Zyla Life Sciences (Form: 10-Q, Received: 11/14/2019 16:30:45)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-36295

Zyla Life Sciences

(Exact Name of Registrant as Specified in Its Charter)


Delaware (State or Other Jurisdiction of Incorporation or Organization)		46-3575334 (I.R.S. Employer Identification No.)

600 Lee Road Suite 100 Wayne, PA (Address of Principal Executive Offices)		19087 (Zip Code)

Registrant’s telephone number, including area code: (610) 833-4200

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☐		Accelerated filer ☐

Non-accelerated filer ☒		Smaller reporting company ☒

Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act

of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐No ☒

Securities registered pursuant to Section 12(b) of the Act:


Title of each class:	Trading Symbol	Name of each exchange on which registered:
Par value $0.001	ZCOR	OTCQX

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

Common Stock, $0.001 par value Shares outstanding as of November 9, 2019: 9,360,968

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		Page

	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of September 30, 2019 (Successor) (unaudited) and December 31, 2018 (Predecessor)	1
	Consolidated Statements of Operations unaudited for the three months ended September 30, 2019 (Successor), the Period February 1, 2019 through September 30, 2019 (Successor), the Period January 1, 2019 through January 31, 2019 (Predecessor) and the three and nine months ended September 30, 2018 (Predecessor)	2
	Consolidated Statements of Comprehensive Loss unaudited for the three months ended September 30, 2019 (Successor), the Period February 1, 2019 through September 30, 2019 (Successor), the Period January 1, 2019 through January 31, 2019 (Predecessor) and the three and nine months ended September 30, 2018 (Predecessor)	3
	Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three months ended September 30, 2019 (Successor), Period February 1, 2019 through September 30, 2019 (Successor), the Period January 1, 2019 through January 31, 2019 (Predecessor) and the nine months ended September 30, 2018 (Predecessor)	4
	Consolidated Statements of Cash Flows unaudited for the Period February 1, 2019 through September 30, 2019 (Successor), the Period January 1, 2019 to January 31, 2019 (Predecessor) and the nine months ended September 30, 2018 (Predecessor)	5
	Notes to Unaudited Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	50
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3	Defaults Upon Senior Securities	50
Item 4.	Mine Safety Disclosures	50
Item 5.	Other Information	50
Item 6.	Exhibits	51

SIGNATURES		55

Unless otherwise indicated or the context otherwise requires, references to the “Company”, “we”, “us” and “our” refer to Zyla Life Sciences and its subsidiaries. The Zyla logo is our trademark and Zyla is our registered trademark. All other trade names, trademarks and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. We have assumed that the reader understands that all such terms are source-indicating. Accordingly, such terms, when first mentioned in this Quarterly Report on Form 10-Q, appear with the trade name, trademark or service mark notice and then throughout the remainder of this Quarterly Report on Form 10-Q without the trade name, trademark or service mark notices for convenience only and should not be construed as being used in a descriptive or generic sense. Unless otherwise indicated, all statistical information provided about our business in this report is as of September 30, 2019.

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PART I

ITEM 1. FINANCIAL STATEMENTS

Zyla Life Sciences and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share and per share data)


	Successor		Predecessor
	September 30, 2019		December 31, 2018
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	18,594	$	35,323
Marketable securities, available for sale		—		4,988
Accounts receivable, net		26,578		8,006
Inventory		9,538		2,639
Prepaid expenses and other current assets		1,571		2,715
Other receivables		—		846
Total current assets		56,281		54,517
Intangible assets, net		113,980		4,281
Restricted cash		400		400
Property and equipment, net		3,513		1,059
Right of use assets, net		2,885		—
Goodwill		58,747		—
Deposits and other assets		3,242		1,676
Total assets	$	239,048	$	61,933
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	15,807	$	8,561
Accrued expenses		49,625		24,584
Debt - current, net		6,990		—
Acquisition-related contingent consideration		2,700		—
Other current liabilities		976		—
Total current liabilities		76,098		33,145
Debt - non-current portion, net		92,630		—
Acquisition-related contingent consideration		15,600		—
Deferred income tax liability		23		24
Credit agreement		3,965		—
Other liabilities		2,329		536
Total liabilities not subject to compromise		190,645		33,705

Liabilities subject to compromise		—		139,588


Stockholders’ equity (deficit):
Predecessor common stock--$0.001 par value; 275,000,000 shares authorized; 56,547,101 shares issued and outstanding at December 31, 2018		—		55
Successor common stock--$0.001 par value; 100,000,000 shares authorized; 9,360,968 shares issued and outstanding at September 30, 2019		9		—
Additional paid-in capital		88,817		276,569
Accumulated other comprehensive (loss) income		(7)		869
Accumulated deficit		(40,416)		(388,853)
Total stockholders' equity (deficit)		48,403		(111,360)
Total liabilities and stockholders’ equity	$	239,048	$	61,933

See accompanying notes to unaudited consolidated financial statements.

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Zyla Life Sciences and Subsidiaries

Consolidated Statements of Operations (Unaudited)

(in thousands, except share and per share data)



	Successor		Predecessor		Successor		Predecessor
					Period from		Period from
	Three months		Three months		February 1, 2019		January 1, 2019		Nine months
	ended		ended		through		through		ended
	September 30, 2019		September 30, 2018		September 30, 2019		January 31, 2019		September 30, 2018
Revenue
Net product sales	$	22,386	$	8,153	$	60,230	$	1,775	$	21,857
Total revenue		22,386		8,153		60,230		1,775		21,857

Costs and Expenses
Cost of sales (excluding amortization of product rights)		10,394		1,773		37,027		554		5,553
Amortization of product rights		3,497		526		9,326		171		1,594
General and administrative		6,044		5,556		16,827		5,413		19,322
Sales and marketing		9,316		7,932		23,582		2,773		26,006
Research and development		3		956		13		186		3,258
Restructuring and other charges		—		13,864		648		799		13,864
Change in fair value of contingent consideration payable		795		—		3,695		—		—
Total costs and expenses		30,049		30,607		91,118		9,896		69,597
Loss from operations		(7,663)		(22,454)		(30,888)		(8,121)		(47,740)

Other (income) expense:
Change in fair value of warrant and derivative liability		—		(3,986)		—		—		(12,292)
Interest expense (income), net		3,749		32,891		9,577		(52)		40,251
Other (gain) loss		(1,122)		(132)		(1,258)		(140)		(158)
Loss on foreign currency exchange		—		—		—		—		(1)
Total other expense (income)		2,627		28,773		8,319		(192)		27,800
Reorganization items		—		—		1,209		(115,169)		—
Net (loss) income	$	(10,290)	$	(51,227)	$	(40,416)	$	107,240	$	(75,540)
Per share information:
Net (loss) income per share of common stock, basic and diluted	$	(0.72)	$	(0.93)	$	(2.82)	$	1.90	$	(1.45)
Weighted-average shares outstanding, basic and diluted		14,333,332		55,192,542		14,333,332		56,547,101		51,944,358

See accompanying notes to unaudited consolidated financial statements.

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Zyla Life Sciences and Subsidiaries

Consolidated Statements of Comprehensive Loss (Unaudited)

(in thousands)



	Successor		Predecessor		Successor		Predecessor
					Period from		Period from
	Three months		Three months		February 1, 2019		January 1, 2019		Nine months
	ended		ended		through		through		ended
	September 30, 2019		September 30, 2018		September 30, 2019		January 31, 2019		September 30, 2018
Net (loss) income	$	(10,290)	$	(51,227)	$	(40,416)	$	107,240	$	(75,540)
Other comprehensive (loss) income:
Unrealized loss on available for sale securities		—		7				—		36
Foreign currency translation adjustments		3		(21)		(7)		—		(132)
Comprehensive (loss) income	$	(10,287)	$	(51,241)	$	(40,423)	$	107,240	$	(75,636)

See accompanying notes to unaudited consolidated financial statements.

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Zyla Life Sciences and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (unaudited)

(in thousands, except per share data)



	Common stock
								Accumulated
		$0.001		Additional				Other
	Number of	Par		Paid-in		Accumulated		Comprehensive
	Shares	Value		Capital		Deficit		Income		Total

Balance as of December 31, 2017 (Predecessor)	45,939,663	$	46	$	254,871	$	(295,300)	$	1,008	$	(39,375)
Cumulative adjustment - ASU 2014-09	—		—		—		1,901		—		1,901
Deferred tax liability	—		—		(920)		—		—		(920)
Issuance of common stock, net of costs	5,941,538		6		4,151		—		—		4,157
Exchange of convertible debt and issuance of warrants	1,000,000		1		12,497		—		—		12,498
Stock-based compensation expense	—		—		952		—		—		952
Unrealized loss on available for sale securities	—		—		—		—		(30)		(30)
Foreign currency translation adjustment	—		—		—		—		124		124
Net loss	—		—		—		(12,353)		—		(12,353)
Balance as of March 31, 2018 (Predecessor)	52,881,201	$	53	$	271,551	$	(305,752)	$	1,102	$	(33,046)

Balance as of April 1, 2018 (Predecessor)	52,881,201	$	53	$	271,551	$	(305,752)	$	1,102	$	(33,046)
Restricted shares of common stock issued	1,500,000		—		—		—		—		—
Deferred tax liability	—		—		(60)		—		—		(60)
Issuance of common stock, net of costs	1,917,172		—		886		—		—		886
Stock-based compensation expense	—		—		1,002		—		—		1,002
Unrealized loss on available for sale securities	—		—		—		—		59		59
Foreign currency translation adjustment	—		—		—		—		(235)		(235)
Net loss	—		—		—		(11,961)		—		(11,961)
Balance as of June 30, 2018 (Predecessor)	56,298,373	$	53	$	273,379	$	(317,713)	$	926	$	(43,355)

Balance as of July 1, 2018 (Predecessor)	56,298,373		53		273,379		(317,713)		926		(43,355)
Deferred tax liability	—		—		980		—				980
Issuance of common stock, net of costs	473,728		—		181		—				181
Stock-based compensation expense	—		—		1,140		—				1,140
Unrealized loss on available for sale securities	—		—		—		—		7		7
Foreign currency translation adjustment	—		—		—		—		(21)		(21)
Net loss	—		—		—		(51,227)				(51,227)
Balance as of September 30, 2018 (Predecessor)	56,772,101	$	53	$	275,680	$	(368,940)	$	912	$	(92,295)

Balance as of December 31, 2018 (Predecessor)	56,547,101	$	55	$	276,569	$	(388,853)	$	869	$	(111,360)
Stock-based compensation expense	—		—		4,125		—		—		4,125
Net income	—		—		—		107,240		—		107,240
Cancellation of Predecessor common stock and stock-based compensation	(56,547,101)		(55)		(280,694)		—		—		(280,749)
Elimination of Predecessor accumulated deficit and accumulated other comprehensive income	—		—		—		281,613		(869)		280,744
Common stock issued for settlement of predecessor debt	4,774,093		5		31,000		—		—		31,005
Common stock issued for asset purchase	4,586,875		4		29,784		—		—		29,788
Warrants issued for settlement of predecessor debt	—		—		14,303		—		—		14,303
Warrants issued for asset purchase	—		—		11,841		—		—		11,841
Balance as of January 31, 2019 (Predecessor)	9,360,968	$	9	$	86,928	$	—	$	—	$	86,937


Balance as of February 1, 2019 (Successor)	9,360,968		9		86,928		—		—		86,937
Stock-based compensation expense	—		—		60		—		—		60
Unrealized loss on available for sale securities	—		—		—		—		(1)		(1)
Foreign currency translation adjustment	—		—		—		—		(8)		(8)
Net loss	—		—		—		(10,483)		—		(10,483)
Balance as of March 31, 2019 (Successor)	9,360,968	$	9	$	86,988	$	(10,483)	$	(9)	$	76,505

Balance as of April 1, 2019 (Successor)	9,360,968		9		86,988		(10,483)		(9)		76,505
Stock-based compensation expense	—		—		818		—		—		818
Foreign currency translation adjustment	—		—		—		—		(1)		(1)
Net loss	—		—		—		(19,643)		—		(19,643)
Balance as of June 30, 2019 (Successor)	9,360,968	$	9	$	87,806	$	(30,126)	$	(10)	$	57,679

Balance as of July 1, 2019 (Successor)	9,360,968		9		87,806		(30,126)		(10)		57,679
Stock-based compensation expense	—		—		1,011		—		—		1,011
Foreign currency translation adjustment	—		—		—		—		3		3
Net loss	—		—		—		(10,290)		—		(10,290)
Balance as of September 30, 2019 (Successor)	9,360,968	$	9	$	88,817	$	(40,416)	$	(7)	$	48,403

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Zyla Life Sciences and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)


	Successor		Predecessor
	Period from		Period from
	February 1, 2019		January 1, 2019		Nine months
	through		through		ended
	September 30, 2019		January 31, 2019		September 30, 2018
Operating activities:
Net (loss) income	$	(40,416)	$	107,240	$	(75,540)
Adjustment to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization		9,876		204		3,582
Non-cash impairment of property and equipment		—		—		6,886
Non-cash reorganization items		—		(121,144)		—
Change in fair value of warrant and derivative liability		—		—		(12,292)
Stock-based compensation expense		1,889		4,125		3,094
Non-cash interest and amortization of debt discount		5,156		(9)		31,043
Accretion of discount on marketable securities		(3)		(5)		(185)
Right of Use Assets		(1,031)		—		—
Change in fair value of contingent consideration		3,695		—		—
Changes in assets and liabilities:
Accounts receivable		(22,437)		3,865		(7,092)
Inventory		24,300		340		29
Prepaid expenses		2,376		219		1,821
Other receivables		128		711		(130)
Deposits and other assets		(1,570)		1		703
Accounts payable		7,470		103		(3,453)
Accrued expenses		2,854		5,172		5,884
Other current liabilities		(249)		—		—
Other liabilities		970		—		(137)
Net cash (used in) provided by operating activities		(6,992)		822		(45,787)
Investing activities:
Payments for purchase of property and equipment		(24)		—		(9)
Purchases of investments		—		—		(23,465)
Sales of investments		2,497		—		—
Maturity of investments		2,500		—		67,675
Net cash provided by investing activities		4,973		—		44,201
Financing activities:
Net proceeds from issuance of common stock		—		—		5,216
Payments on borrowings		(232)		(19,104)		—
Proceeds from credit agreement		3,770		—		—
Royalty payments in connection with the 13% Notes		—		—		(421)
Net cash provided by (used in) financing activities		3,538		(19,104)		4,795
Effect of foreign currency translation on cash and cash equivalents		28		6		(51)
Net increase (decrease) cash, cash equivalents and restricted cash		1,547		(18,276)		3,158
Cash, cash equivalents and restricted cash at beginning of period		17,447		35,723		31,490
Cash, cash equivalents and restricted cash at end of period	$	18,994	$	17,447	$	34,648

Supplemental disclosures of cash flow information:
Cash interest payments	$	1,735	$	—	$	11,893
Non-cash financing activities:
Reclassification to additional paid-in capital of derivative liability	$	—	$	—	$	12,497

See accompanying notes to unaudited consolidated financial statements.

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Zyla Life Sciences and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

1. Organization and Description of the Business

Interim Financial Statements

The consolidated financial statements of Zyla Life Sciences and its subsidiaries (“Zyla” or the “Company”) as of September 30, 2019 (Successor), the three months ended September 30, 2019 (Successor) and for the periods from February 1, 2019 through September 30, 2019 (Successor), January 1, 2019 through January 31, 2019 (Predecessor) and the three and nine months ended September 30, 2018 (Predecessor) are unaudited and reflect all adjustments (consisting only of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. The Company’s Consolidated Balance Sheet as of December 31, 2018 (Predecessor) has been derived from the audited financial statements as of that date contained in our Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Annual Report on Form 10-K”). The Company’s consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operations, contained in the Company’s 2018 Annual Report on Form 10-K, though, as described below, such prior financial statements will not be comparable to the interim financial statements due to the adoption of fresh start accounting on January 31, 2019. For additional information, see Note 3- Fresh Start Accounting. The Company’s Consolidated Statements of Operations for the period from February 1, 2019 through September 30, 2019 (Successor) are not necessarily indicative of future financial results.

Organization and Business Overview

Zyla Life Sciences is a commercial-stage life sciences company focused on developing and marketing important treatments for patients and healthcare providers. The Company currently has a portfolio of innovative treatments for pain and inflammation. Zyla has seven commercially available products: SPRIX® (ketorolac tromethamine) Nasal Spray, ZORVOLEX® (diclofenac), INDOCIN® (indomethacin) suppositories, VIVLODEX® (meloxicam), TIVORBEX® (indomethacin), INDOCIN® oral suspension and OXAYDO® (oxycodone HCI, USP) tablets for oral use only —CII. VIVLODEX, TIVORBEX and ZORVOLEX are SOLUMATRIX® Technology non-steroidal anti-inflammatory products. To augment its current product portfolio, the Company is seeking to acquire additional product candidates or approved products to develop and/or market. The Company plans to grow its business through its commercial revenue and potential business development opportunities.

Emergence from Voluntary Reorganization Under Chapter 11 Proceedings

Chapter 11 Cases

On October 30, 2018, the Company entered into a definitive asset purchase agreement (the “Purchase Agreement”) to acquire the SOLUMATRIX® products and INDOCIN® products and one development product from Iroko Pharmaceuticals, Inc. and its subsidiaries (collectively, “Iroko”). To facilitate the transactions contemplated by the Purchase Agreement (the “Iroko Products Acquisition”) and to reorganize its financial structure, the Company and its wholly-owned subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) and a related Joint Plan of Reorganization (“the Plan”) on October 30, 2018.

The Company requested that the Chapter 11 cases (the “Chapter 11 Cases”) be jointly administered for procedural purposes only under the caption “In re Egalet Corporation, et al., Case No. 18-12439”. Upon filing, the Company continued to operate its business as a “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Company continued ordinary course operations substantially uninterrupted during the Chapter 11 Cases and sought approval from the Bankruptcy Court for relief under certain “first day” motions authorizing the Company to continue to

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conduct its business in the ordinary course. On January 14, 2019, the Bankruptcy Court entered the Confirmation Order confirming the Plan under Chapter 11 of the Bankruptcy Code. On January 31, 2019 (the “Effective Date”), and substantially concurrent with the consummation of the acquisition of the Iroko products named below pursuant to the Purchase Agreement (the “Iroko Products Acquisition”), the Plan became effective.

Liquidity and Substantial Doubt in Going Concern

Substantial Doubt Regarding Going Concern

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred recurring operating losses since inception. As of September 30, 2019, the Company had an accumulated deficit of $40.4 million and a working capital deficit of $19.8 million. Even though the Company emerged from bankruptcy, it continues to have significant indebtedness and its ability to continue as a going concern is contingent upon the successful integration of the Iroko Products Acquisition, increasing its revenue, managing its expenses and complying with the terms of its new debt agreements. Refer to Note 9—Debt for additional details of these debt agreements.

These factors, in combination with others described above, resulted in the conclusion that there is substantial doubt about the ability of the Company to continue as a going concern for the one-year period after the date that these financial statements are issued. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

2. Summary of Significant Accounting Policies and Basis of Accounting

Basis of Accounting

The unaudited consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Certain information and footnotes normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q. The Company’s consolidation policy requires the consolidation of entities where a controlling financial interest is held. All intercompany balances and transactions have been eliminated in consolidation.

Upon emergence from bankruptcy, the Company adopted fresh start accounting in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 852, Reorganizations, which resulted in the Company becoming a new entity for financial reporting purposes on February 1, 2019. As a result of the adoption of fresh start accounting, the Company’s unaudited consolidated financial statements subsequent to January 31, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019, any other interim periods or any future year or period. See Note 3 – Fresh Start Accounting for further details on the impact of fresh start accounting on the Company’s unaudited consolidated financial statements. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2018 filed on March 29, 2019 with the SEC.

References to "Successor" or "Successor Company" relate to the financial position and results of operations of the reorganized Company subsequent to January 31, 2019. References to "Predecessor" or "Predecessor Company" relate to the financial position and results of operations of the Company prior to, and including, January 31, 2019.

The Company’s significant accounting policies are described in Note 2 of the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K. Since the date of those financial statements, new accounting policies are noted below.

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Goodwill

Goodwill is calculated as the excess of the reorganization equity value over the fair value of tangible and identifiable intangible assets pursuant to ASC 852 Reorganizations. Goodwill is not amortized but is tested for impairment at the reporting unit level at least annually or when a triggering event occurs that could indicate a potential impairment by assessing qualitative factors or performing a quantitative analysis in determining whether it is more likely than not that the fair value of net assets are below their carrying amounts. A reporting unit is the same as, or one level below, an operating segment. Our operations are currently comprised of a single, entity wide reporting unit.

The Company determined that no events have occurred or circumstances changed during the period from February 1, 2019 through September 30, 2019 (Successor) and the period from January 1, 2019 through January 31, 2019 (Predecessor) that would more likely than not reduce the fair value of any of the Company’s reporting units below their respective carrying amounts. However, if conditions deteriorate or there is a change in the business, it may be necessary to record impairment charges in the future.

Acquisition-related contingent consideration

Pursuant to the Iroko Products Acquisition, the Company has obligations relating to contingent payment consideration for future royalty obligations to Iroko based upon annual INDOCIN product net sales over $20.0 million. The Company recorded the acquisition-date fair value of these contingent liabilities, based on the likelihood of contingent earn-out payments. The earn-out payments are subsequently remeasured to fair value each reporting date. The fair value of the acquisition-related contingent consideration is remeasured each reporting period, with changes in fair value recorded in the Company’s Consolidated Statements of Operations. The royalty term commenced on the Effective Date and ends on the tenth anniversary of the Effective Date, January 31, 2029.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board FASB issued ASU No. 2016-02 Leases (ASC 842). In July 2018, the FASB issued ASU No. 2018-10, "Codification Improvements to Topic 842, Leases" (ASU 2018-10), which provides narrow amendments to clarify how to apply certain aspects of the new lease standard, and ASU No. 2018-11, "Leases (Topic 842)-Targeted Improvements" (ASU 2018-11), which addressed implementation issues related to the new lease standard. These and certain other lease-related ASUs have generally been codified in ASC 842. ASC 842 supersedes the lease accounting requirements in Accounting Standards Codification Topic 840, Leases (ASC 840). ASC 842 establishes a right-of-use model that requires a lessee to record a right-of-use ("ROU") asset and a lease liability on the balance sheet for all leases. Under ASC 842, leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The standard also requires disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases.

The Company adopted ASC 842 using the modified retrospective transition approach as of the effective date, which allows the Company to not adjust the comparative periods presented. The Company has elected to adopt the package of transition practical expedients and, therefore, has not reassessed whether existing or expired contracts contain a lease, the lease classification for existing or expired leases or the accounting for initial direct costs that were previously capitalized. The Company did not elect the practical expedient to use hindsight for leases existing at the adoption date. Further, the Company does not expect the amendments in ASU 2018-01: Land Easement Practical Expedient to have an effect on its financial position because it did not enter into land easement arrangements. The Company has elected, as an accounting policy, to not recognize ROU assets and lease liabilities for all short-term leases that have a lease term of 12 months or less.

Upon adoption, the Predecessor Company recorded a lease liability of $2.5 million with a corresponding ROU asset of $1.9 million for its operating leases. As of the adoption date, the Company had a $0.6 million deferred rent liability which was reversed. The adoption of ASC 842 did not have a material impact on the Company’s Consolidated Statements of Operations or Consolidated Statements of Cash Flows.

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In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaces the incurred loss impairment methodology for measuring and recognizing credit losses with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 will be effective for the Company as of January 1, 2020. The Company does not expect adoption of this ASU to have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) which modifies the disclosure requirements of fair value measurements in Topic 820, Fair Value Measurement. For public companies the ASU removes disclosure requirements for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation process for Level 3 fair value measurements. The ASU modifies the disclosure requirements for investments in certain entities that calculate net asset value and clarifies that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. The ASU adds the disclosure requirement for changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2019 including interim periods within that fiscal year. Early adoption is permitted. The Company does not plan to early adopt this ASU and the Company does not believe there will be a material impact to the financial statements as a result of adopting this ASU.

3. Fresh Start Accounting

Upon emergence from bankruptcy, the Company adopted fresh start accounting as (i) the reorganization value of the assets of the Successor Company immediately before the date of confirmation of the Plan was less than the total of all post-petition liabilities and allowed claims and (ii) the holders of the Predecessor Company’s voting shares immediately before confirmation of the Plan received less than 50 percent of the voting shares of the emerging entity.

GAAP requires the adoption of fresh start accounting on the later of (i) the Plan confirmation date, or (ii) when all material conditions precedent to the Plan’s becoming effective are resolved, which occurred on January 31, 2019. Accordingly, the Company selected January 31, 2019 as the fresh start reporting date. Upon the application of fresh start accounting, the Company allocated the reorganization value to its individual assets based on their estimated fair values. Reorganization value represents the fair value of the Successor Company’s assets before considering liabilities. The excess reorganization value over the fair value of identified tangible and intangible assets is reported as goodwill.

The Bankruptcy Court confirmed the Plan based upon an estimated enterprise value of the Company between $162 million and $200 million, which was estimated using various valuation methods, including (i) comparable public company analysis, a method to estimate the value of a company relative to other publicly traded companies with similar operations and financial characteristics; (ii) discounted cash flow analysis, a calculation of the present value of the future cash flows to be generated by the asset or business based on its projection, and (iii) precedent transaction analysis, a method to estimate the value of a company by examining comparable public merger and acquisition transactions. Based upon a reevaluation of relevant factors used in determining the range of enterprise value and updated expected cash flow projections, the Company concluded the enterprise value, or fair value, was $196.6 million.

The basis of the discounted cash flow analysis used in developing the enterprise value was based on Company prepared projections that included a variety of estimates and assumptions. While the Company considers such estimates and assumptions reasonable, they are inherently subject to significant business, economic and competitive uncertainties, many of which are beyond the Company’s control and, therefore, may not be realized. Changes in these estimates and assumptions may have had a significant effect on the determination of the Company’s enterprise value. The assumptions used in the calculations for the discounted cash flow analysis, which had the most significant effect on our estimated enterprise value, included the following: forecasted revenue, costs and free cash flows through 2023, discount rate of 15.1 %. A terminal value of $217.3 million was established, which was determined using a perpetual long-term growth rate of 3%.

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The four-column consolidated statement of financial position as of January 31, 2019, included herein, applies effects of the Plan and fresh start accounting to the carrying values and classifications of assets or liabilities. Upon adoption of fresh start accounting, the recorded amounts of assets and liabilities were adjusted to reflect their estimated fair values. Accordingly, the reported historical financial statements of the Predecessor Company prior to the adoption of fresh start accounting for periods ended on or prior to January 31, 2019 are not comparable to those of the Successor Company.

In applying fresh start accounting, the Company followed these principles:

The reorganization value, which represents the concluded enterprise value plus excess cash and cash equivalents and non-interesting bearing liabilities of the entity, was allocated to the entity’s reporting units in conformity with ASC 805, Business Combinations. The reorganization value exceeded the sum of the fair value assigned to assets and liabilities. This excess was recorded as Successor Company goodwill as of January 31, 2019.

Each asset and liability existing as of the fresh start accounting date, other than deferred taxes, has been stated at the fair value, and determined at appropriate risk adjusted interest rates.

Deferred taxes were reported in conformity with applicable income tax accounting standards, principally ASC 740, Income Taxes.

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The following four-column consolidated statement of financial position table identifies the adjustments recorded to the Predecessor Company’s January 31, 2019 Consolidated Balance Sheets as a result of implementing the Plan and applying fresh start accounting:



			Plan Effects			Fresh Start
(in thousands)	Predecessor		Adjustments			Adjustments			Successor
Assets
Current assets
Cash and cash equivalents	$	36,785	$	(19,738)	(a)	$	—		$	17,047
Marketable securities, available for sale		4,994		—			—			4,994
Accounts receivable		4,141		—			—			4,141
Inventory		2,299		28,364	(b)		3,175	(h)		33,838
Prepaid expenses and other current assets		2,497		1,446	(b)		—			3,943
Other receivables		133		—			—			133
Total current assets		50,849		10,072			3,175			64,096
Intangible assets, net		4,109		90,106	(b)		29,091	(i)		123,306
Restricted cash		400		—			—			400
Property and equipment, net		1,027		3,047	(b)		—			4,074
Right of use asset, net		1,854		—			—			1,854
Goodwill		—		—			58,747	(j)		58,747
Deposits and other assets		1,676		—			—			1,676
Total assets	$	59,915	$	103,225		$	91,013		$	254,153
Liabilities and stockholders’ (deficit) equity
Current liabilities:
Accounts payable		9,839		(1,500)	(a)		—			8,339
Accrued expenses		26,617		20,183	(c)		—			46,800
Deferred revenue		52		—			(52)	(k)		—
Debt - current		—		1,492	(d)		—			1,492
Acquisition-related contingent consideration		—		1,200	(d)		—			1,200
Other current liabilities		1,030		—			—			1,030
Total current liabilities		37,538		21,375			(52)			58,861
Debt - non-current portion, net		—		93,371	(d)		—			93,371
Acquisition-related contingent consideration		—		13,600	(d)		—			13,600
Deferred income tax liabilities		24		—			—			24
Other liabilities		1,463		—			(103)	(k)		1,360
Total liabilities not subject to compromise		39,025		128,346			(155)			167,216

Liabilities subject to compromise		138,884		(138,884)	(e)		—			—

Stockholders’ (deficit) equity:
Common stock		55		(46)	(f)		—			9
Additional paid in capital		276,880		(189,952)	(f)		—			86,928
Other comprehensive income (loss)		866		—			(866)	(l)		—
Accumulated deficit		(395,795)		303,761	(g)		92,034	(l)		—
Total stockholders’ (deficit) equity		(117,994)		113,763			91,168			86,937
Total liabilities and shareholders’ (deficit) equity	$	59,915	$	103,225		$	91,013		$	254,153

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Effects of Plan Adjustments

Reflects cash distribution of $18.2 million and reimbursement to Iroko for transaction expenses incurred on the acquisition of $1.5 million.

Reflects preliminary purchase accounting for Iroko Products Acquisition which was treated as a business combination for accounting purposes. Assets acquired and liabilities assumed are recorded at fair value on the acquisition date.



Iroko Purchase Price Allocation	(in thousands)
Iroko Note	$	45,000
Iroko Equity Value in Reorganization		41,630
Fair Value of Contingent Consideration		14,800
Iroko Promissory Note		4,500
Total Iroko Purchase Price	$	105,930

Identifiable Assets / (Liabilities)
Inventory	$	28,364
Prepaid expenses		1,446
Fixed Assets		3,047
Intangible — Indocin		90,106
Product Liability		(17,033)
Total Iroko Purchase Price	$	105,930
Goodwill attributable to Iroko acquisition	$	—

Adjustments to accrued expense reflect i) $2.15 million success fees to be paid after the Effective Date upon the completion of the Iroko Products Acquisition and Chapter 11 proceedings, ii) $1.0 million transaction fees to be paid after the Effective Date for expenses Iroko incurred in connection with the acquisition, and iii) $17.03 million product related liabilities such as rebate, coupon payment, etc. assumed from Iroko.

Reflects obligations entered into upon emergence to finance transactions effectuated by the Plan: i) $90.3 million in 13% Notes, net of discount for interest-free period, and a royalty rights agreement giving the right to receive payment equal to 1.5% of net sales on all reorganized entity products, ii) $4.5 million pursuant to the Interim Promissory Note, and iii) $14.8 million in contingent consideration. Specifically, the contingent consideration represents the fair value of future royalty payments due to Iroko in the event Indocin net sales exceed $20.0 million in any fiscal year between the Effective Date and January 31, 2029 (“Indocin Royalty”). The current portion of the 13% Notes, Interim Promissory Note, and Indocin Royalty is $1.1 million, $0.4 million, and $1.2 million, respectively.

The adjustment to liabilities subject to compromise relates to the extinguishment of the former 13% Notes and associated royalty rights, the 5.50% and 6.50% Notes, and rejected contracts. The former 13% Notes were settled with $50.0 million in aggregate principal amount of the 13% Notes newly issued common stock of the Successor Company representing approximately 19.38% of the common stock then outstanding, and $20.0 million in cash equal to the sum of adequate protection payments of $1.8 million and cash distribution of $18.2 million. The 5.50% and 6.50% Notes were settled with newly issued common stock of the Successor Company representing approximately 31.62% of the common stock then outstanding. Contracts rejected in the Chapter 11 cases did not receive any consideration.

Pursuant to the Plan, the Company’s predecessor common stock was cancelled, and new common stock and warrants were issued. The adjustment eliminated the Predecessor Company’s common stock, additional paid-in capital and recorded the Successor Company’s new $0.001 par value common stock, warrants and additional paid-in capital. The Company issued 9,360,968 shares of new common stock and additional paid-in capital of $60.8 million and $26.1 million of warrants. The warrants were valued using the Black Scholes model. Significant assumptions used in determining the fair value of such warrants at issuance include an assumed share price volatility of 60%, a risk-free rate of return of 2.43% with a 5 year term, and marketability discount between 7% and 20% for the lock-up periods.

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This adjustment reflects the net effect of the transaction related to the consummation of the Plan on Predecessor’s accumulated deficit. The table below provides a summary of the adjustments:


Liabilities subject to compromise	(in thousands)
13% Senior Secured Debt	$	85,438
5.50% Convertible Notes		24,650
6.50% Convertible Notes		23,888
Accrued interest		2,464
Accrued royalty rights ("Existing Senior Secured Royalty Rights")		2,119
Accrued expenses		325
Liabilities subject to compromise	$	138,884

Consideration given pursuant to the Plan:
Issuance of warrants	$	(14,303)
Issuance of new common stock		(31,004)
Issuance of new Senior Secured Notes		(45,363)
Cash payment		(18,238)
Total consideration given pursuant to the Plan	$	(108,908)

Gain on extinguishment of prepetition liabilities		29,976

Other adjustments to accumulated deficit:
Success fees		(2,150)
Reimbursement to Iroko of acquisition expense		(1,000)
Cancellation of Predecessor stock-based compensation expense		(3,814)
Tax related expenses on gain on extinguishment of prepetition liabilities		—
Total other adjustments		(6,964)

Extinguishment of Predecessor Common Stock and Additional-paid-in-capital		280,749
Total adjustments to accumulated deficit:	$	303,761

Fresh Start Adjustments

A $3.2 million adjustment was recorded to adjust the Company’s legacy inventory, excluding inventory assumed from Iroko, to fair value. The Company obtained an independent third-party valuation specialist’s assistance in the determination of the fair values of inventory. The inventory valuation included an analysis of net realizable value of the work in progress inventory and finished goods. Finished goods are valued using the comparative sales method as a function of the estimated selling price less the sum of any cost to complete, costs of disposal, holding costs, and a reasonable profit allowance. Carrying value of raw materials and packaging is assumed to represent a reasonable proxy for fair value.

Reflects fresh start adjustments recorded to adjust intangible assets related to the Company’s legacy products, SPRIX and OXAYDO, to fair value. The Company obtained independent-third party valuation specialist’s assistance in determination of the fair values of intangibles. SPRIX and OXAYDO intellectual property values are valued using the multi period excess earnings method under the income approach. The multi-period excess earnings method measures economic benefit indirectly by calculating the income attributable to an asset after appropriate returns are paid to complementary assets used in conjunction with the subject asset to produce contributory asset charges. Key components of the excess earnings methods include revenue, adjusted operating margin, charges for use of other assets, and discount rate.

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Adjustment to record the reorganization value of assets in excess of amounts allocated to identifiable tangible and intangible assets, also referred to as Successor Company goodwill. Estimated business enterprise value is developed for the combined company upon emergence from bankruptcy and therefore allocated to both identified tangible and intangible assets from the Predecessor Company and assumed from acquisition of Iroko.


	(in thousands)
Estimated business enterprise value	$	196,600
Add: Fair value of liabilities excluded from enterprise value		57,552
Less: Fair value of tangible assets		(72,099)
Less: Fair value of identified intangible assets		(123,306)
Reorganization value of assets in excess of amounts allocated to identified tangible and intangible assets (Successor company goodwill)	$	58,747

Total Successor Goodwill	$	58,747

Adjustments to eliminate deferred revenue and related product advance.

The Predecessor Company’s accumulated deficit and accumulated other comprehensive income was eliminated in conjunction with the adoption of fresh start accounting pursuant to ASC 852, Reorganization. The Predecessor Company recognized a $91.2 million gain related to the fresh start accounting adjustments related for revaluation of assets and liabilities as follows:


	(in thousands)
Establish Successor goodwill attributable to emergence from Chapter 11	$	58,747
Intangible fair value adjustments		29,091
Inventory fair value adjustments		3,175
Deferred revenue and product advance adjustments		155
Gain on fresh start adjustment for revaluation of assets and liabilities		91,168

Eliminate Predecessor Company Other comprehensive income		866
Total adjustment to stockholders' deficit	$	92,034

4. Revenue From Contracts with Customers

Revenue Recognition

Under ASC 606, revenue is recognized when, or as, performance obligations under the terms of a contract are satisfied, which occurs when control of the promised products or services is transferred to customers. To recognize revenue pursuant to the provisions of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect substantially all the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses whether the goods or services promised within each contract are distinct to determine those that are performance obligations.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or services to a customer (“transaction price”). The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. To the extent that the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price to which the Company expects to be entitled after giving effect to returns, rebates, sales allowances and other variable elements with contracts between the Company and its customers. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of

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variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance under the contract and all information (historical, current and forecasted) that is reasonably available. Sales taxes and other taxes collected on behalf of third parties are excluded from revenue.

When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying the significant financing practical expedient, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. None of the Company’s contracts contained a significant financing component during the period ended September 30, 2019.

The Company’s existing contracts with customers contain only a single performance obligation and, as such, the entire transaction price is allocated to the single performance obligation. Should future contracts contain multiple performance obligations, those would require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on observable prices or a cost-plus margin approach when one is not available.

The Company’s performance obligations are to provide pharmaceutical products to several wholesalers or a single specialty pharmaceutical distributor. All of the Company's performance obligations, and associated revenue, are generally transferred to customers at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring control of a promised good to a customer, which is typically upon delivery. Payments for invoices are generally due within 30 to 65 days of invoice date.

Disaggregation of Revenue

The following table reflects revenue by revenue source for the periods indicated:


	Successor		Predecessor		Successor		Predecessor
					Period from		Period from
	Three months		Three months		February 1, 2019		January 1, 2019		Nine months ended
	ended		ended		through		through		ended
(in thousands)	September 30, 2019		September 30, 2018		September 30, 2019		January 31, 2019		September 30, 2018
Product lines
INDOCIN products	$	11,240	$	—	$	30,844	$	—	$	—
SPRIX Nasal Spray		6,419		6,097		18,300		1,354		16,314
SOLUMATRIX products		1,344		—		6,166		—		—
OXAYDO		3,383		1,882		4,920		421		4,831
ARYMO ER		—		174		—		—		712
Total	$	22,386	$	8,153	$	60,230	$	1,775	$	21,857

Reserves for Variable Consideration

Revenues from product sales are recorded at the transaction price, which includes estimates of variable consideration for which reserves are established and which result from returns, rebates and sales allowances that are offered within or impacted by contracts between the Company and its customers. Where appropriate, these estimates take into consideration a range of possible outcomes which are probability-weighted for relevant factors such as the Company’s historical experience, current contractual requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract as of the date of determination. The amount of variable consideration which is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company adjusts these estimates, which would affect net product revenue and earnings in the period such variances become known.

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Product Returns

Consistent with industry practice, the Company generally offers customers a limited right of return for its products. The Company estimates the amount of its product sales that may be returned by its customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized. The Company estimates product return liabilities using the expected value method based on its historical sales information and other factors that it believes could significantly impact its expected returns, including product discontinuations, product recalls and expirations, of which it becomes aware. These factors include its estimate of actual and historical return rates for non-conforming product and open return requests.

Specialty Pharmacy Fees

The Company pays certain specialty pharmaceutical distributor fees based on a contractually determined rate. The Company records the fees on shipment to the distributor and recognizes the fees as a reduction of revenue in the same period the related revenue is recognized.

Wholesaler and Title Fees

The Company pays certain pharmaceutical wholesalers and its third-party logistics provider fees based on a contractually determined rate. The Company accrues these fees on shipments to the respective wholesalers and recognizes the fees as a reduction of revenue in the same period the related revenue is recognized.

Prompt Pay Discount

The Company offers cash discounts to its customers, generally 2% of the sales price, as an incentive for prompt payment. The Company estimates cash discounts using the mostly likely amount method by reducing accounts receivable by the prompt pay discount amount. The discount is recognized as a reduction of revenue in the same period as the related revenue.

Patient Discount Programs

The Company offers co-pay discount programs to patients for each of its products, in which patients receive a co-pay discount on their prescriptions. For discount amounts that are not immediately available, the Company estimates the total amount that will be redeemed using the expected value method based on the quantity of product shipped. The Company recognizes the discount as a reduction of revenue in the same period as the related revenue. As a result of actual co-pay experience related to Oxaydo product sales being more favorable than originally estimated, the Company reduced the Oxaydo co-pay sales allowance by approximately $2.3 million during the three months ended September 30, 2019.

Rebates and Chargebacks

The Company contracts with various commercial and government payor organizations for the payment of rebates and/or chargebacks with respect to utilization of its products. The Company estimates these rebates and chargebacks using the expected value method and records such estimates in the same period the related revenue is recognized, resulting in a reduction of net product sales and the establishment of an accrued expense.

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The following table reflects activity in each of the net product sales allowance and reserve categories for the periods indicated:


	Successor
	Fees and
	distribution		Co-pay
(in thousands)	costs		assistance		Rebates		Returns		Total
Balances at January 31, 2019	$	605	$	19,330	$	5,498	$	7,964	$	33,397
Allowances for current period sales		22,680		115,481		21,044		4,655		163,860
Payment and Adjustment of Assumed liabilities Iroko Products Acquisition		—		(5,791)		(2,799)		(836)		(9,426)
Credits or payments made for prior period sales		(605)		(13,540)		(2,699)		(1,562)		(18,406)
Credits or payments made for current period sales		(17,032)		(93,046)		(14,370)		—		(124,448)
Balances at September 30, 2019	$	5,648	$	22,434	$	6,674	$	10,221	$	44,977

Total gross product sales									$	224,090

Total provision for product sales allowances and accruals as a percentage of total gross sales										73%



	Predecessor
	Fees and
	distribution		Co-pay
(in thousands)	costs		assistance		Rebates		Returns		Total
Balances at December 31, 2018	$	462	$	13,326	$	2,664	$	2,020	$	18,472
Allowances for current period sales		568		6,593		594		28		7,783
Assumed liabilities Iroko Products Acquisition		—		5,791		2,799		5,944		14,534
Credits or payments made for prior period sales		(361)		(6,380)		(559)		(28)		(7,328)
Credits or payments made for current period sales		(64)		—		—		—		(64)
Balances at January 31, 2019	$	605	$	19,330	$	5,498	$	7,964	$	33,397

Total gross product sales									$	9,559

Total provision for product sales allowances and accruals as a percentage of total gross sales										81%


	Predecessor
	Fees and
	distribution		Co-pay
(in thousands)	costs		assistance		Rebates		Returns		Total
Balances at December 31, 2017	$	595	$	3,644	$	579	$	—	$	4,818
Adjustment for ASU 2014-09		—		4,221		656		—		4,877
Allowances for current period sales		6,038		52,441		5,383		2,729		66,591
Adjustment related to prior period sales		—		—		180		—		180
Credits or payments made for prior period sales		(555)		(7,866)		(1,235)		—		(9,656)
Credits or payments made for current period sales		(5,448)		(40,081)		(3,341)		(650)		(49,520)
Balances at September 30, 2018	$	630	$	12,359	$	2,222	$	2,079	$	17,290

Total gross product sales									$	88,628

Total provision for product sales allowances and accruals as a percentage of total gross sales										75%

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Transaction Price Allocated to Future Performance Obligations

ASC 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of September 30, 2019. The guidance provides certain practical expedients that limit this requirement including performance obligations that are part of a contract that has an original expected duration of one year or less. All of the Company’s contracts are eligible for the practical expedient provided by ASC 606, therefore the Company elected not to disclose any remaining performance obligations.

Contract Balances from Contracts with Customers

When the Company receives consideration from a customer, or such consideration is unconditionally due from a customer prior to the transfer of goods or services to the customer under the terms of a contract, the Company records a contract liability. Contract liabilities are recognized as revenue after control of the products is transferred to the customer and all revenue recognition criteria have been met. The Company classifies contract liabilities as deferred revenue. The Company had no deferred revenue as of September 30, 2019 or December 31, 2018.

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 September 30, 2019 or December 31, 2018.

Costs to Obtain and Fulfill a Contract

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 has elected to account for these as costs to fulfill the promise and not as a separate performance obligation. Shipping and handling costs associated with the distribution of finished products to customers are expensed as incurred and are recorded in costs of goods sold in the accompanying consolidated statements of operations. The Company expenses incremental costs of obtaining a contract with a customer (for example, commissions) when incurred as the period of benefit is less than one year.

5. Investments

Marketable Securities

The Company owned no marketable securities as of September 30, 2019.

The following table reflects marketable securities of the Predecessor Company as of December 31, 2018:


(in thousands)	Cost Basis		Unrealized Gains		Unrealized Losses		Fair Value
Corporate notes and bonds	$	4,990	$	—	$	(2)	$	4,988
Total	$	4,990	$	—	$	(2)	$	4,988

6. Inventory

Inventory is stated at the lower of cost or market using actual cost net of reserve for excess and obsolete inventory. The following table reflects the components of inventory as of September 30, 2019 and December 31, 2018:


	Successor		Predecessor
	September 30,		December 31,
(in thousands)	2019		2018
Raw materials	$	1,449	$	1,374
Work in process		3,038		665
Finished goods		5,051		600
Total	$	9,538	$	2,639

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As a result of the Iroko Products Acquisition as of January 31, 2019, the SOLUMATRIX and INDOCIN products inventory was acquired and reflected at fair value of $28.4 million, with $27.1 million of finished goods inventory and $1.3 million of raw materials inventory. As of September 30, 2019, the fair value of the Company’s SOLUMATRIX and INDOCIN products inventory is $5.4 million, with $3.6 million of finished goods, $1.4 million of work-in-process inventory and $0.4 million of raw materials.

As a result of fresh start accounting, the Company’s SPRIX Nasal Spray and OXAYDO inventory was adjusted to its fair value of $5.5 million as of January 31, 2019. The fair value adjustment totaled $3.2 million, with $2.2 million related to work in process inventory and $1.0 million related to finished goods inventory. As of September 30, 2019, SPRIX and OXAYDO inventory was $4.1 million and the fair value adjustment had been fully expensed.

7. Intangible Assets and Goodwill

The following table reflects the balance of the intangible assets of the Successor Company as of September 30, 2019:


	Gross				Net		Remaining Useful
	Intangible		Accumulated		Intangible		Life
(in thousands)	Assets		Amortization		Assets		(in years)
INDOCIN product rights	$	90,106	$	(6,674)	$	83,432	8.34
SPRIX Nasal Spray product rights		31,900		(2,363)		29,537	8.34
OXAYDO product rights		1,300		(289)		1,011	2.34
Goodwill		58,747		—		58,747	N/A
Total	$	182,053	$	(9,326)	$	172,727

The following table reflects the balance of the intangible assets of the Predecessor Company as of December 31, 2018


	Gross				Net		Remaining Useful
	Intangible		Accumulated		Intangible		Life
(in thousands)	Assets		Amortization		Assets		(in years)
OXAYDO product rights	$	7,623	$	(4,330)	$	3,293	3.00
SPRIX Nasal Spray product rights		4,831		(3,843)		988	1.00
Total	$	12,454	$	(8,173)	$	4,281

As a result of fresh start accounting, the OXAYDO and SPRIX Nasal Spray product rights and their remaining useful lives were revalued. The value of the OXAYDO product rights were reduced to $1.3 million and the remaining useful life decreased to 3 years as of January 31, 2019. The SPRIX Nasal Spray product rights were increased to $31.9 million and the remaining useful life increased to 9 years as of January 31, 2019.

As a result of the Iroko Products Acquisition, the Company acquired the product rights to the INDOCIN products. The fair value of the INDOCIN product rights was determined to be $90.1 million and the remaining useful life to be 9 years as of January 31, 2019.

On January 31, 2019, the Company recognized $58.7 million of goodwill as a result of fresh start accounting adjustments. See Note 3—Fresh Start Accounting for additional details.

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8. Accrued Expenses

The following table reflects the components of accrued expenses for the periods indicated:



	Successor		Predecessor
(in thousands)	September 30,		December 31,
	2019		2018
Sales allowances	$	38,603	$	17,174
Interest		2,714		1,049
Payroll and related		2,249		3,567
Professional services		1,680		1,847
Sales and marketing		871		—
Restructuring		733		81
Royalties		710		34
Manufacturing services		264		—
Other		1,801		832
	$	49,625	$	24,584

9. Debt

Successor Company Debt

The following table reflects the Successor Company’s debt as of September 30, 2019:


	September 30, 2019
(in thousands)
Series A-1 Notes	$	50,000
Series A-2 Notes		45,000
Royalty rights obligation		5,769
Credit agreement		5,000
Interim promissory note		4,500
		110,269
Unamortized debt discounts		(5,820)
Unamortized deferred financing fees		(864)
Carrying value		103,585
Less: current portion of long-term debt		(6,990)
Net, long-term debt	$	96,595

13% Senior Secured Notes Indenture Due 2024

On the Effective Date, the Company issued $95.0 million aggregate principal amount of its 13% senior secured notes (the “13% Notes”) and entered into an indenture (the “Indenture”) governing the 13% Notes with the guarantors party thereto (the “Guarantors”) and Wilmington Savings Fund Society, previously held by U.S. Bank National Association, as trustee (the “Trustee”) and collateral agent (the “Collateral Agent”). The 13% Notes were issued in two series: (x) $50.0 million of “Series A-1 Notes”, issued pursuant to the Plan to former holders of First Lien Secured Notes Claims (the “former 13% Notes”) and which was subject to an interest holiday from the Effective Date through November 1, 2019 and (y) $45.0 million of “Series A-2 Notes,” issued to Iroko and certain of its affiliates and which are subject to the rights of set-off and recoupment and related provisions set forth in the Purchase Agreement. On the Effective Date, the Company recorded a discount associated with the interest holiday on the Series A-1 Notes of $4.6 million. The obligations of the Company under the Indenture and the 13% Notes are unconditionally guaranteed on a secured basis by the Guarantors.

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Interest on the 13% Notes accrues at a rate of 13% per annum and is payable semi-annually in arrears on May 1 and November 1 of each year (each, a “Payment Date”) commencing on May 1, 2019 (subject to the interest holiday referred to above with respect to the Series A-1 Notes). On each Payment Date, the Company will also pay an installment of principal on the 13% Notes in an amount equal to 15% of the aggregate net sales of OXAYDO (oxycodone HCI, USP) tablets for oral use only —CII, SPRIX (ketorolac tromethamine) Nasal Spray, ARYMO ER, Egalet-002, the SOLUMATRIX® products and the INDOCIN products for the two consecutive fiscal quarter period most recently ended, less the amount of interest paid on the 13% Notes on such Payment Date.

The 13% Notes are senior secured obligations of the Company and will be equal in right of payment to all existing and future pari passu indebtedness of the Company, will be senior in right of payment to all existing and future subordinated indebtedness of the Company, will have the benefit of a security interest in the 13% Notes collateral and will be junior in lien priority in respect of any collateral that secures any first priority lien obligations incurred from time to time in accordance with the Indenture. The stated maturity date of the 13% Notes is January 31, 2024. Upon the occurrence of a Change of Control, subject to certain conditions, or certain Asset Sales events (each, as defined in the Indenture), holders of the 13% Notes may require the Company to repurchase for cash all or part of their 13% Notes at a repurchase price equal to 101% of the principal amount of the 13% Notes to be repurchased, plus accrued and unpaid interest to the date of repurchase.

The Company may redeem the 13% Notes at its option, in whole or in part from time to time, prior to January 31, 2020, at a redemption price equal to 100% of the principal amount of the 13% Notes being redeemed, plus accrued and unpaid interest, if any, through the redemption date, plus a make-whole premium computed using a discount rate equal to the treasury rate in respect of such redemption date plus 1%. The Company may redeem the 13% Notes at its option, in whole or in part from time to time, on or after January 31, 2020, at a redemption price equal to: (i) from and including January 31, 2020 to and including January 30, 2021, 103% of the principal amount of the 13% Notes to be redeemed and (ii) from and including January 31, 2021 and thereafter, 100% of the principal amount of the 13% Notes to be redeemed, in each case, plus accrued and unpaid interest to the redemption date. In addition, prior to January 31, 2020, the Company may redeem, at its option, up to 35% of the aggregate principal amount of the 13% Notes with the proceeds of one or more public or private equity offerings at a redemption price equal to 113.50% of the aggregate principal amount of the 13% Notes to be redeemed, plus accrued and unpaid interest to the date of redemption in accordance with the Indenture; provided that at least 65% of the aggregate principal amount of 13% Notes issued under the Indenture remains outstanding immediately after each such redemption and provided further that each such redemption occurs within 90 days of the date of closing of each such equity offering. No sinking fund is provided for the 13% Notes, which means that the Company is not required to periodically redeem or retire the 13% Notes.

Pursuant to the Indenture, the Company and its restricted subsidiaries must also comply with certain affirmative covenants, such as furnishing financial statements to the holders of the 13% Notes, and negative covenants, including limitations on the following: the incurrence of debt; the issuance of preferred and/or disqualified stock; the payment of dividends, the repurchase of shares and under certain conditions making certain other restricted payments; the prepayment, redemption or repurchase of subordinated debt; the merger, amalgamation or consolidation involving the Company; engaging in certain transactions with affiliates; and the making of investments other than those permitted by the Indenture. In addition, commencing December 31, 2019, the Company must maintain a minimum level of consolidated liquidity, based on unrestricted cash on hand and availability under any revolving credit facility, equal to the greater of (1) the quotient of the outstanding principal amount of the Notes divided by 9.5 and (2) $7.5 million.

The Indenture governing the 13% Notes contains customary events of default with respect to the 13% Notes (including the Company’s failure to make any payment of principal or interest on the 13% Notes when due and payable or the Company’s failure to comply with the minimum consolidated liquidity covenant described above), and upon certain events of default occurring and continuing, the Trustee by notice to the Company, or the holders of at least 25% in principal amount of the outstanding 13% Notes by notice to the Company and the Trustee, may (subject to the provisions of the Indenture) declare 100% of the principal of and accrued and unpaid interest, if any, on all the 13% Notes to be due and payable. Upon such a declaration of acceleration, such principal and accrued and unpaid interest, if any, as well as the then-applicable optional redemption premium under the Indenture, will be due and payable immediately. In the case of certain events of bankruptcy, insolvency or reorganization involving the Company or a Restricted Subsidiary (as defined in the Indenture), the Notes will automatically become due and payable. With respect

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to any event of default due to the Company’s non-compliance with the minimum liquidity covenant, the Company may, within ten business days, cure such default through the issuance of equity securities, subordinated debt securities or certain other capital contributions.

Preemptive Rights Agreements

On the Effective Date, the Company entered into preemptive rights agreements (the “Preemptive Rights Agreements”) with certain of the holders of the former 13% Notes. The Preemptive Rights Agreements provide for customary preemptive rights in favor of the parties thereto with respect to certain future issuances of debt or equity securities by the Company, subject to certain exceptions, for so long as such party continues to hold at least 2.5% of the outstanding shares of the Company’s common stock.

Collateral Agreement

On the Effective Date and in connection with its entry into the Indenture, the Company entered into a collateral agreement, dated as of the Effective Date, with the Collateral Agent and the subsidiary parties from time to time party thereto (the “Collateral Agreement”). Pursuant to the terms of the Collateral Agreement, the Notes and the related guarantees are secured by a first priority lien on substantially all of the Company’s and the Guarantors’ assets, in each case, subject to certain prior liens and other exclusions, and a pledge of 65% of the voting equity interests and 100% of the non-voting equity interests of the Company’s foreign subsidiaries (other than Egalet Limited and any Specified IP Subsidiary (as defined in the Indenture), of which 100% of the voting equity interests have been pledged) to the extent and only for so long as the Company determines in good faith that permitting a pledge of 100% of such voting Equity Interests would result in material adverse tax consequences for the Company or any of its subsidiaries, it being understood that, if a percentage less than 100% but greater than 65% of such voting equity interests may be pledged without any such material adverse tax consequences, then such percentage shall be pledged.

Royalty Rights Obligation

In connection with 13% Notes, the Company entered into royalty rights agreements (the “Royalty Rights”) with each of the holders of the 13% Notes pursuant to which the Company will pay the holders of the 13% Notes an aggregate 1.5% royalty on Net Sales (as defined in the Indenture) from the Effective Date through December 31, 2022.

The Royalty Rights were determined to be a freestanding element with respect to the 13% Notes and the Company is accounting for the Royalty Rights obligation relating to future royalties as a debt instrument. The Company has Royalty Rights obligations of $5.8 million as of September 30, 2019, which are classified as current and non-current debt in the Company’s Consolidated Balance Sheets.

The accounting for the 13% Notes requires the Company to make certain estimates and assumptions about the future net sales. The estimates of the magnitude and timing of net sales are subject to significant variability due to the extended time period associated with the financing transaction, and are thus subject to significant uncertainty. Therefore, these estimates and assumptions are likely to change, which may result in future adjustments to the portion of the debt that is classified as a current liability, the amortization of debt issuance costs and discount as well as the accretion of the interest expense. Any such adjustments could be material. On the Effective Date, the fair value of the Royalty Rights obligation associated with net product sales was estimated to be approximately $5.7 million using a probability-weighted present value analysis. On the Effective Date, the Royalty Rights obligation was recorded with an offsetting discount recognized on the 13% Notes.

Credit Agreement

On March 20, 2019, (the “Closing Date”), the Company entered into a credit agreement (the “Credit Agreement”) with Cantor Fitzgerald Securities as administrative agent and collateral agent (in such capacities, the “Agent”) and certain funds managed by Highbridge Capital Management, LLC, as lenders (collectively, the “Lenders”), which Credit Agreement consists of a $20.0 million revolving line of credit. The Company drew $5.0 million on the Closing Date and must maintain at least 25% of the commitment amount outstanding at all times. The Company will use

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the proceeds of the loans under the Credit Agreement for working capital purposes and to pay costs and expenses incurred by the Credit Agreement and related transactions. This arrangement will be recognized as a related party transaction as the Lenders are holders of a portion of the Company’s 13% Notes that were issued on January 31, 2019.

Advances under the Credit Agreement bear interest at the Company’s option at either the LIBOR Rate (as defined in the Credit Agreement) plus 5.00% or the Base Rate (as defined in the Credit Agreement) plus 4.00%. The Credit Agreement matures on March 20, 2022.

The obligations of the Company under the Credit Agreement are unconditionally guaranteed on a senior secured basis by the Company’s wholly-owned subsidiaries, Zyla Life Sciences US Inc. and Egalet Ltd. (collectively, the “Guarantors”). As security for the Company’s obligations under the Credit Agreement, the Company and the Guarantors have granted to the Agent, for the benefit of the Lenders and other secured parties, a first priority lien on substantially all of their tangible and intangible personal property (other than certain specified excluded assets), including proceeds and accounts related to this property and the capital stock of the Guarantors, pursuant to the terms of that certain Collateral Agreement, dated as of the Closing Date (the “Collateral Agreement”), among the Company and the Guarantors in favor of the Agent for the benefit of the Lenders and other secured parties. The Credit Agreement will (i) be equal in right of payment to all existing and future pari passu indebtedness of the Company, (ii) be senior in right of payment to the obligations of the Company pursuant to that certain Indenture, dated as of January 31, 2019 (the “Indenture”), among the Company, the Guarantors and U.S. Bank National Association, as trustee and collateral agent, and (iii) be senior in right of payment to all existing and future subordinated indebtedness of the Company.

The Company may terminate the commitments under the Credit Agreement at its option, in whole or in part from time to time, subject to a termination fee equal to (x) 1.0% from the Closing Date through March 20, 2020 and (y) 0.50% from March 20, 2020 through March 20, 2021.

Pursuant to the Credit Agreement, the Company and its subsidiaries must also comply with certain customary affirmative covenants, such as furnishing financial statements to the Lenders, and negative covenants, including limitations on the following: incurring debt; issuing preferred and/or disqualified stock; paying dividends, repurchasing shares and, under certain conditions, making certain other restricted payments; prepaying, redeeming or purchasing subordinated debt; conducting a merger or consolidation involving the Company; engaging in certain transactions with affiliates; disposing of assets under certain circumstances; and making certain investments, in each case, other than those permitted by the Credit Agreement. In addition, commencing with the fiscal quarter ending on December 31, 2019, the Company must maintain a minimum level of consolidated liquidity, based on unrestricted cash on hand and availability under any revolving credit facility, equal to the greater of (1) the quotient of the outstanding principal amount of the senior secured notes issued pursuant to the Indenture divided by 9.5 and (2) $7,500,000. As of September 30, 2019 the Company’s minimum level of consolidated liquidity is $10.0 million.

The Credit Agreement contains customary events of default (including the Company’s failure to make any payment of principal or interest when due and payable, the failure to comply with the minimum consolidated liquidity covenant or other covenants described above, or upon a Change of Control (as defined in the Credit Agreement)), and, upon such events of default occurring and continuing, the Lenders may accelerate the loans. In the event of certain events of bankruptcy, insolvency or reorganization involving the Company or its subsidiaries, the obligations under the Credit Agreement will automatically become due and payable. With respect to any event of default due to the Company’s non-compliance with the minimum liquidity covenant (described above), the Company may, within ten business days, cure such default through the issuance of equity securities, subordinated debt securities or certain other capital contributions.

On the Closing Date and in connection with its entry into of the Credit Agreement, the Company and the Guarantors entered into the Collateral Agreement, which granted a first priority lien on substantially all of the Company’s and the Guarantors’ assets, in each case subject to certain existing liens and other exclusions.

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Interim Promissory Note

On the Effective Date, pursuant to the Purchase Agreement, the Company issued a $4.5 million promissory note to an affiliate of Iroko in respect of certain inventory purchases by Iroko as a part of the Iroko Products Acquisition (the “Interim Promissory Note”). The Interim Promissory Note bears interest at a rate of 8% per annum (payable by way of increasing the principal amount of the Interim Promissory Note on each interest payment date) and matures on July 31, 2020.

The following table reflects unamortized discounts and deferred financing fees on Successor Company debt as of September 30, 2019:


			Deferred
(in thousands)	Discounts		Financing Fees
Series A-1 Notes, interest holiday	$	2,414	$	—
13% Notes, Royalty Rights Obligation		3,234		—
Credit agreement		172		864
	$	5,820	$	864

The following table reflects the Company’s estimated future principal payments as of September 30, 2019, and excludes payments to be made under the Royalty Rights Obligation, which are included in the carrying value of the Company’s current and non-current debt on the Company’s Consolidated Balance Sheet as of September 30, 2019:


(in thousands)
Remainder of 2019	$	—
2020		6,558
2021		4,594
2022		12,007
2023		9,848
2024		71,493

Predecessor Company Debt

Former 13% Senior Secured Notes

In August 2016 and January 2017, the Company issued a total of $80.0 million aggregate principal amount of the 13% Notes (the “former 13% Notes”). The former 13% Notes were sold only to qualified institutional buyers within the meaning of Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”).

The former 13% Notes were senior secured obligations of the Company and equal in right of payment to all existing and future pari passu indebtedness of the Company (including the 5.50% Notes), were senior in right of payment to all existing and future subordinated indebtedness of the Company, had the benefit of a security interest in the Notes collateral and are junior in lien priority in respect of any collateral that secures any first priority lien obligations incurred, which includes intellectual property, from time to time in accordance with the indenture governing the former 13% Notes.

On the Effective Date, in addition to the cash settlement of $20.0 million, the outstanding 13% Notes were converted into the number of shares of common stock of the Company (or Warrants) representing, in the aggregate, 19.4% of the shares outstanding as of the Effective Date and the issuance of the Series A-1 Notes of $50.0 million. As of December 31, 2018, a total of $80.0 million in principal amount of the former 13% Notes remained outstanding. Refer to Note 3 – Fresh Start Accounting for further details.

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Former 5.50% Convertible Senior Notes

In April and May 2015, the Company issued through a private placement $61.0 million in aggregate principal amount of the 5.50% Convertible Senior Notes (the “5.50% Notes”).

The 5.50% Notes were general, unsecured and unsubordinated obligations of the Company and ranked senior in right of payment to all of the Company’s indebtedness that was expressly subordinated in right of payment to the 5.50% Notes. The 5.50% Notes were effectively subordinated to any secured indebtedness of the Company to the extent of the value of the assets securing such indebtedness.

On the Effective Date, the outstanding 5.50% Notes were cancelled and the 5.50% noteholders received shares of common stock of the Successor Company (or warrants) representing, in the aggregate, 16.1 % of the shares of common stock outstanding as of the Effective Date. As of September 30, 2019, the 5.50% Notes were no longer outstanding. As of December 31, 2018, a total of $24.7 million in principal amount of the 5.50% Notes remained outstanding. Refer to Note 3 – Fresh Start Accounting for further details.

Former 6.50% Convertible Notes

In December 2017, the Company entered into exchange agreements (the “Exchange Agreements”) with certain holders (the “Holders”) of the Company’s 5.50% Notes pursuant to which the Holders agreed to exchange, in the aggregate, approximately $36.4 million of outstanding principal amount of the 5.50% Notes for, in the aggregate, (i) approximately $23.9 million of 6.50% Convertible Senior Notes due 2024 (the “6.50% Notes”) issued by the Company, (ii) a warrant exercisable for 3,500,000 shares of the Company’s common stock at an exercise price of $0.01 per share and (iii) payments, in cash, of all accrued but unpaid interest as of the closing on the 5.50% Notes exchanged in the transaction (the “Exchange”). At the closing of the Exchange, 2,500,000 warrants were exercised. The remaining 1,000,000 warrants were exercised in January 2018.

On the Effective Date, the outstanding 6.50% Notes were cancelled, and the 6.50% noteholders received shares of common stock of the Successor Company (or warrants) representing, in the aggregate, 15.5% of the shares of common stock outstanding as of the Effective Date. As of September 30, 2019, the 6.50% Notes were no longer outstanding. As of December 31, 2018, a total of $23.9 million in principal amount of the 6.50% Notes remained outstanding. Refer to Note 3 – Fresh Start Accounting for further details.

10. Leases

The Company leases office space, vehicles and office equipment under operating lease arrangements. The leases have initial lease terms ranging from one to five years. Certain of the Company’s leases contain renewal options to extend the lease, which if the Company determined it is reasonably certain to exercise, that renewal option would be included in the total lease term.

The Company accounts for its leases in accordance with ASC 842. The Company determines if an arrangement is a lease at contract inception. A lease exists when a contract conveys to the Company the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The definition of a lease embodies two conditions: (1) there is an identified asset in the contract that is land or a depreciable asset (i.e., property, plant, and equipment), and (2) the Company has the right to control the use of the identified asset and to obtain substantially all of the economic benefits from using the underlying asset.

Right-of-use assets represent the Company’s right to control the use of an explicitly or implicitly identified fixed asset for a period of time and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating leases where the Company is the lessee are included in ROU assets, Other current liabilities and Other long-term liabilities on the Company’s consolidated balance sheets. The lease liabilities are measured at the present value of the unpaid lease payments at the lease commencement date. Key estimates and judgments include how the Company determined the incremental borrowing rate (“IBR”) it uses to present value the unpaid lease payments, the lease term and lease payments.

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ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its IBR. The Company’s leases do not provide an implicit rate, therefore, management uses its IBR based on the information available at commencement date in determining the present value of lease payments.

The lease term for all of the Company’s leases includes the noncancelable period of the lease. Lease payments included in the measurement of the lease asset or liabilities comprised of fixed payments. The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date less any lease incentives received. For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

The Company recognizes lease expense associated with its short-term leases as an expense on a straight-line basis over the lease term. Variable lease payments are presented in the Company’s consolidated statements of operations in the same line item as expense arising from fixed lease payments for operating leases.

The following table reflects the components of lease expense as of the periods indicated:


	Successor		Successor		Predecessor
			Period from		Period from
	Three months		February 1, 2019		January 1, 2019
	ended		through		through
(in thousands)	September 30, 2019		September 30, 2019		January 31, 2019

Operating lease expense:
Fixed lease cost	$	252	$	598	$	69
Total operating lease expense	$	252	$	598	$	69

The following table reflects supplemental balance sheet information related to leases as of September 30, 2019:


		Successor
(in thousands)	Location in Balance Sheet	As of September 30, 2019
Operating leases
Operating lease ROU asset	ROU asset - operating lease	$	2,885

Current operating lease liabilities	Other current liabilities		976
Non-current operating lease liabilities	Other liabilities		2,329
Total operating lease liability		$	3,305

The following table reflects supplement lease term and discount rate information related to leases as of September 30, 2019:


	Successor
	As of September 30, 2019

Weighted-average remaining lease term		3.18	years

Weighted-average discount rate		8.00%

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The following table reflects supplemental cash flow information related to leases as of the periods indicated:


	Successor		Predecessor
	Period from		Period from
	February 1, 2019		January 1, 2019
	through		through
(in thousands)	September 30, 2019		January 31, 2019

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	846	$	—

Right-of-use assets obtained in exchange for lease obligations:
New operating lease - Fleet vehicles	$	2,026	$	2,478
Termination of operating lease -Fleet vehicles		(677)		—

The following table reflects future minimum lease payments under noncancelable leases as of September 30, 2019:


(in thousands)
2019 (excludes the nine months ended September 30, 2019)	$	318
2020		1,274
2021		1,227
2022		634
2023		232
Thereafter		—
Total lease payments		3,685
Less: Imputed interest		(380)
Total minimum lease payments	$	3,305

11. Stockholders’ Equity

Successor

Preferred Stock

The Successor Company’s certificate of incorporation authorizes it to issue up to 5,000,000 shares of preferred stock with a par value of $0.001 per share. As of September 30, 2019, there were no preferred shares outstanding.

Common Stock

The Successor Company’s certificate of incorporation authorizes it to issue up to 100,000,000 shares of common stock with a par value of $0.001 per share. As of September 30, 2019, there were 9,360,968 shares issued and outstanding. Outstanding shares were issued to holders of Predecessor first lien obligations and convertible notes claims of 4,774,093 shares and Iroko and its affiliates of 4,586,875 shares.

Amended and Restated Charter and Bylaws

On February 1, 2019, in accordance with the Plan, the Company’s Fourth Amended and Restated Certificate of Incorporation (as amended and restated, the “A&R Charter”) was filed with the Secretary of State of the State of Delaware, at which time the A&R Charter became effective. Among other things, the A&R Charter decreases the number of shares of authorized common stock of the Company from 275,000,000 to 100,000,000 and decreases the maximum number of directors that may serve on the Company’s Board of Directors to seven.

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On the Effective Date, pursuant to the Plan, the Company’s Second Amended and Restated Bylaws (the “A&R Bylaws”) became effective. Among other things, the A&R Bylaws provide for special director nomination procedures, related party transaction approval procedures and independence requirements with respect to certain directors appointed by the Supporting Noteholders pursuant to the Plan (or such directors successors), in each case, for a two-year period following the Effective Date.

Effective June 3, 2019, the Company changed its name to Zyla Life Sciences by filing an amendment to the A&R Charter. A copy of the amendment to the Charter is filed as Exhibit 3.2 to this Quarterly Report on Form 10-Q. In addition, the A&R Bylaws were amended to reflect the name change to Zyla Life Sciences and to expressly permit communications between and among stockholders and directors of the Company by means of electronic transmissions. A copy of the amendment to the A&R By-laws is attached hereto as Exhibit 3.4 to this Quarterly Report on Form 10-Q.

Stockholders’ Agreement

On the Effective Date, the Company entered into a stockholders’ agreement (the “Stockholders’ Agreement”) with Iroko and certain of its affiliates. Pursuant to the Stockholders’ Agreement, Iroko and the other stockholder parties agreed to a customary lock-up with respect to their shares of common stock for a period of 90 days following the Effective Date and a customary standstill provision for a period of 24 months following the Effective Date, in each case, subject to certain exceptions. In addition, pursuant to the Stockholders’ Agreement, the stockholder parties are entitled to designate two nominees to the Company’s Board of Directors for so long as such entities hold at least 25% of the equity consideration received on the Effective Date. The Stockholders’ Agreement also provides for customary preemptive rights in favor of the stockholder parties with respect to future issuance of equity securities by the Company, subject to certain exceptions.

Warrant Agreements

On the Effective Date, the Company entered into warrant agreements (the “Warrant Agreements”) with Iroko, certain of Iroko’s affiliates and certain other parties entitled to receive shares of the Company’s common stock as consideration pursuant to the Purchase Agreement or in satisfaction of certain claims pursuant to the Plan. Pursuant to the Warrant Agreements, the Company issued warrants to purchase up to an aggregate of 4,972,365 shares of the Company’s common stock. The warrants are exercisable at any time at an exercise price of $0.001 per share, subject to certain ownership limitations including, with respect to Iroko and its affiliates, that no such exercise may increase the aggregate ownership of the Company’s outstanding common stock of such parties above 49% of the number of shares of its common stock then outstanding for a period of 18 months. All of the Company’s outstanding warrants have similar terms whereas under no circumstance may the warrants be net-cash settled. As such, all warrants are equity-classified.

Predecessor

In connection with the Company’s Plan of Reorganization and emergence from bankruptcy, all equity interests in the Predecessor Company were cancelled, including common stock and equity-based awards.

Registration Rights Agreement

On the Effective Date, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with Iroko pursuant to which the Company agreed to file with the SEC, upon Iroko’s request at any time following the date which is 180 days following the date on which any equity securities of the Company are accepted for listing on any national securities exchange, a registration statement on Form S-1 or Form S-3, and thereafter to use its commercially reasonable efforts to cause to be declared effective as promptly as practicable, one or more registration statements for the offer and resale of the Company’s common stock held by Iroko and certain of its affiliates. The Registration Rights Agreement contains other customary terms and conditions, including, without limitation, provisions with respect to blackout periods, underwriter cutbacks, reimbursement of expenses and indemnification.

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12. Fair Value Measurements

The Company measures certain assets and liabilities at fair value in accordance with ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (the exit price) in an orderly transaction between market participants at the measurement date. The guidance in ASC 820 outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. In determining fair value, the Company maximizes the use of quoted prices and observable inputs. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. The fair value hierarchy is broken down into three levels based on the source of inputs as follows:

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2—Valuations based on observable inputs and quoted prices in active markets for similar assets and liabilities.

Level 3—Valuations based on inputs that are unobservable and models that are significant to the overall fair value measurement.

Cash equivalents - Cash equivalents primarily consisted of money market funds with overnight liquidity and no stated maturities. The Company classified cash equivalents as Level 1, due to their short-term maturity, and measured the fair value based on quoted prices in active markets for identical assets.

Acquisition-related contingent consideration - As of September 30, 2019, the Company had obligations to make contingent payment consideration for future royalties to Iroko based upon annual INDOCIN product net sales over $20.0 million. Pursuant to the Iroko Products Acquisition, the Company recorded the acquisition-date fair value of these contingent liabilities, based on the likelihood of contingent earn-out payments. The earn-out payments are subsequently remeasured to fair value each reporting date. The Company classified the acquisition-related contingent consideration liabilities to be settled in cash as Level 3, due to the lack of relevant observable inputs and market activity. Changes in assumptions described above could have an impact on the payout of contingent consideration.

The following table reflects fair value hierarchy information about each major category of the Company’s financial assets and liabilities measured, at fair value on a recurring basis, for the periods indicated:


(in thousands)	Fair Value Measurements as of September 30, 2019
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents (money market funds)	$	76	$	—	$	—	$	76
Total assets	$	76	$	—	$	—	$	76

Liabilities
Acquisition-related contingent consideration	$	—	$	—	$	18,300	$	18,300
Total liabilities	$	—	$	—	$	18,300	$	18,300


(in thousands)	Fair Value Measurements as of December 31, 2018
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents (money market funds)	$	22,996	$	—	$	—	$	22,996
Marketable securities, available-for-sale		—		4,988		—		4,988
Total assets	$	22,996	$	4,988	$	—	$	27,984

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The following table reflects a rollforward of our Level 3 liabilities:


(in thousands)

Balance at January 31, 2019	$	14,800
Change in fair value of contingent consideration		3,500
Balance at September 30, 2019	$	18,300

The fair value of the contingent consideration was determined using an income approach based on projected INDOCIN product net sales and appropriate discount rates. The fair value of the contingent consideration is remeasured each reporting period, with changes in fair value recorded in the consolidation statements of operations. The change in fair value of the contingent consideration during the three months ended September 30, 2019 was primarily due to the product net sales forecast and discount rates.

13. Net (Loss) Income Per Common Share

On the Effective Date the Predecessor Company's equity was cancelled and new equity was issued. Additionally, the Predecessor Company's 5.50% and 6.50% Convertible Notes were cancelled. See Note 11 – Stockholders' Equity and Note 16 – Reorganization Items for further details.

Basic net loss per common share excludes dilution for potential common stock issuances and is computed by dividing net loss by the weighted-average number of shares of common stock outstanding for the period. The 4,972,364 shares of common stock issuable upon the exercise of warrants are included in the number of outstanding shares used for the computation of basic and diluted loss per share.

The following table reflects the computation of basic and diluted weighted average shares outstanding and net income (loss) per share for the periods indicated:


	Successor		Predecessor		Successor		Predecessor
					Period from		Period from
	Three months		Three months		February 1, 2019		January 1, 2019		Nine months
	ended		ended		through		through		ended
(in thousands, except share and per share data)	September 30, 2019		September 30, 2018		September 30, 2019		January 31, 2019		September 30, 2018

Basic and diluted net income (loss) per common share calculation:
Net (loss) income per share of common stock—basic and diluted	$	(10,290)	$	(51,227)	$	(40,416)	$	107,240	$	(75,540)
Weighted average common stock outstanding		14,333,332		55,192,542		14,333,332		56,547,101		51,944,358
Net (loss) income per share of common stock—basic and diluted	$	(0.72)	$	(0.93)	$	(2.82)	$	1.90	$	(1.45)

14. Stock-Based Compensation

Successor

2019 Stock-Based Incentive Compensation Plan

In March 2019, the Company adopted its 2019 Stock-Based Incentive Compensation Plan (the “2019 Stock Plan”) for the benefit of employees, non-employee directors and consultants of the Company and its subsidiaries and affiliates. The 2019 Stock Plan is designed to attract and retain valued employees, consultants and non-employee directors by offering them a greater stake in the Company’s success and a closer identity with it, and to encourage ownership of the Company’s stock by such persons. Under the 2019 Stock Plan, 2,150,000 shares of the Company’s common stock are reserved for issuance, including 1,433,333 shares reserved for grants to executives and 716,667 shares reserved for persons other than executives, subject to equitable adjustment based on the effect of certain corporate

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transactions. The Stock Plan is administered by the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”). In the discretion of the Compensation Committee, the right of a 2019 Stock Plan participant to exercise or receive a grant or settlement of any award, and the timing thereof, may be subject to performance goals as may be specified by the Compensation Committee. Awards granted to executives that are forfeited or otherwise terminate will once again be available for issuance to executives under the 2019 Stock Plan. Similarly, awards granted to persons other than executives that are forfeited or otherwise terminate will once again be available for issuance to persons who are not executives under the Stock Plan. Any award granted under the 2019 Stock Plan, including a common stock award, will be subject to mandatory repayment by the participant to the Company pursuant to the terms of any “clawback” or recoupment policy that is directly applicable to the 2019 Stock Plan and set forth in an award agreement or as required by applicable law.

For restricted stock awards and restricted stock units that vest subject to the satisfaction of service requirements, stock-based compensation expense is measured based on the fair value of the award on the date of grant and is recognized as expense on a straight-line basis over the requisite service period. All of the restricted stock awards and restricted stock units reflected above vest based on performance conditions or over time as stipulated in the individual award agreements. In the event of a change in control, the unvested awards will be accelerated and fully vested immediately prior to the change in control.

Shares Reserved for Future Issuance Under the 2019 Plan

The following table reflects the Company’s shares that are reserved under its 2019 Stock Plan as of September 30, 2019:


Shares initially reserved under the 2019 Plan		2,150,000
Time-based restricted stock units granted under the 2019 Plan		(801,000)
Performance-based restricted stock units granted under the 2019 Plan		(509,000)
Stock options granted under the Plan		(572,000)
Restricted stock units and stock options forfeited		199,000
Remaining shares available for future grant		467,000

The estimated grant date fair value of the Company’s stock-based awards is amortized ratably over the award’s service periods. The following table reflects stock-based compensation expense recognized for the periods indicated:



	Successor		Predecessor
	Period from		Period from
	February 1, 2019		January 1, 2019		Nine months
	through		through		ended
	September 30, 2019		January 31, 2019		September 30, 2018
(in thousands)
General and administrative	$	1,832	$	3,466	$	2,749
Sales and marketing		57		436		175
Research and development		—		223		170
Total stock-based compensation expense	$	1,889	$	4,125	$	3,094

Restricted Stock Awards

Time-Based Restricted Stock Unit Award Agreement

Time-based restricted stock units granted under the 2019 Stock Plan will be awarded pursuant to a time-based restricted stock unit agreement with the Company. On March 26, 2019, the Compensation Committee approved a form of time-based Restricted Stock Unit Award Agreement (the “Time RSU Agreement”). The Time RSU Agreement provides for grants of restricted stock units (“RSUs”), with two potential vesting schedules: (i) 1/3 of the RSUs vesting on each of the first three anniversaries of the date of grant; and (ii) 100% of the RSUs vesting on the first anniversary of the date of grant, in each case subject to the participant’s continued employment with the Company through each such

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anniversary date. In the event of a change of control (as defined in the 2019 Stock Plan) prior to a termination of the participant’s service, any remaining unvested time-based RSUs will vest and be settled immediately prior to the change of control.

Performance-Based Restricted Stock Unit Award Agreement

Performance-based RSUs granted under the 2019 Stock Plan will be awarded pursuant to a performance-based restricted stock unit agreement with the Company. On March 26, 2019, the Compensation Committee approved a form of performance-based Restricted Stock Unit Award Agreement (the “Performance RSU Agreement”). The Performance RSU Agreement provides for grants of RSUs, which only vest if the Company achieves at least 75% of its 2019 Corporate Goals, as set by the Company’s Board of Directors in March 2019, with the exact number of performance-based RSUs vesting pro-rated based on the level of achievement between 75% and 100%. 2019 Corporate Goals include financial performance, business development goals and other corporate metrics. Assuming those parameters are satisfied, the performance-based RSUs have two potential issuance schedules: (i) one with 50% of the performance-based RSUs eligible for issuance on each of March 1, 2020 and March 1, 2021 and (ii) one with 100% of the performance-based RSUs eligible for issuance on March 1, 2020, in each case subject to the participant’s continued employment with the Company through each such anniversary date. In the event of a change of control (as defined in the 2019 Stock Plan) prior to a termination of the participant’s service, any remaining unvested performance-based RSUs will vest and be settled immediately prior to the change of control.

The following table reflects the Company’s restricted stock award (RSU) activity for the periods indicated:


		Weighted-average
	Number of	Grant Date Fair
	Shares	Value per Share
Unvested at January 31, 2019	—	$	—
Granted	1,310,000	$	6.07
Forfeited, Successor period	(179,000)	$	6.07
Vested restricted stock awards	—	$	—
Unvested at September 30, 2019	1,131,000	$	6.07

During the nine months ended September 30, 2019, the Compensation Committee of the Company granted the following to certain executives of the Company:

Time-based RSUs -

o 557,000 are eligible to vest ratably over three years beginning on the respective first anniversary; and,

144,000 are eligible to vest 100% on the first anniversary of the date of grant.

Performance-based RSUs -

367,000 are eligible to vest as follows: a maximum of 50% are eligible to vest on each of March 1, 2020 and March 1, 2021 (provided that at least 75% of the Company’s 2019 Corporate Goals are attained — ratably, between 75% and 100% attainment); and,

142,000 of the performance-based RSUs are eligible to vest as follows: a maximum of 100% are eligible to vest on March 1, 2020 (provided that at least 75% of the Company’s 2019 Corporate Goals are attained - ratably, between 75% and 100% attainment).

During the nine months ended September 30, 2019, the Compensation Committee of the Company granted 100,000 time-based RSUs to certain Directors of the Company. The Directors’ RSUs vest ratably over three years.

As of September 30, 2019, unrecognized stock-based compensation expense related to RSUs under the 2019 Plan was $5.1 million which will be recognized over the weighted-average remaining period of 1.8 years.

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Stock Option Grants

The following table reflects the Company’s stock option grant activity for the periods indicated:


	Stock Options Outstanding
				Weighted-average
				Remaining
	Number of	Weighted-Average		Contractual
	Shares	Exercise Price		Term (in years)
Outstanding at January 31, 2019	—	$	-
Granted, Successor period	572,000		2.77	9.7
Exercised	—		—
Forfeited or cancelled	(20,000)		2.81
Outstanding at September 30, 2019	552,000	$	2.77
Vested or expected to vest at September 30, 2019	—	$	—
Exercisable at September 30, 2019	—	$	—

The per-share weighted-average grant date fair value of the stock options granted to employees during the Successor period February 1, 2019 through September 30, 2019 and nine months ended September 30, 2018 was $1.92 and $0.50, respectively, per share on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:


	Successor
	Period from
	February 1, 2019
	through
	September 30, 2019

Risk-free interest rate		2.27	%
Expected term of options (in years)		6.00
Expected volatility		80.00	%
Dividend yield		—

The weighted-average valuation assumptions were determined as follows:

Risk-free interest rate: The Company based the risk-free interest rate on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected option term.

Expected term of options: The Company estimated the expected life of its employee stock options using the “simplified” method, as prescribed in Staff Accounting Bulletin (“SAB”) No. 107, “Share Based Payments”, whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option due to its lack of sufficient historical data.

Expected stock price volatility: The Company estimated the expected volatility based on its actual historical volatility of the Company’s stock price. The Company calculated the historical volatility by using daily closing prices over a period of the expected term of the associated award. A decrease in the expected volatility would have decreased the fair value of the underlying instrument.

Expected annual dividend yield: The Company estimated the expected dividend yield based on consideration of its historical dividend experience and future dividend expectations. The Company has not historically declared or paid dividends to stockholders. Moreover, it does not intend to pay dividends in the future, but instead expects to retain any earnings to invest in the continued growth of the business. Accordingly, the Company assumed an expected dividend yield of 0.0%.

As of September 30, 2019, there was $0.9 million of total unrecognized stock-based compensation expense related to stock options under the 2019 Plan, which will be recognized over the weighted-average remaining period of 2.7 years.

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Predecessor

The Predecessor Company’s common stock was cancelled and new common stock was issued on the Effective Date. Accordingly, the Predecessor Company’s then existing stock-based compensation awards were also cancelled, which resulted in the recognition of any previously unamortized expense on the date of cancellation. Stock-based compensation for the Successor and Predecessor periods are not comparable.

The Predecessor Company had granted stock-based awards that were cancelled upon emergence from bankruptcy. In conjunction with the cancellation, the Predecessor Company accelerated the unrecognized stock-based compensation expense and recorded $4.1 million of compensation expense in the period from January 1, 2019 to January 31, 2019.

15. Restructuring and Other Charges

There were no restructuring and other charges during the three months ended September 30, 2019. The following table reflects the Company’s restructuring and other charges for the periods indicated:


	Predecessor		Successor		Predecessor
			Period from		Period from
	Three months		February 1, 2019		January 1, 2019		Nine months
	ended		through		through		ended
(in thousands)	September 30, 2018		September 30, 2019		January 31, 2019		September 30, 2018

Severance	$	—	$	648	$	776	$	—
Professional fees		2,580		—		23		2,580
ARYMO write down of assets		8,184		—		—		8,184
Halo termination fee		3,100		—		—		3,100
Total restructuring and other costs	$	13,864	$	648	$	799	$	13,864

Restructuring and other charges for the Successor period February 1, 2019 through September 30, 2019 reflect severance fees related to the reduction of executive officers. Restructuring and other charges for Predecessor period January 1, 2019 through January 31, 2019 primarily reflect severance costs related to the closure of the Denmark facility.

16. Reorganization items

There were no reorganization items during the three months ended September 30, 2019 or the three or nine months ended September 30, 2018. The following table reflects reorganization items for the periods indicated. See Note 3—Fresh Start Accounting for further details.


	Successor		Predecessor
	Period from		Period from
	February 1, 2019		January 1, 2019
	through		through
(in thousands)	September 30, 2019		January 31, 2019

Professional fees	$	553	$	2,612
Iroko acquisition related fees		50		2,138
Legal fees		—		713
Other reorganization expenses		—		473
Bankruptcy fees		606		42
Gain on extinguishment of debt		—		(29,976)
Revaluation of assets and liabilities		—		(91,171)
Total reorganization items	$	1,209	$	(115,169)

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17. Commitments and Contingencies

Legal Proceedings

On January 27, 2017 and February 10, 2017, respectively, two putative securities class actions were filed in the U.S. District Court for the Eastern District of Pennsylvania that named as defendants Egalet Corporation and former officers Robert S. Radie, Stanley J. Musial and Jeffrey M. Dayno (the “Officer Defendants” and together with Egalet Corporation, the “Defendants”). These two complaints, captioned Mineff v. Egalet Corp. et al., No. 2:17-cv-00390-MMB and Klein v. Egalet Corp. et al., No. 2:17-cv-00617-MMB, assert securities fraud claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) on behalf of putative classes of persons who purchased or otherwise acquired Egalet Corporation securities between December 15, 2015 and January 9, 2017 and seek damages, interest, attorneys’ fees and other expenses. On May 1, 2017, the Court entered an order consolidating the two cases (the “Securities Class Action Litigation”) before it, appointing the Egalet Investor Group (consisting of Joseph Spizzirri, Abdul Rahiman and Kyle Kobold) as lead plaintiff and approving their selection of lead and liaison counsel. On July 3, 2017, the plaintiffs filed their consolidated amended complaint, which named the same Defendants and also asserted claims for purported violations of Sections 10(b) and 20(a) of the Exchange Act. Plaintiffs brought their claims individually and on behalf of a putative class of all persons who purchased or otherwise acquired shares of Egalet between November 4, 2015 and January 9, 2017 inclusive. The consolidated amended complaint based its claims on allegedly false and/or misleading statements and/or failures to disclose information about the likelihood that ARYMO ER would be approved for intranasal abuse-deterrent labeling. The Defendants moved to dismiss the consolidated amended complaint on September 1, 2017 (the “Motion to Dismiss”), the plaintiffs filed their opposition on October 31, 2017, and the Defendants filed their reply on December 8, 2017. The Court heard oral arguments on the Motion to Dismiss on February 20, 2018 and entered an order pursuant to which the plaintiffs filed a motion for leave to file a second amended complaint on March 6, 2018. The Defendants responded on March 20, 2018 and the plaintiffs filed their reply on March 27, 2018. The Court heard oral arguments on the plaintiffs’ motion for leave to file a second amended complaint on July 12, 2018. On August 2, 2018, the Court granted the Defendants’ Motion to Dismiss and dismissed the Securities Class Action Litigation with prejudice. On August 31, 2018, plaintiffs filed their notice of appeal with the United States Court of Appeal for the Third Circuit. On November 7, 2018, the Defendants filed a notice of suggestion of bankruptcy and unopposed motion to stay the appeal as to the Officer Defendants (the appeal was automatically stayed as to the Company upon the Chapter 11 filing). On February 6, 2019, the Officer Defendants filed a Notice of Lifting of Automatic Stay of Proceedings and Discharge of Subordinated Claims, as plaintiffs’ claim against the Company was extinguished as part of the bankruptcy, which restarted the appellate process. On April 22, 2019, plaintiffs filed their brief with the United States Court of Appeals for the Third Circuit. Defendants filed their brief on May 22, 2019 and Plaintiffs filed their reply on June 12, 2019. The Company disputes the allegations in the lawsuit and intend to defend these actions vigorously. The Company cannot determine the likelihood of, nor can it reasonably estimate the range of, any potential loss, if any, from these lawsuits.

In March 2018, Novitium Pharma LLC (“Novitium”) notified iCeutica Pty Ltd. and Iroko Pharmaceuticals, LLC that Novitium had submitted an ANDA to FDA requesting permission to manufacture and market a generic version of VIVLODEX® (meloxicam). In the notice, Novitium alleges that its generic product will not infringe any claim of U.S. Patent Nos. 9,526,734; 9,526,734; and 9,649,318. On April 20, 2018, Plaintiffs iCeutica Pty Ltd and Iroko Pharmaceuticals, LLC filed a complaint in the District Court for the District of Delaware alleging infringement of United States Patent Nos. 9,526,734, 9,649,318, and 9,808,468 by Novitium under 35 U.S.C. sections 271(e)(2) and 271(a)-(c). With the Company’s acquisition of certain assets of Iroko and the assignment of Iroko’s exclusive license to U.S. Patent Nos. 9,526,734; 9,526,734; and 9,649,318 to the Company, Egalet was substituted for Iroko as a Plaintiff in this matter. The Company cannot determine the likelihood of, nor can it reasonably estimate the range of, any potential loss, if any, from this lawsuit.

On May 1, 2019, the Company was served in a lawsuit entitled International Brotherhood of Electrical Workers Local 728 Family Healthcare Plan v. Allergan, PLC, et al., which was filed in the Philadelphia County Court of Common Pleas (and subsequently coordinated with similar cases and transferred to the Delaware County Court of Common Pleas) on March 29, 2019 in which the Company was named as a defendant. In the lawsuit, plaintiff alleges that the Company, along with numerous other named defendants, manufactured, promoted, sold and distributed branded and generic opioid pharmaceutical products in the Commonwealth of Pennsylvania, State of Florida and the City of

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Philadelphia. Plaintiffs assert that the defendants’ conduct has exacted a financial burden on the plaintiff which has unnecessarily spent considerably more on costs directly attributable to opioid use and over-use in the Commonwealth of Pennsylvania and City of Philadelphia. The Company disputes the allegations made in this lawsuit and intends to defend these actions vigorously. The Company cannot determine the likelihood of, nor can it reasonably estimate the range of, any potential loss, if any, from this lawsuit.

On June 27, 2019, the Company was served in a lawsuit entitled L/S 150 Rouse Boulevard, LP vs. Zyla Life Sciences (f/k/a Egalet Corporation), Iroko Pharmaceuticals, Inc. and Iroko Pharmaceuticals LLC, which was filed in the Philadelphia County Court of Common Pleas on June 26, 2019. The Complaint alleges that Iroko’s assets were fraudulently transferred to the Company in an attempt to avoid further payments under the lease for Iroko’s build-to-suit office space and seeks to impose a constructive trust on the Iroko assets that were transferred to the Company and/or on other Company property. In addition, L/S 150 Rouse was seeking a declaratory judgment that the Company is a successor-in-interest to Iroko and had successor liability for Iroko’s debts to L/S 150 Rouse. The amount of accelerated rent at issue is $8,731,141. L/S 150 Rouse was also seeking attorneys’ fees and litigation fees and costs. Damages related to this matter were indemnifiable under the Purchase Agreement and related documents. Iroko and various CRG entities assumed the defense of this matter and settled the suit with L/S 150 Rouse with no payment by the Company. The suit was dismissed with prejudice on October 9, 2019.

On August 7, 2019, the Company filed a lawsuit in the Court of Chancery of the State of Delaware against iCeutica Inc. and iCeutica Pty Ltd. (together, the “Defendants”) seeking, among other things, declaratory and injunctive relief relating to the Defendants’ demand under the iCeutica License Agreement described below, for reimbursement for patent activities in countries outside the United States which the Company has expressly told the Defendants are unreasonable in light of the Company’s current plans. The Company asked the Court to prohibit the Defendants from terminating the license agreement and to toll the cure period under the License Agreement pending resolution of the dispute. On August 30, 2019, the Court granted a Status Quo Order that extended the cure period until 30 days after the date of the Court’s decision on the merits in the case. The Company cannot assess the likelihood of, nor can it reasonably estimate the range of, any potential loss, if any, from this lawsuit.

Cosette Pharmaceuticals Supply Agreement

On January 31, 2019, as part of Asset Purchase Agreement to acquire products from Iroko, the Company assumed a Collaborative License, Exclusive Manufacture and Global Supply Agreement with Cosette Pharmaceuticals, Inc. (formerly G&W Laboratories, Inc.) (the “Supply Agreement”) for the manufacture and supply of INDOCIN Suppositories to Zyla for commercial distribution in the United States. The Company is obligated to purchase all of its requirements for INDOCIN Suppositories from Cosette Pharmaceuticals, Inc., and are required to meet minimum purchase requirements for the calendar years 2019 and 2020. The term of the Supply Agreement extends through July 31, 2023, and there are no minimum requirements in any of the other subsequent years. Total commitments to Cosette Pharmaceuticals, Inc are $6.5 million in each of years 2019 and 2020.

Catalent Pharma Solutions Commercial Supply Agreement

On January 31, 2019, as part of the Iroko Products Purchase Agreement, the Company assumed a Commercial Supply Agreement (“CSA”) with Catalent Pharma Solutions (“Catalent”) for the manufacture of certain SOLUMATRIX products. Based on the CSA, the Company is obligated to purchase certain minimum amounts of manufacturing and product maintenance services on an annual basis for the term of the contract (“Minimum Requirement”) through September 2021. Total commitments to Catalent are $1.0 million through the period ending September 2021.

Jubilant HollisterStier Manufacturing and Supply Agreement

On July 30, 2019, the Company entered into a Manufacturing and Supply Agreement (the “Agreement”) with Jubilant HollisterStier LLC (“JHS”) pursuant to which the Company engaged JHS to provide certain services related to the manufacture and supply of SPRIX® (ketorolac tromethamine) Nasal Spray for the Company’s commercial use. Under the Agreement, JHS will be responsible for supplying a minimum of 75% of the Company’s annual requirements of SPRIX through July 30, 2022. The Company has agreed to purchase a minimum number of batches of SPRIX per

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calendar year from JHS over the term of the Agreement. Total commitments to JHS are $0.7 million through the period ending July 30, 2022.

18. Acquisitions and License and Collaboration Agreements

Purchase Agreement with Iroko

On October 30, 2018, the Company entered into the Purchase Agreement with Iroko pursuant to which, upon the terms and subject to the conditions set forth therein, the Company acquired certain assets and rights of Iroko, referred to in the Purchase Agreement as the “Transferred Assets,” and assumed certain liabilities of Iroko, referred to in the Purchase Agreement as the “Assumed Liabilities,” including assets related to Iroko’s marketed products, the SOLUMATRIX products under the iCeutica License Agreement and the INDOCIN products. The Iroko Products Acquisition was completed on January 31, 2019.

iCeutica License Agreement

Pursuant to the Purchase Agreement, on the Effective Date, the Company assumed the rights and obligations of Iroko and its subsidiaries pursuant to the Amended and Restated Nano-Reformulated Compound License Agreement, dated October 30, 2018 (the “iCeutica License”), with iCeutica Inc. and iCeutica Pty Ltd. (collectively, “iCeutica”) to license certain technology and intellectual property related to iCeutica’s SOLUMATRIX® technology, meloxicam and certain other rights of iCeutica.

Pursuant to the iCeutica License, iCeutica granted to the Company (as the assignee of Iroko) a sole and exclusive, world-wide right and license under certain iCeutica intellectual property to make, use, sell, offer and import certain products made from the compounds indomethacin, diclofenac, naproxen and meloxicam. In consideration of the grant of the iCeutica License, the Company is obligated to pay to iCeutica a mid-single digit royalty on all Net Sales of any licensed products, including pro rata portions of any combination products that include a licensed product.

The iCeutica License will terminate on a country-by-country basis upon the expiration of the last-to-expire of any licensed patent rights in such country, and otherwise twenty years after the date of the first commercial introduction of a licensed product in such country. Either party may terminate the license in its entirety if the other party materially breaches the License Agreement, subject to applicable cure periods. The iCeutica License also contains customary provisions for an agreement of this type related to intellectual property matters, confidentiality, representations and warranties and indemnification.

Iroko Royalty Arrangement

Pursuant to the Purchase Agreement, on the Effective Date, the Company was also obligated to pay to Iroko a 5% royalty payment on Net Sales of TIVORBEX, ZORVOLEX and the development product acquired on a quarterly basis. In May 2019, the Company agreed to pay approximately $0.8 million to satisfy the royalty payment terminating any obligation for future payments with respect to this agreement.

Collaboration and License Agreement with Acura

In January 2015, the Company entered into the OXAYDO License Agreement with Acura to commercialize OXAYDO tablets containing Acura’s Aversion Technology. OXAYDO (formerly known as Oxecta®) is currently approved by the FDA for marketing in the United States. in 5 mg and 7.5 mg strengths but was not actively marketed at the time of the OXAYDO License Agreement. Under the terms of the OXAYDO License Agreement, Acura transferred the approved New Drug Application (“NDA”) for OXAYDO to the Company and the Company was granted an exclusive license under Acura’s intellectual property rights for development and commercialization of OXAYDO worldwide in all strengths.

Under the OXAYDO License Agreement, Acura will be entitled to a one-time $12.5 million milestone payment when OXAYDO net sales reach a level of $150.0 million in a calendar year.

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In addition, Acura receives from the Company, a tiered royalty percentage based on sales thresholds. Based on the Company’s current level of net sales, the royalty percentage payable to Acura is in the mid-single digits; however, the percentage may increase in future years in the event the Company achieves the higher sales thresholds set forth in the License Agreement. In addition, in any calendar year in which net sales exceed a specified threshold, Acura is entitled receive a double-digit royalty on all OXAYDO net sales in that year. The Company’s royalty payment obligations commenced on the first commercial sale of OXAYDO and expire, on a country-by-country basis, upon the expiration of the last to expire valid patent claim covering OXAYDO in such country (or if there are no patent claims in such country, then upon the expiration of the last valid claim in the U.S.). Royalties will be reduced upon the entry of generic equivalents, as well for payments required to be made by the Company to acquire intellectual property rights to commercialize OXAYDO, with an aggregate minimum floor. The term of the Acura license agreement expires, in its entirety, upon the final expiration of any such patent claim in any country. OXAYDO is currently sold in the United States and is covered by six U.S. patents that expire between 2023 and 2025. Patents covering OXAYDO in foreign jurisdictions expire in 2024. Either the Company or Acura may terminate the license agreement for certain customary reasons, including cause, insolvency or patent challenge. The Company may terminate the license agreement upon 90 days prior written notice.

Purchase Agreement with Luitpold

In January 2015, the Company entered into and consummated the transactions contemplated by the SPRIX Purchase Agreement with Luitpold (the “SPRIX Purchase Agreement”), pursuant to which the Company acquired certain assets and liabilities associated with SPRIX Nasal Spray and the Company was assigned an exclusive license with Recordati Ireland Ltd. (“Recordati”) for intranasal formulations of ketorolac tromethamine (the “Licensed Product”), the active ingredient in SPRIX Nasal Spray. The Company is required to pay a fixed, single-digit royalty to Recordati on net sales of the Licensed Product. The exclusive term of the license agreement expires, on a country-by-country basis, on the later of the final expiration of any patent right in such country that contains a valid claim covering the Licensed Product, or ten years from the date of the first commercial sale of the Licensed Product in such country, and thereafter the Company will retain a non-exclusive, perpetual license in such country. In addition, during the exclusivity period with respect to the United States, Canada and Latin America, the royalty payable to Recordati is decreased if no patent containing a valid claim is in force in the country at the time of sale. SPRIX Nasal Spray is currently sold in the United States and the patent expired in December 2018 and the first commercial sale of SPRIX Nasal Spray in the United States occurred in May 2011.

19. Income Taxes

The Company had a deferred tax liability of $23,000 and $24,000 as of September 30, 2019 and December 31, 2018, respectively. The Company maintains a full valuation allowance against all net deferred tax assets for federal and foreign purposes except for the net deferred tax liability as management has determined that it is not more likely than not that the Company will realize these future tax benefits.

The Tax Cuts and Jobs Act (the "Tax Act"), enacted on December 22, 2017, became effective January 1, 2018. The Tax Act had significant changes to U.S. tax law, including the lowering of U.S. corporate income tax rates, implementing a territorial tax system, imposing a one-time transition tax on deemed repatriated earnings of foreign subsidiaries and modified the taxation of other income and expense items. Due to the valuation allowance on the Company’s deferred tax assets, these provisions do not have any material impact on the Company.

The Tax Act contains additional international provisions which may impact the Company prospectively, including the tax on Global Intangible Low-Taxed Income. The Company does not believe the impact will be material given the historical losses in its international subsidiary and projected future losses.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and result of operations should be read in conjunction with our 2018 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”).

Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “potential,” “continue,” “seek to” and “ongoing,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Form 10-Q, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain, including, but not limited to, risks related to: anticipated benefits of the Iroko Products Acquisition and the impact of the Iroko Products Acquisition on our earnings, capital structure, strategic plan and results of operations; our ability to continue as a going concern, including our ability to access cash when necessary; our ability to comply with our debt covenants; the impact of our bankruptcy on our business going forward, including with regard to relationships with vendors and customers, employee attrition, and the costs and expenses resulting from our bankruptcy; the trading price of our common stock and the liquidity of the trading market with respect thereto; our ability to satisfy Nasdaq initial listing requirements; our ability to maintain our key license arrangements, including our license agreement with iCeutica, which has alleged a material breach thereof; our ability to recruit or retain key scientific or management personnel or to retain our executive officers; our ability to obtain and maintain regulatory approval of our products and the labeling claims that we believe are necessary or desirable for successful commercialization of our products; the impact of strengthening any of the labels for our products; our ability to maintain the intellectual property position of our products; our ability to operate our business without infringing the intellectual property rights of others; our ability to identify and reliance upon qualified third parties to manufacture our products, particularly single source suppliers; our ability to execute on our sales and marketing strategy, including developing relationships with customers, physicians, payors and other constituencies and differentiating our products in a crowded therapeutic area; our ability to commercialize our products, and to do so successfully; the rate and degree of receptivity in the marketplace and among physicians to our products; the costs of commercialization activities, including marketing, sales and distribution; the size and growth potential of the markets for our products, and our ability to service those markets; our ability to obtain reimbursement and third-party payor contracts for our products; the impact of commercial access wins on patient access to our products; the entry of any generic products for SPRIX Nasal Spray or our other products or the loss of exclusivity with regard to any of our licenses; any delay in or inability to reformulate SPRIX Nasal Spray; our ability to find and hire qualified sales professionals; the success of products that compete with our products that are or become available; the regulatory environment and recently enacted and future legislation and regulations regarding the healthcare system, including relating to social concerns about limiting the use of opioids; the outcome of any litigation or disputes in which we are or may be involved; our ability to integrate and grow any businesses or products that it may acquire; and general market conditions.

You should refer to the “Risk Factors” section of our most recent Annual Report on Form 10-K (which are incorporated herein by reference) and our other filings with the SEC for a discussion of additional important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these risks and uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements included herein or that may be made elsewhere from time to time by, or on behalf of, us. Furthermore, such forward-looking statements speak only as of the date of this report. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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Our Current Business

We are a commercial-stage life sciences company focused on marketing important treatments for patients and healthcare providers. Zyla Life Sciences currently has a portfolio of innovative treatments for pain and inflammation. We have seven commercially available products: SPRIX® (ketorolac tromethamine) Nasal Spray, ZORVOLEX® (diclofenac), INDOCIN® (indomethacin) suppositories, VIVLODEX® (meloxicam), TIVORBEX® (indomethacin), INDOCIN® oral suspension and OXAYDO® (oxycodone HCI, USP) tablets for oral use only —CII. VIVLODEX, TIVORBEX and ZORVOLEX are SOLUMATRIX® Technology non-steroidal anti-inflammatory (“NSAID”) products. To augment our current product portfolio, we are seeking to acquire additional product candidates or approved products to develop and/or market. We plan to grow our business through our commercial revenue and potential business development opportunities.

Since we acquired and licensed SPRIX Nasal Spray and OXAYDO, respectively, we have built a fully scaled commercial organization focused on educating providers and treating individuals with pain and inflammation. We have evolved our business from opioids to non-narcotics, both with the acquisition of the Iroko products and an increased emphasis on the promotion of our NSAID SPRIX Nasal Spray. The Iroko products can be promoted with our existing salesforce with little additional expense. Prior to our acquisition of the five Iroko products, we had over 80 territories focused on similar targets. We added additional geographies where the Iroko products had been previously marketed. Our 87 sales representatives promote our products to approximately 8,000 healthcare providers in the United States. We believe that our focused targeting, sales force execution, proper brand positioning, message delivery and education, as well as our focus on ensuring proper product access to patients who require our therapies, will help us achieve our promotional goals. With our expanded commercial portfolio in place, we are looking at ways to maximize our assets through a multifaceted approach. We are analyzing our distribution model to look for efficiencies as well as new distribution strategies, evaluating our payer contracting strategy, working to improve our sales force targeting and assessing new ways to incentivize our sales representatives. Our goal is to maximize net revenue where we currently have business and build a sustainable growth model.

We plan to grow our business through our commercial revenue and potential business development opportunities.

Critical Accounting Policies and Significant Judgments and Estimates

We believe there have been no significant changes in our critical accounting policies and significant judgments and estimates as discussed in our audited consolidated financial statements and the notes thereto for the year ended December 31, 2018, other than as noted below.

Goodwill

We determined that no events have occurred or circumstances changed during the period from February 1, 2019 through September 30, 2019 (Successor) and the period from January 1, 2019 through January 31, 2019 (Predecessor) that would more likely than not reduce the fair value of any of our reporting units below their respective carrying amounts. However, if conditions deteriorate or there is a change in the business, it may be necessary to record impairment charges in the future.

Acquisition-related contingent consideration

Pursuant to the Iroko Products Acquisition, we have obligations relating to contingent payment consideration for future royalty obligations to Iroko based upon annual INDOCIN product net sales over $20.0 million. We recorded the acquisition-date fair value of these contingent liabilities, based on the likelihood of contingent earn-out payments.

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The earn-out payments are subsequently remeasured to fair value each reporting date. The fair value of the acquisition-related contingent consideration is remeasured each reporting period, with changes in fair value recorded in our Consolidated Statements of Operations. The royalty term commenced on the Effective Date and ends on the tenth anniversary of the Effective Date, January 31, 2029.

Results of Operations

Comparison of the three months ended September 30, 2019 and 2018


(in thousands)	Three months ended
	September 30,
	2019		2018		Change
Revenue
Net product sales	$	22,386	$	8,153	$	14,233
Total revenue		22,386		8,153		14,233

Costs and Expenses
Cost of sales (excluding amortization of product rights)		10,394		1,773		8,621
Amortization of product rights		3,497		526		2,971
General and administrative		6,044		5,556		488
Sales and marketing		9,316		7,932		1,384
Research and development		3		956		(953)
Restructuring & other charges		—		13,864		(13,864)
Change in fair value of contingent consideration payable		795		—		795
Total costs and expenses		30,049		30,607		(558)
Loss from operations		(7,663)		(22,454)		14,791

Other (income) expense:
Change in fair value of warrant and derivative liability		—		(3,986)		3,986
Interest expense, net		3,749		32,891		(29,142)
Other (gain) loss		(1,122)		(132)		(990)
Total other (income) expense		2,627		28,773		(26,146)
Net loss	$	(10,290)	$	(51,227)	$	40,937

Net Product Sales

Net product sales increased by $14.2 million for the three months ended September 30, 2019 from the three months ended September 30, 2018. Net product sales for the three months ended September 30, 2019 consisted of $6.4 million for SPRIX Nasal Spray, $3.4 million for OXAYDO, $11.2 million for INDOCIN products, and $1.3 million for the SOLUMATRIX products. Net product sales for the three months ended September 30, 2018 consisted of $6.1 million for SPRIX Nasal Spray, $1.9 million for OXAYDO and $0.2 million for ARYMO ER.

Cost of sales (excluding amortization of product rights)

Cost of sales (excluding amortization of product rights) increased by $8.6 million for the three months ended September 30, 2019 compared to the three months ended September 30, 2018. The increase was driven by higher product sales as a result of the five new products acquired at the end of January 2019 and the revaluation of inventory in connection with the reorganization.

Cost of sales for SPRIX Nasal Spray, OXAYDO, SOLUMATRIX products and INDOCIN products reflects the fair value of finished goods inventory for the three months ended September 30, 2019.

Cost of sales for SPRIX Nasal Spray, OXAYDO and ARYMO ER for the three months ended September 30, 2018 reflects the average cost of inventory shipped to wholesalers and specialty pharmaceutical companies during the period.

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Amortization of product rights

Amortization of product rights increased by $3.0 million for the three months ended September 30, 2019 compared to the three months ended September 30, 2018. Amortization of product rights relates to the INDOCIN, OXAYDO and SPRIX Nasal Spray intangible assets. The increase was due to the acquisition on January 31, 2019 of the INDOCIN product rights that were valued at $90.1 million and the increase in the value of the SPRIX Nasal Spray intangible assets to $31.9 million, offset in part by a decrease in the value of OXAYDO, as a result of a Fresh Start Accounting adjustment.

General and administrative expenses

General and administrative expenses increased by $0.5 million for the three months ended September 30, 2019 compared to the three months ended September 30, 2018. The increase was attributable to $0.4 million of higher administrative expense and $0.5 million of higher Food and Drug Administration fees related to products acquired during 2019 partially offset by a $0.4 million decrease in post-marketing study fees related to ARYMO® ER (morphine sulfate) extended-release tablets for oral use —CII and OXAYDO.

Sales and marketing expenses

Sales and marketing expenses increased by $1.4 million for the three months ended September 30, 2019 compared to the three months ended September 30, 2018. The increase was primarily attributable to $1.0 million related to marketing programs for acquired products, and $0.4 million of other sales and marketing costs.

Research and development expenses

Research and development expenses decreased by $1.0 million for the three months ended September 30, 2019 compared to the three months ended September 30, 2018. This decrease was driven by a discontinuation of operating expenses that did not directly support the growth of our commercial business.

Restructuring and other charges

There were no restructuring and other charges for the three months ended September 30, 2019.

Restructuring and other charges of $13.9 million for the three months ended September 30, 2018 reflected costs related to the discontinuation of ARYMO ER of $8.2 million, a termination payment to Halo Pharmaceuticals of $3.1 million and legal fees related to the filing of our Chapter 11 bankruptcy cases of $2.6 million.

Change in fair value of acquisition-related contingent consideration

Acquisition-related contingent consideration, which consists of our future royalty obligations to Iroko based upon annual INDOCIN product net sales over $20.0 million, was recorded on the acquisition date, January 31, 2019, at the estimated fair value of the obligation, in accordance with the acquisition method of accounting. The fair value of the acquisition-related contingent consideration is remeasured quarterly. The change in fair value of the acquisition-related contingent consideration during the three months ended September 30, 2019 was $0.8 million. The change in fair value of the contingent consideration during the three months ended September 30, 2019 was primarily attributable to higher revenue projections and a decrease in the applicable discount rate.

Change in fair value of warrant and derivative liability

The interest make-whole provisions of the 6.50% Notes, as well as the warrant liability associated with the warrants issued in our July 2017 equity offering are subject to re-measurement at each balance sheet date. Refer to Note 12 – Fair Value Measurements for further details. We recognize any change in fair value in our consolidated statements of operations and comprehensive loss as a change in fair value of the derivative liabilities. During the three months ended September 30, 2018, we recognized a change in the fair value of our derivative liabilities of $4.0 million. The 6.50% Notes were cancelled as a part of the reorganization.

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Interest expense

Interest expense decreased by $29.1 million for the three months ended September 30, 2019 compared to the three months ended September 30, 2018. Interest expense for the three months ended September 30, 2018 included the acceleration of the debt discounts related to our 5.50% Notes, 6.5% Notes and 13% Notes due to the revaluation of these instruments due to the events of default.

The interest expense of $3.7 million for the three months ended September 30, 2019 includes non-cash interest and amortization of debt discount totaling $1.8 million. The interest expense of $32.9 million for the three months ended September 30, 2018 includes non-cash interest and amortization of debt discount totaling $29.8 million. The Series A-1 Notes are subject to an interest holiday through November 1, 2019.

Other Gain

Other gain was $1.1 million for the three months ended September 30, 2019 compared to $0.1 million for the three months ended September 30, 2018.

Provision (benefit) for income taxes

We had no provision nor benefit for income taxes for the three months ended September 30, 2019 or September 30, 2018 since we have a full valuation allowance for federal and state purposes.

Comparison of the period from February 1, 2019 through September 30, 2019 (Successor) and the period from January 1, 2019 through January 31, 2019 (Predecessor) to the nine months ended September 30, 2018 (Predecessor)


	Successor		Predecessor
	Period from		Period from
	February 1, 2019		January 1, 2019		Nine Months
	through		through		Ended
(in thousands)	September 30, 2019		January 31, 2019		September 30, 2018		Change
Revenue
Net product sales	$	60,230	$	1,775	$	21,857	$	40,148
Total revenue		60,230		1,775		21,857		40,148

Costs and Expenses
Cost of sales (excluding amortization of product rights)		37,027		554		5,553		32,028
Amortization of product rights		9,326		171		1,594		7,903
General and administrative		16,827		5,413		19,322		2,918
Sales and marketing		23,582		2,773		26,006		349
Research and development		13		186		3,258		(3,059)
Restructuring & other charges		648		799		13,864		(12,417)
Change in fair value of contingent consideration payable		3,695		—		—		3,695
Total costs and expenses		91,118		9,896		69,597		31,417
Loss from operations		(30,888)		(8,121)		(47,740)		8,731

Other (income) expense:
Change in fair value of warrant and derivative liability		—		—		(12,292)		12,292
Interest expense, net		9,577		(52)		40,251		(30,726)
Other gain		(1,258)		(140)		(158)		(1,240)
Loss (gain) on foreign currency exchange		—		—		(1)		1
Total other (income) expense		8,319		(192)		27,800		(19,673)
Reorganization items		1,209		(115,169)		—		(113,960)
Net (loss) income	$	(40,416)	$	107,240	$	(75,540)	$	142,364

Net product sales

Net product sales increased by $40.1 million for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. Net product sales for the nine months ended September 30, 2019 consisted of

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$19.7 million for SPRIX Nasal Spray, $5.3 million for OXAYDO, $30.8 million for INDOCIN products, and $6.2 million for the SOLUMATRIX products. Net product sales for the nine months ended September 30, 2018 consisted of $16.3 million for SPRIX Nasal Spray, $4.8 million for OXAYDO and $0.7 million for ARYMO ER.

Cost of sales (excluding amortization of product rights)

Cost of sales (excluding amortization of product rights) increased by $32.0 million for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.

Cost of sales for SPRIX Nasal Spray and OXAYDO reflect the average cost of inventory shipped to wholesalers and specialty pharmaceutical companies from January 1, 2019 to January 31, 2019. Cost of sales for SPRIX Nasal Spray, OXAYDO, SOLUMATRIX products and INDOCIN products reflects the fair value of finished goods inventory for the period from February 1, 2019 to September 30, 2019. Cost of sales includes $0.8 million for the buyout of the Iroko Royalty Arrangement.

Cost of sales for SPRIX Nasal Spray, OXAYDO and ARYMO ER for the nine months ended September 30, 2018 reflects the average cost of inventory shipped to wholesalers and specialty pharmaceutical companies during the period.

Amortization of product rights

Amortization of product rights increased by $7.9 million for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. Amortization of product rights relates to the INDOCIN, OXAYDO and SPRIX Nasal Spray intangible assets. The increase was due to the acquisition on January 31, 2019 of the INDOCIN product rights that were valued at $90.1 million and the increase in the value of the SPRIX Nasal Spray intangible assets to $31.9 million, offset in part by a decrease in the value of OXAYDO, as a result of a Fresh Start Accounting adjustment.

General and administrative expenses

General and administrative expenses increased by $2.9 million for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. The increase was due to an increase in stock-based compensation expense of $2.6 million, administrative fees of $1.5 million and consulting fees of $0.3 million. We recognized $3.5 million of unamortized stock-based compensation on January 31, 2019 as a result of the reorganization. These expenses were partially offset by a decrease in ARYMO ER and OXAYDO post-marketing study fees of $1.0 million and lower salary expense of $0.9 million due to reduced headcount.

Sales and marketing expenses

Sales and marketing expenses increased by $0.6 million for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. The increase was primarily due to higher travel and entertainment expenses of $0.6 million, consulting costs of $0.4 million and depreciation expense related to IROKO manufacturing equipment of $0.3 million, partially offset by lower employee compensation costs of $0.7 million.

Research and development expenses

Research and development expenses decreased by $3.1 million for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. This decrease was driven by a discontinuation of costs that did not directly support the growth of our commercial business.

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Restructuring and other charges

Restructuring and other charges of $1.4 million for the nine months ended September 30, 2019 reflect costs of severance payments related to the reduction of executive officers and a reduction in force in our Denmark facility in January 2019.

Restructuring and other charges of $13.9 million for the nine months ended September 30, 2018 reflected costs related to the discontinuation of ARYMO ER of $8.2 million, a termination payment to Halo Pharmaceuticals of $3.1 million and legal fees related to the filing of the Chapter 11 Cases of $2.6 million.

Change in fair value of acquisition-related contingent consideration

Acquisition-related contingent consideration, which consists of our future royalty obligations to Iroko based upon annual INDOCIN product net sales over $20.0 million, was recorded on the acquisition date, January 31, 2019, at the estimated fair value of the obligation, in accordance with the acquisition method of accounting. The fair value of the acquisition-related contingent consideration is remeasured quarterly. The change in fair value of the acquisition-related contingent consideration for the period from February 1, 2019 through September 30, 2019 was $3.7 million. The change in fair value of the contingent consideration for the period from February 1, 2019 through September 30, 2019 was primarily attributable to higher revenue projections and a decrease in the applicable discount rate.

Change in fair value of warrant and derivative liability

The interest make-whole provisions of the 6.50% Notes, as well as the warrant liability associated with the warrants issued in our July 2017 equity offering are subject to re-measurement at each balance sheet date. Refer to Note 12 – Fair Value Measurements for further details. We recognize any change in fair value in our consolidated statements of operations and comprehensive loss as a change in fair value of the derivative liabilities. During the nine months ended September 30, 2018, we recognized a change in the fair value of our derivative liabilities of $12.3 million. The 6.50% Notes were cancelled as a part of the reorganization.

Interest expense

Interest expense decreased by $30.7 million for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. The interest expense of $9.5 million for the nine months ended September 30, 2019 includes non-cash interest and amortization of debt discount totaling $4.9 million. The interest expense of $40.2 million for the nine months ended September 30, 2018 includes non-cash interest and amortization of debt discount totaling $31.0 million. The Series A-1 Notes are subject to an interest holiday through November 1, 2019.

Interest expense for the nine months ended September 30, 2018 included the acceleration of the debt discounts related to our 5.50% Notes, 6.5% Notes and 13% Notes due to the revaluation of these instruments due to the events of default.

Reorganization items

Reorganization items of $113.9 million for the nine months ended September 30, 2019 consisted of a gain on the revaluation of assets and liabilities of $91.2 million, a gain on extinguishment of debt of $30.0 million and fees of $7.3 million related to the bankruptcy and Iroko Products Acquisition.

Provision (benefit) for income taxes

We had no provision nor benefit for income taxes for the nine months ended September 30, 2019 or September 30, 2018 since we have been in a full valuation allowance for federal and state purposes.

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Liquidity and Capital Resources

Since our inception, we have incurred net losses and generally negative cash flows from our operations. We incurred net loss of $40.4 million, net income of $107.2 million and net loss of $75.5 million for the period February 1, 2019 through September 30, 2019, the period January 1, 2019 through January 31, 2019 and the nine months ended September 30, 2018, respectively. Our operating activities used $7.0 million of cash during the period from February 1, 2019 through September 30, 2019, provided $0.8 million of cash for the period from January 1, 2019 through January 31, 2019 and used $45.8 million of cash in the nine months ended September 30, 2018. At September 30, 2019, we had an accumulated deficit of $40.4 million, a working capital deficit of $19.8 million and cash, cash equivalents and restricted cash totaling $19.0 million.

Cash Flows

The following table summarizes our cash flows for the period from February 1, 2019 through September 30, 2019, the period from January 1, 2019 through January 31, 2019 and the nine months ended September 30, 2018:


(in thousands)	Successor		Predecessor
	Period from		Period from
	February 1, 2019		January 1, 2019		Nine months
	through		through		ended
	September 30, 2019		January 31, 2019		September 30, 2018
Net cash provided by (used in):
Operating activities	$	(6,992)	$	822	$	(45,787)
Investing activities		4,973		—		44,201
Financing activities		3,538		(19,104)		4,795
Effect of foreign currency translation on cash		28		6		(51)
Net increase (decrease) in cash, cash equivalents and restricted cash	$	1,547	$	(18,276)	$	3,158

Cash Flows from Operating Activities

Net cash used in operating activities for the period from February 1, 2019 through September 30, 2019 was $7.0 million and consisted primarily of a net loss of $40.4 million. The net loss was partially offset by non-cash adjustments of $9.9 million for depreciation and amortization expense, $5.2 million of non-cash interest and amortization of debt discount, and $3.5 million due to the change in fair value of contingent consideration. Net cash outflows from changes in operating assets and liabilities of $13.8 million consisted of an increase in accounts receivable of $22.4 million, offset by decrease in inventory of $24.3 million an increase in accounts payable of $7.5 million and an increase in accrued expenses of $2.9 million.

Net cash provided by operating activities for the period from January 1, 2019 through January 31, 2019 was $0.8 million and consisted primarily of net income of $107.2 million. In addition to net income, there were reorganization items of $121.1 million. Net cash inflows from changes in operating assets and liabilities of $10.4 million primarily consisted of a decrease in accounts receivable of $3.9 million, a decrease in other receivables of $0.7 million and a decrease in accrued expenses of $5.2 million.

Net cash used in operating activities for the nine months ended September 30, 2018 was $45.8 million and consisted primarily of a net loss of $75.5 million. Net non-cash adjustments to reconcile net loss to net cash provided by operations were $32.1 million, and included non-cash interest and amortization of debt discount of $31.0 million, the write-down of ARYMO assets for $6.9 million, and depreciation and amortization expense of $3.6 million, partially offset by a $12.3 million in change in fair value of our derivative liability. Net cash outflows from changes in operating assets and liabilities of $2.4 million consisted of an increase in accounts receivable of $7.1 million, offset by an increase in accrued expenses of $5.9 million.

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Cash Flows from Investing Activities

Net cash provided by investing activities for the period from February 1, 2019 through September 30, 2019 was $5.0 million and consisted of cash inflows of $2.5 million and $2.5 million for the maturity and sale of investments, respectively.

Net cash provided by investing activities for the nine months ended September 30, 2018 was $44.2 million and consisted primarily of the maturity of investments for $67.7 million, offset by cash outflows of $23.5 million for the purchase of investments.

Cash Flows from Financing Activities

Net cash provided by financing activities was $3.5 million for the period from February 1, 2019 through September 30, 2019 and consisted of net proceeds from the Highbridge Credit Agreement, net of principal repayments.

Net cash used in financing activities was $19.1 million for the period from January 1, 2019 through January 31, 2019 and consisted of repayments to former 13% Noteholders.

Net cash provided by financing activities was $4.8 million for the nine months ended September 30, 2018 and included $5.2 million in net proceeds from the issuance of common stock under our at-the-market offering.

Operating and Capital Expenditure Requirements

We have not achieved profitability since our inception and we expect to continue to incur net losses for the foreseeable future. Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, sales and marketing expenses, manufacturing, commercial infrastructure, legal and other regulatory expense, business development opportunities and general overhead costs, including interest and principal repayments on indebtedness.

To date, we have been unable to achieve profitability, and with just our existing products and product candidates, we believe we are unlikely to achieve profitability in the future.

Until such time if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity or debt financings and collaboration arrangements. In order to meet these additional cash requirements, we may seek to sell additional equity or convertible debt securities that may result in dilution to our holders of our common stock. If we issue additional equity, the holders of our common stock will be diluted. The indenture governing the 13% Senior Secured Notes contains covenants that, among other things, restrict our ability to issue additional indebtedness. Although our ability to issue additional indebtedness is significantly limited by such covenants, if we raise additional funds through the issuance of convertible debt securities, these securities could have rights senior to those of our Successor Zyla common stock and could contain covenants that restrict our operations. We may also seek to raise additional financing through the issuance of debt which, if available and permitted pursuant to the documents governing the 13% Senior Secured Notes, the Credit Agreement and any other indebtedness we may incur in the future, may involve agreements that include restrictive covenants limiting our ability to take important actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaboration arrangements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. There can be no assurance that we will be able to obtain additional equity or debt financing on terms acceptable to us, if at all. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. In addition, certain agreements we entered into in connection with the consummation of the Iroko Products Acquisition and the Chapter 11 Cases further restrict and limit our ability to raise additional capital, including agreements with respect to pre-emptive rights. Accordingly, our ability to raise additional capital is restricted by these agreements as well.

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Going Concern

As of September 30, 2019, we had cash, cash equivalents and restricted cash of $19.0 million. Even though we have emerged from bankruptcy and have funds available under the Credit Agreement, we continue to have significant indebtedness and our ability to continue as a going concern is contingent upon the successful integration of the Iroko Products Acquisition, increasing our revenue, managing our expenses and complying with the terms of our new debt agreements. We cannot be certain that these initiatives will be successful.

Our current debt arrangements with holders of the Series A-1 and Series A-2 Notes as well as the Credit Agreement involve agreements that include minimum liquidity requirements and covenants limiting or restricting our ability to take specific actions. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with pharmaceutical partners, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates, or grant licenses on terms that may not be favorable to us.

The unaudited financial statements as of September 30, 2019 have been prepared under the assumption that we will continue as a going concern for the next 12 months. Our ability to continue as a going concern is dependent upon our uncertain ability to successfully integrate the Iroko Products into our business, increasing our revenue, managing our expenses and complying with the terms of our new debt agreements. These unaudited financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Contractual Obligations and Purchase Commitments


(in thousands)	Payments Due By Period
			Less than						More than
	Total		1 year		1 to 3 years		3 to 5 years		5 years
Operating lease obligations (1)	$	3,685	$	1,273	$	2,063	$	349	$	—
13% Series A-1 Notes (2)		75,716		6,351		17,309		52,056		—
13% Series A-2 Notes (3)		68,648		6,220		15,578		46,850		—
Promissory Note (4)		5,019		5,019		—		—		—
Credit agreement (5)		6,267		514		5,753		—		—
Supply Agreement - Cosette Pharmaceuticals (6)		9,801		3,321		6,480		—		—
Supply Agreement - Catalent (7)		1,000		500		500		—		—
Supply Agreement - JHS (8)		1,000		500		500		—		—
Total	$	171,136	$	23,698	$	48,183	$	99,255	$	—

(1)

Operating lease obligations reflect our obligation to make payments in connection with the leases for our vehicles, office space and office equipment. The vehicle lease expires in June 2023. The office lease expires on February 28, 2022 and the office equipment leases expire in December 2019.

(2)

On January 31, 2019, we issued $50.0 million aggregate principal amount of our 13% senior secured notes, designated as Series A-1 Notes, to former holders of First Lien Secured Notes Claims. The Series A-1 Notes are subject to an interest holiday from January 31, 2019 through November 1, 2019. Interest on the Series A-1 notes accrues at a rate of 13% per annum, and is payable semi-annually in arrears on May 1 and November of each year, commencing on May 1, 2019, subject to the interest holiday referred to above. The stated maturity date of the Series A-1 Notes is January 31, 2024.

(3)

On January 31, 2019, we issued $45.0 million aggregate principal amount of our 13% senior secured notes, designated as Series A-2 Notes, to Iroko and certain of its affiliates. Interest on the Series A-2 notes accrues at a rate of 13% per annum, and is payable semi-annually in arrears on May 1 and November of each year, commencing on May 1, 2019. The stated maturity date of the Series A-1 Notes is January 31, 2024.

(4)

On January 31, 2019, pursuant to the Iroko Products Purchase Agreement, we issued a $4.5 million promissory note to an affiliate of Iroko in respect of certain inventory purchases by Iroko as a result of

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the Iroko Products Acquisition (the “Interim Promissory Note”). The Interim Promissory Note bears interest at a rate of 8% per annum (payable by way of increasing the principal amount of the Interim Promissory Note on each interest payment date), is subordinate to the Notes, and matures on July 31, 2020.

(5)

On March 20, 2019, (the “Closing Date”), we entered into the Credit Agreement with Cantor Fitzgerald Securities as administrative agent and collateral agent certain funds managed by Highbridge Capital Management, LLC, as lenders, which Credit Agreement consists of a $20.0 million revolving line of credit. We drew $5.0 million on the Closing Date and must maintain at least 25% of the commitment amount outstanding at all times. Advances under the Credit Agreement bear interest at the Company’s option at either the LIBOR Rate (as defined in the Credit Agreement) plus 5.00% or the Base Rate (as defined in the Credit Agreement) plus 4.00%. The Credit Agreement matures on March 20, 2022.

(6)

On January 31, 2019, as part of Asset Purchase Agreement to acquire products from Iroko, we assumed a Collaborative License, Exclusive Manufacture and Global Supply Agreement with Cosette Pharmaceuticals, Inc. (formerly G&W Laboratories, Inc.) (the “Supply Agreement”) for the manufacture and supply of INDOCIN Suppositories to Zyla for commercial distribution in the United States. We are obligated to purchase all of our requirements for INDOCIN Suppositories from Cosette Pharmaceuticals, Inc., and are required to meet minimum purchase requirements for the calendar years 2019 and 2020. The term of the Supply Agreement extends through July 31, 2023, and there are no minimum requirements in any of the other subsequent years.

(7)

On January 31, 2019, as part of our Iroko Products Purchase Agreement, we assumed a Commercial Supply Agreement (“CSA”) with Catalent Pharma Solutions (“Catalent”) for the manufacture of certain SOLUMATRIX products. Based on the CSA, we are obligated to purchase certain minimum amounts of manufacturing and product maintenance services on an annual basis for the term of the contract (“Minimum Requirement”) through September 2021.

(8)

On July 30, 2019, we entered into a Manufacturing and Supply Agreement (the “Agreement”) with Jubilant HollisterStier LLC (“JHS”) for the manufacture and supply of SPRIX® Nasal Spray. Based on the Agreement, we are obligated to purchase certain minimum amounts of manufacturing and supply services on an annual basis for the term of the agreement through July 30, 2022.

Off-Balance Sheet Arrangements

We did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.

JOBS Act

As an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, we can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We elected not to delay our adoption of such new or revised accounting standards. As a result of this election, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have limited exposure to market risk related to changes in interest rates. As of September 30, 2019, we had cash, cash equivalents and restricted cash of $19.0 million. As of December 31, 2018, we had cash and cash equivalents, restricted cash and marketable securities of $40.7 million, consisting of money market funds, certificates of deposit, commercial paper, U.S. government agency securities and corporate debt securities.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer (“PEO”)/principal financial officer (“PFO”), has evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our management, including our PEO/PFO, concluded that as of September 30, 2019 our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our PEO/PFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the period from July 1, 2019 through September 30, 2019, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

Refer to Note 17 - Commitments and Contingencies—Legal Proceedings in the notes to the unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated into this item by reference.

ITEM 1A. RISK FACTORS

We are subject to various risks and uncertainties that could have a material impact on our business, financial condition, results of operations and cash flows. The discussion of these risk factors is included in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. There were no changes in our Risk Factors since the period ended September 30, 2019.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q. Where so indicated by footnote, exhibits that were previously filed are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated.


Exhibit Number		Description

2.1		Debtors’ First Amended Joint Plan of Reorganization, filed with the Court on January 10, 2018 (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 16, 2019).

2.2		Order Confirming Debtors’ First Amended Joint Plan of Reorganization, dated January 14, 2018 (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 16, 2019).

2.3		Amendment No. 3 to the Asset Purchase Agreement, dated as of October 30, 2018, by and among Iroko Pharmaceuticals, Inc., Zyla Life Sciences (incorporated by reference to Exhibit 2.1 to Zyla Life Science’s current report on Form 8 K filed with the Securities and Exchange Commission on June 6, 2019).

3.1		Fourth Amended and Restated Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed February 1, 2019).

3.2		Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation of Zyla Life Sciences (incorporated by reference to Exhibit 3.1 to Zyla Life Science’s current report on Form 8 K filed with the Securities and Exchange Commission on June 6, 2019).

3.3		Second Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to Egalet Corporation’s current report on Form 8‑K filed with the Securities and Exchange Commission on February 1, 2019).

3.4		First Amendment to Second Amended and Restated Bylaws of Zyla Life Sciences (incorporated by reference to Exhibit 3.2 to Zyla Life Science’s current report on Form 8 K filed with the Securities and Exchange Commission on June 6, 2019).

4.1		Form of Certificate of Common Stock (incorporated by reference to Exhibit 4.1 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 29, 2019).

4.2		Indenture, dated as of January 31, 2019, among the Company, the Guarantors from time to time party thereto and U.S. Bank National Association, as trustee and collateral agent (incorporated by reference to Exhibit 4.1 to the Registrant’s current report on Form 8-K filed with the Commission on February 1, 2019).

4.3		Form of Iroko Warrant Agreement (incorporated by reference to Exhibit 4.3 to the Registrant’s current report on Form 8-K filed with the Commission on February 1, 2019).

4.4		Form of Non-Iroko Warrant Agreement (incorporated by reference to Exhibit 4.4 to the Registrant’s current report on Form 8-K filed with the Commission on February 1, 2019).

4.5		Promissory Note, dated as of January 31, 2019, by and between the Company and Iroko Pharmaceuticals Inc. (incorporated by reference to Exhibit 4.2 to the Company’s current report on Form 8‑K filed with the Securities and Exchange Commission on February 1, 2019).

10.1		Separation Agreement, dated as of October 30, 2019, between Robert Radie and Zyla Life Sciences (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Securities and Exchange Commission on October 30, 2019).+

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10.2		Employment Agreement, dated as of October 30, 2019, between Todd Smith and Zyla Life Sciences (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Securities and Exchange Commission on October 30,2019).+
10.3		Employment Agreement dated as of June 3, 2019 between H. Jeffrey Wilkins and the Company (filed herewith).+

10.4		Retention Bonus Agreement, dated August 26, 2019 between the Company and Mark Strobeck.(incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Securities and Exchange Commission on August 30, 2019).+

10.5		Manufacturing and Supply Agreement by and between Zyla Life Sciences US Inc. and Jubilant HollisterStier LLC July 30, 2019 (filed herewith).*

31.1		Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 (filed herewith).

31.2		Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 (filed herewith).
32.1		Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

32.2		Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
101.INS		XBRL Instance Document (filed herewith).

101.SCH		XBRL Taxonomy Extension Schema Document (filed herewith).

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).

101.LAB		XBRL Taxonomy Extension Label Linkbase Document (filed herewith).

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).

		+Management or compensatory plan or arrangement.
		*Portions of this exhibit have been redacted pursuant to a request for confidential treatment.

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EXHIBIT INDEX


Exhibit Number		Description

2.1		Debtors’ First Amended Joint Plan of Reorganization, filed with the Court on January 10, 2018 (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 16, 2019).

2.2		Order Confirming Debtors’ First Amended Joint Plan of Reorganization, dated January 14, 2018 (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 16, 2019).

2.3		Amendment No. 3 to the Asset Purchase Agreement, dated as of October 30, 2018, by and among Iroko Pharmaceuticals, Inc., Zyla Life Sciences (incorporated by reference to Exhibit 2.1 to Zyla Life Science’s current report on Form 8 K filed with the Securities and Exchange Commission on June 6, 2019).

3.1		Fourth Amended and Restated Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed February 1, 2019).

3.2		Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation of Zyla Life Sciences (incorporated by reference to Exhibit 3.1 to Zyla Life Science’s current report on Form 8 K filed with the Securities and Exchange Commission on June 6, 2019).

3.3		Second Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s current report on Form 8‑K filed with the Securities and Exchange Commission on February 1, 2019).

3.4		First Amendment to Second Amended and Restated Bylaws of Zyla Life Sciences (incorporated by reference to Exhibit 3.2 to Zyla Life Science’s current report on Form 8 K filed with the Securities and Exchange Commission on June 6, 2019).

4.1		Form of Certificate of Common Stock (incorporated by reference to Exhibit 4.1 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 29, 2019).

4.2		Indenture, dated as of January 31, 2019, among the Company, the Guarantors from time to time party thereto and U.S. Bank National Association, as trustee and collateral agent (incorporated by reference to Exhibit 4.1 to the Registrant’s current report on Form 8-K filed with the Commission on February 1, 2019).

4.3		Form of Iroko Warrant Agreement (incorporated by reference to Exhibit 4.3 to the Registrant’s current report on Form 8-K filed with the Commission on February 1, 2019).

4.4		Form of Non-Iroko Warrant Agreement (incorporated by reference to Exhibit 4.4 to the Registrant’s current report on Form 8-K filed with the Commission on February 1, 2019).

4.5		Promissory Note, dated as of January 31, 2019, by and between the Company and Iroko Pharmaceuticals Inc. (incorporated by reference to Exhibit 4.2 to the Company’s current report on Form 8‑K filed with the Securities and Exchange Commission on February 1, 2019).

10.1		Separation Agreement, dated as of October 30, 2019, between Robert Radie and Zyla Life Sciences (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Securities and Exchange Commission on October 30, 2019).+

10.2		Employment Agreement, dated as of October 30, 2019, between Todd Smith and Zyla Life Sciences (incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K filed with the Securities and Exchange Commission on October 30, 2019).+

10.3		Employment Agreement dated as of June 3, 2019 between H. Jeffrey Wilkins and the Company (filed herewith).+

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10.4		Retention Bonus Agreement, dated August 26, 2019 between the Company and Mark Strobeck.(incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Securities and Exchange Commission on August 30, 2019).+

10.5		Manufacturing and Supply Agreement by and between Zyla Life Sciences US Inc. and Jubilant HollisterStier LLC July 30, 2019 (filed herewith).*

31.1		Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 (filed herewith).

31.2		Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 (filed herewith).

32.1		Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

32.2		Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
101.INS		XBRL Instance Document (filed herewith).

101.SCH		XBRL Taxonomy Extension Schema Document (filed herewith).

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).

101.LAB		XBRL Taxonomy Extension Label Linkbase Document (filed herewith).

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).

		+Management or compensatory plan or arrangement.
		*Portions of this exhibit have been redacted pursuant to a request for confidential treatment.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Date: November 14, 2019

	ZYLA LIFE SCIENCES

	By:	/s/ Mark Strobeck
		Mark Strobeck
		Executive Vice President and Chief Operating Officer



	By:	/s/ Robert S. Radie
		Robert S. Radie
		Principal Financial Officer

Exhibit 10.3

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of June 3, 2019 (the “Effective Date”), by and between Zyla Life Sciences, a Delaware corporation (the “Company”) and H. Jeffrey Wilkins, MD (the “Executive”).

WITNESSETH:

WHEREAS, the Company desires to employ the Executive, and the Executive desires to be employed by the Company, each upon the terms set forth herein.

NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein and intending to be legally bound hereby, the Company and the Executive agree as follows.

1. Employment. The Company hereby agrees to employ the Executive, and the Executive hereby accepts employment by the Company, for the period and upon the terms and conditions contained in this Agreement.

2. Term. The Executive’s term of employment with the Company under this Agreement shall begin on the Effective Date and shall continue on an at-will basis until that employment ceases in accordance with Section 6 for any reason (the “Term”).

3. Office and Duties.

(a) During the Term, the Executive shall serve as Chief Medical Officer of the Company, as well as in any other position to which the Executive is appointed by the Company’s Board of Directors (the “Board”). The Executive shall report to the Board and the Company’s Chief Executive Officer or his designee(s) and shall perform such duties and have such responsibilities as the Board or the Company’s Chief Executive Officer or his designee(s) may determine from time to time and which are consistent with Executive’s then current position with the Company.

(b) During the Term, the Executive shall devote all of his working time, energy, skill and best efforts to the performance of his duties hereunder in a manner that will faithfully and diligently further the business and interests of the Company.

(c) During the Term, the Executive shall not be engaged in any business activity which, in the reasonable judgment of the Board, conflicts with the Executive’s duties hereunder, whether or not such activity is pursued for pecuniary advantage. Should the Executive wish to provide any services to any other person or entity other than the Company or to serve on the board of directors of any other entity or organization, the Executive shall submit a written request to the Board for consideration and approval by the Board in its sole discretion.

4. Compensation.

(a) For all of the services rendered by the Executive hereunder during the Term, the Executive shall receive an annual base salary of $ 425,000 (the “Base Salary”), payable in accordance with the Company’s regular payroll practices in effect from time to time. The Base Salary will be reviewed on or about December 1, 2019 and annually thereafter by the Board to determine if any increase is appropriate, and if Executive’s Base Salary is increased, then the term “Base Salary” as used in this Agreement shall mean the amount of the Executive’s Base Salary then in effect at the applicable time.

(b) During the Term, the Executive shall be eligible to receive an annual bonus (pro-rated for the first fiscal year of the Term) with a target amount equal to 40% of the Base Salary (the “Annual Bonus”), in accordance with the terms and conditions of the Annual Incentive Bonus Plan attached hereto as Exhibit

A, as amended from time to time. Subject to the Executive’s continued employment through the payment date (except as otherwise provided in this Agreement), the Annual Bonus, if any, shall be paid to the Executive on the date the Company pays bonuses to its executives generally for the year to which such Annual Bonus relates.

(c) As soon as practicable following the Effective Date, subject to all necessary approvals, the Company, pursuant to the terms and conditions of the Company's Amended and Restated 2019 Stock-Based Incentive Compensation Plan (the "Plan"), shall grant the Executive 190,000 Restricted Stock Units (“RSUs” as defined in the Plan), 1/3 of the RSUs shall vest, and the restrictions applicable thereto shall lapse, on each of the first three anniversaries of the Grant Date until 100% of the RSUs are vested. Except as otherwise provided in the applicable award agreement, the vesting of the RSUs shall be subject to the Executive's continuing employment with the Company.

(d) During the Term, the Executive shall be entitled to participate in the Company’s employee benefit plans, including without limitation, any health, dental, vision and 401(k) plans maintained by the Company, on the same terms and conditions as may from time to time be applicable to the Company’s other executive officers, as such employee benefit plans may be in place from time to time.

(e) The Executive shall be entitled to a minimum of twenty (20) days of vacation per year (prorated for any partial year worked), in accordance with Company’s policy as in effect from time to time. The Executive shall also be entitled to sick days and paid holidays in accordance with the Company’s policy as in effect from time to time.

(f) During the Term, the Executive shall be reimbursed by the Company for all necessary and reasonable expenses, professional dues, continuing education fees including without limitation any fees and expenses related to the maintenance of professional licenses, and membership dues incurred by his in connection with the performance of his duties hereunder. The Executive shall keep an itemized account of such expenses, together with vouchers and/or receipts verifying the same. Any such expense reimbursement will be made in accordance with the Company’s policies governing reimbursement of expenses as are in effect from time to time.

(g) All payments and benefits made pursuant to this Agreement shall be subject to such withholding as the Company reasonably believes is required by any applicable federal, state, local or foreign law.

5. Representations of Executive. The Executive represents to the Company that (i) there are no restrictions, agreements or understandings whatsoever to which the Executive is a party that would prevent, or make unlawful, his execution of this Agreement and his employment hereunder; (ii) his execution of this Agreement and his employment hereunder shall not constitute a breach of any contract, agreement or understanding, oral or written, to which she is a party, or by which she is bound, and (iii) she is of full capacity and free and able to execute this Agreement and to enter into employment with the Company.

6. Termination. The Term shall continue until the termination of the Executive’s employment with the Company as provided below.

(a) Death or Disability. If the Executive dies or becomes Disabled, the Term and the Executive’s employment with the Company shall immediately terminate. Upon such a termination of employment, the Company shall:

(i) pay to the Executive (or his estate, beneficiary or legal representative, as the case may be), within thirty (30) days following such termination of employment, all accrued but unpaid Base Salary and all accrued but unused vacation;

(ii) reimburse the Executive (or his estate, beneficiary or legal representative, as the case may be) for all reimbursable expenses that have not been reimbursed as of such termination of employment, with such reimbursement to occur in accordance with the procedures set forth in Section 4(f); and

(iii) pay the Executive any earned but unpaid annual bonus for the year immediately preceding the year of termination at the time the Company pays bonuses with respect to such year to its executives generally.

For purposes of this Agreement, “Disabled” means that in the opinion of a qualified physician, mutually acceptable to the Company and the Executive, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, the Executive (x) is unable to engage in any substantial gainful activity or (y) has been receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company. The termination of employment described herein shall not affect the Executive’s right to continued eligibility to disability benefits under the Company’s long-term disability coverage or plan.

(b) For Cause. During the Term, the Company may terminate the Executive’s employment for Cause upon written notice. Upon such a termination of employment, the Executive shall be entitled to only those benefits described in clauses (i) and (ii) of Section 6(a). For purposes of this Agreement, “Cause” means:

(i) a material breach of this Agreement by the Executive that is not susceptible to remedy or cure, or if susceptible to remedy or cure, is not remedied or cured to the satisfaction of the Board within ten (10) business days following written notice from the Board to the Executive specifying the manner in which the Executive has breached this Agreement and, if applicable, the specific remedy or cure sought;

(ii) the commission by the Executive of a felony or a crime involving moral turpitude (whether or not related to the Executive’s employment), or any other act or omission involving dishonesty or fraud with respect to the Company or any of its affiliates or causing material harm to the standing or reputation of the Company, or the Executive’s drug abuse or repeated intoxication; or

(iii) the Executive’s failure to perform his duties hereunder other than by reason of death or Disability, after written notice from the Board specifying the manner in which the Executive has failed to perform his duties and, if such failure is susceptible to cure, the failure of the Executive to cure such non-performance to the satisfaction of the Board within thirty (30) business days following such written notice, including, if applicable, the specific remedy or cure sought.

(c) Without Cause. During the Term, the Company may terminate the Executive’s employment with the Company at any time without Cause upon thirty (30) days’ prior written notice; provided, however, that during such notice period, the Board, in its sole discretion, may relieve the Executive of all of his duties, responsibilities and authority with respect to the Company and may restrict Executive’s access to Company property; provided, further, that the Board’s exercise of such discretion shall not constitute Good Reason (as defined below). Upon such a termination of employment, the Company shall:

(i) provide the Executive with those benefits described in clauses (i) and (ii) of Section 6(a);

(ii) pay the Executive any earned but unpaid annual bonus for the year immediately preceding the year of termination at the time the Company pays bonuses with respect to such year to its executives generally;

(iii) continue providing the Executive with Base Salary for a period of 12 months following the date of such termination of employment (the “Severance Period”), with such Base Salary to be paid in accordance with the Company’s regular payroll practice as if no such termination of employment had occurred; provided, however, that the Executive’s right to receive the payments set forth in this clause (iii) of Section 6(c) shall be conditioned on the Executive’s continued compliance with Sections 8 and 9 hereof and such payments shall not begin until the Executive signs and does not subsequently revoke a Separation Agreement and General Release within sixty (60) days following such termination of employment, in substantially the form attached hereto as Exhibit B; provided, further, that if such sixty (60) day period spans two calendar years, any payment set forth in this Section 6(c)(iii) that, but for this proviso, would have been paid prior to the Company’s first payroll date in such second calendar year, shall not be paid until such payroll date (but only to the extent required to comply

with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”));

(iv) during the Severance Period the Company shall provide Executive with a monthly benefit stipend payment in the gross amount equal to the one-hundred and two percent (102%) of the monthly premium of the Company’s plans for continuation of Executive’s medical, dental, vision and prescription coverage on the plans of the Executive’s choice with such payments to be paid in accordance with the Company’s regular payroll practice on or about the 15th calendar day of each calendar month during the Severance Period; provided, however, that the Executive’s right to receive the payments set forth in this clause (iv) of Section 6(c) shall be conditioned on the Executive’s continued compliance with Sections 8 and 9 hereof and such payments shall not begin until the Executive signs and does not subsequently revoke a Separation Agreement and General Release within sixty (60) days following such termination of employment, in substantially the form attached hereto as Exhibit B; provided, further, that if such sixty (60) day period spans two calendar years, any payment set forth in this Section 6(c)(iv) that, but for this proviso, would have been paid prior to the Company’s first payroll date in such second calendar year, shall not be paid until such payroll date (but only to the extent required to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”)).

(v) provide any stock-based compensation due to the Executive pursuant to any written agreement between the Executive and the Company, on the terms and conditions set forth therein.

(d) Termination by Executive for Good Reason. During the Term, the Executive may resign his employment for Good Reason. Upon such a termination, the Executive shall be entitled to those benefits described in Section 6(c) as though the Executive had been terminated by the Company without Cause. For purposes of this Agreement, “Good Reason” means the occurrence of any of the following circumstances:

(i) a material diminution of the Executive’s authorities, duties, responsibilities or status (including offices, titles or reporting relationships) as an employee of the Company from those then in effect or the assignment to the Executive of duties or responsibilities inconsistent with his then current position;

(ii) the Company’s relocation of the Executive’s principal job location or office that increases the Executive’s one-way commute by more than fifty (50) miles; or

(iii) a reduction in the Executive’s Base Salary or benefits (other than a reduction in benefits that applies to the Executive and all other similarly positioned employees);

provided, that the events set forth in items (i), (ii) and (iii) of this Section 6(d) occur without the Executive’s express written consent; and provided further, that that no such occurrence of any of the events set forth in items (i), (ii) and (iii) of this Section 6(d) shall constitute Good Reason unless the Executive notifies the Company in writing of his intent to resign for Good Reason within 30 days following the occurrence of such circumstance and the Company fails to cure such circumstances within 30 days following receipt of such notice.

(e) Termination by Executive without Good Reason. During the Term, the Executive may resign his employment without Good Reason upon ninety (90) days prior written notice. Upon such a termination of employment, the Executive shall be entitled to only those benefits described in clauses (i) and (ii) of Section 6(a).

(f) Termination by the Company without Cause or by the Executive for Good Reason within 24 Months after a Change in Control. Notwithstanding anything herein to the contrary, if, during the Term, the Executive’s employment is terminated by the Company without Cause or by the Executive for Good Reason, in each case, within 24 months after a Change in Control, the Executive shall be entitled to those benefits described in Section 6(c); provided that for purposes of applying clauses (iii) and (iv) of Section 6(c), “Severance Period” shall be a period of 24 months following the date of such termination of employment.

For purposes of this Agreement, “Change in Control” means, after the Effective Date, any of the following events: (A) a “person” (as such term in used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “1934 Act”)), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially

the same proportions as their ownership of stock of the Company, is or becomes the “beneficial owner” (as defined in Rule 13D-3 under the 1934 Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company’s then outstanding securities; (B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (A), (C) or (D) hereof) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously approved, cease for any reason to constitute a majority thereof; (C) the Company merges or consolidates with any other corporation, other than in a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (D) the complete liquidation of the Company or the sale or other disposition of all or substantially all of the Company’s assets; provided that no event shall constitute a Change in Control hereunder unless such event is also a “change in control event” as defined in Section 409A of the Code.

(g) Any severance or termination pay granted in this Section 6 will be the sole and exclusive remedy, compensation or benefit due to the Executive or his estate upon any termination of the Executive’s employment (without limiting the Executive’s rights under any disability, life insurance or deferred compensation arrangement in which the Executive participates at the time of such termination of employment).

7. Certain Company Remedies. The Executive acknowledges that his promised services and covenants, including without limitation the covenants in Sections 8 and 9 hereof, are of a special and unique character, which give them peculiar value, the loss of which cannot be reasonably or adequately compensated for in an action at law, and that, in the event there is a breach hereof by the Executive, the Company will suffer irreparable harm, the amount of which will be impossible to ascertain. Accordingly, the Company shall be entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction, either at law or in equity, to obtain damages for any breach of this Agreement, or to enjoin the Executive from committing any act in breach of this Agreement. The remedies granted to the Company in this Agreement are cumulative and are in addition to remedies otherwise available to the Company at law or in equity. If the Executive violates any of the restrictions contained in this Agreement, the restrictive period shall not run in favor of the Executive from the time of commencement of any such violation until such time as such violation shall be cured by the Executive to the satisfaction of the Company.

8. Restrictive Covenants.

(a) Confidentiality. During the Term and at all times thereafter, the Executive shall, and shall cause his affiliates and representatives to keep confidential and not disclose to any other person or entity or use for his own benefit or the benefit of any other person or entity any confidential proprietary information, technology, know-how, trade secrets (including all results of research and development), product formulas, industrial designs, franchises, inventions or other intellectual property regarding the Company or its business and operations (“Confidential Information”) in his possession or control. The obligations of the Executive under this Section 8(a) shall not apply to Confidential Information which (i) is or becomes generally available to the public without breach of the commitment provided for in this Section; (ii) is required to be disclosed by law, order or governmental authority; (iii) information that is independently developed by the Executive after termination of all employment with the Company or its affiliates, without the use of or reliance on any Confidential Information and (iv) information which becomes known to the Executive after termination of all employment with the Company or its affiliates, on a non-confidential basis from a third-party source if such source was not subject to any confidentiality obligation; provided, however, that, in case of clause (ii), the Executive shall notify the Company as early as reasonably practicable prior to disclosure to allow the Company or its affiliates to take appropriate measures to preserve the confidentiality of such Confidential Information. During the Term and at all times thereafter, the Executive shall, and shall cause his affiliates and his representatives to, keep confidential and not disclose to any other person or entity any of the terms of this Agreement, except as required by applicable law, in connection with the enforcement by the Executive of his rights hereunder.

(b) Non-Competition; Non-Solicitation.

(i) During the period beginning on the Effective Date and ending 12 months following the date on which the Executive’s employment with the Company is terminated for any reason (the “Non-Compete Period”), the Executive covenants and agrees not to, and shall cause his affiliates not to, directly or indirectly anywhere in the world, conduct, manage, operate, engage in or have an ownership interest in any business or enterprise that (A) manufactures, sells, distributes or develops abuse-deterrent orally delivered pharmaceuticals, (B) uses any trademarks, tradenames or slogans similar to those of the Company or its affiliates; or (C) is engaged in any other activities that are otherwise competitive with the business of the Company or its affiliates as conducted or proposed to be conducted as of the termination date (collectively, the “Business”). Notwithstanding anything herein to the contrary, if the Executive’s employment with the Company is terminated by the Company without Cause or by the Executive for Good Reason, in each case, within 24 months following a Change in Control, the Non-Compete Period shall be a period of 24 months. Notwithstanding the foregoing, nothing herein shall preclude the Executive from performing any duties as a stockholder, director, employee, consultant or agent of the Company or its affiliates or owning, directly or indirectly, in the aggregate less than 5% of any business competitive with the Company or its affiliates that is subject to the reporting obligations of the 1934 Act.

(ii) During the Non-Compete Period, the Executive shall not, and shall cause his affiliates to not, directly or indirectly, call-on, solicit or induce any customer or other business relationship of the Company or its affiliates for the provision of products or services related to the business of the Company or in any other manner that would otherwise interfere with the business relationship between the Company and its affiliates and their respective customers and other business relationships.

(iii) During the Non-Compete Period, the Executive shall not, and shall cause his affiliates to not, directly or indirectly, call-on, solicit or induce, any employee of the Company or its affiliates to leave the employ of, or terminate its relationship with, the Company or its affiliates for any reason whatsoever, nor shall the Executive offer or provide employment (whether such employment is for the Executive or any other business or enterprise), either on a full-time, part-time or consulting basis, to any person who then currently is, or within six (6) months immediately prior thereto was, an employee or independent contractor of the Company; provided, however, the foregoing shall not prohibit a general solicitation to the public through general advertising or similar methods of solicitation not specifically directed at employees of the Company.

(iv) The Executive acknowledges and agrees that the provisions of this Section 8 are reasonable and necessary to protect the legitimate business interests of the Company and its affiliates. The Executive shall not contest that the Company’s and the Company’s affiliates’ remedies at law for any breach or threat of breach by the Executive or any of his affiliates of the provisions of this Section 8 will be inadequate, and that the Company and its affiliates shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Section 8 and to enforce specifically such terms and provisions, in addition to any other remedy to which the Company or its affiliates may be entitled at law or equity. The restrictive covenants contained in this Section 8 are covenants independent of any other provision of this Agreement or any other agreement between the parties hereunder and the existence of any claim which the Executive may allege against the Company under any other provision of this Agreement or any other agreement will not prevent the enforcement of these covenants.

(v) The Executive expressly acknowledges that the covenants contained in this Section 8(b) are a material part of the consideration bargained for by the Company and, without the agreement of the Executive to be bound by such covenants, the Company would not have agreed to enter into this Agreement.

(vi) If any of the provisions contained in this Section 8(b) shall for any reason be held to be excessively broad as to duration, scope, activity or subject, then such provision shall be construed by limiting and reducing it, so as to be valid and enforceable to the maximum extent compatible with the applicable law or the determination by a court of competent jurisdiction.

9. Intellectual Property; Company Property.

(a) Inventions Retained and Licensed. The Executive has attached hereto, as Exhibit C, a list describing any inventions, original works of authorship, developments, improvements, and trade

secrets which were made by the Executive prior to the Effective Date (collectively referred to as “Prior Inventions”) which belong to the Executive, which relate to the Company’s products or research and developments and which are not assigned to the Company hereunder; or, if no such Prior Inventions are listed, the Executive represents that there are no such Prior Inventions. The Executive agrees that she will not incorporate, or permit to be incorporated, any Prior Invention owned by the Executive or in which the Executive has an interest into a Company product, process or machine without the Company’s prior written consent. Notwithstanding the foregoing sentence, if, in the course of his employment with the Company, the Executive incorporates into a Company product, process or machine a Prior Invention owned by the Executive or in which the Executive has an interest, the Company is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license to make, have made, modify, use and sell such Prior Invention as part of or in connection with such product, process or machine.

(b) Assignment of Inventions. The Executive agrees that she will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and does hereby assign to the Company, or its designee, all right, title, and interest in and to any and all inventions, original works of authorship, developments, concepts, improvements, designs, discoveries, ideas, trademarks or trade secrets, whether or not patentable or capable of registration under copyright or similar laws, which the Executive may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the time the Executive is in the employ of the Company (collectively referred to as “Inventions”) except as provided in Section 9(e). The Executive further acknowledges that all original works of authorship which are made by his (solely or jointly with others) within the scope of and during the period of his employment with the Company and which are protectable by copyright are “works made for hire” as that term is defined in the United States Copyright Act. The Executive understands and agrees that the decision whether or not to commercialize or market any Invention developed by his solely or jointly with others is within the Company’s sole discretion and for the Company’s sole benefit and that no royalty will be due to the Executive as a result of the Company’s efforts to commercialize or market any such Invention.

(c) Maintenance of Records. The Executive agrees to keep and maintain adequate and current written records of all Inventions made by his (solely or jointly with others) during the Term. The records will be in the form of notes, sketches, drawings, and any other format that may be specified by the Company. The records will be available to and remain the sole property of the Company at all times.

(d) Patent and Copyright Registrations. The Executive agrees to assist the Company, or its designee, at the Company’s expense, in every proper way to secure the Company’s rights in the Inventions and any copyrights, patents, mask work rights or other intellectual property rights relating thereto in any and all countries, including, but not limited to, the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments and all other instruments which the Company shall deem necessary in order to apply for and obtain such rights and in order to assign and convey to the Company, its successors, assigns, and nominees the sole and exclusive rights, title and interest in and to such Inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. The Executive further agrees that his obligation to execute or cause to be executed, when it is in his power to do so, any such instrument or papers shall continue after the termination of the Term. If the Company is unable because of the Executive’s mental or physical incapacity or for any other reason to secure the Executive’s signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering Inventions or original works of authorship assigned to the Company as above, then the Executive hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as the Executive’s agent and attorney in fact, to act for and on the Executive’s behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent or copyright registrations thereon with the same legal force and effect as if executed by the Executive.

(e) Exception to Assignments. The Executive understands that the provisions of this Agreement requiring assignment of Inventions to the Company shall not apply to any Invention that the Executive has developed entirely on his own time without using the Company’s equipment, supplies, facilities, trade secret information or Confidential Information except for those Inventions that either (i) relate at the time of conception or reduction to practice of the Invention to the Company’s business, or actual or demonstrably anticipated research or development of the Company or (ii) result from any work that the Executive performed for the Company. The Executive will advise the Company promptly in writing of any Inventions that the Executive

believes meet the foregoing criteria and not otherwise disclosed on Exhibit C.

(f) Upon the termination of his employment for any reason, the Executive shall deliver to the Company all memoranda, books, papers, letters, and other data, and all copies of the same, which were made by the Executive or otherwise came into his possession or under his control at any time prior to the termination of this Agreement, and which in any way relate to the business of the Company as conducted or as planned to be conducted on the date of the termination.

10. Survival of Representations. The provisions of Sections 7, 8 and 9 shall survive the termination, for any reason, of the Executive’s employment with the Company or of this Agreement.

11. Key Person Insurance. If the Company wishes to purchase a life insurance policy on the Executive or other insurance policy relating to the loss of the Executive’s services, the Executive agrees to submit to a customary insurance medical examination, if necessary, and otherwise cooperate with the Company in any reasonable manner with respect to obtaining any such insurance policy.

12. Miscellaneous.

(a) Neither the failure, nor any delay, on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same, or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.

(b) This Agreement and all questions relating to its validity, interpretation, performance and enforcement (including, without limitation, provisions concerning limitations of actions), shall be governed by and construed in accordance with the laws of the State of Delaware (notwithstanding any conflict-of-laws doctrines of such state or other jurisdiction to the contrary), and without the aid of any canon, custom or rule of law requiring construction against the draftsman.

(c) This Agreement is intended to comply with Code Section 409A, and the parties hereto agree to interpret, apply and administer this Agreement in the least restrictive manner necessary to comply therewith and without resulting in any increase in the amounts owed hereunder by the Company. If the Executive’s termination of employment hereunder does not constitute a “separation from service” within the meaning of Code Section 409A, then any amounts payable hereunder on account of a termination of the Executive’s employment and which are subject to Code Section 409A shall not be paid until the Executive has experienced a “separation from service” within the meaning of Code Section 409A. If, and only if, the Executive is a “specified employee” (as defined in Code Section 409A) and a payment or benefit provided for in this Agreement would be subject to additional tax under Code Section 409A if such payment or benefit is paid within six (6) months after the Executive’s separation from service, then such payment or benefit shall not be paid (or commence) during the six-month period immediately following the Executive’s separation from service except as provided in the immediately following sentence. In such an event, any payment or benefits that otherwise would have been made or provided during such six-month period and that would have incurred such additional tax under Code Section 409A shall instead be paid to the Executive in a lump-sum cash payment on the first day following the termination of such six-month period or, if earlier, within ten (10) days following the date of the Executive’s death. No reimbursement or in-kind benefit shall be subject to liquidation or exchange for another benefit and the amount available for reimbursement, or in-kind benefits provided, during any calendar year shall not affect the amount available for reimbursement, or in-kind benefits to be provided, in a subsequent calendar year. Any reimbursement to which the Executive is entitled hereunder shall be made no later than the last day of the calendar year following the calendar year in which such expenses were incurred. Each payment hereunder shall be treated as a separate payment in a series of separate payments pursuant to Treasury Regulation Section 1.409A-2(b)(2)(iii).

(d) All notices, requests, demands and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made and received only when

delivered (personally, by courier service such as Federal Express, or by other messenger), when sent by facsimile transmission (with electronic confirmation of receipt) or three (3) days after deposit in the United States mails, registered or certified mail, postage prepaid, return receipt requested, addressed as follows:

	If to the Executive: the Executive’s home address on record with the Company.

If to the Company:

	Zyla Life Sciences
	600 Lee Road, Suite 100
	Wayne, PA 19087
	Attention: Chief Executive Officer

Any party may alter the addresses to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this paragraph for the giving of notice.

(e) The rights and obligations of both parties under this Agreement shall inure to the benefit of and shall be binding upon their heirs, successors and assigns, but shall not be assigned without the written consent of both parties; provided, however, that the Company may make such an assignment in connection with a sale of substantially all of the assets or other change of control of the Company.

(f) This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories.

(g) The provisions of this Agreement are independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other provision or provisions may be invalid or unenforceable in whole or in part.

(h) This Agreement contains the entire understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, between the parties hereto except as herein contained (including without limitation any prior employment agreements between the parties hereto). The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing.

(i) The section headings in this Agreement are for convenience only, form no part of this Agreement and shall not affect its interpretation.

(j) Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context indicates is appropriate.

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written.

Zyla Life Sciences


By:	/s/ ROBERT S. RADIE
	Name:	Robert S. Radie
	Title:	President and CEO


EXECUTIVE


/s/ H. JEFFREY WILKINS

EXHIBIT A

[ANNUAL INCENTIVE BONUS PLAN]

EXHIBIT B

SEPARATION AGREEMENT AND GENERAL RELEASE

THIS SEPARATION AGREEMENT AND GENERAL RELEASE (this “AGREEMENT”) is made by and between COMPANY Corporation, a corporation organized and existing under the laws of the State of Delaware, with its principal place of business located at 600 Lee Road, Suite 100, Wayne, Pennsylvania 19087 (“COMPANY”) and __________________, an individual residing at _____________________, _____________, ______________ ______ (“EXECUTIVE”). For purposes of this AGREEMENT, “EMPLOYER” shall include COMPANY and all of its divisions, parents, subsidiaries, affiliates or related entities, its and their past, present and future officers, directors, managers, trustees, members, shareholders, general and/or limited partners, insurers, attorneys, legal representatives, EXECUTIVEs and agents and all of its and their respective heirs, executors, administrators, successors and assigns including, but not limited to, _____________ and ________________.

WHEREAS, EXECUTIVE had been employed by COMPANY for a period of time under the terms and conditions of an Employment Agreement entered into by and between COMPANY and EXECUTIVE dated as of __________ ____, _____ (the “EMPLOYMENT AGREEMENT”)(a copy of which is attached hereto as Exhibit “A”); and

WHEREAS, EXECUTIVE’s employment with COMPANY terminated effective _____________ ___, 2016 (the “SEPARATION DATE”); and

WHEREAS, COMPANY desires to provide EXECUTIVE with a separation package that both COMPANY and EXECUTIVE deem fair, reasonable and equitable; and

WHEREAS, EXECUTIVE was presented with a severance package on or about the SEPARATION DATE; and

WHEREAS, COMPANY and EXECUTIVE deem it to be in their mutual interest to amicably resolve any disputes which may exist between them concerning EXECUTIVE’s employment and its cessation and to provide for the manner in which they will hereafter conduct themselves in relation to each other.

NOW, THEREFORE, in consideration of their mutual promises as set forth herein and intending to be legally bound hereby, COMPANY and EXECUTIVE agree as follows:

1. The foregoing recitals are incorporated herein as if set forth at length.

2. In settlement of all RELEASED CLAIMS (as defined below) EXECUTIVE had, has or may have against EMPLOYER, as well as in exchange for the representations, warranties and covenants made by EXECUTIVE in this AGREEMENT, COMPANY shall pay EXECUTIVE, as severance, his/her normal bi-weekly base compensation at the time of termination (_____ Thousand _____ Hundred _____Dollars and _____Cents ($______________) for a period of _____ [months/weeks] (i.e., _____[weekly/bi-weekly] payments of $_____each and one [weekly/bi-weekly] payment of $_____) (the “PERIODIC SEVERANCE PAYMENTS”). The PERIODIC SEVERANCE PAYMENTS required pursuant to this Paragraph of this AGREEMENT shall: (i) be made less applicable federal, state and local withholdings and authorized deductions in accordance with COMPANY’s normal payroll practices in effect from time to time and applicable law; (ii) begin to be made on or about COMPANY’s next regularly scheduled payday that occurs at least 10 calendar days after receipt by _________________, Human Resources Manager, COMPANY (“XXXX”) of the original of this AGREEMENT executed by EXECUTIVE, as well as any other documentation required by this AGREEMENT and written confirmation from EXECUTIVE that s/he has not and is not exercising his/her right of revocation pursuant to this AGREEMENT; (iii) be made payable to EXECUTIVE; and (iv) either (x) be mailed to EXECUTIVE at his/her address as set forth above or at another address provided to the individual then holding the office of Human Resources Manager, COMPANY in writing or (y) made via direct deposit to EXECUTIVE’s payroll bank account of record with COMPANY. EXECUTIVE shall receive an IRS Form W-2 for the PERIODIC SEVERANCE PAYMENTS.

3. In consideration of the promises and undertakings of COMPANY under this AGREEMENT, EXECUTIVE makes the following representations, warranties and covenants:

(a) that for purposes of this AGREEMENT, any reference to monies paid to or on behalf of EXECUTIVE shall be deemed to be the entire gross amount of the payments required by the terms, and set forth in Paragraph 2 of this AGREEMENT; and

(b) that s/he has been afforded by EMPLOYER any and all rights s/he had or may have had under any and all family or medical leave law including, but not limited to, the federal Family and Medical Leave Act (“FMLA”) and/or any otherwise applicable state or local leave law; and

(c) that s/he has been paid all wages, commissions and bonuses due him/her including, but not limited to, accrued but unused vacation and other paid leave time and any monies under any bonus, severance and/or incentive compensation plan. EXECUTIVE further represents and warrants that s/he has received all sums due him/her under the federal Fair Labor Standards Act (“FLSA”) and/or any otherwise applicable state or local wage and hour law; and

(d) that s/he shall make him/herself available and cooperate in any reasonable manner in providing reasonable assistance to EMPLOYER in concluding any business and/or legal matters which are presently pending and in connection with any such matters that may arise in the future which relate to his/her employment with EMPLOYER; provided such cooperation and assistance shall not unreasonably interfere with any subsequent employment obtained by EXECUTIVE. Such cooperation shall include, but not be limited to, answering questions regarding any previous or current project EXECUTIVE worked on while employed by COMPANY so as to insure a smooth transition of responsibilities and to minimize any adverse consequences of EXECUTIVE’s departure. EMPLOYER shall have no obligation to compensate EXECUTIVE for said time other than as set forth in this AGREEMENT. Notwithstanding the foregoing sentence of this Subparagraph of this AGREEMENT, EXECUTIVE shall be reimbursed by COMPANY for all reasonable and necessary out-of-pocket expenses actually incurred by him/her as a result of his/her performance of his/her obligations under this Subparagraph of this AGREEMENT, provided EXECUTIVE receives the prior written approval for the expenses from the individual then holding the office of President, COMPANY. In the event COMPANY requests EXECUTIVE to perform services pursuant to this Subparagraph of this AGREEMENT, such work shall not be deemed a violation or breach of Subparagraph 3(j) of this AGREEMENT; and

(e) that s/he has returned to EMPLOYER all property of EMPLOYER in his/her possession or control which refer or relate to EMPLOYER's business, or which are otherwise the property of EMPLOYER, including, but not limited to, all confidential and proprietary business information, papers, documents, letters, invoices, sales records and reports, notes, memoranda, keys, security cards, records, EXECUTIVE and human resource records, customer and supplier lists, customer and supplier materials or documents, computers, BlackBerry/PDA/iPhone, computer data, office equipment, and employment records, which were created by EXECUTIVE or other EXECUTIVEs, agents and customers or suppliers of EMPLOYER in the course of their employment and/or relationship with EMPLOYER, as well as copies or multiple versions thereof, regardless of the form or medium retained or stored in (including hard copy or electronic or digital form); and

(f) that as an EXECUTIVE of EMPLOYER s/he had access to and was entrusted with EMPLOYER’s confidential and proprietary business information and trade secrets. At all times prior to, during, and following EXECUTIVE’s separation s/he has maintained and will maintain such information in strict confidence and has not disclosed and will not

disclose the information to any third party without the prior written consent of the individual then holding the office of President, COMPANY; and

(g) that s/he shall not receive any other payment from EMPLOYER other than that set forth in this AGREEMENT including, but not limited to, any bonuses, compensation, incentive compensation, and/or commissions; and

(h) that s/he shall cooperate with EMPLOYER in the defense of any claim currently pending or hereinafter pursued against EMPLOYER without the payment of any additional compensation other than as set forth in this AGREEMENT. Such cooperation includes, but is not limited to, meeting with internal COMPANY EXECUTIVEs to discuss and review issues which EXECUTIVE was directly or indirectly involved with during employment with COMPANY, participating in any investigation conducted by COMPANY either internally or by outside counsel or consultants, signing declarations or witness statements, preparing for and serving as a witness in any civil or administrative proceeding by both depositions or a witness at trial, reviewing documents and similar activities that COMPANY deems necessary. Notwithstanding the foregoing sentence of this Subparagraph of this AGREEMENT, EXECUTIVE shall be entitled to be reimbursed by COMPANY for all reasonable and necessary out-of-pocket expenses actually incurred by him/her as a result of his/her performance of his/her obligations under this Subparagraph of this AGREEMENT, provided EXECUTIVE receives the prior written approval for the expenses from the individual then holding the office of President, COMPANY. In the event COMPANY requests EXECUTIVE to perform services pursuant to this Subparagraph of this AGREEMENT, such work shall not be deemed a violation or breach of Subparagraph 3(j) of this AGREEMENT. Furthermore, EXECUTIVE has not and shall not initiate, commence, voluntarily cooperate with or provide assistance including, but not limited to, testimony or consultative services, in any claim, lawsuit, administrative proceeding, investigation, inquiry, or similar activity, whether governmental or private, whether pending or otherwise, without obtaining the prior written consent of the individual then holding the office of President, COMPANY. In the case of legal proceedings, EXECUTIVE shall notify, in writing, the individual then holding the office of President, COMPANY, of any subpoena or other similar notice to give testimony or provide documentation (“NOTICE”) within two business days of receipt of said NOTICE and prior to providing any response to said NOTICE such that EMPLOYER may have an opportunity to seek and obtain, among other things, an appropriate protective order or seek intervention in the matter; and

(i) that s/he has not and shall not take any action, directly or indirectly, which is contrary to the interests of EMPLOYER or make any disparaging, untrue, negative, derogatory or defamatory remarks concerning EMPLOYER or its business practices; and

(j) that s/he shall not be re-employed by EMPLOYER as an EXECUTIVE, independent contractor, consultant or otherwise and that s/he shall not apply for or otherwise seek employment or engagement with EMPLOYER at any time hereinafter; and

(k) that s/he has not and will not access or attempt to access any property, computer systems, networks, password protected data or other property of the EMPLOYER on or after the SEPARATION DATE; and

(l) that s/he has not sustained any injuries and/or illnesses/diseases as a result of his/her employment with or by EMPLOYER that would otherwise be covered by any otherwise applicable workers’ compensation insurance benefit plan; and

(m) that s/he unconditionally releases and forever discharges EMPLOYER (whether individually or collectively) from any and all causes of action, suits, damages, grievances, demands, liabilities, defenses, debts, dues, sums of monies, accounts, covenants,

controversies, promises, variances, claims, judgments, interest, attorneys’ fees, liquidated damages, costs and expenses whatsoever relating to, or in connection with, EXECUTIVE’s employment by EMPLOYER or cessation/termination thereof, either directly or indirectly, whether known or unknown, contingent or fixed, liquidated or un-liquidated, matured or un-matured, in law, equity or otherwise, for, upon or by reason of any matter, cause or thing whatsoever, including, but not limited to, any breach of contract claims (whether written or oral, express or implied); claims arising out or related to the EMPLOYMENT AGREEMENT; claims arising out of or related to any offer letter or similar document; claims arising out of or related to any EXECUTIVE handbook, personnel manual or employment policy; estoppel claims; tort claims; claims for invasion of privacy; claims for loss of consortium; claims for duress; claims of discrimination; claims for compensatory and/or punitive damages; public policy claims; defamation claims; claims of retaliation; claims of wrongful discharge or termination; claims for breach of promise; claims of negligence; claims of impairment of economic opportunity or loss of business opportunity; claims of fraud or misrepresentation (negligent or intentional); claims for severance offers made prior to the date EXECUTIVE signs this AGREEMENT other than as set forth in this AGREEMENT; claims for abuse of process; claims for workers’ compensation benefits; claims of promissory estoppel; claims for quantum meruit; claims for unjust enrichment; claims for breach of the covenant of good faith and fair dealing; claims of unfair labor practices; claims under the Age Discrimination in Employment Act of 1967 (“ADEA”), as amended by the Older Workers Benefit Protection Act (“OWBPA”); claims under Title VII of the Civil Rights Act of 1964, as amended (“TITLE VII”); claims under the EXECUTIVE Retirement Income Security Act of 1974, as amended (“ERISA”) (excluding claims for vested benefits); claims under the Immigration Reform and Control Act of 1986 (“IRCA”); claims under the Americans With Disabilities Act (“ADA”); claims under the Family and Medical Leave Act (“FMLA”); claims under the Fair Labor Standards Act (“FLSA”); claims under the Uniformed Services Employment and Reemployment Rights Act (“USERRA”); claims under the National Labor Relations Act (“NLRA”); claims under the Worker Adjustment and Retraining Notification Act (“WARN”); claims under the Genetic Information Nondiscrimination Act of 2008 (“GINA”); claims under the Constitution of the United States of America; claims under the Pennsylvania Human Relations Act (“PHRA”); claims under the Pennsylvania Wage Payment and Collection law (“PWPCL”); claims under the Constitution of the Commonwealth of Pennsylvania; claims under any other federal, state or local anti-discrimination law, whistle-blowing law, family and/or medical leave law and/or wage and hour law; claims for benefits including, but not limited to, life insurance, accidental death & disability insurance, sick leave or other employer provided plan or program; claims for distributions of income or profit; claims for royalties; claims for license fees; claims for ownership, stock, stock options, equity or otherwise; claims for reimbursement; claims for wages, commissions or bonuses; claims for incentive compensation; claims for salary continuation benefits other than as set forth in this AGREEMENT; claims for vacation or other leave time; claims for royalties or license fees; claims for patent, copyright or trademark infringement; claims relating to retirement, pension and/or profit sharing plans (excluding claims for vested benefits); claims for attorneys’ fees and/or costs; claims for, or arising out of the offering of, group health insurance coverage (excluding claims for Consolidated Omnibus Budget Reconciliation Act (“COBRA”) coverage and/or similar state or federally mandated continuation coverage) or the use of information obtained by EMPLOYER as a result of the offering of group health and/or any other insurance coverage; claims against the Employer Health Plan as defined under the Health Insurance Portability and Accountability Act (“HIPAA”); claims relating to EXECUTIVE’s application for hire, employment, or termination thereof, as well as any claims which EXECUTIVE may have arising under or in connection with any and all local, state or federal ordinances, statutes, rules, regulations, executive orders or common law, from the beginning of the world up to and including the date of EXECUTIVE’s execution of this AGREEMENT (“RELEASED CLAIMS”). The only exclusions from this release provision is a claim that some term of this AGREEMENT has been materially violated; and

(n) that in giving the general release as set forth in Subparagraph 3(m) of this AGREEMENT, EXECUTIVE acknowledges that s/he understands the significance and consequence of such release and waiver. Furthermore, that in giving the general release as set forth in Subparagraph 3(m) of this AGREEMENT, EXECUTIVE specifically acknowledges that s/he may hereafter discover claims or facts in addition to or different from those which s/he now knows or believes to exist with respect to the subject matter of this AGREEMENT and which, if known or suspected at the time of executing this AGREEMENT, may have materially affected this AGREEMENT. Nevertheless, EXECUTIVE hereby waives any right, claim or cause of action that might arise as a result of such different or additional claims or facts. EXECUTIVE acknowledges that s/he understands the significance and consequence of such release and waiver.

4. EXECUTIVE acknowledges and confirms that that s/he is waiving any claims under the Age Discrimination in Employment Act of 1967 (“ADEA”) as amended by the Older Workers Benefit Protection Act (“OWBPA”) and that:

(a) s/he is receiving consideration which is in addition to anything of value to which s/he otherwise would have been entitled; and

(b) this AGREEMENT is written in a manner understood by EXECUTIVE and that s/he fully understands the terms of this AGREEMENT and enters into it voluntarily without any coercion on the part of any person or entity; and

(c) s/he was given adequate time to consider all implications and to freely and fully consult with and seek the advice of whomever s/he deemed appropriate and has done so; and

(d) s/he acknowledges and confirms that s/he was not eligible to participate in any other severance offer from EMPLOYER; and

(e) the consideration paid or provided to EXECUTIVE under this AGREEMENT is and shall be deemed to be adequate consideration for the representations, warranties and covenants made by EXECUTIVE under this AGREEMENT; and

(f) s/he was advised in writing, by way of this AGREEMENT, to consult an attorney before signing this AGREEMENT and has done so; and

(g) s/he was advised that s/he has had at least 21 calendar days within which to consider this AGREEMENT before signing it and, in the event that s/he signs this AGREEMENT during this time period, said signing constitutes a knowing and voluntary waiver of this time period; and

(h) s/he has seven calendar days after executing this AGREEMENT within which to revoke this AGREEMENT. If the seventh day is a weekend or national holiday, EXECUTIVE has until the next business day to revoke. If EXECUTIVE elects to revoke this AGREEMENT, s/he shall notify XXXX in writing sent by Federal Express Priority Overnight delivery, or by hand delivery with written receipt, of his/her revocation. Any determination of whether EXECUTIVE’s revocation was timely sent shall be determined by the date of actual receipt by XXXX. If EXECUTIVE does not elect to revoke this AGREEMENT, s/he shall notify XXXX in writing of his/her non-revocation decision on or after the eighth calendar day after EXECUTIVE executes this AGREEMENT (a form of non-revocation letter is attached hereto as Exhibit “B”). Any determination of whether EXECUTIVE’s non-revocation was timely sent shall be determined by the date of actual receipt by XXXX. No payment shall be made under this AGREEMENT until XXXX receives notice of EXECUTIVE’s non-revocation decision as set forth in this AGREEMENT as well as any other documentation required by this AGREEMENT.

5. EXECUTIVE represents and warrants that neither s/he nor anyone on his/her behalf has filed any suits, claims or the like regarding his/her employment with EMPLOYER and/or its termination. To the extent that EXECUTIVE or any third party seeks redress for a RELEASED CLAIM covered and released by this AGREEMENT and a settlement or judgment of said RELEASED CLAIM is reached or entered, EXECUTIVE shall designate COMPANY as the recipient of any such monies allocated to him/her by the payor or, if that is not possible,

EXECUTIVE shall pay to COMPANY the amount received from the payor within 72 hours of EXECUTIVE’s receipt of said monies.

6. EXECUTIVE has not and shall not, without the prior written consent of the individual then holding the office of President, COMPANY, disclose the terms of this AGREEMENT, including, but not by way of limitation, the amount or fact of any payment to be made under this AGREEMENT or any of the facts or events surrounding or leading to this AGREEMENT (including any characterization thereof) to any person (including, but not limited to, current or former EXECUTIVEs of EMPLOYER) or entity other than his/her spouse, attorneys, tax or financial advisors, or lenders for the purpose of confidential legal or financial counseling, or as otherwise required by law, or for purposes of enforcement of this AGREEMENT. In the event that EXECUTIVE makes a disclosure permitted by this provision, s/he shall inform the individual or entity to whom disclosure is made of this confidentiality provision, and instruct such individual or entity that any breach of confidentiality by them would constitute a breach of this AGREEMENT.

7. Notwithstanding anything set forth in this AGREEMENT to the contrary, if a court of competent jurisdiction determines that EXECUTIVE (or anyone to whom s/he makes a disclosure to pursuant to Paragraph 6 of this AGREEMENT) materially breaches the terms of this AGREEMENT, COMPANY’s obligations under this AGREEMENT shall immediately cease and be deemed modified such that COMPANY’s obligations pursuant to Paragraph 2 of this AGREEMENT shall be limited to Five Hundred Dollars and Zero Cents ($500.00) and all monies actually paid to or on behalf of EXECUTIVE under the terms of this AGREEMENT, in excess of said Five Hundred Dollars and Zero Cents ($500.00), shall be returned in full by EXECUTIVE to COMPANY within 72 hours of such determination, to the extent permitted by law and to the extent that such repayment does not result in the invalidation of this AGREEMENT; at that time, Two Hundred Fifty Dollars and Zero Cents ($250.00) shall be deemed to be the portion of the payments made pursuant to this AGREEMENT apportioned to any claim under the ADEA and Two Hundred Fifty Dollars and Zero Cents ($250.00) shall be deemed to be the portion of the payments made pursuant to this AGREEMENT apportioned to any RELEASED CLAIMS otherwise released by this AGREEMENT. EMPLOYER, in addition to any other rights it may have at law or in equity, shall have the right to seek enforcement of this AGREEMENT in an action at law or in equity and EMPLOYER shall have the right to recover its legal fees, costs and expenses in such action to enforce this AGREEMENT, to the extent permitted by law and to the extent that such recovery does not result in the invalidation of this AGREEMENT.

8. This AGREEMENT shall not in any manner be deemed or construed as an admission by EMPLOYER that it has acted wrongfully and/or illegally in any manner with respect to EXECUTIVE, but is made solely to avoid additional costs and risks associated with litigation. EXECUTIVE shall not be considered a prevailing party or a successful party.

9. EMPLOYER shall be entitled to plead this AGREEMENT as a complete defense to any claim or entitlement relating to EXECUTIVE’s employment with EMPLOYER or cessation thereof which hereafter may be asserted by EXECUTIVE or other persons or agencies acting on his/her behalf in any suit or claim against EMPLOYER.

10. Each provision of this AGREEMENT is severable and, if any term or provision is held to be invalid, void or unenforceable by a court of competent jurisdiction or by an administrative agency for any reason whatsoever, such ruling shall not affect the validity of the remainder of this AGREEMENT. Notwithstanding the foregoing, if the release provisions (or any portion thereof) contained in this AGREEMENT are held to be invalid, void or unenforceable by a court of competent jurisdiction or by an administrative agency for any reason whatsoever, as a result of actions or inactions by EXECUTIVE or anyone on his/her behalf, such ruling shall render this AGREEMENT void and EXECUTIVE shall repay to COMPANY all monies paid to or on behalf of EXECUTIVE as set forth in this AGREEMENT within 72 hours of such determination, to the extent permitted by law and to the extent that such repayment does not result in the invalidation of this AGREEMENT.

11. This AGREEMENT supersedes and voids all previous agreements, policies and practices between EXECUTIVE and EMPLOYER, whether written or oral, including, but not limited to, any severance offer made prior to the date EXECUTIVE signs this AGREEMENT other than as set forth in this AGREEMENT. Notwithstanding the foregoing sentence of this Paragraph of this AGREEMENT, EXECUTIVE continues to be bound by any and all post-employment obligations of EXECUTIVE that are contained in any agreement, contract, or other document that

EXECUTIVE has already signed (including, but not limited to, those set forth in Sections 7, 8 and 9 of the EMPLOYMENT AGREEMENT) and those terms are hereby deemed incorporated herein by reference and shall continue in full force and effect as if set forth in its entirety as they are considered an integral part of this AGREEMENT. This AGREEMENT sets forth the entire understanding of the parties as to the subject matter contained herein and may be modified solely by a writing executed by the individual then holding the office of President, COMPANY and EXECUTIVE.

12. This AGREEMENT shall be governed by, construed and enforced under the laws of the Commonwealth of Pennsylvania (without regard to conflict of laws principles) and any dispute pertaining to this AGREEMENT shall be brought only in, and EXECUTIVE and COMPANY agree to subject themselves to the personal jurisdiction of, the United States District Court for the Eastern District of Pennsylvania (to the extent that subject matter jurisdiction exists) or the Court of Common Pleas, Montgomery County, Commonwealth of Pennsylvania. EMPLOYER shall be entitled to seek injunctive relief in accordance with applicable law for breaches (including anticipated breaches) of this AGREEMENT. This AGREEMENT shall be interpreted without the aid of any canon, custom or rule of law requiring construction against the draftsman. EXECUTIVE hereby irrevocably waives personal service of process and consents to process served in any such suit, action or proceeding by service of a copy thereof to him/her by regular mail. Such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.

13. Any dispute arising out of this AGREEMENT or any dispute between the parties to this AGREEMENT on any subject matter shall be tried without a jury. The parties recognize that with this provision they are expressly and voluntarily waiving their respective rights to a jury trial and do so in order to resolve any future disputes in a more efficient and cost-effective manner.

14. EXECUTIVE and COMPANY shall each bear his/her and its own costs including attorneys’ fees incurred in connection with the drafting, preparation, negotiation and execution of this AGREEMENT.

15. EXECUTIVE and COMPANY shall take all steps necessary to effectuate the intent and/or terms of this AGREEMENT in a timely manner including, but not limited to, the execution of any appropriate tax reporting documentation.

16. COMPANY represents and warrants that the undersigned has the authority to act on behalf of it and to bind COMPANY to this AGREEMENT. EXECUTIVE represents and warrants that s/he has the capacity to act on his/her own behalf and to bind himself/herself to this AGREEMENT.

17. The failure of EMPLOYER to insist upon the performance of any of the terms and conditions of this AGREEMENT or the failure of EMPLOYER to prosecute any breach of this AGREEMENT, shall not be construed or considered a waiver of any such term or condition of this AGREEMENT; to wit, the entire AGREEMENT shall remain in full force and effect as if no such forbearance or failure of performance had occurred.

18. Except as otherwise herein expressly provided, this AGREEMENT shall inure to the benefit of and be binding upon EXECUTIVE, his/her heirs, successors and executors and shall inure to the benefit of EMPLOYER. EXECUTIVE represents and warrants that s/he has not assigned or in any other manner conveyed any right or claim that s/he has or may have to any third party, and EXECUTIVE shall not assign or convey to any assignee for any reason any right or claim covered by this AGREEMENT, this AGREEMENT, or the consideration, monetary or other, to be received by him/her hereunder. COMPANY may assign its rights and obligations under this AGREEMENT to any third party in its discretion.

19. In signing this AGREEMENT, the parties hereto represent and warrant that they are not relying on any statements, representations or promises made by the other party or their agent(s) except as specifically set forth herein.

PLEASE READ CAREFULLY BEFORE SIGNING. THIS SEPARATION AGREEMENT AND GENERAL RELEASE INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN, FORESEEN AND UNFORESEEN, AND SUSPECTED AND UNSUSPECTED CLAIMS.

IN WITNESS WHEREOF, the parties hereto have made and signed this AGREEMENT as follows:

Zyla Life Sciences			[EXECUTIVE]

BY:			BY:

DATED:			DATED:

EXHIBIT C

Proprietary/Confidentiality Schedules

Exhibit 10.5

MANUFACTURING AND SUPPLY AGREEMENT

This MANUFACTURING AND SUPPLY AGREEMENT (this “Agreement”) is entered into and is effective as of this 30 day of July, 2019 (the “Effective Date”), by and between Jubilant HollisterStier LLC (“Supplier”), a Delaware corporation having offices at 3525 North Regal Street, Spokane, WA 99207 and Zyla Life Science US Inc. (“Customer”), a Delaware corporation, having offices at 600 Lee Road, Suite 100, Wayne, PA 19087. Supplier and Customer may be referred to herein individually as a “Party” and collectively as the “Parties.”

BACKGROUND:

WHEREAS, Supplier has the manufacturing resources and

WHEREAS, Customer wishes Supplier to manufacture and supply to Customer, the pharmaceutical product SPRIX® (ketorolac tromethamine) Nasal Spray (the “Product”) and Supplier desires to manufacture, package and sell such Product to Customer, on the terms and subject to the conditions set out below in this Agreement

NOW THEREFORE, in consideration of the foregoing and the mutual promises contained herein, the Parties agree as follows:

ARTICLE I

DEFINITIONS

For the purposes of this Agreement, the following terms shall have the following meanings:

1.1 “Act” means the U.S. Food, Drug & Cosmetics Act (21 U.S.C. § 301 et seq.) and related U.S. regulations, including 21 Code of Federal Regulations (Chapters 210 and 211 and 610), as amended from time to time.

1.2 “Affiliate” means, with respect to either Party, those entities controlled by, in control of, or under common control with such Party. A corporation or non-corporate business entity shall be regarded as in control of another corporation or business entity (a) if it owns or directly or indirectly controls a majority of the voting stock or other ownership interest of the other entity, or (b) in the absence of the ownership of a majority of the voting stock or other ownership interest of such entity, if it possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation or non-corporate business entity, as applicable.

1.3 “Agreement” has the meaning set forth in the preamble of this Agreement.

1.4 “API” means the active pharmaceutical ingredient listed on Exhibit A.

1.5 “API Specifications” means, with respect to a given API, the specifications for such API, including chemical name, structure, reference profile, limits, impurities, physical properties,

[****] Portions omitted pursuant to a request for confidential treatment.

identity tests, analytical methods, storage requirements, and similar information, attached hereto as Exhibit A.

1.6 “Applicable Laws” means all laws, statutes, ordinances, regulations, rules, judgments, decrees or orders of any Authority: (i) with respect to each party, in any jurisdiction in which such party actually operates or performs activities hereunder related to the manufacture and sale of the Product; (ii) with respect to Customer, in any jurisdictions in which API or Product are produced, marketed, distributed, used or sold; and (iii) with respect to Supplier, in any jurisdiction expressly designated in the Specifications. The term Applicable Laws includes cGMPs.

1.7 “Best Efforts” means the efforts that a prudent person desirous of achieving a result would use in similar circumstances to achieve that result as expeditiously as possible, provided, however, that a person required to use ‘Best Efforts’ under this Agreement will not be required to take actions that would result in a material adverse change in the benefits to such person of this Agreement and the contemplated transactions or to dispose of or make any change to its business, expend any material funds or incur any other material burden.

1.8 “Binding Forecast” shall have the meaning set forth in Section 2.3

1.9 “Breaching Party” shall have the meaning set forth in Section 8.2(b).

1.10 “Business Day” means a day other than a Saturday, Sunday or a day that is a statutory holiday in the states of Pennsylvania or Washington, United States.

1.11 “Calendar Year” means January 1 – December 31.

1.12 “Claims” shall have the meaning set forth in Section 7.1.

1.13 “Commercially Reasonable Efforts” means with respect to either Party, those efforts and resources that a such Party would normally devote to a product or compound owned by it or to which it has rights of the type it has hereunder, which is of similar market potential at a similar stage in its development or product life, taking into account the competitiveness of the global and local marketplace, the pricing and launching strategy for the respective product, the proprietary position of the product, the profitability and the relative potential safety and efficacy of the product and other relevant factors, including technical, legal, scientific, regulatory or medical factors then prevailing. “Commercially Reasonable” as used herein shall be interpreted in a corresponding manner.

1.14 “Components” means, collectively, all raw materials, ingredients and packaging components required to be used in order to produce the Product in accordance with the Specifications, other than API and those items listed as components in Exhibit B.

1.15 “Confidential Information” means any information of a Party and/or its Affiliates that is disclosed by the disclosing Party or its Affiliates (“Disclosing Party”) to the receiving Party or its Affiliates (“Receiving Party”) during the Term relating to the obligations of either Party contemplated by this Agreement. Notwithstanding the foregoing, any Confidential Information disclosed by visual observation during a tour, site visit, or audit of Customer’s

or any of its Affiliates’ laboratories, manufacturing plants or other facilities or, reversely, any Confidential Information disclosed by visual observation during a tour, site visit, or audit of Supplier’s or any of its Affiliates’ laboratories, manufacturing plants or other facilities shall automatically be deemed Confidential Information. Notwithstanding the foregoing, Confidential Information shall not include any information that:

(a) is or becomes part of the public domain without breach by the Receiving Party of this Agreement;

(b) was in the Receiving Party’s possession before disclosure by the Disclosing Party and was not acquired directly or indirectly from the Disclosing Party; or

(c) is obtained from a Third Party with no obligation of confidentiality to the Disclosing Party, who has a right to disclose it to the Receiving Party; or

(d) is developed independently by the Receiving Party without use of the Confidential Information of the Disclosing Party, as evidenced by the Receiving Party’s written records.

1.16 “Conforming Product” means Product delivered by the Supplier hereunder that meets the Product Warranty.

1.17 “Control” with respect to any intellectual property means the ability to grant a license or sublicense as provided for herein without violating the terms of any agreement or other arrangement with any Third Party and, with respect to Know-How, also means that such intellectual property is not known to the other Party prior to disclosure thereto, nor freely available from the public domain or any Third Parties.

1.18 “Customer” shall have the meaning set forth in the preamble of this Agreement.

1.19 “Customer Indemnitee” shall have the meaning set forth in Section 7.1.

1.20 “Developed Intellectual Property” shall have the meaning set forth in Section 2.12.

1.21 “Disclosing Party” shall have the meaning set forth in Section 1.14.

1.22 “Effective Date” shall have the meaning set forth in the heading of this Agreement.

1.23 “Failure” shall have the meaning set forth in Section 2.7.

1.24 “Field Correction” means any action taken or changes performed affecting a distributed product to mitigate a risk to health or correct issues with misbranded or non-conforming product.

1.25 “FDA” means the U.S. Food and Drug Administration and any successor agency thereto.

1.26 “Force Majeure” shall have the meaning set forth in Section 10.4.

1.27 “Good Manufacturing Practices” or “cGMP” means the current Good Manufacturing Practices standards as promulgated under each of the following as in effect on the date of this Agreement and as amended or revised after the date of this Agreement: (a) the Act and other FDA regulations, policies, or guidelines in effect at a particular time for the manufacture, testing and quality control of the Products; (b) the quality management systems guidance according to ICH Q10; and as amended from time to time.

1.28 “Governmental Authority” means any nation or government, any state, local or other political subdivision thereof, and any entity, department, commission, bureau, agency, authority, board, court, official or officer, domestic or foreign, exercising executive, judicial, regulatory or administrative governmental functions.

1.29 “Law” means each provision of any currently existing federal, state, local or foreign, civil and criminal law, statute, ordinance, order, code, rule, regulation, guideline (including cGMP) or directive or common law, promulgated or issued by any Governmental Authority, as well as any judgments, decrees, injunctions or agreements issued or entered into by any Governmental Authority.

1.30 “Manufacturing Facility” means any facility utilized by Supplier, its agents and Affiliates in connection with the manufacture, processing, filling, testing, packaging, distribution, importation, exportation, transport or storage of any Product.

1.31 “Maximum Transfer Prices” shall have the meaning set forth in Section 5.1(a)

1.32 “Minimum Transfer Price” shall have the meaning set forth in Section 5.1(a).

1.33 “Non-Breaching Party” shall have the meaning set forth in Section 8.2(b).

1.34 “Party” or “Parties” shall have the meaning set forth in the preamble to this Agreement.

1.35 “Patent(s)” means any claim in an issued patent including any extension, substitution, registration, confirmation, reissue, supplemental protection certificate, re-examination or renewal of such patent, to the extent said patent is valid and enforceable (and in each case any foreign counterpart thereto).

1.36 “Permitted Recipients” shall have the meaning set forth in Section 9.1(b).

1.37 “Product” means Sprix (ketorolac tromethamine) Nasal Spray 15.75 mg per spray

1.38 “Product Warranty” means the warranties set forth in Sections 6.2(a), (b) and (c).

1.39 “Purchase Order” shall have the meaning set forth in Section 2.4.

1.40 “Quality Agreement” means the Quality Agreement executed by the Parties which shall describe the regulatory and compliance roles and responsibilities of both Supplier and Customer with respect to activities conducted hereunder. The Quality Agreement will be attached hereto as Exhibit C and incorporated herein by reference. The Quality Agreement shall include, without limitation, provisions relating to complaint management, storage and

shipment conditions and controls, product release and environmental, temperature and humidity conditions and controls, as applicable.

1.41 “Recall” means the removal or correction of a marketed product that the FDA or other Regulatory Authority considers to be in violation of the laws it administers and against which the agency would initiate legal action (e.g., seizure) and may be conducted on a firm’s own initiative, by FDA or other Regulatory Authority request, or by FDA or other Regulatory Authority order under statutory authority. The words ‘recalled’ ‘recalling’, etc. shall have correlative meanings.

1.42 “Recall Costs” means all costs and expenses relating to or arising out of any Recall, Withdrawal or Field Correction including any out-of-pocket expenses incurred by either Party relative to notification, shipping, disposal and return of the Recalled or Withdrawn product and the notification and correction of any product subject to a Field Correction.

1.43 “Receiving Party” shall have the meaning set forth in Section 4.

1.44 “Regulatory Approvals” means, with respect to a particular country or regulatory jurisdiction, the registrations, authorizations and approvals (including reimbursement approvals), licenses, supplements and amendments, pre- and post-approvals, of any national, supra-national, regional, state or local Regulatory Authority, department, bureau, commission, council or other Regulatory Authority or Governmental Authority in such country (including, but not limited to the FDA), necessary for the development (including the conduct of clinical trials), manufacture, distribution, importation, exportation, transport, storage, marketing, promotion, offer for sale, use, or sale of a product in such country.

1.45 “Regulatory Authority” means any national, supra-national, regional, state or local regulatory authority, department, bureau, commission, council or other Governmental Authority in such country (including, but not limited to, the FDA or any successor agencies thereto) responsible for overseeing the development (including the conduct of clinical trials), manufacture, distribution, importation, exportation, transport, storage, marketing, promotion, offer for sale, use, or sale of a Product.

1.46 “Rolling Forecast” shall have the meaning set forth in Section 2.3.

1.47 “Specifications” means the current approved finished product specifications for the Product attached hereto as Exhibit D, as may be updated from time to time pursuant to the terms of this Agreement.

1.48 “Supplier” shall have the meaning set forth in the preamble of this Agreement.

1.49 “Supplier Indemnitee” shall have the meaning set forth in Section 7.2.

1.50 “Supplier IP” means the Supplier Know How and the Supplier Patent Rights.

1.51 “Supplier Know How” means all Know-How Controlled by Supplier that relates to the manufacture and/or supply of a Product and all development, clinical, quality, and regulatory information associated with such Product. For the avoidance of doubt, this includes both the

Know-How Controlled by Supplier at the time of execution of this Agreement, and any future Know How Controlled by Supplier that relates to the manufacture and/or supply of Products. Notwithstanding the foregoing, Supplier Know-How excludes Developed Intellectual Property Rights.

1.52 “Supplier Patent Rights” all claims of any Patent that is owned or Controlled by Supplier which are necessary or useful for Supplier to manufacture and supply to Customer any of the Products that has not (a) expired or been canceled, (b) been declared invalid by an unreversed and unappealable decision of a court or other appropriate body of competent jurisdiction, (c) been admitted to be invalid or unenforceable through reissue, disclaimer, or otherwise or (d) been abandoned. For the avoidance of doubt, this includes both the Patents Controlled by Supplier at the time of execution of this Agreement, and any future Patents Controlled by Supplier that is necessary or useful for the manufacture and/or supply of Products. Notwithstanding the foregoing, Supplier Patent Rights excludes Developed Intellectual Property Rights.

1.53 “Term” shall have the meaning set forth in Section 8.1.

1.54 “Territory” means worldwide

1.55 “Third Party” means any person or entity other than the Parties or their Affiliates, whether such entity is a person, company, corporation, limited liability company, partnership or other legal entity, or a division or operating or business unit of such legal entity.

1.56 “Transfer Price” shall have the meaning set forth in Section 5.1.

1.57 “Withdrawal” means a removal or correction of a distributed product which involves a minor violation that would not be subject to legal action by the FDA or other Regulatory Authority, or which involves no violation of a Law. The words ‘withdrawn’ ‘withdrawing’, etc. shall have correlative meanings.

ARTICLE II

MANUFACTURE, PRODUCTION FORECASTS AND PURCHASE ORDERS

2.1 General Agreement. During the Term of this Agreement, except as may otherwise be provided herein (including, without limitation, the provisions contained in Section 2.7 and Section 5.1 below), Supplier agrees to manufacture and supply Product to Customer, and Customer agrees to purchase Product from Supplier, in accordance with the terms and conditions of this Agreement. Customer agrees to buy at least the minimum order quantity specified in Section 5.1(b) pursuant to the Binding Forecasts and Purchase Orders provided to Supplier by Customer.

2.2 Conversion of API and Components. Supplier shall convert API and Components into Finished Goods in accordance with this Agreement.

(a) API and Components. Customer shall purchase at its sole cost and expense all API and Components and deliver API and Components to Supplier in accordance with

Exhibit A. Supplier shall visually inspect API and Components upon receipt to verify identity and quantity and shall test each shipment in accordance with the Quality Agreement and the API Specifications or Component Specifications. Supplier shall store such API on behalf of the Customer, in accordance with API Specifications. The parties acknowledge and agree that title to API and Components shall at all times belong to and remain the property of the Customer.

(b) Raw Materials. Supplier shall purchase all other raw materials as required by and included in the product formulation and Specifications. Supplier shall procure only raw materials that are warranted by the vendor to have been manufactured in accordance with cGMPs. Supplier shall test all raw materials after receipt at the Manufacturing Site as required by the Specifications and the Quality Agreement.

(d) Supplier shall complete all inspection and packaging of each batch of Product [****].

2.3 Rolling Forecasts. Not later than [****], Customer shall provide Supplier with a non-binding, good faith written forecast of Customer’s expected requirements for Product during the [****] (the “Rolling Forecast”). The Rolling Forecast shall be based on Customer’s desired Product fill schedule. Notwithstanding the first sentence of this Section 2.3, [****] included in each Rolling Forecast shall constitute a firm Purchase Order and binding commitment (the “Binding Forecast”). Customer shall not be obligated to purchase nor shall it have any liability in respect of the quantities of Product set forth in the remaining [****] of any such Rolling Forecast.

2.4 Orders. Customer shall place binding orders for Product by written or electronic Purchase Order (each a “Purchase Order”) (or by any other means agreed to by the parties) with Supplier. Supplier shall acknowledge and accept any Customer Purchase Order in writing [****] of its receipt thereof. All such Purchase Orders shall be irrevocable and binding on both Parties. Purchase Orders shall be placed at least [****] prior to the required fill date based on the Binding Forecast and include the desired date of delivery with respect to the Product ordered. Supplier shall deliver all Product ordered by Customer under this Agreement [****] set forth in the applicable purchase order, unless otherwise agreed upon by both parties.

2.5 Cancellation or Postponement. Customer reserves the right to cancel or postpone any purchase order, provided that all postponements and cancellations are in accordance with each of the following terms:

(a) Should Customer cancel or postpone all or part of any purchase order [****].

(b) Should Customer cancel or postpone all or part of any purchase order [****].

(d) Should Customer cancel or postpone all or part of any purchase order [****].

(e) Should Customer cancel or postpone a purchase order [****].

(f) [****].

2.6 Allocations. Should Supplier, at any time during the course of this Agreement, have reason to believe that it will be unable to meet Customer’s requested delivery dates or the ability of Supplier to deliver Product in accordance with Customer’s forecasted requirements, Supplier will promptly notify Customer stating the reasons for the delay, the expected duration of the delay and the efforts Supplier is taking to address the cause for the delay. In the event of any supply shortage due to the inability of Supplier to procure raw materials, production problems or other circumstances adversely impacting the manufacture and/or supply of Product (including Force Majeure), Supplier shall allocate production line fill slots among Customer and Supplier’s other customers in proportion to the aggregate production line fill slots of the last [****] of each such party.

2.7 Failure to Supply.

(a) Generally. If supplier fails to supply at least [****] of the aggregate Purchase Orders for Product (based on the number of batches ordered) and such failure continues for a period of [****] (a “Failure”). A Failure, except in instances of Force Majeure, shall be considered a material breach of this agreement. Supplier shall:

(i) Use Commercially Reasonable Efforts to work collaboratively with Customer to discuss and promptly resolve any such Failure which Commercially Reasonable Efforts shall include, but shall not be limited to: (A) making its own personnel available for consultation during the term of any such Failure; and (B) ensuring that any remedial actions recommended by Customer are considered in good faith and if accepted, promptly implemented

(ii) Allow Customer to purchase from a reputable third party (or itself manufacture) Product to cover the shortfall amount with respect to such accepted Purchase Order quantities and all future Product requirements until Supplier provides Customer with reasonably detailed information concerning the actions Supplier has taken to remediate the circumstances that caused Supplier’s failure to deliver and demonstrating that such circumstances have been remediated and that product supply issues are resolved.

(b) Effect of Remedy of a Failure. If Customer’s manufacturing rights under this Section 2.7 become effective because of a Failure and Supplier is thereafter, during the Term of the Agreement, able to demonstrate to Customer’s reasonable satisfaction that Supplier is capable of re-establishing a satisfactory supply of Product, then Customer shall resume purchasing Product from Supplier (subject to the remainder of this Section 2.7(b) within [****] after Supplier satisfactorily demonstrates its ability to meet Customer’s Product forecasts. Notwithstanding the foregoing, Customer shall be permitted to fulfill any then-existing contractual commitments, which are non-terminable or non-refundable, under any third party contracts entered into by Customer as a result of the Failure (if any).

2.8 Compliance with Laws. Supplier shall manufacture all Products in accordance with the applicable Specifications, the Quality Agreement, cGMP standards, the applicable Regulatory Approvals, the Act and all other applicable United States Laws. In connection therewith, Supplier shall comply with all applicable United States Laws related to the manufacturing, labeling, packaging, storage and handling of the Product, including maintaining qualified quality facilities and procedures and shall maintain all required licenses including, but not limited to, all establishment licenses and cGMP licenses.

2.9 Audits. Upon reasonable prior notice to Supplier by Customer, Supplier shall allow reasonable access to the applicable Supplier facilities, the Manufacturing Facilities and records to allow Customer and any Regulatory Authority to conduct full quality and/or compliance audits or inspections relating to the manufacturing, labeling, packaging, storage and handling of the Product. Such audits shall, to the extent requested by Customer and to the extent reasonably practical, be scheduled at mutually agreeable times upon reasonable advance written notice to Supplier, and shall be at Customer’s expense. In connection with performing such audits, Customer shall comply with all reasonable rules and regulations promulgated by Supplier and its Third Party Contractors. Except in the case where Customer has reasonable cause, Customer shall be limited to one audit per calendar year that consists of [****].

2.10 Notification of Production Issues. Supplier shall inform Customer promptly in writing, and in any case within [****] Business Days of learning thereof, of any problems that could reasonably be expected to prevent Supplier from providing timely deliveries of Product to Customer. Supplier shall, in good faith, consider any recommendations made by Customer to resolve any problems relating to the manufacture and supply of any Product under this Agreement. Supplier shall and shall ensure that each Third Party Contractor shall coordinate maintenance outages and shut-downs of the Manufacturing Facility to minimize any delivery disruptions.

2.11 Equipment. Supplier will use the Customer-owned equipment [****] specified in Exhibit E (the “Customer Equipment”) solely for manufacturing and supplying the Product to Customer, and may not use such equipment for any other purpose or customer. Title to all Customer Equipment will remain solely with Customer. Supplier will keep the Customer Equipment free and clear of any security interests, liens, pledges, claims, charges, restrictions, or other encumbrances. All Customer Equipment will be labelled as property owned by Customer. Supplier will perform maintenance and servicing of such Customer Equipment while located at Supplier’s facilities in accordance with the vendor’s instructions, and liable for any damage, destruction or other loss to or of the Customer Equipment caused by the negligence or misconduct of Supplier, ordinary wear and tear excepted. Such expenses of maintenance and service will be reviewed and agreed upon by both parties and may be charged back to Customer. Upon reasonable advanced notification, Supplier will permit Customer and its personnel and agents, and the manufacturers of the Customer Equipment, to have access to the Customer Equipment in order to monitor the operation of the Customer Equipment. Customer acknowledges that Customer Equipment is validated in an ISO 5, multi-use area and will require significant lead time to coordinate any access to equipment. Any transfer or seizure of equipment, upon prior written notice from Customer to Supplier authorizing such actions, will require review and coordination as well as agreed

upon costs to remove from Supplier site. With the exception of any fixed equipment, as listed in Exhibit D, Customer will have the right to require Supplier to deliver to Customer, or to permit Customer or its agents to remove from Supplier’s premises and take possession of, the Customer Equipment, and Supplier will provide all reasonable cooperation in connection therewith at Customer’s expense. Removal of fixed equipment shall be at Supplier’ timeline (which shall be reasonable) and at Customer expense for reasonable, actual and direct costs incurred by Supplier to remove such equipment. Removal of equipment will require a quotation to be agreed upon reasonably and in good faith and executed by both parties to cover any and all charges for the removal and an agreed upon timeline will be established to complete the work.

2.12 Title to Intellectual Property. All Patents, Know-How and other intellectual property generated or derived by Supplier while performing its obligations under this Agreement, to the extent it is specific to the development, manufacture, use and/or sale of the Products, is dependent on such Products, or is an improvement to or derivative of Customer’s Patents, Know-How or other intellectual property, will be the exclusive property of Customer (“Developed Intellectual Property”), and Supplier hereby irrevocably assigns to Customer, and Customer hereby accepts, all right, title and interest in and to the Developed Intellectual Property. Supplier shall cause its employees, agents and contractors to do the same. Subject to the preceding sentences, all right, title and interest in and to the Supplier IP shall remain vested in Supplier.

ARTICLE III

MANUFACTURING STANDARDS; SPECIFICATIONS; ACCEPTANCE

3.1 Production and Manufacturing Standards. All amendments to the Specifications (if any) will be managed in accordance with the terms of the Quality Agreement and all amendments or changes to the Specifications (if any) shall be attached to this Agreement as an Exhibit in place of the previously applicable Exhibit for such Specifications. In the event of a conflict between the provisions of this Agreement and any of the Specifications, the provisions of this Agreement shall prevail.

3.2 Shipping; Delivery. Unless otherwise instructed by Customer, Supplier shall use its Commercially Reasonable Efforts to ship each lot of Product promptly upon completion of manufacturing. All Product manufactured and supplied hereunder shall be delivered Ex-Works (INCOTERMS 2010) by freight carrier of Customer’s choice. Customer is responsible to obtain the best commercial rates for shipping costs. All customs duties shall be at Customer’s expense. All other costs, taxes, insurance premiums, and other expenses associated with transport and delivery shall be at Customer’s expense. Customer shall arrange for shipping in compliance with the applicable Product requirements regarding temperature, duration and other environmental factors as required to properly preserve the Products without materially impacting their shelf life and/or integrity.

3.3 Testing and Documentation. Supplier shall test all Product to ensure compliance with the applicable Specifications in accordance with the Quality Agreement and pursuant to any changes thereof if such may be forthcoming due to any regulatory source(s). Copies of all

documentation and test results, including batch records, certificate of analysis, standard operating procedures, laboratory assay methods, deviation and investigation reports, appropriately signed, as are necessary to demonstrate Supplier’s cGMP compliance shall be provided to Customer in accordance with the Quality Agreement.

3.4 Acceptance.

(a) Each Batch of Product delivered hereunder shall be accompanied by a Certificate of Analysis signed by a duly authorized representative of Supplier. Customer shall have [****] from the date of receipt of Product to inspect and reject acceptance by written notice to Supplier; provided, however, that any such notice shall set forth Customer's reasons for rejection in reasonable detail and provided, further, that Customer may reject Product only if: (i) Customer claims a material breach of Supplier's representations and warranties in Article VI of this Agreement with respect to such Product; or (ii) Supplier has failed to deliver a Certificate of Analysis for such Product; (iii) the Product fails to conform to the Product Warranty. If Supplier does not receive Customer's written notice of rejection within such [****] period, Customer shall be deemed to have accepted Product.

(b) In the event Customer provides Supplier with a timely notice of rejection as set forth in Section 3.4(a), Customer shall return the rejected Product to Supplier at Supplier's expense. Supplier shall have [****] following receipt of rejected Product in which to test such Product. If Supplier does not dispute a rejection, Supplier shall rework or replace the rejected Product promptly, at Supplier's expense (except for replacement API, which will be provided by Customer at Customer’s expense but subject to Section 3.6) and, except for Sections 4.7, and 7.1, such rework or replacement shall constitute Customer's exclusive remedy and Supplier's sole liability with respect to such rejection. If Supplier disputes a rejection, Supplier shall provide Customer with written notice of such dispute within [****] after receiving the returned Product, and the Parties shall use commercially reasonable efforts to resolve the dispute amicably and promptly. If the Parties are unable to reach a resolution within [****] after Customer's notice of rejection, the returned Product shall be submitted to an independent laboratory or consultant mutually acceptable to the Parties, whose decision as to the conformity of such Product with the requirements of this Agreement shall be final and binding. The Party against whom the dispute is decided shall pay any charges for such laboratory or consultant. If the laboratory or consultant determines that the returned Product did not conform to the standards of this Agreement, Supplier shall replace the rejected Product at no charge to Customer (except that Customer shall provide replacement API at Customer’s expense but subject to Section 3.6), and such replacement shall constitute Customer's exclusive remedy and Supplier's sole liability with respect to such rejected Product.

3.5 Latent Defects. If, after accepting any lot or shipment of Product, Customer subsequently discovers latent material defects which were not reasonably discoverable during the acceptance period set forth in Section 3.4, Customer may revoke its acceptance of such lot or shipment by giving written notice and disclosing the nature of any defects to Supplier promptly after discovering such defects within [****] of discovery of the defect. The existence and cause of

such latent material defect will be investigated through the root cause analysis according to the procedures in the Quality Agreement. Any disputes as to whether such latent material defect was or was not ‘reasonably discoverable’ shall be referred to the Parties’ senior management for resolution.

3.6 API.

(a) [****]. All such API shall conform to the API Specifications. Title to API shall remain at all times with Customer. Except as expressly provided otherwise in Section 3.6(b), risk of loss of the API shall remain at all times with Customer.

(b) In the event any loss or damage of API (whether prior to or during processing) results from Supplier's negligent acts or omissions, as Supplier's sole liability and Customer's sole remedy with respect to such loss or damage of API, Supplier, at Customer’s option, shall (i) reimburse Customer for the documented actual direct manufacturing cost or price charged to Customer of the lost or damaged API, or (ii) allow Customer a purchase price credit equal to the documented actual direct manufacturing cost or price charged to Customer of the lost or damaged API. The maximum liability of Supplier under this Section 3.6 during any calendar year of this Agreement for the [****]. [****].

ARTICLE IV

REGULATORY MATTERS

4.1 Product Registrations. Except as otherwise agreed upon by the Parties, Customer shall be solely responsible for obtaining and maintaining all permits, licenses, and authorizations necessary market, distribute and otherwise sell the Product. Supplier shall be solely responsible for securing and maintaining approval of Supplier’s facility as a registered FDA facility and all licenses, permits and approvals in respect to the operation of Supplier’s business generally, the Facilities, and the performance of services of the nature of the manufacturing services to be provided under this Agreement.

4.2 Records. Supplier shall maintain all records relating to the manufacturing and supply of Products as specified in the Quality Agreement. Additionally, Supplier shall maintain all records necessary to comply with all applicable Laws related to the manufacture of Product. All such records shall be maintained for a period of not less than three (3) years from the date of expiration of each lot of Product to which said records pertain, or such longer period as may be required by Law or Supplier’s standard operating procedures.

4.3 Supplier Production Issues. Supplier shall promptly notify Customer of any production issues relating to the Products or other information of which Supplier becomes aware which may affect the regulatory status of or the ability of Supplier to supply Product to Customer in accordance with Customer’s forecasted requirements. All such communications provided by Supplier shall be treated as Supplier Confidential Information.

4.4 Complaints and Adverse Reactions. Customer shall have primary responsibility for safety monitoring and consumer complaint investigation; provided that Supplier shall reasonably cooperate and provide assistance as reasonably requested by Supplier in any such complaint investigation. In connection therewith, Supplier shall provide to Customer copies of all information it uniquely has in its possession that is necessary to allow Customer to make timely reports as required by any Regulatory Authority regarding the Product. Supplier shall notify Customer in accordance with agreed upon complaint handling procedures of any information concerning any complaint involving the possible failure of the Product to meet any requirement of applicable Laws and any serious or unexpected side effect, injury, toxicity or other reaction or any unexpected incidents associated with the use of the Product.

4.5 Approval for Changes. Except as otherwise permitted under the Quality Agreement, no changes may be made to any Specifications for the Product without Customer’s and Supplier’s prior written consent, as applicable.

4.6 Inspections. Notwithstanding anything to the contrary in the Quality Agreement, upon reasonable prior notice to Supplier, Customer or its agents shall have reasonable access to observe and inspect Supplier and its Manufacturing Facilities, records, and procedures including, without limitation, manufacturing, and environmental health and safety operations, and practices, including all analytical and manufacturing documentation related to Products, at reasonable intervals and upon reasonable notice to Supplier.

4.7 Recalls.

(a) Generally. In the event that:

(i) Customer determines that an event, incident, or circumstance has occurred which may result in the need for a Recall, Withdrawal Field Correction or other removal of any Product or any lot or lots thereof from the market in the Territory, or Supplier determines that an event, incident, or circumstance that could reasonably adversely affect the Product in the Territory has occurred which is reasonably likely to result in the need for a Recall, Withdrawal Field Correction or other removal of any Product, or any lot or lots thereof from the market;

(ii) either Party becomes aware that a Regulatory Authority is threatening or has initiated an action to remove the Product from the market in the Territory or, if such event could reasonably adversely affect the Product in the Territory, any Regulatory Authority is threatening or has initiated an action to remove the Product from the market; or

(iii) either Party is required by any Regulatory Authority to distribute a “Dear Doctor” letter or its equivalent regarding use of the Product in the Territory or, if such event could reasonably adversely affect Product in the Territory, any Regulatory Authority has required distribution of a “Dear Doctor” letter or its equivalent regarding use of the Product outside the Territory,

then it shall promptly advise the other Party in writing with respect thereto, and shall provide to the other Party copies of all relevant correspondence, notices, and the like in the possession or Control of such Party. In such event, Customer shall have the sole authority to determine if a recall or other removal of the Product is required in the Territory, and shall be responsible for conducting any such Recall, Withdrawal Field Correction or other removal of any Product from the Territory, whether voluntary or involuntary, or taking such other remedial action required by applicable Laws in the Territory and except as provided in Section 4.7(c), shall bear all Recall Costs therefor.

(b) Supplier Assistance. At Customer’s request, Supplier shall assist Customer, at Customer’s expense, with respect to any such recall or remedial action, and shall provide Customer with all information that Customer may request in connection with its dealings with a Regulatory Authority in connection with such recall or remedial action.

(c) Costs Resulting from Breach. Notwithstanding anything else contained in this Agreement to the contrary, to the extent that any Recall, Withdrawal Field Correction or other removal of any Product or any lot or lots thereof from the market in the Territory results from a breach by Supplier or its Affiliates or agents of the terms of this Agreement then Supplier shall bear Recall Costs and shall bear all costs for any assistance provided to Customer by Supplier or its Affiliates or agents in connection with such Recall, Withdrawal Field Correction or other removal. Without limiting any other rights of Customer hereunder, including under Section 3.6, Supplier is limited in such recall expenses [****].

ARTICLE V

FINANCIAL TERMS

5.1 Transfer Prices; Adjustments.

(a) Transfer Price. The price to be paid by Customer to Supplier for each batch of Product (the “Transfer Price”) shall be [****].

(b) Minimum Order Quantity. Subject to Sections 5.1(c) and 5.1(d), Customer agrees to place Purchase Orders for [****] of Product per full Calendar Year, for each Calendar Year that this Agreement is in effect. In the event the total quantity of Products actually ordered by Purchaser is [****], Customer shall pay to Supplier a compensation (the "Yearly Compensation") calculated as follows:

[****]

Example: If Purchaser [****]:

Yearly Compensation: [****]

Contractor shall calculate if the minimum ordered quantity of Product has been met each Calendar Year as of December 31 of each year, and, if not, shall send an invoice for the Yearly Compensation within sixty (60) days following the end of such period.

(c) Supply Disruption. If Customer has the right pursuant to Section 2.7 to purchase Product from third parties due to a Failure, each batch of Product ordered from such third parties shall be deemed a batch of Product ordered under this Agreement for purposes of satisfying the minimum order quantity in Section 5.1(b). In addition, if during any Calendar Year, Supplier is unable to supply [****] batches of Product due to delays or supply shortages described in Section 2.6, Force Majeure, or any other reason, then the minimum order quantity requirement of Section 5.1(b) shall be waived for such Calendar Year.

(d) Generic Competition. In the event that a third party commences sales of a generic version of the Product in the United States, then Customer’s obligations under Section 5.1(b) shall terminate.

(e) Adjustments. Beginning [****], the then current price shall be increased by the annual percentage increase, if any, for the most recent twelve (12) month period for which final (non-preliminary) figures are available in the "Producer Price Index - Pharmaceutical Preparations" (code PCU2834) (the "PPI") published by the U.S. Bureau of Labor Statistics (the "BLS") or, if the same is no longer published, the successor index published by the BLS that is most similar thereto. If the PPI is discontinued and not replaced with a corresponding or similar index, then the Parties shall, in good faith, agree upon a replacement PPI. Price increases shall be effective for all purchase orders placed for manufacture dates after the applicable anniversary.

Example calculation: If in March 2017, the PPI is 748.1 and the previous year March 2016, the PPI was 706.9, the difference is 41.2. The difference (41.2) would be divided by the then previous year PPI (706.9) resulting in a PPI increase of 5.83%.

[****].

(f) Complaint Investigations [****].

Example calculation: [****]. [****] .

5.2 Invoices; Payment Terms. Supplier shall invoice Customer for all Product supplied to Customer at the time of delivery to Customer. Payment to Supplier by Customer shall be made in U.S. dollars, [****] calendar days following receipt by Customer of an invoice for the Product. Any invoiced amount which is not paid by its due date may be assessed a late payment fee at the rate of [****] per month.

5.3 Payment Information. All payments due hereunder to Supplier shall be sent to Supplier by wire transfer of funds via the Federal Reserve Wire Transfer System to:

[****]

5.4 Taxes and Duties. The Parties shall file required forms and provide each other with any information required by tax authorities to obtain a reduction to or an exemption from any otherwise applicable sales, use VAT or similar tax.

5.5 Audits. Customer shall have the right to request copies of records of Supplier with respect to the Products supplied hereunder to confirm Supplier’s compliance with the terms of this agreement.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES

6.1 Mutual Representations and Warranties. Each Party represents and warrants to the other that:

(a) it is a legal entity duly organized, validly existing and in good standing (to the extent such concept exists under the Laws of the jurisdiction of such Party's incorporation) under the Laws of country in which it incorporated and this Agreement has been duly authorized by all necessary corporate action;

(b) it has all necessary corporate power and authority to enter into this Agreement and to perform all of its obligations hereunder;

(c) this Agreement has been duly authorized, executed and delivered by it and is the legal, valid and binding obligation of such Party, enforceable against such Party in accordance with its terms; and

(d) neither the execution, delivery and performance by it of this Agreement nor the consummation of the transactions contemplated hereby violate or conflict with its charter documents, any material contract, agreement or instrument to which it is a party or by which it or its properties are bound, or any judgment, decree, order or award of any court, Governmental Authority, body or arbitrator by which it is bound, or any Law applicable to it.

6.2 Supplier Warranties. Supplier represents and warrants as follows:

(a) All Product manufactured and supplied under this Agreement will have been manufactured, labeled and packaged in accordance with, and the Product will conform to, the Specifications and all Applicable Laws.

(b) No Product manufactured and supplied pursuant to this Agreement will, at the time of delivery, be adulterated within the meaning of the Act or within the meaning of any applicable Law in which the definition of adulteration is substantially the same as that contained in the Act, as such Act and such Laws are constituted and effective at the time of delivery nor will such Product be an article which may not, under the provisions of such Act, except those relating to misbranding, be introduced into interstate commerce.

(c) Each lot of Product manufactured and supplied for Customer will at the time of delivery have the applicable shelf life set forth in the Specifications and will continue, until the applicable expiration date, conform to the Specifications and will be free from defects in materials and workmanship.

(d) The facilities and processes utilized by Supplier for the manufacture of the Products will, at all times, comply with all applicable FDA regulations including, without limitation, applicable cGMP, and all other Applicable Laws.

(e) Supplier, and all Product delivered under this Agreement are in material compliance with all applicable environmental, health, safety and transportation regulations.

(f) Each item of environmental, health and safety information, including but not limited to, all Material Safety Data Sheets, related to the Product, Supplier or its Third Party Contractors supplied by Supplier under this Agreement shall be complete and accurate on the date on which it is supplied to Customer.

(g) Supplier shall throughout the Term and for a period of [****] thereafter, maintain a system that is capable of tracking all source materials for the Product and shall, upon request, provide all such data to Customer and the applicable Regulatory Authorities.

6.3 Customer Warranties. Customer represents and warrants as follows:

(a) Neither Customer’s Technology Package, nor the use thereof by Supplier, shall infringe, violate or misappropriate the rights of any Third Party.

(b) Any excipients, API and other materials/components provided by Customer to Supplier shall comply with the API Specifications and shall not be adulterated or misbranded within the meaning of the Act or other applicable law.

6.4 THE WARRANTIES SET FORTH HEREIN ARE THE SOLE AND EXCLUSIVE WARRANTIES MADE BY EITHER PARTY UNDER THIS AGREEMENT, AND NEITHER PARTY MAKES ANY OTHER WARRANTIES EXPRESS OR IMPLIED OR ARISING BY LAW, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR ARISING FROM THE COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE.

6.5 EXCEPT AS NECESSARY TO SATISFY A THIRD PARTY CLAIM INDEMNIFIED UNDER ARTICLE VII OF THIS AGREEMENT, EXCEPT AS PROVIDED IN SECTIONS 3.6 AND 4.7, AND EXCEPT FOR SUPPLIER’S GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR FRAUD, CUSTOMER'S SOLE AND EXCLUSIVE REMEDY, AND SUPPLIER'S SOLE AND EXCLUSIVE LIABILITY AND OBLIGATION, FOR ANY BREACH OF A REPRESENTATION AND WARRANTY SET FORTH IN SECTIONS 6.4(A)-(C) SHALL BE FOR SUPPLIER, AT ITS OPTION, EITHER TO (A) PROCESS REPLACEMENT PRODUCT AT NO COST TO CUSTOMER EXCEPT THAT, AT ITS EXPENSE (SUBJECT TO SECTION 3.6) CUSTOMER SHALL PROVIDE SUBSTITUTE

API, OR (B) CREDIT OR REFUND THE PRICE TO CUSTOMER OF THE DEFECTIVE PRODUCT.

6.6 WITHOUT LIMITING SECTION 6.5 OR ANY OTHER PROVISION OF THIS AGREEMENT, EXCEPT AS NECESSARY TO SATISFY A THIRD PARTY CLAIM INDEMNIFIED UNDER ARTICLE VII OF THIS AGREEMENT, AND/OR IN THE EVENT OF A BREACH OF THE CONFIDENTIALITY OBLIGATIONS SET FORTH IN ARTICLE IX OF THIS AGREEMENT OR A PARTY’S GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR FRAUD, UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE TO THE OTHER UNDER ANY CONTRACT, TORT, STRICT LIABILITY, NEGLIGENCE OR OTHER LEGAL OR EQUITABLE THEORY, FOR COVER OF ANY INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, WITH RESPECT TO ANY PRODUCT OR ANY SERVICES PROVIDED IN CONNECTION WITH A PRODUCT.

ARTICLE VII

INDEMNIFICATION AND INSURANCE

7.1 Supplier Indemnification. Supplier shall indemnify, defend and hold harmless Customer, its Affiliates and each of their respective shareholders, directors, officers, employees and agents (each, an “Customer Indemnitee”) from and against all costs, losses, expenses (including reasonable attorneys’ fees) and damages resulting from all lawsuits, claims, demands, actions and other proceedings by or on behalf of any Third Party (collectively “Claims”) to the extent arising out of or resulting from: (a) the breach of any representation, warranty, covenant or material obligation of Supplier under this Agreement; (b) the gross negligence, recklessness or willful misconduct of Supplier or any of its agents or subcontractors in the performance of its obligations under this Agreement; or (c) failure of the Product to conform to the relevant Specifications.

7.2 Customer Indemnification. Subject to Section 7.1, Customer shall indemnify, defend and hold harmless Supplier, its Affiliates and each of their respective shareholders, directors, officers, employees and agents (each, an “Supplier Indemnitee”) from and against all Claims to the extent arising out of or resulting from: (a) the ownership, use, handling, distribution, marketing or sale of the Product, (b) the breach of any representation, warranty, covenant or material obligation of Customer under this Agreement or (c) the gross negligence, recklessness or willful misconduct of Customer or any of its agents or subcontractors in the performance of its obligations under this Agreement.

7.3 Insurance. Each of Customer and Supplier shall obtain and maintain, either itself or through one or more of its Affiliates, with reputable carriers, product liability insurance with limits of [****] by no later than the scheduled manufacturing date for the first Batch of Product(s) delivered as part of the first Product Development Program(s) conducted under this Agreement. Upon request, each Party shall furnish the other Party with a certificate that such insurance is in force. In the event of any proposed cancellation, non-renewal, or material adverse change in a Party's insurance coverage, the other Party shall be given at least [****]

advance written notice thereof. In addition, Supplier shall maintain, at its expense, at least [****] of property insurance covering all bulk, finished or in-process inventory of Product and API and Components while on Supplier’s premises or under Supplier’s control, and comprehensive general liability insurance in the amount of at [****]. Supplier shall maintain in place all insurance required by Section 7.3 for: (i) at least [****] following expiration or termination of this Agreement or, (ii) for at least [****] after the termination or expiration of this Agreement if insurance is written on a claims-made basis.

7.4 Limitation of Liability and Claims. Notwithstanding any other provision of this Agreement, Supplier's aggregate indemnification liability to Customer and its Affiliates for Third Party Claims shall not [****]. The foregoing shall not apply to (i) Supplier’s fraud, willful misconduct or gross negligence, (ii) any amounts due to Third Parties by Supplier as a result of Supplier’s indemnification obligations under Section 7.1, or (iii) Supplier’s breach of Article IX (Confidentiality).

7.5 Procedures. If any Claim covered by ARTICLE VII is brought, the indemnifying Party’s obligations are conditional upon the following:

(a) the indemnified Party shall promptly notify the indemnifying Party in writing of such Claim, provided, however, the failure to provide such notice within a reasonable period of time shall not relieve the indemnifying Party of any of its obligations hereunder except to the extent the indemnifying Party is prejudiced by such failure or delay;

(b) the indemnifying Party shall assume, at its cost and expense, the sole defense of such Claim through counsel selected by the indemnifying Party and reasonably acceptable to the indemnified Party, except that the indemnified Party may at its option and expense select and be represented by separate counsel;

(d) the indemnified Party may, at its option and expense, participate in such defense, and if it so participates, the Parties shall cooperate with one another in such defense;

(e) the indemnifying Party will have authority to consent to the entry of any settlement or otherwise to dispose of such Claim (provided and only to the extent that an indemnified Party does not have to admit liability and such judgment does not involve equitable relief or the payment of any amounts by the indemnified party and the indemnified Party may not consent to the entry of any judgment, enter into any settlement or otherwise to dispose of such Claim without the prior written consent of the indemnifying Party (not to be unreasonably withheld or delayed); and

(f) the indemnifying Party shall pay the full amount of any judgment, award or settlement with respect to such Claim and all other reasonable and documented costs, fees and expenses related to the resolution thereof; provided, however, that such other

costs, fees and expenses have been incurred or agreed, as the case may be, by the indemnifying Party in its defense or settlement of the Claim.

ARTICLE VIII

TERM AND TERMINATION

8.1 Term. This Agreement shall become effective immediately upon execution hereof by both Parties and shall expire [****] years after the Effective Date (the “Term”) unless terminated earlier pursuant to Section 8.2 below. The Agreement shall thereafter automatically renew for periods of [****], unless either Party shall give notice to the other to the contrary at least [****] prior to the expiration of the initial term or any renewal of the Agreement.

8.2 Termination. This Agreement may be terminated immediately:

(a) upon mutual written agreement of the Parties;

(b) by either Party (the “Non-Breaching Party”) upon written notice as a result of a material breach by the other Party (the “Breaching Party”) of any material obligation, condition or covenant of this Agreement (including, without limitation, the occurrence of a Failure, if such material breach shall not have been remedied, or steps initiated to remedy the same to the Non-Breaching Party’s reasonable satisfaction, within [****] calendar days after receipt by the Breaching Party of a notice thereof from the Non-Breaching Party; or

(c) by either Party upon written notice in the event: (i) the other Party voluntarily enters into bankruptcy proceedings, reorganization, or other insolvency proceedings; (ii) the other Party makes an assignment of all or a material portion of its assets for the benefit of creditors; (iii) a petition is filed against the other Party under a bankruptcy Law, a corporate reorganization Law, or any other Law for relief of debtors or similar Law analogous in purpose or effect, which petition is not stayed or dismissed within [****] calendar days of filing thereof; or (iv) the other Party enters into liquidation or dissolution proceedings or a receiver is appointed with respect to any assets of the other Party, which appointment is not vacated within [****] calendar days.

8.3 Regulatory Considerations. Customer may terminate this Agreement as to any Product and applicable portion of the Territory upon thirty (30) days’ prior written notice to Supplier in the event that (i) any Regulatory Authority takes any action or raises any objection that prevents Customer from importing, exporting, purchasing or selling such Product in all or part of the Territory, or (ii) Customer elects to discontinue selling or otherwise withdraws from the market such Product in all or part of the Territory.

8.4 Effect of Termination.

(a) The expiration or termination of this Agreement shall not relieve Supplier from its obligation to deliver Product subject to the Binding Forecast prior to the effective date of such expiration or termination, nor shall expiration or termination relieve Customer from accepting and, upon acceptance, paying for any such Product or, unless Customer has terminated this Agreement

pursuant to Section 8.2(b), from obligation for cancellation or postponement penalties under Section 2.5, unless otherwise agreed in writing by the Parties.

(b) Survival of Certain Terms. Unless expressly provided to the contrary, the provisions of Sections 2.8, 2.10, 2.11, 3.5, 3.6, 4.2, 4.4, 4.6, 4.7, 5.1(f), 5.5, 6.2, 6.3, 6.4, 6.5, 6.6, 7, 8.4, 9, and 10 shall survive the expiration or termination of this Agreement. Expiration or termination shall not extinguish the rights and remedies of either Party with respect to any antecedent breach of any of the provisions of this Agreement.

ARTICLE IX

CONFIDENTIALITY

9.1 Confidentiality.

(a) Generally. It is contemplated that in the course of the performance of this Agreement each Party may, from time to time, disclose Confidential Information to the other. Each Party represents that it has the right to deliver the Confidential Information it discloses to the Receiving Party pursuant to this Agreement. No provision of this Agreement shall be construed so as to preclude disclosure of Confidential Information as may be reasonably necessary to secure from any Governmental Authority necessary approvals or licenses or to obtain Patents with respect to the Product.

(b) Use; Disclosure. Each Party shall (a) use the Confidential Information disclosed to it solely for the performance of this Agreement and (b) not disclose such Confidential Information without the Disclosing Party’s prior written consent to any other person or entity other than those of its employees, legal advisors, accountants, contractors or agents and those of its Affiliates who: (i) have a need to know such Confidential Information in connection with the performance of the Agreement and (ii) have been informed of the confidential nature of such information and the Receiving Party’s obligations under this Agreement (collectively, “Permitted Recipients”). All Permitted Recipients shall be bound to maintain such Confidential Information in confidence, and each Party will take reasonable steps to require its Permitted Recipients to preserve such trust and confidence. Each Party shall be responsible for any breach of this Agreement by its Permitted Recipients.

(i) Each of the Parties shall in all respects treat the Confidential Information and all trade secrets (as defined by applicable Law) disclosed to it hereunder at least as carefully as such Party treats its own Confidential Information and will carry out, with respect to it, those security measures that it follows to protect its own Confidential Information, but in no event shall the Receiving Party use less than reasonable care to prevent unauthorized disclosure with respect to such Confidential Information and trade secrets.

(ii) Upon expiration or earlier termination of this Agreement and upon written request of the Disclosing Party, the Receiving Party will: (i) return to the Disclosing Party all Confidential Information (including copies) provided by the Disclosing Party under this Agreement; (ii) destroy all summaries, extracts and the like prepared by the Receiving Party that incorporate the Disclosing Party’s Confidential Information; and (iii) certify to the destruction of the same; provided, however, that: (y) the Receiving Party may retain one complete copy of the Confidential Information in its legal archives for the purpose of determining its obligations under this Agreement and as necessary to comply with Applicable Laws, and (z) Permitted Recipients may retain one copy of the reports or other materials such persons personally prepared based upon the Confidential Information (but may not retain the Disclosing Party’s Confidential Information itself) for legal, regulatory, ethical or insurance purposes. Further, to the extent that the Receiving Party’s computer back-up or archiving procedures create copies of Confidential Information, the Receiving Party may retain such copies for the period it normally archives backed-up computer records, so long as such copies are kept confidential in accordance with the terms of this Agreement.

(d) Required Disclosure.

(i) The obligations of confidentiality set forth in this Article IX shall not prohibit the Receiving Party from disclosing any part of the Confidential Information which, in the written advice of counsel, is required to be revealed in response to a court decision or administrative order, or to comply with Laws of a Governmental Authority or rules of a securities exchange. If the Receiving Party becomes legally compelled to disclose a Disclosing Party’s Confidential Information, the Receiving Party shall provide prompt notice to the Disclosing Party and the Parties shall cooperate so that a protective order or other appropriate remedy may be sought, unless the Disclosing Party agrees to authorize the Receiving Party to disclose such Confidential Information. In the event that such protective order or other remedy is not obtained, or Disclosing Party waives compliance with the provisions of this Agreement, the Receiving Party shall furnish only that portion of the Confidential Information that it is required to disclose, based on the opinion of counsel, and shall take all reasonable efforts to obtain a protective order or other reasonable assurance that confidential treatment will be accorded to such Confidential Information.

(ii) Notwithstanding the foregoing, if either Party determines that applicable securities Laws require the disclosure of Confidential Information, Receiving Party shall promptly notify Disclosing Party and Receiving Party shall be permitted to make and issue a disclosure consistent with the requirements of such Laws. Receiving Party shall take reasonable steps to: (i) limit the disclosure to that disclosure it has determined is required by Law and (ii) seek confidential treatment for all Confidential Information so disclosed, except to the extent such information is determined, based upon the advice of counsel, to be material and would therefore be required to be disclosed.

(e) Export. Each Receiving Party of Confidential Information shall adhere to all applicable import and export controls and shall not export or re-export any technical data or products received from the Disclosing Party or the direct product of such technical data to any prohibited country, party or entity.

(f) Remedies. In the event of any unauthorized disclosure, loss or use of Confidential Information, in whole or in part by the Receiving Party, the Disclosing Party shall be entitled to seek, upon application to any court of proper jurisdiction, a temporary restraining order or preliminary injunction to restrain and enjoin the Receiving Party or any Affiliate of the Receiving Party from such violation without prejudice as to any other remedies the Disclosing Party may have at Law or in equity. Further, the Receiving Party acknowledges and agrees that it would be virtually impossible for the Disclosing Party to calculate its monetary damages and that the Disclosing Party would be irreparably harmed in the event of such unauthorized disclosure, loss or use of Confidential Information. If the Disclosing Party seeks such temporary restraining order or preliminary injunction, the Disclosing Party shall not be required to post any bond with respect thereto, or, if a bond is required, it may be posted without surety thereon.

(g) Litigation and Governmental Disclosure. Each Party may disclose Confidential Information hereunder to the extent such disclosure is reasonably necessary for prosecuting or defending litigation, complying with applicable governmental regulations or conducting pre-clinical or clinical trials, provided that if a Party is required by Law to make any such disclosure of the other Party’s Confidential Information it will, except where impractical for necessary disclosures, for example in the event of a medical emergency, give reasonable advance notice to the other Party of such disclosure requirement and will use good faith efforts to assist such other Party to secure a protective order or confidential treatment of such Confidential Information required to be disclosed.

(h) Limitation of Disclosure. The Parties agree that, except as otherwise may be required by Applicable Laws, including without limitation the rules and regulations promulgated by the United States Securities and Exchange Commission including requests for confidential treatment, and except as may be authorized in Section 9.1(g) or Section 9.1(i), no information concerning this Agreement and the transactions contemplated herein shall be made public by either Party without the prior written consent of the other.

(i) Publicity and SEC Filings. Neither Party shall make any public announcement or statement concerning this Agreement, its terms or its existence without the prior written consent of the other Party. Notwithstanding the foregoing, the Parties agree to issue a joint press release, which is subject to the review and approval of each Party, promptly following the Effective Date. Each Party agrees that it shall cooperate fully and in a timely manner with the other with respect to all disclosures required by the Securities and Exchange Commission and any other Governmental Authority or Regulatory Authority, including requests for confidential treatment of Confidential Information of either Party included in any such disclosure.

(j) Duration of Confidentiality. All obligations of confidentiality and non-use imposed upon the Parties under this Agreement shall expire [****] years after the expiration or earlier termination of this Agreement; provided, however, that Confidential Information which constitutes the trade secrets of a Party (including, e.g., Customer Licensed Know-How) shall be kept confidential indefinitely, subject to the limitations set forth in this Section 9.1.

ARTICLE X

MISCELLANEOUS ISSUES

10.1 Relationship of the Parties. Nothing in this Agreement is intended or shall be deemed to constitute a partnership, agency, employer-employee or joint venture relationship between the Parties. All activities by the Parties hereunder shall be performed by them as independent contractors. Neither Party shall incur any debts or make any commitments for the other Party, except to the extent specifically provided herein. No right is granted by this Agreement to either Party to use in any manner the name of the other or any other trade name or trademark of the other in connection with the performance of this Agreement, except as required by Law or as expressly set forth in this Agreement.

10.2 Assignability. Unless otherwise expressly permitted hereunder, neither Party may assign this Agreement without the prior written consent of the other Party, except that each Party may assign any or all of its rights and/or responsibilities hereunder without the other Party’s consent as part of (a) the sale of all or substantially all of the assets or the entire business to which this Agreement relates (b) a merger, consolidation, reorganization or other combination with or into another person or entity; or (c) the transfer or assignment to an Affiliate, in each case, pursuant to which the surviving entity or assignee assumes the assigning or merging Party’s obligations hereunder without diminishing any rights of the other Party under this Agreement. Any assignment made in violation of this Section 10.2 shall be null and void.

10.3 Notices. All notices and demands required or permitted to be given or made pursuant to this Agreement shall be in writing and shall be deemed given if delivered personally or by facsimile transmission (receipt verified), mailed by registered or certified mail (return receipt requested), postage prepaid, or sent by express courier service, properly addressed to the address of the Party to be notified as shown below:

If to Supplier:

Jubilant HollisterStier LLC

3525 North Regal Street

Spokane, WA 99207

Attention: President

FAX: [****]

With a copy to:

Attention: Director, Business Development at same address

If to Customer:

Zyla Life Science US Inc.

600 Lee Road, Suite 100

Wayne, PA 19087

Attention: [****], Chief Operating Officer

FAX: [****]

Email (Optional): [****]

With a copy to:

Attention: VP, Technical Operations at same address

or to such other address as to which either Party may notify the other. Any notice sent by facsimile transmission shall be followed within twenty-four (24) hours by a signed notice sent by first class mail, postage prepaid.

10.4 Force Majeure. Neither Party shall be held liable or responsible for any loss or damages resulting from any failure or delay in its performance due hereunder (other than payment of money) caused by force majeure. As used herein, force majeure shall be deemed to include any condition beyond the reasonable control of the affected Party including, without limitation, strikes or other labor disputes, war, riot, earthquake, tornado, hurricane, flood or other natural disasters, fire, civil disorder, explosion, accident, sabotage, lack of or inability to obtain adequate fuel, power, materials, labor, containers, transportation, supplies or equipment despite reasonable and diligent efforts to obtain the foregoing, compliance with governmental requests, laws, rules, regulations, orders or actions; inability despite commercially reasonable efforts to renew operating permits or licenses from Regulatory Authorities; breakage or failure of machinery or apparatus; national defense requirements; or supplier strike, lockout or injunction. In the event either Party is delayed or rendered unable to perform due to force majeure, the affected Party shall give notice of the same and its expected duration to the other Party promptly after the occurrence of the cause relied upon, and upon the giving of such notice the obligations of the Party giving the notice will be suspended during the continuance of the force majeure; provided, however, such Party shall take commercially reasonable steps to remedy or mitigate the force majeure with all reasonable dispatch. The requirement that force majeure be remedied with all reasonable dispatch shall not require the settlement of strikes or labor controversies by acceding to the demands of the opposing party. If such non-performance continues for more than [****] days and such non-performance would be a material breach of this Agreement absent the operation of this Section 10.4, then Customer may terminate this Agreement on [****] days prior written notice, without penalty of any kind.

10.5 Severability. If any provision of this Agreement is determined to be illegal or unenforceable by any court of Law or any competent Government Authority, the remaining provisions shall be severable and enforceable in accordance with their terms so long as this Agreement without such terms or provisions does not fail of its essential purpose. The Parties shall

negotiate in good faith to replace any such illegal or unenforceable provisions with suitable substitute provisions which will maintain as far as possible the purposes and the effect of this Agreement.

10.6 Waiver. Neither Party’s waiver of any breach or failure to enforce any of the terms and conditions of this Agreement at any time shall in any way affect, limit or waive such Party’s right thereafter to enforce and compel strict compliance with every term and condition of this Agreement. Any such waiver shall be made in writing.

10.7 Headings. All headings, titles and captions in this Agreement are for convenience only and shall not be of any force or substance.

10.8 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be an original, but all of which shall constitute but one Agreement. For purposes of this Agreement and any other document required to be delivered pursuant to this Agreement, facsimiles of signatures shall be deemed to be original signatures. In addition, if any of the Parties sign facsimile copies of this Agreement, such copies shall be deemed originals.

10.9 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns.

10.10 Choice of Law. The construction, validity and performance of this Agreement shall be governed in all respects by the laws of the state of Delaware, excluding its provisions regarding conflicts of law.

10.11 Dispute Resolution. The Parties hereto agree to perform the terms of this Agreement in good faith, and to attempt to resolve any controversy, dispute or claim arising hereunder in good faith. Any dispute regarding the validity, construction, interpretation, or performance of this Agreement (other than provisions, hereof relating to any intellectual property rights, or the confidentiality obligations contained in Article 8 hereof) shall be (1) first attempted to be resolved between the CEO/President of each Party and failing that (2) submitted to binding arbitration in Chicago, Illinois, U.S.A. to be conducted in accordance with the Arbitration Rules of the American Arbitration Association (“AAA”); provided, however, that nothing in this Section 10.11 shall be construed to preclude either Party from seeking provisional remedies, including, but not limited to, temporary restraining orders and preliminary injunctions, from any court of competent jurisdiction, in order to protect its rights pending arbitration, but such preliminary relief shall not be sought as a means of avoiding arbitration. Any arbitration hereunder shall be submitted to an arbitration tribunal made up of three (3) members, one of whom shall be selected by Customer, one of whom shall be selected by Supplier, and one of whom shall be selected by the other two arbitrators and who shall serve as the chair of the panel. All arbitration proceedings shall be conducted in English. The arbitration panel shall provide a reasoned opinion supported by findings of fact and conclusions of law. The order or award of the arbitrators shall be final and may be enforced in any court of competent jurisdiction. The substantially prevailing Party in any legal or arbitration action brought by one Party against the other Party shall be entitled, in addition to any other rights and remedies it may have, to reimbursement for its expenses

incurred thereby, including court cost and reasonable attorney’s fees, from the substantially non-prevailing Party.

10.12 Compliance with Laws. Each Party will comply with all local, state or federal Law in any jurisdiction relevant to the activities undertaken pursuant to this Agreement or applicable to either of the Parties with respect to performing its obligations and exercising its rights hereunder.

10.13 Non-Exclusive Remedy. Except as otherwise set forth herein, termination of this Agreement by a Party shall not be an exclusive remedy and all other remedies will be available to the terminating Party, in equity and at Law.

10.14 Entire Agreement. This Agreement and the Appendices attached hereto set forth the entire agreement between the Parties with respect to the transactions contemplated hereunder, and may not be amended or modified except by written instrument duly executed by both Parties. In the event that this Agreement conflicts with any Purchase Order, invoice or other documents, the terms and conditions of this Agreement shall apply. Any and all previous agreements and understandings between the Parties regarding the subject matter of this Agreement, whether written or oral, are superseded by this Agreement.

[Signature Page Follows]

[Signature Page to Manufacturing and Supply Agreement]

IN WITNESS WHEREOF, the Parties hereto have caused their authorized representatives to execute this Agreement by signing below:

Jubilant HollisterStier LLC		Zyla Life Science US Inc.


Signature:	/s/ AMIT ARORA	Signature:	/s/ MARK STROBECK

Name: Amit Arora		Name: Mark Strobeck

Title: President		Title: EVP and Chief Operating Officer

EXHIBIT A

API AND API SPECIFICATIONS

API - Ketorolac Tromethamine USP

API Specifications:

EXHIBIT B

LIST OF PRODUCT COMPONENTS


Description	Use	Supplied by
[****]	[****]	[****]
[****]	[****]	[****]
[****]	[****]	[****]
[****]	[****]	[****]
[****]	[****]	[****]
[****]	[****]	[****]
[****]	[****]	[****]
[****]	[****]	[****]

EXHIBIT C

QUALITY AGREEMENT

[****] Information has been excluded from the exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

EXHIBIT D

PRODUCT SPECIFICATIONS

[****] Information has been excluded from the exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

EXHIBIT E

CUSTOMER-OWNED EQUIPMENT


Description	Manufacturer	Model	Serial #	Supplier Equipment #	Status
[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]

EXHIBIT F

API COST

[****]

Exhibit 31.1

Certification of Principal Executive Officer of Zyla Life Sciences

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Todd N. Smith, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Zyla Life Sciences;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2019

and
	/s/ TODD N. SMITH
	Todd N. Smith
	President and Chief Executive Officer
	(Principal Executive Officer)

Exhibit 31.2

Certification of Principal Financial Officer of Zyla Life Sciences

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Robert S. Radie, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Zyla Life Sciences;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2019

and
	/s/ ROBERT S. RADIE
	Robert S. Radie
	(Principal Financial Officer)

Exhibit 32.1

Certification Of

Principal Executive Officer

Pursuant To 18 U.S.C. Section 1350,

As Adopted Pursuant To

Section 906 Of The Sarbanes-Oxley Act Of 2002

In connection with the Quarterly Report of Zyla Life Sciences (the “Company”) on Form 10-Q for the period ended September 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Todd N. Smith, president and chief executive officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Report and results of operations of the Company for the period covered by the Report.


Date: November 14, 2019	/s/ TODD N. SMITH
	President and Chief Executive Officer
	(Principal Executive Officer)

This certification accompanies the Report and shall not be deemed “filed” by the Company with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.

Exhibit 32.2

Certification Of

Principal Financial Officer

Pursuant To 18 U.S.C. Section 1350,

As Adopted Pursuant To

Section 906 Of The Sarbanes-Oxley Act Of 2002

In connection with the Quarterly Report of Zyla Life Sciences (the “Company”) on Form 10-Q for the period ended September 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert S. Radie, president and chief executive officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


Date: November 14, 2019	/s/ ROBERT S. RADIE
	(Principal Financial Officer)