of the date the Participant’s Service is terminated and (ii) all vested Options and Stock Appreciation Rights shall terminate and be forfeited on the earlier of (a) the date the term of such Options or Stock Appreciation Rights, as applicable, expires and (b) forty-five (45) days following the termination of the Participant’s Service.

 

e.                                        Leave of Absence .  For purposes of this Section 12 , Service shall be deemed to continue while a Participant is on a bona fide leave of absence, if such leave is approved by the applicable Subsidiary of the Company in writing or if continued crediting of service for this purpose is expressly required by the terms of such leave or by applicable law (as determined by the Board).

 

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SECTION 13.  ADJUSTMENT OF SHARES.

 

a.                                       General .  In the event of any corporate event or transaction (including, but not limited to, a change in the Shares of the Company or the capitalization of the Company) such as a merger, consolidation, reorganization, Recapitalization, separation, reverse share split, split up, spin-off, combination of Shares, exchange of Shares, dividend in kind, extraordinary cash dividend, or other like change in capital structure (other than normal cash dividends), or any similar event or transaction, the Board, to prevent dilution or enlargement of Participants’ rights under the Plan, shall, in its sole discretion, (i) substitute or adjust (a) the number and kind of Shares or other securities that may be issued under the Plan or under particular forms of Awards, (b) the number and kind of Shares or other securities subject to outstanding Awards, or (c) the Exercise Price, grant price or purchase price applicable to outstanding Awards, (ii) grant a dividend right, and/or (iii) make or implement other value determinations applicable to the Plan or outstanding Awards, including making additional Awards, issuing Shares or making cash payments.

 

b.                                       Mergers and Consolidations .  In the event that the Company is a party to a merger or consolidation (including a Change of Control transaction), outstanding Awards shall be subject to the agreement effecting such merger or consolidation transaction. Subject to the terms of the applicable Award Agreement, the agreement with respect to such merger or consolidation transaction, without the Participants’ consent, may provide for:

 

(i)                                      the continuation or assumption of such outstanding Awards under the Plan by the Company (if it is the surviving entity) or by the surviving entity or its direct or indirect parent;

 

(ii)                                   the substitution by the surviving entity or its direct or indirect parent of awards with substantially equivalent terms and economic value for such outstanding Awards;

 

(iii)                                the acceleration of the vesting of, right to exercise, and/or lapse of restrictions under some or all then outstanding Awards immediately prior to or as of the date of any such merger or consolidation transaction,

 

(iv)                               the expiration of such outstanding Awards to the extent not timely exercised or purchased by the date of any such merger or consolidation transaction or other date thereafter designated by the Board, after reasonable advance written notice thereof to the holder of each such Award; or

 

(v)                                  the cancellation of all or any portion of outstanding Awards for fair value (in the form of cash, Shares, other property or any combination thereof) as determined in the sole discretion of the Board and which value may be zero; provided , that, in the case of vested Options and Stock Appreciation Rights or similar Awards, the fair value shall equal the excess, if any, of the value of the consideration to be paid in any such merger or consolidation transaction to holders of the same number of Shares subject to such Awards (or, if no such consideration is paid, Fair Market Value of the Shares subject to such outstanding Awards or portion thereof being canceled) over the aggregate exercise price, purchase price or grant price, as applicable, with respect to such Awards or portion thereof being canceled, or if no such excess, zero.

 

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SECTION 14.  SECURITIES LAW REQUIREMENTS.

 

Shares shall not be issued under the Plan unless the issuance and delivery of such Shares comply with (or are exempt from) all applicable requirements of law, including (without limitation) the Securities Act, state or foreign securities laws and regulations, and the regulations of any stock exchange or other securities market on which the Company’s securities may then be traded. The Company shall not be obligated to file any registration statement under any applicable securities laws to permit the purchase or issuance of any Shares under the Plan. Each Participant and any person deriving its rights from any Participant shall, as a condition to the purchase or issuance of any Shares under the Plan, deliver to the Company an agreement or certificate containing such representations, warranties and covenants as the Company may deem necessary or appropriate to ensure that the issuance of Shares is not required to be registered under any applicable securities laws.

 

SECTION 15.  GENERAL TERMS.

 

a.                                       Nontransferability of Awards .  Unless otherwise permitted by the Board, in its sole discretion, no Award may be transferred, assigned, pledged or hypothecated by any Participant except in compliance with the terms of the applicable Award Agreement. The exercisability of an Option or other right to acquire Shares under the Plan by someone other than the Participant shall be governed by the agreement pursuant to which such Option or other right is granted.

 

b.                                       Restrictions on Transfer of Shares .  Subject to compliance with applicable law, any Shares issued under the Plan shall be subject to such vesting and special forfeiture conditions, repurchase rights, rights of first offer and other transfer restrictions as the Board may determine, including as set forth in any applicable shareholders or limited company agreement. Such restrictions shall be set forth in the applicable Award Agreement or the applicable shareholders or limited company agreement, as applicable, and shall apply in addition to any restrictions that may apply to holders of Shares generally.

 

c.                                        Settlement of Awards . The Board shall determine whether cash, Awards, other securities or other property shall be issued or paid in lieu of fractional Shares or whether such fractional Shares or any rights thereto shall be issued, rounded, forfeited or otherwise eliminated.

 

d.                                       Compliance with Section 409A of the Code .

 

(i)                                      The Company intends that the Plan and all Awards be construed to avoid the imposition of additional taxes, interest and penalties pursuant to Section 409A. Notwithstanding the Company’s intention, in the event that any Award is subject to such additional taxes, interest or penalties pursuant to Section 409A, the Board may, in its sole discretion and without a Participant’s prior consent, amend the Plan and/or Awards, adopt policies and procedures or take any other actions (including amendments, policies, procedures and actions with retroactive effect) as are necessary or appropriate to (a) exempt the Plan and/or any Award from the application of Section 409A, (b) preserve the intended tax treatment of any such Award or (c) comply with the requirements of Section 409A, including, without limitation, any such regulations, guidance, compliance programs and other interpretative authority that may be issued after the date of the grant. In no event shall the

 

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Company or any of its Subsidiaries or Affiliates or their respective directors, officers, agents, attorneys, employees, executives, shareholders, limited partners, members, managers, trustees, fiduciaries, representatives, principals, accountants, insurers, successors or assigns be liable for any additional tax, interest or penalties that may be imposed on a Participant under Section 409A or any damages for failing to comply with Section 409A.

 

(ii)                                   Notwithstanding any contrary provision in the Plan or any Award Agreement, any payment(s) of “nonqualified deferred compensation” (within the meaning of Section 409A) that are otherwise required to be made under the Plan or any Award Agreement to a “specified employee” (as defined under Section 409A) as a result of his or her “separation from service” (other than a payment that is not subject to Section 409A) shall be delayed for the first six (6) months following such separation from service (or, if earlier, until the date of death of the specified employee) and shall instead be paid (in a manner set forth in the Award Agreement) on the day that immediately follows the end of such six-month period or as soon as administratively practicable thereafter. Any remaining payments of nonqualified deferred compensation shall be paid without delay and at the time or times such payments are otherwise scheduled to be made.

 

(iii)                                A termination of Service shall not be deemed to have occurred for purposes of any provision of the Plan or any Award Agreement providing for the payment of any amounts or benefits that are considered nonqualified deferred compensation under Section 409A upon or following a termination of Service (but not for purposes of determining vesting or forfeiture), unless such termination is also a “separation from service” within the meaning of Section 409A and the payment thereof prior to a “separation from service” would violate Section 409A. For purposes of any such provision of the Plan or any Award Agreement relating to any such payments or benefits, references to a “termination”, “termination of employment”, “termination of Service”, or like terms shall mean “separation from service”.

 

e.                                        Taxes .  The delivery, vesting and retention of Shares, cash or other property under an Award are conditioned upon full satisfaction by the Participant of all tax withholding requirements with respect to the Award.  The Administrator shall prescribe such rules for the withholding of taxes with respect to any Award as it deems necessary.  Except as otherwise determined by the Administrator or as required by law, the Participant shall be responsible for satisfying and paying all taxes arising from or due in connection with the Award and/or the delivery of Shares under the Award.  Participants who are employees of a Subsidiary of the Company may elect, subject to the approval by the Board, in its sole discretion, to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares having a Fair Market Value on the date the tax is determined equal to the minimum statutory total tax that could be imposed in connection with any such taxable event.  The Company shall have no liability or obligation related to any of the foregoing.

 

f.                                         No Guarantees Regarding Tax Treatment .  Participants (or their beneficiaries) shall be responsible for all taxes with respect to any Awards under the Plan. The Board and the Company make no guarantees to any Person regarding the tax treatment of Awards or payments made under the Plan. Neither the Board nor the Company has any obligation to take any action to prevent the assessment of any tax on any Person with respect to any Award under Section 409A, Section 280G

 

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or 457A of the Code or otherwise, and none of the Company, any of its Subsidiaries or Affiliates or any of their employees, directors, officers, representatives, shareholders, limited partners, members or Affiliates shall have any liability to a Participant with respect thereto.

 

g.                                        No Retention Rights or Right to Awards .  Nothing in the Plan or in any Award granted under the Plan shall confer upon a Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Subsidiary thereof employing or retaining the Participant) or of the Participant, which rights are hereby expressly reserved by each, to terminate his or her Service at any time and for any reason, with or without cause. No Participant or other Person shall have any claim to be granted any Award, and there is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards.

 

h.                                       Severability .  If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Board, such provision shall be construed or deemed amended to conform to applicable laws, or, if it cannot be so construed or deemed amended without, in the determination of the Board, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person or Award, and the remainder of the Plan and any such Award shall remain in full force and effect.

 

i.                                           No Constraint on Corporate Action .  Nothing in the Plan shall be construed to (i) limit, impair or otherwise affect the Company’s or any Subsidiaries’ right or power to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets; or (ii) limit the right or power of the Company or any Subsidiary to take any action that it deems necessary or appropriate.

 

j.                                          Successors .  All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the business or assets of the Company.

 

k.                                       Unfunded Plan .  Participants shall have no right, title or interest whatsoever in or to any investments which the Company may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, nor a fiduciary relationship between the Company and any Participant, beneficiary, legal representative or any other person. To the extent that any person acquires a right to receive payments from the Company under the Plan, such right shall be no greater than the rights of an unsecured general creditor of the Company. All payments to be made hereunder shall be paid from the general funds of the Company and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts. The Plan is not intended to be subject to the Employee Retirement Income Security Act of 1974, as amended.

 

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SECTION 16.  DURATION AND AMENDMENTS.

 

a.                                       Term of the Plan .  The Plan, as set forth herein, shall become effective on the date of its initial adoption by the Board. The Plan shall terminate automatically on the day preceding the 10th anniversary of its initial adoption by the Board unless earlier terminated pursuant to Section 16.b. below.

 

b.                                       Right to Amend or Terminate the Plan .  The Board may amend, alter, suspend, discontinue or terminate (each, an “ Amendment ”) the Plan and any Awards at any time and for any reason; provided , however , that any Amendment that adversely affects in any material respect the rights granted to any Participant under any outstanding Awards (other than pursuant to Section 15.d. or in order to implement Section 13 or Section 16.e. ) shall require such Participant’s prior written consent; and provided , further , that such consent shall not be required with respect to an Amendment made to conform the Plan or any Award to applicable law or any applicable shareholders or limited company agreement (as currently in effect or as any such agreement may subsequently be amended), or with respect to changes that (a) are of an inconsequential nature and do not adversely affect any Participant in any material respect, (b) are necessary to clarify any ambiguity or to correct or supplement any provisions of the Plan or the Awards or (c) required or specifically contemplated by the Plan, including changes relating to the grant of any Awards under the Plan.

 

c.                                        Effect of Termination .  No Shares shall be issued or sold under the Plan after the termination thereof, except pursuant to an Award granted prior to such termination. The termination of the Plan shall not affect any Awards outstanding on the termination date.

 

d.                                       Modification, Extension and Assumption of Awards .  Within the limitations of the Plan, the Board may modify, extend or assume outstanding Awards or may provide for the cancellation of outstanding Awards in return for the grant of new Awards for the same or a different number of Shares and at the same or a different price. The foregoing notwithstanding, except as provided in Section 15.d. , Section 16.b. or Section 13 hereof, no modification of an Award shall, without the consent of the Participant, impair the Participant’s rights or increase the Participant’s obligations under such Award or impair the economic value of any such Award.

 

SECTION 17.  DEFINITIONS.

 

a.                                       “Affiliate” shall mean, with respect to any specified Person, (a) any other Person which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person (for the purposes of this definition, “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise); provided, however, that neither the Company nor any of its Subsidiaries shall be deemed an Affiliate of any of ACP Holdco (Offshore), L.P., ACP III AIV, L.P., Altchem Limited or any of their respective Affiliates and vice versa , and (b) if such specified Person is an investment fund, any other investment fund the

 

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primary investment advisor to which is the primary investment advisor to such specified Person.

 

b.                                       “Award” shall mean the grant of an Option, Stock Appreciation Right, Restricted Stock, Phantom Share or Other Share-Based Award under the Plan.

 

c.                                        “Award Agreement” shall mean either (i) a written agreement entered into by the Company and a Participant setting forth the terms and provisions applicable to an Award, or (ii) a written statement signed by an authorized officer of the Company to a Participant describing the terms and provisions of the actual grant of such Award.

 

d.                                       “Board” shall mean the Board of Directors of the Company, as constituted from time to time, or if such Board of Directors has appointed a Compensation Committee, such Compensation Committee.

 

e.                                        “Business Day” shall mean any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close.

 

f.                                         “Cause” shall, with respect to a Participant, have the meaning ascribed to such term in the employment, consulting or similar agreement between such Participant and the Company or one of its Subsidiaries, or, in the absence of such agreement or if not defined therein shall mean any of the following: (i) such Participant’s willful and continued failure or refusal to perform his or her employment duties after a written demand by the Board for substantial performance is delivered to such Participant, which specifically identifies the manner in which the Board believes that such Participant has not substantially performed his or her duties, which willful and continued failure is not cured by such Participant within thirty (30) days, (ii) the failure to be true and accurate of the statement that the execution and delivery of such Participant’s employment agreement by the parties thereto and the performance by such Participant of such Participant’s duties thereunder do not constitute a breach of, or otherwise contravene, or prevent, interfere with or hinder, the terms of any employment agreement or other agreement or policy to which such Participant is a party or otherwise bound, and that such Participant is not subject to any limitation on his activities on behalf of the Company or its Affiliates as a result of agreements into which such Participant has entered, (iii) such Participant’s fraud, dishonesty or gross misconduct that is materially and demonstrably injurious to the Company or its Affiliates, (iv) the violation by such Participant of any material written policies of the Company or its Affiliates known or provided to such Participant in written (including electronic) form, (v) such Participant’s breach of any confidentiality, non-solicitation or non-competition obligations to the Company or its Affiliates, (vi) such Participant’s conviction of, or a plea of guilty or no contest to, any felony or other criminal offence involving fraud, dishonesty, misappropriation or moral turpitude, (vii) making public disparaging, derogatory or detrimental comments about the Company, any of its Subsidiaries, ACP Holdco (Offshore), L.P., ACP III AIV, L.P., Altchem Limited, or any of their respective Affiliates or any of their directors, officers, managers or employees that are detrimental to the reputation of any of the foregoing, or (viii) engaging in a pattern of conduct that is detrimental to the reputation of the Company, any of its Subsidiaries, or any of their respective Affiliates.

 

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g.                                        “Change of Control” shall mean any (a) transaction or series of related transactions, whether or not the Company is a party thereto, in which, after giving effect to such transaction or transactions, the equity securities representing in excess of fifty percent (50%) of the Shares are owned directly or indirectly through one or more entities, by any “person” or “group” (as such terms are used in Section 13(d) of the Exchange Act) of Persons, other than any of ACP Holdco (Offshore), L.P., ACP III AIV, L.P. or Altchem Limited or their respective Affiliates, or (b) a sale, lease or other disposition of all or substantially all of the assets of the Company and its Subsidiaries on a consolidated basis (including securities of the Company’s directly or indirectly owned Subsidiaries) to one or more purchasers other than any of ACP Holdco (Offshore), L.P., ACP III AIV, L.P. or Altchem Limited or their respective Affiliates.

 

h.                                       “Code” shall mean the Internal Revenue Code of 1986, as amended.

 

i.                                           “Company” shall mean Osmotica Pharmaceuticals plc, a public limited company registered under the Irish Companies Act 2014.

 

j.                                          “Disability” shall mean, unless otherwise set forth in an Award Agreement,

 

(i)                                      if a Participant has an effective employment agreement or service agreement with a Subsidiary of the Company that defines “Disability” or a like term, the meaning set forth in such agreement at the time of the Participant’s termination of Service; or, in the absence of such an effective employment agreement, service agreement or definition,

 

(ii)                                   a Participant’s physical or mental illness, injury or infirmity which is reasonably likely to prevent or prevents such Participant from performing its essential job functions for a period of (A) ninety (90) consecutive calendar days or (B) an aggregate of one hundred twenty (120) calendar days out of any consecutive twelve (12) month period.

 

k.                                       “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

 

l.                                           “Fair Market Value” shall mean, as of a particular date, (i) the closing price for a Share reported on the Nasdaq Global Market (or any other national securities exchange on which the Shares are then listed) for that date or, if no closing price is reported for that date, the closing price on the immediately preceding date on which a closing price was reported or (ii) in the event that the Shares are not traded on a national securities exchange, the fair market value of a Share determined by the Board consistent with the rules of Section 422 of the Code and Section 409A to the extent applicable.

 

m.                                   “Option” shall mean an Option granted under the Plan and entitling the holder to purchase Shares.

 

n.                                       “Other Share-Based Award” shall have the meaning described in Section 10 .

 

o.                                       “Participant” shall mean an eligible individual to whom an Award is granted under the Plan.

 

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p.                                       “Person” shall mean any individual, partnership, corporation, company, association, trust, joint venture, limited liability company, unincorporated organization, entity or division, or any government, governmental department or agency or political subdivision thereof.

 

q.                                       “Plan” shall mean this Amended and Restated Osmotica Pharmaceuticals plc 2016 Equity Incentive Plan.

 

r.                                          “Recapitalization” shall mean an event or series of events affecting the capital structure of the Company including, but not limited to, share dividends or distributions, share splits, rights offers or recapitalizations through large, non-recurring cash distributions.

 

s.                                         “Restriction Period” means the period during which Restricted Stock awarded under Section 8 of this Plan are restricted.

 

t.                                          “Restricted Stock” shall have the meaning described in Section 8(a) .

 

u.                                       “Phantom Share” shall have the meaning described in Section 9(a) .

 

v.                                       “Section 409A” means Section 409A of the Code together with all regulations, guidance, compliance programs, and other interpretative authority thereunder.

 

w.                                     “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

x.                                       “Service” shall mean service as a director (including a non-employee director) or consultant of the Company or as an employee, manager, (including a non-employee manager), director (including a non-employee director) or consultant of any Subsidiary of the Company; provided , that, if a Participant is both an employee and a director or manager of any Subsidiary of the Company, Service with respect to such Participant shall only mean Service as an employee of such Subsidiary; provided , further , that a termination of Service shall not occur until a termination of Service with the Company and its Subsidiaries.

 

y.                                       “Share” shall mean an ordinary share of the Company, nominal value $0.01 per share.

 

z.                                        “Stock Appreciation Right” shall have the meaning described in Section 7(a) .

 

aa.                                “Subsidiary” shall mean any Person as to which the Company owns or controls, directly or indirectly, more than 50% percent of the voting securities of such Person.

 

SECTION 18.  MISCELLANEOUS

 

a.                                       Choice of Law .  This Plan shall be governed by, and construed in accordance with, the Irish Companies Act 2014 (as may be amended, replaced and/or consolidated in the future), and with the applicable requirements of the stock exchanges or other trading systems on which the Shares are listed or entered for trading, in each case as determined by the Board. All claims or causes of action (whether in contract or tort) that may be based upon, arise out of, or relate to this Plan shall be heard and determined in the United States District Court for the District of Delaware and the parties hereto hereby irrevocably submit to the exclusive jurisdiction and venue of such

 

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court in any such action or proceeding and irrevocably and unconditionally waive the defense of an inconvenient forum, or lack of jurisdiction to the maintenance of any such action or proceeding.

 

b.                                       Adoption .  This Plan was duly adopted as of February 3, 2016, and has been amended and restated as of August 14, 2018.

 

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Exhibit 10.30

 

OSMOTICA PHARMACEUTICALS PLC
2018 INCENTIVE PLAN

 

1.                                       DEFINED TERMS

 

The following terms, when used in the Plan (as defined below), have the meanings and are subject to the provisions set forth below:

 

(a)                                  “Accounting Rules”:  Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor provision.

 

(b)                                  “Administrator”:  The Compensation Committee, except with respect to such matters that are not delegated to the Compensation Committee by the Board (whether pursuant to committee charter or otherwise) or with respect to which the Board acts.  The Compensation Committee (or the Board, with respect to such matters over which it retains authority under the Plan or otherwise) may delegate (i) to one or more of its members (or one or more other members of the Board, including the full Board) such of its duties, powers and responsibilities as it may determine; (ii) to the extent permitted by Irish law, to one or more officers of the Company the authority to (1) designate the recipients of Awards and (2) grant, issue or settle Awards subject to the Board resolution regarding such delegation specifying the total number of Shares to be granted, issued or settled; and (iii) to such Employees or other persons as it determines such ministerial tasks as it deems appropriate provided however, that such officer or Employee may not grant an Award to himself or herself.  For purposes of the Plan, the term “Administrator” will include the Board, the Compensation Committee, and the person or persons delegated authority under the Plan to the extent of such delegation, as applicable.

 

(c)                                   “Award”:  Any or a combination of the following:

 

(1)  Stock Options.

 

(2)  SARs.

 

(3)  Restricted Stock.

 

(4)  Unrestricted Stock.

 

(5)  Stock Units, including Restricted Stock Units.

 

(6)  Performance Awards.

 

(7)  Awards (other than Awards described in (1) through (6) above) that are convertible into or otherwise based on Shares.

 

(d)                                  “Board”:  The Board of Directors of the Company.

 

(e)                                   “Cause”:  In the case of any Participant who is party to an employment or severance-benefit agreement that contains a definition of “Cause,” the definition set forth in such agreement applies with respect to such Participant for purposes of the Plan for so long as such

 

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agreement is in effect.  In every other case, “Cause” means, as determined by the Administrator, (i) a substantial failure of the Participant to perform the Participant’s duties and responsibilities to the Company or any of its subsidiaries or substantial negligence in the performance of such duties and responsibilities; (ii) the commission by the Participant of a felony or a crime involving moral turpitude; (iii) the commission by the Participant of theft, fraud, embezzlement, material breach of trust or any material act of dishonesty involving the Company or any of its subsidiaries; (iv) a violation by the Participant of any material provision of the code of conduct or employee handbook of the Company or any of its subsidiaries, of any material policy of the Company or any of its subsidiaries, or of any statutory or common law duty of loyalty to the Company or any of its subsidiaries; (v) material breach of any of the terms of the Plan or any Award made under the Plan, or of the terms of any other agreement between, or restrictive covenant agreement in favor of, the Company or any of its subsidiaries and the Participant; or (vi) other conduct by the Participant that could be expected to be harmful to the business, interests or reputation of the Company or any of its subsidiaries.

 

(f)                                    “Code”:  The U.S. Internal Revenue Code of 1986, as from time to time amended and in effect, or any successor statute as from time to time in effect.

 

(g)                                  “Compensation Committee”:  The Compensation Committee of the Board.

 

(h)                                  “Company”:   Osmotica Pharmaceuticals plc, a public limited company registered under the Irish Companies Act 2014.

 

(i)                                     “Covered Transaction”:  Any of (i) a consolidation, merger or similar transaction or series of related transactions, including a sale or other disposition of Shares, in which the Company is not the surviving corporation or which results in the acquisition of all or substantially all of the Company’s then-outstanding Shares by a single person or entity or by a group of persons and/or entities acting in concert, including by way of a court ordered scheme of arrangement; (ii) a sale or transfer of all or substantially all of the Company’s assets; or (iii) a dissolution or liquidation of the Company.  Where a Covered Transaction involves a tender offer that is reasonably expected to be followed by a merger described in clause (i) (as determined by the Administrator), the Covered Transaction will be deemed to have occurred upon consummation of the tender offer.

 

(j)                                     “Date of Adoption”:   The date the Plan was adopted by the Board.

 

(k)                                  “Director”:   A member of the Board who is not an Employee.

 

(l)                                     “Disability”: In the case of any Participant who is party to an employment contract, service contract or severance-benefit agreement that contains a definition of “Disability” or a like term, the definition set forth in such agreement applies with respect to such Participant for purposes of the Plan for so long as such agreement is in effect.  In every other case, “Disability” means, unless otherwise set forth in an Award agreement, a Participant’s physical or mental illness, injury or infirmity which is reasonably likely to prevent or prevents such Participant from performing his or her essential job or service functions for a period of 90 consecutive calendar days.

 

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(m)                              “Employee”:  Any person who is employed by the Company or any of its subsidiaries.

 

(n)                                  “Employment”:  A Participant’s employment with the Company or any of its subsidiaries.  Employment will be deemed to continue, unless the Administrator otherwise determines at the time of grant of an Award or at any time thereafter, so long as the Participant is employed by, or otherwise is providing services in a capacity described in Section 5 to, the Company or any of its subsidiaries.  If a Participant’s employment or other service relationship is with a subsidiary of the Company and that entity ceases to be a subsidiary of the Company, the Participant’s Employment will be deemed to have terminated when the entity ceases to be a subsidiary of the Company unless the Participant transfers Employment to the Company or any of its remaining subsidiaries.  Notwithstanding the foregoing, in construing the provisions of any Award relating to the payment of “nonqualified deferred compensation” (subject to Section 409A) upon a termination or cessation of Employment, references to termination or cessation of employment, separation from service, retirement or similar or correlative terms will be construed to require a “separation from service” (as that term is defined in Section 1.409A-1(h) of the Treasury Regulations after giving effect to the presumptions contained therein) from the Company and from all other corporations and trades or businesses, if any, that would be treated as a single “service recipient” with the Company under Section 1.409A-1(h)(3) of the Treasury Regulations.  Notwithstanding the foregoing, the Company may, but need not, elect in writing, subject to the applicable limitations under Section 409A, any of the special elective rules prescribed in Section 1.409A-1(h) of the Treasury Regulations for purposes of determining whether a “separation from service” has occurred.  Any such written election will be deemed a part of the Plan.

 

(o)                                  “Fair Market Value”:  As of a particular date, (i) the closing price for a Share reported on the Nasdaq Global Market (or any other national securities exchange on which the Shares are then listed) for that date or, if no closing price is reported for that date, the closing price on the immediately preceding date on which a closing price was reported or (ii) in the event that the Shares are not traded on a national securities exchange, the fair market value of a Share determined by the Administrator consistent with the rules of Section 422 and Section 409A to the extent applicable.

 

(p)                                  “ISO”:  A Stock Option intended to be an “incentive stock option” within the meaning of Section 422.  Each Stock Option granted pursuant to the Plan will be treated as providing by its terms that it is to be an NSO unless, as of the date of grant, it is expressly designated as an ISO.

 

(q)                                  “NSO”:  A Stock Option that is not intended to be an “incentive stock option” within the meaning of Section 422.

 

(r)                                   “Participant”:  A person who is granted an Award under the Plan.

 

(s)                                    “Performance Award”:   An Award subject to Performance Criteria.

 

(t)                                     “Performance Criteria”:  Specified criteria, other than the mere continuation of Employment or the mere passage of time, the satisfaction of which is a condition for the grant,

 

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exercisability, vesting or full enjoyment of an Award.  A Performance Criterion and any targets with respect thereto need not be based upon an increase, a positive or improved result or avoidance of loss and may be applied to the Participant individually, or to a business unit or division or the Company as a whole and may relate to any or any combination of the following (measured either absolutely or by reference to an index or indices or the performance of one or more companies and determined either on a consolidated basis or, as the context permits, on a divisional, subsidiary, line of business, project or geographical basis or in combinations thereof): sales; revenues; prescription volume or trends; assets; expenses; earnings before or after deduction for all or any portion of interest, taxes, depreciation, or amortization, whether or not on a continuing operations or an aggregate or per share basis; return on equity, investment, capital or assets; one or more operating ratios; borrowing levels, leverage ratios or credit rating; market share; capital expenditures; cash flow; share price; shareholder return; sales of particular products or services; customer acquisition or retention; acquisitions and divestitures (in whole or in part); joint ventures and strategic alliances; spin-offs, split-ups and the like; reorganizations; recapitalizations, restructurings, financings (issuance of debt or equity) or refinancings; or strategic business criteria, consisting of one or more objectives based on: meeting specified market penetration or value added, product development or introduction (including, without limitation, any clinical trial accomplishments, regulatory or other filings or approvals, or other product development milestones), geographic business expansion, cost targets, cost reductions or savings, customer satisfaction, operating efficiency, acquisition or retention, employee satisfaction, information technology, corporate development (including, without limitation, licenses, innovation, research or establishment of third-party collaborations), manufacturing or process development, legal compliance or risk reduction, or patent application or issuance goals.  The Administrator may provide that one or more of the Performance Criteria applicable to such Award will be adjusted to reflect events (including, but not limited to, the impact of charges for restructurings, discontinued operations, mergers, acquisitions, extraordinary items, and other unusual or non-recurring items, and the cumulative effects of tax or accounting changes, each as defined by U.S. generally accepted accounting principles) occurring during the applicable performance period that affect the applicable Performance Criterion or Criteria.

 

(u)                                  “Plan”:  The Osmotica Pharmaceuticals plc 2018 Incentive Plan, as from time to time amended and in effect.

 

(v)                                  “Prior Plan”:                   The Amended and Restated Osmotica Pharmaceuticals plc 2016 Equity Incentive Plan.

 

(w)                                “Restricted Stock”:  Shares subject to restrictions requiring that it be redelivered or offered for sale to the Company if specified service or performance-based conditions are not satisfied, subject to compliance with Irish law.

 

(x)                                  “Restricted Stock Unit”:  A Stock Unit that is, or as to which the delivery of Shares or cash in lieu of Shares is, subject to the satisfaction of specified performance or other vesting conditions.

 

(y)                                  “SAR”:  A right entitling the holder upon exercise to receive an amount (payable in cash or in Shares of equivalent value) equal to the excess of the Fair Market Value of the

 

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Shares subject to the right over the base value from which appreciation under the SAR is to be measured.

 

(z)                                   “Section 409A”:  Section 409A of the Code and the regulations thereunder.

 

(aa)                           “Section 422”:  Section 422 of the Code and the regulations thereunder.

 

(bb)                           “Share”:  An ordinary share of the Company, nominal value $0.01 per share.

 

(cc)                             “Stock Option”:  An option entitling the holder to acquire Shares upon payment of the exercise price.

 

(dd)                           “Stock Unit”:  An unfunded and unsecured promise, denominated in Shares, to deliver Shares or cash measured by the value of Shares in the future.

 

(ee)                             “Substitute Awards”:  Awards issued under the Plan in substitution for equity awards of an acquired company that are converted, replaced or adjusted in connection with the acquisition.

 

(ff)                               “Unrestricted Stock”:  Shares not subject to any restrictions under the terms of the Award.

 

2.                                       PURPOSE

 

The Plan provides for the grant of Awards consisting of, or based on, Shares.  The purposes of the Plan are to attract, retain and reward key Employees of the Company and its subsidiaries, to incentivize them to generate shareholder value, to enable them to participate in the growth of the Company and to align their interests with the interests of the Company’s shareholders.

 

3.                                       ADMINISTRATION

 

The Administrator has discretionary authority, subject only to the express provisions of the Plan, to interpret the Plan; determine eligibility for and grant Awards; determine, modify or waive the terms and conditions of any Award; determine the form of settlement of Awards (whether in cash, Shares, other Awards, or other property); prescribe forms, rules and procedures relating to the Plan and Awards; and otherwise do all things necessary or desirable to carry out the purposes of the Plan.  Determinations of the Administrator made under the Plan are conclusive and bind all persons.

 

4.                                       LIMITS ON AWARDS UNDER THE PLAN

 

(a)                                  Number of Shares .   Subject to adjustment as provided in Section 7(b), the maximum number of Shares that may be delivered in satisfaction of Awards under the Plan is 4,100,000 Shares.  Up to 4,100,000 of the Shares set forth in the preceding sentence may be delivered in satisfaction of ISOs, but nothing in this Section 4(a) will be construed as requiring that any, or

 

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any fixed number of, ISOs be awarded under the Plan.  For purposes of this Section 4(a), the number of Shares delivered in satisfaction of Awards will be determined (i) net of Shares underlying the portion of any Award that is settled in cash or the portion of any Award that expires, becomes unexercisable without having been exercised, terminates, or is forfeited to or repurchased by the Company (subject to compliance with Irish law) due to failure to vest, (ii) by treating as having been delivered the full number of Shares covered by any portion of a SAR that is settled in Shares (and not only the number of Shares delivered in settlement) and (iii) by treating as having been delivered any Shares withheld from a Stock Option or other Award to satisfy the tax withholding obligations with respect to such Stock Option or other Award or in payment of the exercise price or purchase price of such Stock Option or other Award. For the avoidance of doubt, the number of Shares available for delivery under the Plan shall not be increased by any Shares that have been delivered under the Plan that are subsequently repurchased using proceeds directly attributable to Stock Option exercises. The limits set forth in this Section 4(a) shall be construed to comply with Section 422.

 

(b)                                  Substitute Awards The Administrator may grant Substitute Awards under the Plan.  To the extent consistent with the requirements of Section 422 and the regulations thereunder and other applicable legal requirements (including applicable stock exchange requirements), Shares delivered under Substitute Awards will be in addition to and will not reduce the number of Shares available for Awards under the Plan set forth in Section 4(a).  Notwithstanding anything in Section 4(a) to the contrary, if any Substitute Award is settled in cash or expires, becomes unexercisable, terminates or is forfeited to or repurchased by the Company, subject to compliance with Irish law, in each case, without the delivery of Shares, the Shares previously subject to such Award will not be available for future grants under the Plan.  The Administrator will determine the extent to which the terms and conditions of the Plan apply to Substitute Awards, if at all, provided, however , that Substitute Awards will not be subject to the per-Participant Award limits described in Section 4(d) below.

 

(c)                                   Type of Shares .   Shares delivered by the Company under the Plan may be authorized but unissued Shares or previously issued Shares acquired by the Company.  No fractional Shares will be delivered under the Plan.

 

(d)                                  Individual Limits .   The following additional limits apply to Awards of the specified type granted to any Participant in any calendar year:

 

(1)                                  Stock Options:  615,000 Shares.

 

(2)                                  SARs:  615,000 Shares.

 

(3)                                  Awards other than Stock Options and SARs:  615,000 Shares.

 

In applying the foregoing limits, (i) all Awards of the specified type granted to the same person in the same calendar year are aggregated and made subject to one limit; (ii) the limits applicable to Stock Options and SARs refer to the number of Shares underlying those Awards; and (iii) the share limit under clause (d)(3) refers to the maximum number of Shares that may be

 

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delivered, or the value of which could be paid in cash or other property, under an Award or Awards of the type specified in clause (d)(3) assuming a maximum payout.

 

5.                                       ELIGIBILITY AND PARTICIPATION

 

The Administrator shall select Participants from among key Employees of the Company and its subsidiaries.  Eligibility for ISOs is limited to individuals described in the first sentence of this Section 5 who are employees of the Company or of a “parent corporation” or “subsidiary corporation” of the Company as those terms are defined in Section 424 of the Code.  Eligibility for Stock Options, other than ISOs, and SARs is limited to individuals described in the first sentence of this Section 5 who are providing direct services on the date of grant of the Award to the Company or to a subsidiary of the Company that would be described in the first sentence of Section 1.409A-1(b)(5)(iii)(E) of the Treasury Regulations.  Non-employee directors of, and consultants and advisors to, the Company and its subsidiaries are eligible to be selected as Participants by the Administrator and to participate in the Plan under a sub-plan established by the Administrator pursuant to Section 12 of the Plan.

 

6.                                       RULES APPLICABLE TO AWARDS

 

(a)                                  All Awards .

 

(1)                                  Award Provisions .   The Administrator shall determine the terms of all Awards, subject to the limitations provided herein.  By accepting (or, under such rules as the Administrator may prescribe, being deemed to have accepted) an Award, the Participant will be deemed to have agreed to the terms of the Award and the Plan.  Notwithstanding any provision of this Plan to the contrary, Substitute Awards may contain terms and conditions that are inconsistent with the terms and conditions specified herein, as determined by the Administrator.

 

(2)                                  Term of Plan .   No Awards may be made after 10 years from the Date of Adoption, but previously granted Awards may continue beyond that date in accordance with their terms.

 

(3)                                  Transferability .   Neither ISOs nor, except as the Administrator otherwise expressly provides in accordance with the third sentence of this Section 6(a)(3), other Awards may be transferred other than by will or by the laws of descent and distribution.  During a Participant’s lifetime, ISOs and, except as the Administrator otherwise expressly provides in accordance with the third sentence of this Section 6(a)(3), SARs and NSOs may be exercised only by the Participant.  The Administrator may permit the transfer of Awards other than ISOs, subject to applicable securities and other laws and such limitations as the Administrator may impose.

 

(4)                                  Vesting,  etc .  The Administrator shall determine the time or times at which an Award vests or becomes exercisable and the terms on which a Stock Option or SAR remains exercisable.  Without limiting the foregoing, the Administrator may at any time accelerate the vesting or exercisability of an Award, regardless of any adverse or potentially adverse tax or other consequences resulting from such acceleration.  Unless the Administrator expressly provides otherwise, however, the following rules will apply if a Participant’s Employment ceases:

 

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(A)                                Except as provided in (B) and (C) below, immediately upon the cessation of the Participant’s Employment each Stock Option and SAR that is then held by the Participant or by the Participant’s permitted transferees, if any, will cease to be exercisable and will terminate and all other Awards that are then held by the Participant or by the Participant’s permitted transferees, if any, to the extent not already vested will be forfeited.

 

(B)                                Subject to (C) and (D) below, all vested and unexercised Stock Options and SARs held by the Participant or the Participant’s permitted transferees, if any, immediately prior to the cessation of the Participant’s Employment, to the extent then exercisable, will remain exercisable for the lesser of (i) a period of 90 days or (ii) the period ending on the latest date on which such Stock Option or SAR could have been exercised without regard to this Section 6(a)(4), and will thereupon immediately terminate.

 

(C)                                Subject to (D) below, all vested and unexercised Stock Options and SARs held by a Participant or the Participant’s permitted transferees, if any, immediately prior to the cessation of the Participant’s Employment due to his or her death or Disability, to the extent then exercisable, will remain exercisable for the lesser of (i) the one-year period ending with the first anniversary of the Participant’s death or (ii) the period ending on the latest date on which such Stock Option or SAR could have been exercised without regard to this Section 6(a)(4), and will thereupon immediately terminate.

 

(D)                                All Stock Options and SARs (whether or not vested or exercisable) held by a Participant or the Participant’s permitted transferees, if any, immediately prior to the cessation of the Participant’s Employment will immediately terminate upon such cessation of Employment if the termination is for Cause or occurs in circumstances that in the determination of the Administrator would have constituted grounds for the Participant’s Employment to be terminated for Cause.

 

(5)                                  Recovery of Compensation .  Subject to applicable law, the Administrator may provide in any case that any outstanding Award (whether or not vested or exercisable) and the proceeds from the exercise or disposition of any Award or Shares acquired under any Award will be subject to forfeiture and disgorgement to the Company, with interest and other related earnings, if the Participant to whom the Award was granted violates (i) a non-competition, non-solicitation, confidentiality or other restrictive covenant by which he or she is bound or (ii) any Company policy applicable to the Participant that provides for forfeiture or disgorgement with respect to incentive compensation that includes Awards under the Plan.  In addition, the Administrator may require forfeiture and disgorgement to the Company of any outstanding Award and the proceeds from the exercise or disposition of any Award or Shares acquired under any Award, with interest and other related earnings, to the extent required by law or applicable stock exchange listing standards, including, without limitation, Section 10D of the Securities Exchange Act of 1934, as amended, and any applicable Company policy.  Each Participant, by accepting or being deemed to have accepted an Award under the Plan, agrees to be bound by the forfeiture and disgorgement provisions contained herein and agrees to cooperate fully with the Administrator, and to cause any and all permitted transferees of the Participant to cooperate fully

 

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with the Administrator, to effectuate any forfeiture or disgorgement required hereunder, subject to applicable law.  Neither the Administrator nor the Company nor any other person, other than the Participant and his or her permitted transferees, if any, will be responsible for any adverse tax or other consequences to a Participant or his or her permitted transferees, if any, that may arise in connection with this Section 6(a)(5).

 

(6)                                  Taxes .   The delivery, vesting and retention of Shares, cash or other property under an Award are conditioned upon full satisfaction by the Participant of all tax withholding requirements with respect to the Award.  The Administrator shall prescribe such rules for the withholding of taxes with respect to any Award as it deems necessary.  The Administrator may hold back Shares from an Award or permit a Participant to tender previously owned Shares in satisfaction of tax withholding requirements (but not in excess of the maximum withholding amount consistent with the Award being subject to equity accounting treatment under the Accounting Rules).

 

(7)                                  Dividend Equivalents,  etc The Administrator may provide for the payment of amounts (on terms and subject to conditions established by the Administrator) in lieu of cash dividends or other cash distributions with respect to Shares subject to an Award whether or not the holder of such Award is otherwise entitled to share in the actual dividend or distribution in respect of such Award.  Any entitlement to dividend equivalents or similar entitlements will be established and administered either consistent with an exemption from, or in compliance with, the requirements of Section 409A.  Dividends or dividend equivalent amounts payable in respect of Awards that are subject to restrictions may be subject to such limits or restrictions as the Administrator may impose.

 

(8)                                  Rights Limited .   Nothing in the Plan may be construed as giving any person the right to be granted an Award or to continued employment or service with the Company or any of its subsidiaries, or any rights as a shareholder except as to Shares actually issued under the Plan.  The loss of existing or potential profit in Awards will not constitute an element of damages in the event of termination of Employment for any reason, even if the termination is in violation of an obligation of the Company or any of its subsidiaries to the Participant.

 

(9)                                  Coordination with Other Plans .  Awards under the Plan may be granted in tandem with, or in satisfaction of or substitution for, other Awards under the Plan or awards made under other compensatory plans or programs of the Company or any of its subsidiaries.  For example, but without limiting the generality of the foregoing, awards under other compensatory plans or programs of the Company or any of its subsidiaries may be settled in Shares (including, without limitation, Unrestricted Stock) under the Plan if the Administrator so determines, in which case the Shares delivered will be treated as awarded under the Plan (and will reduce the number of Shares thereafter available under the Plan in accordance with the rules set forth in Section 4).

 

(10)                           Section 409A .

 

(A)                                Without limiting the generality of Section 11(b) hereof, each Award will contain such terms as the Administrator determines and will be construed and

 

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administered, such that the Award either qualifies for an exemption from the requirements of Section 409A or satisfies such requirements.

 

(B)                                Notwithstanding Section 9 of this Plan or any other provision of this Plan or any Award agreement to the contrary, the Administrator may unilaterally amend, modify or terminate the Plan or any outstanding Award, including but not limited to changing the form of the Award, if the Administrator determines that such amendment, modification or termination is necessary or advisable to avoid the imposition of an additional tax, interest or penalty under Section 409A.

 

(C)                                If a Participant is deemed on the date of the Participant’s termination of Employment to be a “specified employee” within the meaning of that term under Section 409A(a)(2)(B), then, with regard to any payment that is considered nonqualified deferred compensation under Section 409A, to the extent applicable, payable on account of a “separation from service”, such payment will be made or provided on the date that is the earlier of (i) the expiration of the six-month period measured from the date of such “separation from service” and (ii) the date of the Participant’s death (the “Delay Period”).  Upon the expiration of the Delay Period, all payments delayed pursuant to this Section 6(a)(10)(C) (whether they would have otherwise been payable in a single lump sum or in installments in the absence of such delay) will be paid on the first business day following the expiration of the Delay Period in a lump sum and any remaining payments due under the Award will be paid in accordance with the normal payment dates specified for them in the applicable Award agreement.

 

(D)                                For purposes of Section 409A, each payment made under this Plan will be treated as a separate payment.

 

(E)                                With regard to any payment considered to be nonqualified deferred compensation under Section 409A, to the extent applicable, that is payable upon a change in control of the Company or other similar event, to avoid the imposition of an additional tax, interest or penalty under Section 409A, no amount will be payable unless such change in control constitutes a “change in control event” within the meaning of Section 1.409A-3(i)(5) of the Treasury Regulations.

 

(b)                                  Stock Options and SARs .

 

(1)                                  Time and Manner of Exercise .  Unless the Administrator expressly provides otherwise, no Stock Option or SAR will be deemed to have been exercised until the Administrator receives notice of exercise in a form acceptable to the Administrator that is signed by the appropriate person and accompanied by any payment required under the Award.  Any attempt to exercise a Stock Option or SAR by any person other than the Participant (or a permitted transferee) will not be given effect unless the Administrator has received such evidence as it may require that the person exercising the Award has the right to do so.

 

(2)                                  Exercise Price .   The exercise price (or the base value from which appreciation is to be measured) of each Award requiring exercise must be no less than 100% (in

 

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the case of an ISO granted to a 10-percent shareholder within the meaning of subsection (b)(6) of Section 422, 110%) of the Fair Market Value of the Shares subject to the Award, determined as of the date of grant, or such higher amount as the Administrator may determine in connection with the grant, and in any event may not be less than the nominal value of a Share.

 

(3)                                  Payment of Exercise Price .   Where the exercise of an Award is to be accompanied by payment, payment of the exercise price must be by cash or check acceptable to the Administrator or, if so permitted by the Administrator and if legally permissible, (i) through the delivery of previously acquired unrestricted Shares, or the withholding of unrestricted Shares otherwise deliverable upon exercise, in either case that have a Fair Market Value equal to the exercise price; (ii) through a broker-assisted exercise program acceptable to the Administrator; (iii) by other means acceptable to the Administrator; or (iv) by any combination of the foregoing permissible forms of payment.  The delivery of previously acquired Shares in payment of the exercise price under clause (i) above may be accomplished either by actual delivery or by constructive delivery through attestation of ownership, subject to such rules as the Administrator may prescribe.

 

(4)                                  Maximum Term .   The maximum term of Stock Options and SARs must not exceed 10 years from the date of grant (or five years from the date of grant in the case of an ISO granted to a 10-percent shareholder described in Section 6(b)(2) above).

 

(5)                                  Repricing Except in connection with a corporate transaction involving the Company (which term includes, without limitation, any share dividend, share split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares) or as otherwise contemplated by Section 7 below, the Company may not, without obtaining shareholder approval, (i) amend the terms of outstanding Stock Options or SARs to reduce the exercise price or base value of such Stock Options or SARs; (ii) cancel outstanding Stock Options or SARs in exchange for Stock Options or SARs with an exercise price or base value that is less than the exercise price or base value of the original Stock Options or SARs; or (iii) cancel outstanding Stock Options or SARs that have an exercise price or base value greater than the Fair Market Value of a Share on the date of such cancellation in exchange for cash or other consideration.

 

7.                                       EFFECT OF CERTAIN TRANSACTIONS

 

(a)                                  Mergers,  etc .   Except as otherwise expressly provided in an Award agreement or by the Administrator, the following provisions will apply in the event of a Covered Transaction:

 

(1)                                  Assumption or Substitution .   If the Covered Transaction is one in which there is an acquiring or surviving entity, the Administrator may provide for (i) the assumption or continuation of some or all outstanding Awards or any portion thereof or (ii) the grant of new awards in substitution therefor by the acquiror or survivor or an affiliate of the acquiror or survivor.

 

(2)                                  Cash-Out of Awards .  Subject to Section 7(a)(5) below, the Administrator may provide for payment (a “cash-out”), with respect to some or all Awards or any portion thereof, equal in the case of each affected Award or portion thereof to the excess, if

 

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any, of (i) the Fair Market Value of a Share times the number of Shares subject to the Award or such portion, over (ii) the aggregate exercise or purchase price, if any, under the Award or such portion (in the case of a SAR, the aggregate base value above which appreciation is measured), in each case on such payment terms (which need not be the same as the terms of payment to holders of Shares) and other terms, and subject to such conditions, as the Administrator determines; provided, however , for the avoidance of doubt, that if the per Share exercise or purchase price (or base value) of an Award is equal to or greater than the Fair Market Value of a Share, the Award may be cancelled with no payment due hereunder or otherwise in respect of such Award.

 

(3)                                  Acceleration of Certain Awards .  Subject to Section 7(a)(5) below, the Administrator may provide that any Award requiring exercise will become exercisable, in full or in part, and/or that the delivery of any Shares remaining deliverable under any outstanding Award of Stock Units (including Restricted Stock Units and Performance Awards to the extent consisting of Stock Units) will be accelerated, in full or in part, in each case on a basis that gives the holder of the Award a reasonable opportunity, as determined by the Administrator, following exercise of the Award or the delivery of the Shares, as the case may be, to participate as a shareholder in the Covered Transaction.

 

(4)                                  Termination of Awards upon Consummation of Covered Transaction Except as the Administrator may otherwise determine in any case, each Award will automatically terminate (and in the case of outstanding shares of Restricted Stock, will automatically be forfeited) immediately upon consummation of the Covered Transaction, other than (i) any Award that is assumed or substituted pursuant to Section 7(a)(1) above and (ii) any Award that by its terms, or as a result of action taken by the Administrator, continues following the Covered Transaction.

 

(5)                                  Additional Limitations .   Any Share and any cash or other property delivered pursuant to Section 7(a)(2) or Section 7(a)(3) above with respect to an Award may, in the discretion of the Administrator, contain such restrictions, if any, as the Administrator deems appropriate to reflect any performance or other vesting conditions to which the Award was subject and that did not lapse (and were not satisfied) in connection with the Covered Transaction.  For purposes of the immediately preceding sentence, a cash-out under Section 7(a)(2) above or an acceleration under Section 7(a)(3) above will not, in and of itself, be treated as the lapsing (or satisfaction) of a performance or other vesting condition.  In the case of Restricted Stock that does not vest and is not forfeited in connection with the Covered Transaction, the Administrator may require that any amounts delivered, exchanged or otherwise paid in respect of such Share in connection with the Covered Transaction be placed in escrow or otherwise made subject to such restrictions as the Administrator deems appropriate to carry out the intent of the Plan.

 

(b)                                  Changes in and Distributions with Respect to Shares .

 

(1)                                  Basic Adjustment Provisions .   In the event of a share dividend, share split or combination of shares (including a reverse share split), recapitalization or other change in the Company’s capital structure that constitutes an equity restructuring within the meaning of the Accounting Rules, the Administrator shall make appropriate adjustments to the maximum

 

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number of Shares specified in Section 4(a) that may be issued under the Plan and to the maximum share limits described in Section 4(d), and shall make appropriate adjustments to the number and kind of shares or securities underlying Awards then outstanding or subsequently granted, any exercise or purchase prices (or base values) relating to Awards and any other provision of Awards affected by such change.

 

(2)                                  Certain Other Adjustments .   The Administrator may also make adjustments of the type described in Section 7(b)(1) above to take into account distributions to shareholders other than those provided for in Section 7(a) and 7(b)(1), or any other event, if the Administrator determines that adjustments are appropriate to avoid distortion in the operation of the Plan, having due regard for the qualification of ISOs under Section 422 and the requirements of Section 409A, to the extent applicable.

 

(3)                                  Continuing Application of Plan Terms .   References in the Plan to Shares will be construed to include any shares or securities resulting from an adjustment pursuant to this Section 7.

 

8.                                       LEGAL CONDITIONS ON DELIVERY OF SHARES

 

The Company will not be obligated to deliver any Shares pursuant to the Plan or to remove any restriction from Shares previously delivered under the Plan until: (i) the Company is satisfied that all legal matters in connection with the issuance and delivery of such Shares have been addressed and resolved; (ii) if the outstanding Shares are at the time of delivery listed on any stock exchange or national market system, the Shares to be delivered have been listed or authorized to be listed on such exchange or system upon official notice of issuance; and (iii) all conditions of the Award have been satisfied or waived.  The Company may require, as a condition to the exercise of an Award or the delivery of Shares under an Award, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of the Securities Act of 1933, as amended, or any applicable state or non-U.S. securities law.  Any Shares required to be issued to Participants under the Plan will be evidenced in such manner as the Administrator may deem appropriate, including book-entry registration or delivery of share certificates.  In the event that the Administrator determines that share certificates will be issued to Participants under the Plan, the Administrator may require that certificates evidencing Shares issued under the Plan bear an appropriate legend reflecting any restriction on transfer applicable to such Shares, and the Company may hold the certificates pending lapse of the applicable restrictions.

 

9.                                       AMENDMENT AND TERMINATION

 

The Administrator may at any time or times amend the Plan or any outstanding Award for any purpose which may at the time be permitted by law, and may at any time terminate the Plan as to any future grants of Awards; provided, however , that except as otherwise expressly provided in the Plan the Administrator may not, without the Participant’s consent, alter the terms of an Award so as to affect materially and adversely the Participant’s rights under the Award, unless the Administrator expressly reserved the right to do so at the time the Award was granted.  Any amendments to the Plan will be conditioned upon shareholder approval only to the extent, if

 

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any, such approval is required by law (including the Code) or applicable stock exchange requirements, as determined by the Administrator.

 

10.                                OTHER COMPENSATION ARRANGEMENTS

 

The existence of the Plan or the grant of any Award will not affect the Company’s right to award a person bonuses or other compensation in addition to Awards under the Plan.

 

11.                                MISCELLANEOUS

 

(a)                                  Waiver of Jury Trial .   By accepting or being deemed to have accepted an Award under the Plan, to the maximum extent permitted by law, each Participant waives any right to a trial by jury in any action, proceeding or counterclaim concerning any rights under the Plan and any Award, or under any amendment, waiver, consent, instrument, document or other agreement delivered or which in the future may be delivered in connection therewith, and agrees that any such action, proceedings or counterclaim will be tried before a court and not before a jury.  By accepting or being deemed to have accepted an Award under the Plan, each Participant certifies that no officer, representative, or attorney of the Company has represented, expressly or otherwise, that the Company would not, in the event of any action, proceeding or counterclaim, seek to enforce the foregoing waivers.  Notwithstanding anything to the contrary in the Plan, nothing herein is to be construed as limiting the ability of the Company and a Participant to agree to submit disputes arising under the terms of the Plan or any Award made hereunder to binding arbitration or as limiting the ability of the Company to require any eligible individual to agree to submit such disputes to binding arbitration as a condition of receiving an Award hereunder.

 

(b)                                  Limitation of Liability .   Notwithstanding anything to the contrary in the Plan, neither the Company, nor any of its subsidiaries, nor the Administrator, nor any person acting on behalf of the Company, any of its subsidiaries, or the Administrator, will be liable to any Participant, to any permitted transferee, to the estate or beneficiary of any Participant or any permitted transferee, or to any other person by reason of any acceleration of income, or any additional tax (including any interest and penalties), asserted by reason of the failure of an Award to satisfy the requirements of Section 422 or Section 409A or by reason of Section 4999 of the Code, or otherwise asserted with respect to the Award.

 

(c)                                   Section 162(m) of the Code To the extent applicable, Awards granted under this Plan are intended to be eligible for exemption from the limitations of Section 162(m) of the Code by reason of the post-initial public offering transition relief set forth in Section 1.162-27(f) of the Treasury Regulations.

 

12.                                ESTABLISHMENT OF SUB-PLANS

 

The Administrator may at any time and from time to time establish one or more sub-plans, including a Director and consultant sub-plan, under the Plan (for local-law compliance purposes or other administrative reasons determined by the Administrator) by adopting supplements to the Plan containing, in each case, such limitations on the Administrator’s discretion under the Plan, and such additional terms and conditions, as the Administrator deems necessary or desirable.  Each supplement so established will be deemed to be part of the Plan but

 

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will apply only to Participants within the group to which the supplement applies (as determined by the Administrator).

 

13.                                GOVERNING LAW

 

(a)                                  Certain Requirements of Corporate Law .   Awards will be granted and administered in accordance with the Irish Companies Act 2014 (as may be amended, replaced and/or consolidated in the future), and with the applicable requirements of the stock exchanges or other trading systems on which the Shares are listed or entered for trading, in each case as determined by the Administrator.

 

(b)                                  Other Matters .   Except as otherwise provided by the express terms of an Award agreement, under a sub-plan described in Section 12 or as provided in Section 13(a) above, the domestic substantive laws of Delaware govern the provisions of the Plan and of Awards under the Plan and all claims or disputes arising out of or based upon the Plan or any Award under the Plan or relating to the subject matter hereof or thereof without giving effect to any choice or conflict of laws provision or rule that would cause the application of the domestic substantive laws of any other jurisdiction.

 

(c)                                   Jurisdiction By accepting an Award, each Participant will be deemed to (i) have submitted irrevocably and unconditionally to the jurisdiction of the federal and state courts located within the geographic boundaries of the United States District Court for the District of Delaware for the purpose of any suit, action or other proceeding arising out of or based upon the Plan or any Award; (ii) agree not to commence any suit, action or other proceeding arising out of or based upon the Plan or an Award, except in the federal and state courts located within the geographic boundaries of the United States District Court for the District of Delaware; and (iii) waive, and agree not to assert, by way of motion as a defense or otherwise, in any such suit, action or proceeding, any claim that he or she is not subject personally to the jurisdiction of the above-named courts, that his or her property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that the Plan or an Award or the subject matter thereof may not be enforced in or by such court.

 

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OSMOTICA PHARMACEUTICALS PLC

2018 INCENTIVE PLAN

 

SUB PLAN FOR DIRECTORS AND CONSULTANTS

 

1                                         ESTABLISHMENT AND PURPOSE

 

This sub-plan is established by the Board in accordance with Section 12 of the Osmotica Pharmaceuticals plc 2018 Incentive Plan (the “Plan” ) for the purposes of granting Awards to Directors and Consultants of Osmotica Pharmaceuticals plc and its subsidiaries.  This sub-plan shall be known as the “NED and Consultant Sub-Plan” or “Sub-Plan” .

 

2                                         RULES

 

The provisions of the Plan shall apply in their entirety to Awards made under this Sub-Plan save and except only as set out in Sections 3 and 4 below.  Capitalized terms used but not defined in this Sub-Plan shall have the meanings set forth in the Plan.

 

3                                         DEFINITIONS

 

3.1                          The definition of “Employment” shall be deleted for the purposes of the Sub-Plan.

 

3.2                          The following definitions shall be inserted for the purposes of this Sub-Plan:

 

“Consultant”: Any person, including an advisor, who is engaged by the Company or a subsidiary to render consulting or advisory services and is compensated for such services.

 

Service”: A Participant’s service with the Company or any of its subsidiaries.  Service will be deemed to continue, unless the Administrator otherwise determines at the time of grant of an Award or at any time thereafter, so long as the Participant is providing services in a capacity described in Section 5 to, the Company or any of its subsidiaries.  If a Participant’s service relationship is with a subsidiary of the Company and that entity ceases to be a subsidiary of the Company, the Participant’s Service will be deemed to have terminated when the entity ceases to be a subsidiary of the Company unless the Participant transfers Service to the Company or any of its remaining subsidiaries.  Notwithstanding the foregoing, in construing the provisions of any Award relating to the payment of “nonqualified deferred compensation” (subject to Section 409A) upon a termination or cessation of Service, references to separation from service, retirement or similar or correlative terms will be construed to require a “separation from service” (as that term is defined in Section 1.409A-1(h) of the Treasury Regulations after giving effect to the presumptions contained therein) from the Company and from all other corporations and trades or businesses, if any, that would be treated as a single “service recipient” with the Company under Section 1.409A-1(h)(3) of the Treasury Regulations.  Notwithstanding the foregoing, the Company may, but need not, elect in writing, subject to the applicable limitations under Section 409A, any of the special elective rules prescribed in Section 1.409A-1(h) of the Treasury Regulations for purposes of determining whether a “separation from service” has occurred.  Any such written election will be deemed a part of the Plan.

 

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3.3                          The following definition shall be deleted and replaced with the following for the purposes of this Sub-Plan:

 

“Cause”: In the case of any Participant who is party to a service agreement or severance-benefit agreement that contains a definition of “Cause”, the definition set forth in such agreement applies with respect to such Participant for purposes of the Plan for so long as such agreement is in effect.  In every other case, “Cause” means, as determined by the Administrator, (i) a substantial failure of the Participant to perform the Participant’s duties and responsibilities to the Company or any of its subsidiaries or substantial negligence in the performance of such duties and responsibilities; (ii) the commission by the Participant of a felony or a crime involving moral turpitude; (iii) the commission by the Participant of theft, fraud, embezzlement, material breach of trust or any material act of dishonesty involving the Company or any of its subsidiaries; (iv) a violation by the Participant of any material provision of the code of conduct of the Company or any of its subsidiaries, of any material policy of the Company or any of its subsidiaries, or of any statutory or common law duty of loyalty to the Company or any of its subsidiaries; (v) material breach of any of the terms of the Plan or any Award made under the Plan, or of the terms of any other agreement between, or restrictive covenant agreement in favour of, the Company or any of its subsidiaries and the Participant; or (vi) other conduct by the Participant that could be expected to be harmful to the business, interests or reputation of the Company or any of its subsidiaries.

 

4                                          SECTIONS

 

In this Sub-Plan:

 

4.1                          Section 2 of the Plan shall be deleted and replaced with the following:

 

2.  Purpose

 

The Plan provides for the grant of Awards consisting of, or based on, Shares.  The purposes of the Plan are to attract, retain and reward Directors, Consultants and advisors to or of, the Company and its subsidiaries, to incentivize them to generate shareholder value, to enable them to participate in the growth of the Company and to align their interests with the interests of the Company’s shareholders.

 

4.2                          The following shall be added as a new clause 4(e) to the Plan:

 

4(e) Director Limits.  The aggregate value of all compensation granted or paid to any Director with respect to any calendar year, including Awards granted under the Plan and cash fees or other compensation paid by the Company to such Director outside of the Plan, in each case, for his or her Services as a Director during such calendar year may not exceed $550,000 in the aggregate, calculating the value of any Awards based on the grant date fair value in accordance with the Accounting Rules, assuming a maximum payout.

 

4.3                          Section 5 shall be deleted and replaced with the following

 

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5.  Eligibility and Participation

 

The Administrator shall select Participants from among Directors, Consultants and advisors to and of Company and its subsidiaries.  Eligibility for Stock Options, other than ISOs, and SARs is limited to individuals described in the first sentence of this Section 5 who are providing direct Services on the date of grant of the Award to the Company or to a subsidiary of the Company that would be described in the first sentence of Section 1.409A-1(b)(5)(iii)(E) of the Treasury Regulations.  No ISOs shall be granted under this Sub-Plan.

 

4.4                          Section 6(a)(4) shall be deleted and replaced with the following:

 

6(a)(4)  Vesting,  etc .  The Administrator shall determine the time or times at which an Award vests or becomes exercisable and the terms on which a Stock Option or SAR remains exercisable.  Without limiting the foregoing, the Administrator may at any time accelerate the vesting or exercisability of an Award, regardless of any adverse or potentially adverse tax or other consequences resulting from such acceleration.  Unless the Administrator expressly provides otherwise, however, the following rules will apply if a Participant’s Service ceases:

 

(A)                               Except as provided in (B) and (C) below, immediately upon the cessation of the Participant’s Service each Stock Option and SAR that is then held by the Participant or by the Participant’s permitted transferees, if any, will cease to be exercisable and will terminate and all other Awards that are then held by the Participant or by the Participant’s permitted transferees, if any, to the extent not already vested will be forfeited.

 

(B)                               Subject to (C) and (D) below, all vested and unexercised Stock Options and SARs held by the Participant or the Participant’s permitted transferees, if any, immediately prior to the cessation of the Participant’s Service, to the extent then exercisable, will remain exercisable for the lesser of (i) a period of 90 days or (ii) the period ending on the latest date on which such Stock Option or SAR could have been exercised without regard to this Section 6(a)(4), and will thereupon immediately terminate.

 

(C)                               Subject to (D) below, all vested and unexercised Stock Options and SARs held by a Participant or the Participant’s permitted transferees, if any, immediately prior to the cessation of the Participant’s Service due to his or her death or Disability, to the extent then exercisable, will remain exercisable for the lesser of (i) the one-year period ending with the first anniversary of the Participant’s death or (ii) the period ending on the latest date on which such Stock Option or SAR could have been exercised without regard to this Section 6(a)(4), and will thereupon immediately terminate.

 

(D)                               All Stock Options and SARs (whether or not vested or exercisable) held by a Participant or the Participant’s permitted transferees, if any, immediately prior to the cessation of the Participant’s Service will immediately terminate upon such cessation of Service if the termination is for Cause or occurs in circumstances that

 

18



 

in the determination of the Administrator would have constituted grounds for the Participant’s Service to be terminated for Cause.

 

4.5                          Section 6(a)(6) of the Plan shall be deleted and replaced with the following:

 

(6)  Taxes .  The delivery, vesting and retention of Shares, cash or other property under an Award are conditioned upon full satisfaction by the Participant of all tax withholding requirements with respect to the Award.  The Administrator shall prescribe such rules for the withholding of taxes with respect to any Award as it deems necessary.  Except as otherwise determined by the Administrator or as required by law, the Participant shall be responsible for satisfying and paying all taxes arising from or due in connection with the Award and/or the delivery of Shares under the Award.  The Company shall have no liability or obligation related to the foregoing.

 

4.6                          Section 6(a)(8) shall be deleted and replaced with the following:

 

(8)  Rights Limited .  Nothing in the Plan may be construed as giving any person the right to be granted an Award or to continued Service with the Company or any of its subsidiaries, or any rights as a shareholder except as to Shares actually issued under the Plan.  The loss of existing or potential profit in Awards will not constitute an element of damages in the event of termination of Service for any reason, even if the termination is in violation of an obligation of the Company or any of its subsidiaries to the Participant.

 

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Exhibit 10.31

 

OSMOTICA PHARMACEUTICALS PLC

2018 ANNUAL CASH INCENTIVE PLAN

 

1.                                       DEFINED TERMS

 

The following terms, when used in the Plan (as defined below), have the meanings and are subject to the provisions set forth below:

 

(a)                                  “Award”:   An award opportunity that is granted to a Participant with respect to a Performance Period.  An Award may be expressed as a percentage of the Participant’s base salary or as a fixed dollar amount.

 

(b)                                  “Board”:  The Board of Directors of the Company.

 

(c)                                   “Code”:  The U.S. Internal Revenue Code of 1986, as from time to time amended and in effect, or any successor statute as from time to time in effect.

 

(d)                                  “Company”:   Osmotica Pharmaceuticals plc, a public limited company registered under the Irish Companies Act 2014.

 

(e)                                   “Participant”:  A person granted an Award under the Plan.

 

(f)                                    “Performance Criteria”:  Specified criteria, other than the mere continuation of employment or the mere passage of time, the satisfaction of which is a condition for the grant, vesting or full enjoyment of an Award.  A Performance Criterion and any targets with respect thereto need not be based upon an increase, a positive or improved result or avoidance of loss and may be applied to the Participant individually, or to a business unit or division or the Company as a whole and may relate to any or any combination of the following (measured either absolutely or by reference to an index or indices or the performance of one or more companies and determined either on a consolidated basis or, as the context permits, on a divisional, subsidiary, line of business, project or geographical basis or in combinations thereof): sales; revenues; prescription volume or trends; assets; expenses; earnings before or after deduction for all or any portion of interest, taxes, depreciation, or amortization, whether or not on a continuing operations or an aggregate or per share basis; return on equity, investment, capital or assets; one or more operating ratios; borrowing levels, leverage ratios or credit rating; market share; capital expenditures; cash flow; stock price; stockholder return; sales of particular products or services; customer acquisition or retention; acquisitions and divestitures (in whole or in part); joint ventures and strategic alliances; spin-offs, split-ups and the like; reorganizations; recapitalizations, restructurings, financings (issuance of debt or equity) or refinancings; or strategic business criteria, consisting of one or more objectives based on: meeting specified market penetration or value added, product development or introduction (including, without limitation, any clinical trial accomplishments, regulatory or other filings or approvals, or other product development milestones), geographic business expansion, cost targets, cost reductions or savings, customer satisfaction, operating efficiency, acquisition or retention, employee satisfaction, information technology, corporate development (including, without limitation, licenses, innovation, research or establishment of third-party collaborations), manufacturing or process development, legal compliance or risk reduction, or patent application or issuance goals.  The Administrator may provide that one or more of the Performance Criteria applicable to such Award will be adjusted to reflect events

 



 

(including, but not limited to, the impact of charges for restructurings, discontinued operations, mergers, acquisitions, extraordinary items, and other unusual or non-recurring items, and the cumulative effects of tax or accounting changes, each as defined by U.S. generally accepted accounting principles) occurring during the Performance Period that affect the applicable Performance Criterion or Criteria.

 

(g)                                  “Performance Period”:   A specified performance period, consisting of the Company’s fiscal year or such other period as the Administrator may determine.

 

(h)                                  “Plan”:  The Osmotica Pharmaceuticals plc 2018 Annual Cash Incentive Plan, as from time to time amended and in effect.

 

2.                                       PURPOSE

 

The Plan has been established to advance the interests of the Company by providing for the grant of Awards to executive officers and key employees of the Company and its subsidiaries.  The Plan is designed to motivate eligible employees to achieve important short-term business and/or individual goals and reward their contributions to the overall success of the Company and its subsidiaries.  The Plan aims to promote shareholder value creation by ensuring strong alignment between Company performance and the associated Participant payouts.

 

3.                                       ADMINISTRATION

 

The Plan will be administered by the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”) (referred to herein as the “Administrator”) and its delegates.  The Compensation Committee may delegate to other persons such duties, powers and responsibilities as it deems appropriate.  To the extent of any such delegation, references herein to the “Administrator” shall be deemed to refer to the person or persons to whom such authority has been delegated.  The Administrator shall have discretionary authority, subject only to the express provisions of the Plan, to interpret the Plan; determine eligibility for and grant Awards; determine, modify or waive the terms and conditions of any Award; prescribe forms, rules and procedures relating to the Plan and Awards; and otherwise do all things necessary or desirable to carry out the purposes of the Plan.  Determinations of the Administrator made under the Plan are conclusive and bind all persons.

 

4.                                       ELIGIBILITY; PARTICIPANTS

 

Executive officers and key employees of the Company and its subsidiaries are eligible to participate in the Plan.  The Administrator will select, from among those eligible, the persons who will from time to time participate in the Plan (each, a “ Participant ”).  Receipt of an Award under the Plan will not entitle an individual to receive a subsequent Award or Awards under the Plan.

 

5.                                       GRANT OF AWARDS

 

A Participant who is granted an Award will be entitled to a payment, if any, under the Award only if all conditions to payment have been satisfied in accordance with the Plan and the terms of the Award.  By accepting (or, under such rules as the Administrator may prescribe, being deemed to have accepted) an Award, the Participant will be deemed to have agreed to the terms of

 

2



 

the Award and the Plan.  The Administrator shall select the Participants, if any, who receive Awards for a Performance Period and, for each Award, shall establish the following:

 

(a)                                  the Performance Criterion or Criteria applicable to the Award;

 

(b)                                  the amount or amounts that will be payable (subject to adjustment in accordance with Section 6) if the Performance Criterion or Criteria are achieved in whole or in part; and

 

(c)                                   such other terms and conditions as the Administrator deems appropriate with respect to the Award.

 

6.                                       DETERMINATION OF PERFORMANCE; AMOUNT PAYABLE UNDER AWARDS

 

As soon as practicable after the end of a Performance Period, the Administrator will determine whether and to what extent, if at all, the Performance Criterion or Criteria applicable to each Award granted for the Performance Period have been satisfied.  The Administrator shall then determine the amount payable, if any, under each Award.  The Administrator may, in its sole and absolute discretion and with or without specifying its reasons for doing so, after determining the amount that would otherwise be payable under an Award for a Performance Period, reduce the actual payment, if any, to be made under such Award or, otherwise adjust the amount payable under such Award.  The Administrator may exercise the discretion described in the immediately preceding sentence either in individual cases or in ways that affect more than one Participant.  In each case, the Administrator’s discretionary determination, which may affect different Awards differently, will be binding on all parties.

 

7.                                       PAYMENT UNDER AWARDS

 

The Administrator shall determine the payment dates for Awards under the Plan.  Except as otherwise determined by the Administrator or as otherwise provided in this Section 7, all payments under the Plan will be made, if at all, not later than March 15 th  of the calendar year following the calendar year in which the Performance Period ends; provided , that the Administrator may authorize elective deferrals of any Award payments in accordance with the deferral rules of Section 409A of the Code.  Except as determined otherwise by the Administrator, an Award payment will not be made unless the Participant has remained employed with the Company and its subsidiaries through the date of payment.  Except as determined by the Administrator, Awards under the Plan are intended to qualify for exemption from Section 409A of the Code and shall be construed and administered accordingly.

 

8.                                       PAYMENT LIMITS

 

The maximum amount payable to any Participant in any calendar year will be $4,000,000, which limitation, with respect to any such Awards for which payment is deferred in accordance with Section 7 above, shall be applied without regard to such deferral.

 

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9.                                       TAX WITHHOLDING; LIMITATION ON LIABILITY

 

All payments under the Plan will be subject to reduction for applicable tax and other legally or contractually required withholdings.

 

10.                                AMENDMENT AND TERMINATION

 

The Administrator may at any time or times amend the Plan or any outstanding Award for any purpose which may at the time be permitted by law, and may at any time terminate the Plan as to any future grants of Awards; provided, however , that except as otherwise expressly provided in the Plan, the Administrator may not, without the Participant’s consent, alter the terms of an Award so as to affect materially and adversely the Participant’s rights under the Award, unless the Administrator expressly reserved the right to do so at the time the Award was granted.

 

11.                                RECOVERY OF COMPENSATION

 

The Administrator may provide in any case that any outstanding Award and payments in respect of an Award will be subject to forfeiture and disgorgement to the Company, with interest and other related earnings, if the Participant to whom the Award was granted violates (i) a non-competition, non-solicitation, confidentiality or other restrictive covenant by which he or she is bound or (ii) any Company policy applicable to the Participant that provides for forfeiture or disgorgement with respect to incentive compensation that includes Awards under the Plan.  In addition, the Administrator may require forfeiture and disgorgement to the Company of any outstanding Award and payments received in respect of any Award, with interest and other related earnings, to the extent required by law or applicable stock exchange listing standards, including, without limitation, Section 10D of the Securities Exchange Act of 1934, as amended, and any applicable Company policy.

 

12.                                MISCELLANEOUS

 

(a)                                  Waiver of Jury Trial .   By accepting or being deemed to have accepted an Award under the Plan, to the maximum extent permitted by law, each Participant waives any right to a trial by jury in any action, proceeding or counterclaim concerning any rights under the Plan and any Award, or under any amendment, waiver, consent, instrument, document or other agreement delivered or which in the future may be delivered in connection therewith, and agrees that any such action, proceedings or counterclaim will be tried before a court and not before a jury.  By accepting or being deemed to have accepted an Award under the Plan, each Participant certifies that no officer, representative, or attorney of the Company has represented, expressly or otherwise, that the Company would not, in the event of any action, proceeding or counterclaim, seek to enforce the foregoing waivers.  Notwithstanding anything to the contrary in the Plan, nothing herein is to be construed as limiting the ability of the Company and a Participant to agree to submit disputes arising under the terms of the Plan or any Award made hereunder to binding arbitration or as limiting the ability of the Company to require any eligible individual to agree to submit such disputes to binding arbitration as a condition of receiving an Award hereunder.

 

(b)                                  Limitation of Liability .   Notwithstanding anything to the contrary in the Plan, neither the Company, nor any of its subsidiaries, nor the Administrator, nor any person acting on behalf of the Company, any of its subsidiaries, or the Administrator, will be liable to any

 

4



 

Participant or other person by reason of any acceleration of income, or any additional tax (including any interest and penalties), asserted by reason of the failure of an Award to satisfy the requirements of Section 409A of the Code or by reason of Section 4999 of the Code, or otherwise asserted with respect to the Award.

 

(c)                                   Governing Law Except as otherwise provided by the express terms of an Award agreement, the domestic substantive laws of New Jersey govern the provisions of the Plan and of Awards under the Plan and all claims or disputes arising out of or based upon the Plan or any Award under the Plan or relating to the subject matter hereof or thereof without giving effect to any choice or conflict of laws provision or rule that would cause the application of the domestic substantive laws of any other jurisdiction.  By accepting an Award, each Participant will be deemed to (i) have submitted irrevocably and unconditionally to the jurisdiction of the federal and state courts located within the geographic boundaries of the United States District Court for the District of New Jersey for the purpose of any suit, action or other proceeding arising out of or based upon the Plan or any Award; (ii) agree not to commence any suit, action or other proceeding arising out of or based upon the Plan or an Award, except in the federal and state courts located within the geographic boundaries of the United States District Court for the District of New Jersey; and (iii) waive, and agree not to assert, by way of motion as a defense or otherwise, in any such suit, action or proceeding, any claim that he or she is not subject personally to the jurisdiction of the above-named courts that his or her property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that the Plan or an Award or the subject matter thereof may not be enforced in or by such court.

 

(d)                                  Other Compensation Arrangements .   The existence of the Plan or the grant of any Award will not affect the Company’s right to award a person bonuses or other compensation in addition to Awards under the Plan.

 

(e)                                   Rights Limited .   Nothing in the Plan may be construed as giving any person the right to be granted an Award or to continued employment or service with the Company or any of its subsidiaries.  The loss of existing Awards will not constitute an element of damages in the event of termination of employment for any reason, even if the termination is in violation of an obligation of the Company or any of its subsidiaries to the Participant.

 

(f)                                    Section 162(m) .   To the extent applicable, Awards granted pursuant to the Plan are intended to be eligible for exemption from the limitations of Section 162(m) of the Code by reason of the post-initial public offering transition relief set forth in Section 1.162-27(f) of the Treasury Regulations.

 

(g)                                  Effective Date .   The Plan shall be effective upon adoption of the Plan by the Board of Directors and shall supersede and replace the Company’s annual cash bonus program with respect to Awards granted to eligible executive officers and employees for fiscal years beginning after the date of such adoption.

 

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Exhibit 23.1

 

Consent of Independent Registered Public Accounting Firm

 

The Board of Managers and Shareholders

of Osmotica Holdings S.C.Sp.

 

We hereby consent to the use in the Prospectus constituting a part of this Registration Statement on Form S-1 (Registration Statement No. 333-227357) of our report dated May 9, 2018, except for Note 1, which is dated August 22, 2018 and Note 16, which is dated October 1, 2018, relating to the consolidated financial statements of Osmotica Holdings S.C.Sp. as of December 31, 2017 and 2016 and for each of the years then ended, which is contained in that Prospectus.  Our report on the consolidated financial statements contains an explanatory paragraph regarding the Company’s restatement of the consolidated financial statements for the years ended December 31, 2017 and 2016.

 

We also consent to the reference to us under the caption “Experts” in the Prospectus.

 

/s/ BDO USA, LLP

 

Woodbridge, New Jersey

October 1, 2018

 




Exhibit 23.2

 

Consent of Independent Registered Public Accounting Firm

 

The Board of Managers and Shareholders

of Osmotica Pharmaceuticals Limited (formerly known as Lilydale Limited)

 

We hereby consent to the use in the Prospectus constituting a part of this Registration Statement on Form S-1 (Registration Statement No. 333-227357) of our report dated May 9, 2018, relating to the financial statements of Osmotica Pharmaceuticals Limited (formerly known as Lilydale Limited) as of March 31, 2018 and for the period July 13, 2017 (date of incorporation) through December 31, 2017 and the three months in the period ended March 31, 2018, which is contained in that Prospectus.

 

We also consent to the reference to us under the caption “Experts” in the Prospectus.

 

/s/ BDO USA, LLP

 

Woodbridge, New Jersey

October 1, 2018