`Case 1:20-cv-00557-CFC Document 30-1 Filed 05/07/21 Page 1 of 31 PageID #: 437
`
`
`
`
`
`EXHIBIT 1
`
`EXHIBIT 1
`
`
`
`Case 1:20-cv-00557-CFC Document 30-1 Filed 05/07/21 Page 2 of 31 PageID #: 438
`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF DELAWARE
`
`IN RE ZYNERBA PHARMACEUTICALS, INC.
`DERIVATIVE LITIGATION
`
`Lead Case No. 1:20-cv-00557-CFC
`
`STIPULATION AND AGREEMENT OF SETTLEMENT
`
`This Stipulation and Agreement of Settlement (the “Stipulation”), dated April 28, 2021,
`
`is made and entered into by and among the following Parties (as defined herein), each by and
`
`through their respective counsel: (i) the plaintiffs to the above-captioned consolidated shareholder
`
`derivative action (the “Derivative Action”), Phillip Quartararo (“Quartararo”) and Dmitry Itkis
`
`(“Itkis”) (collectively, the “Derivative Plaintiffs”), derivatively on behalf of Zynerba
`
`Pharmaceuticals, Inc. (“Zynerba” or the “Company”); (ii) shareholder Rainer Machek (the
`
`“Shareholder,” and together with the Derivative Plaintiffs, “Plaintiffs”); (iii) the nominal
`
`defendant Zynerba; and (iv) the named defendants Armando Anido, James E. Fickenscher, John
`
`P. Butler, Warren D. Cooper, William J. Federici, Thomas L. Harrison, Daniel L. Kisner, Kenneth
`
`I. Moch, and Pamela Stephenson in the Derivative Action (collectively, the “Individual
`
`Defendants,” and together with Zynerba, “Defendants”), all of whom are current or former
`
`members of Zynerba’s Board of Directors (the “Board”) and/or senior officers of Zynerba. This
`
`Stipulation, subject to the approval of the United States District Court for the District of Delaware
`
`(the “Court”), is intended by the Parties to fully, finally, and forever compromise, resolve,
`
`discharge, and settle the Derivative Matters (as defined herein) and the Released Claims (as
`
`defined herein) and to result in the complete dismissal of the Derivative Action with prejudice
`
`and the complete satisfaction of the Demand (as defined herein), upon the terms and subject to
`
`the conditions set forth herein, and without any admission or concession as to the merits of any
`
`of the Parties’ claims or defenses.
`
`1
`
`
`
`Case 1:20-cv-00557-CFC Document 30-1 Filed 05/07/21 Page 3 of 31 PageID #: 439
`
`I.
`
`THE DERIVATIVE MATTERS
`
`A. Factual Background
`
`Zynerba is a specialty pharmaceutical company that develops and produces transdermal
`
`cannabinoid therapies for rare and near-rare neuropsychiatric disorders. Plaintiffs allege that
`
`between March 11, 2019 and September 17, 2019 Defendants failed to disclose adverse events
`
`observed during a clinical trial of the Company’s sole drug product, ZYN002 (“Zygel”).
`
`Plaintiffs generally allege in the Derivative Matters that the Individual Defendants
`
`breached their fiduciary duties by making or permitting the making of materially false statements
`
`or omissions, causing the Company to fail to maintain internal controls, and committing other
`
`violations of state and federal law with respect to the clinical trial for Zygel. The two complaints
`
`consolidated in the Derivative Action allege counts for breach of fiduciary duty, unjust enrichment,
`
`waste of corporate assets, and violations of Section 14(a) of the Securities Exchange of 1934 (the
`
`“Exchange Act”). The Demand is based upon the same underlying allegations.
`
`B. Procedural Background
`
`On April 24, 2020 Plaintiff Quartararo filed an action against the Individual Defendants in
`
`this Court, captioned Quartararo v. Anido, et al., Case No. 1:20-cv-00557-CFC (D. Del.), asserting
`
`claims for breaches of fiduciary duty, waste of corporate assets, and violations of Section 14(a) of
`
`the Exchange Act derivatively on behalf of Zynerba (the “Quartararo Matter”).
`
`On May 29, 2020, the parties to the Quartararo Matter stipulated to stay the proceedings
`
`pending resolution of a motion to dismiss in a related securities class action pending in the United
`
`States District Court for the Eastern District of Pennsylvania, captioned Whitely v. Zynerba
`
`Pharmaceuticals, Inc., et al., Case No. 2:19-cv-02959-NIQA (E.D. Pa.) (the “Securities Class
`
`- 2 -
`
`
`
`Case 1:20-cv-00557-CFC Document 30-1 Filed 05/07/21 Page 4 of 31 PageID #: 440
`
`Action”). The Court so-ordered the stay on June 1, 2020.
`
`On November 25, 2020, the Pennsylvania court denied the motion to dismiss in the
`
`Securities Class Action.
`
`On December 4, 2020, Plaintiff Itkis filed an action against the Individual Defendants in
`
`this Court, captioned Itkis v. Anido, et al., Case No. 1:20-cv-01657-CFC (D. Del.), asserting claims
`
`for breaches of fiduciary duty, unjust enrichment, waste of corporate assets, violations of Sections
`
`14(a) of the Exchange Act derivatively on behalf of Zynerba, and seeking contribution under
`
`Sections 10(b) and 21D of the Exchange Act (the “Itkis Matter”).
`
`On December 7, 2020, the Court entered into a Joint Stipulation and Order in the
`
`Quartararo Matter to continue the stay of proceedings in the action pending a motion for
`
`reconsideration filed in the Securities Class Action.
`
`On December 17, 2020, the Court entered into a Joint Stipulation and Order (1)
`
`consolidating the Quartararo Matter and the Itkis Matter into the Derivative Action under the
`
`caption In re Zynerba Pharmaceuticals, Inc. Derivative Litigation, Lead Case No. 1:20-cv-00557-
`
`CFC, (2) appointing The Brown Law Firm, P.C. and Bragar Eagel & Squire, P.C. as Co-Lead
`
`Counsel in the Derivative Action and Farnan LLP and Deleeuw Law LLC as Co-Liaison Counsel,
`
`and (3) staying the Derivative Action pursuant to the terms of the stay in the Quartararo Matter.
`
`On December 22, 2020, the Company received a letter from the Shareholder stating that
`
`he was a Zynerba shareholder and making a demand pursuant to 8 Del. C. § 220 to inspect certain
`
`books and records of Zynerba (the “Demand,” and together with the Derivative Action, the
`
`“Derivative Matters”). Counsel for Defendants responded by letter on January 18, 2021, objecting
`
`to the scope of the Demand and proposing a meet and confer with the Shareholder’s counsel.
`
`- 3 -
`
`
`
`Case 1:20-cv-00557-CFC Document 30-1 Filed 05/07/21 Page 5 of 31 PageID #: 441
`
`On February 16, 2021, after the Pennsylvania court denied the motion to reconsider in the
`
`Securities Class Action, the parties to the Derivative Action entered into a Joint Stipulation
`
`regarding scheduling, designating the complaint filed in the Itkis Matter (the “Complaint”) as the
`
`operative complaint and scheduling dates for the parties’ respective responses. The Court so-
`
`ordered the scheduling stipulation on February 18, 2021.
`
`On March 22, 2021, the parties to the Derivative Action entered into a second Joint
`
`Stipulation regarding scheduling, informing the Court that a settlement in principle had been
`
`reached in the Derivative Action and extending the time for Defendants to file their response(s) to
`
`the Complaint. The Court so-ordered the scheduling stipulation on March 23, 2021.
`
`On April 23, 2021, the parties to the Derivative Action entered into a third Joint Stipulation
`
`regarding scheduling, informing the Court that the Parties executed settlement memorandum of
`
`understanding and extending the time for Defendants to file their response(s) to the Complaint.
`
`The Court so-ordered the scheduling stipulation on April 26, 2021.
`
`C. Settlement Negotiations
`
`In or around January 2021, the parties in the Derivative Action agreed to participate in a
`
`private mediation session before Michelle Yoshida of Phillips ADR, a nationally reputed mediator
`
`(the “Mediator”). In anticipation of the mediation, counsel for the Derivative Plaintiffs sent a
`
`settlement demand that included a proposal for extensive corporate governance reforms to
`
`Defendants’ Counsel (as defined below) on January 29, 2021.
`
`On February 5, 2021, Defendants’ Counsel sent their mediation statement to Plaintiffs and
`
`the Mediator. On February 8, 2021, Plaintiffs’ Counsel submitted a joint mediation statement to
`
`Defendants and the Mediator. On February 16, 2021, Defendants’ Counsel submitted their reply
`
`- 4 -
`
`
`
`Case 1:20-cv-00557-CFC Document 30-1 Filed 05/07/21 Page 6 of 31 PageID #: 442
`
`to Plaintiffs’ mediation statement.
`
`On February 22, 2021, the Parties engaged in a virtual, full-day mediation (the
`
`“Mediation”) with the Mediator to reach a resolution of the Derivative Matters. The Parties did
`
`not reach an agreement to settle this matter during the February 22, 2021 mediation. However,
`
`the Parties continued to engage in arm’s-length settlement discussions over the next several weeks.
`
`The Parties’ negotiations culminated on March 15, 2021 in an agreement in principle on the
`
`corporate governance reforms to be instituted by Zynerba, the terms of which are set forth in
`
`Exhibit A (the “Reforms”). On March 25, 2021, the Parties executed a Memorandum of
`
`Understanding memorializing the principal terms of the settlement of the Derivative Matters.
`
`With substantial assistance from the Mediator and only after agreeing in principle to the
`
`Reforms, the parties in the Derivative Matters began to negotiate at arm’s-length the attorneys’
`
`fees and reimbursement of expenses to be paid to Plaintiffs’ Counsel (defined below) by the Insurer
`
`(defined below) (the “Fee and Expense Amount”) based upon the benefits conferred upon the
`
`Company by the Reforms. As of date of the execution of this Stipulation, the parties in the
`
`Derivative Matters have not agreed on the Fee and Expense Amount.
`
`The members of the Board, in exercising their business judgment, approved the
`
`Memorandum of Understanding and each of its terms, as in the best interests of Zynerba and its
`
`shareholders.
`
`II.
`
`PLAINTIFFS’ COUNSEL’S INVESTIGATION AND RESEARCH, PLAINTIFFS’
`CLAIMS, AND THE BENEFIT OF SETTLEMENT
`
`Plaintiffs’ Counsel conducted investigations relating to the claims and the underlying
`
`events alleged in the respective Derivative Matters, including, but not limited to: (1) reviewing
`
`and analyzing the Company’s public filings with the Securities and Exchange Commission
`
`- 5 -
`
`
`
`Case 1:20-cv-00557-CFC Document 30-1 Filed 05/07/21 Page 7 of 31 PageID #: 443
`
`(“SEC”), press releases, announcements, transcripts of investor conference calls, presentations at
`
`industry conferences, and news articles; (2) reviewing and analyzing the allegations contained in
`
`the Securities Class Action; (3) researching and drafting shareholder derivative complaints in the
`
`Quartararo Matter and the Itkis Matter; (4) researching and drafting the Demand; (5) researching
`
`the applicable law with respect to the claims in the Derivative Matters and the potential defenses
`
`thereto; (6) researching corporate governance issues; (7) preparing an extensive settlement demand
`
`and corporate governance reforms proposal; (8) researching and preparing a mediation brief and
`
`reviewing Defendants’ mediation brief; (9) attending the full-day Mediation; and (10) engaging in
`
`extensive settlement discussions with the Mediator and Defendants’ Counsel.
`
`Plaintiffs’ Counsel believe that the claims asserted in the Derivative Matters have merit
`
`and that their investigations support the claims asserted. Without conceding the merit of any of
`
`Defendants’ defenses or the lack of merit of any of their own allegations, and in light of the benefits
`
`of the Settlement, as well as to avoid the potentially protracted time, expense, and uncertainty
`
`associated with continued litigation, including potential trials and appeals, Plaintiffs have
`
`concluded that it is desirable that the Derivative Matters be fully and finally settled and satisfied
`
`in the manner, and upon the terms and conditions, set forth in this Stipulation. Plaintiffs and
`
`Plaintiffs’ Counsel recognize the significant risks, expense, and length of continued proceedings
`
`necessary to prosecute the Derivative Matters against the Individual Defendants through trials and
`
`possible appeals. Plaintiffs’ Counsel also have taken into account the uncertain outcome and the
`
`risk of any litigation, especially complex litigation such as the Derivative Action, as well as the
`
`difficulties and delays inherent in such litigation. Based on their evaluation, and in light of the
`
`significant benefits conferred upon the Company and its shareholders as a result of the Settlement,
`
`- 6 -
`
`
`
`Case 1:20-cv-00557-CFC Document 30-1 Filed 05/07/21 Page 8 of 31 PageID #: 444
`
`Plaintiffs and Plaintiffs’ Counsel have determined that the Settlement is in the best interests of
`
`Plaintiffs, Zynerba, and Current Zynerba Shareholders (as defined herein), and have agreed to
`
`settle and satisfy the Derivative Matters upon the terms, and subject to the conditions, set forth
`
`herein.
`
`III.
`
`DEFENDANTS’ DENIALS OF WRONGDOING AND LIABILITY
`
`The Individual Defendants and Zynerba have denied, and continue to deny, each and every
`
`claim and contention alleged by Plaintiffs in the Derivative Matters and affirm that they have acted
`
`properly, lawfully, and in full accord with their fiduciary duties, at all times. Further, the
`
`Individual Defendants and Zynerba have denied expressly, and continue to deny, all allegations of
`
`wrongdoing, fault, liability, or damage against them arising out of any of the conduct, statements,
`
`acts or omissions alleged, or that could have been alleged, in the Derivative Matters and deny that
`
`they have ever committed or attempted to commit any violations of law, any breach of fiduciary
`
`duty owed to Zynerba or its shareholders, or any wrongdoing whatsoever. Had the terms of this
`
`Stipulation not been reached, Defendants would have continued to contest vigorously Plaintiffs’
`
`allegations. Without admitting the validity of any of the claims that Plaintiffs have asserted in the
`
`Derivative Matters, or any liability with respect thereto, Defendants have concluded that it is
`
`desirable that the claims be settled on the terms and subject to the conditions set forth herein.
`
`Defendants are entering into the Settlement for settlement purposes only and solely to avoid the
`
`expense, distraction, and uncertainty of litigation.
`
`IV.
`
`TERMS OF STIPULATION AND AGREEMENT OF SETTLEMENT
`
`Plaintiffs, derivatively on behalf of Zynerba, the Individual Defendants, and Zynerba, by
`
`and through their respective counsel or attorneys of record, hereby stipulate and agree that, subject
`
`- 7 -
`
`
`
`Case 1:20-cv-00557-CFC Document 30-1 Filed 05/07/21 Page 9 of 31 PageID #: 445
`
`to approval by the Court, in consideration of the benefits flowing to the Parties hereto, the
`
`Derivative Matters and all of the Released Claims shall be fully, finally, and forever satisfied,
`
`compromised, settled, released, discharged, and dismissed with prejudice, upon the terms and
`
`subject to the conditions set forth herein as follows:
`
`1. Definitions
`
`As used in this Stipulation, the following terms have the meanings specified below. In the
`
`event of any inconsistency between any definition set forth below and any definition set forth in
`
`any document attached as an exhibit to this Stipulation, the definitions set forth below shall control.
`
`1.1
`
`1.2
`
`1.3
`
`1.4
`
`“Board” means the Zynerba Board of Directors.
`
`“Claims” means, collectively, any and all claims, rights, demands, causes of action
`
`or liabilities of any kind, nature and character (including but not limited to claims
`
`for damages, interest, attorneys’ fees, expert or consulting fees, and any and all
`
`other costs, expenses or liabilities whatsoever), whether based on federal, state,
`
`local, statutory or common law or any other law, rule or regulation, whether foreign
`
`or domestic, whether fixed or contingent, accrued or unaccrued, liquidated or
`
`unliquidated, at law or in equity, matured or unmatured, whether known or
`
`unknown including, without limitation, Unknown Claims (as defined below).
`
`“Court” means the United States District Court for the District of Delaware.
`
`“Current Zynerba Shareholders” means, for purposes of this Stipulation, any
`
`Persons (defined below) who owned Zynerba common stock as of the date of this
`
`Stipulation and who continue to hold their Zynerba common stock as of the date of
`
`the Settlement Hearing, excluding the Individual Defendants, the officers and
`
`- 8 -
`
`
`
`Case 1:20-cv-00557-CFC Document 30-1 Filed 05/07/21 Page 10 of 31 PageID #: 446
`
`directors of Zynerba, members of their immediate families, and their legal
`
`representatives, heirs, successors, or assigns, and any entity in which Individual
`
`Defendants have or had a controlling interest.
`
`1.5
`
`“Defendants” means, collectively, the Individual Defendants and nominal
`
`defendant Zynerba.
`
`1.6
`
`“Defendants’ Counsel” means: Dechert LLP, 35 West Wacker Drive, Suite 3400,
`
`Chicago, IL 60601; Cira Centre, 2929 Arch Street, Philadelphia, PA 19104.
`
`1.7
`
`“Defendants’ Released Claims” means all Claims that could be asserted in any
`
`forum by the Released Persons against Plaintiffs, and Plaintiffs’ Counsel, Zynerba,
`
`and all Current Zynerba Shareholders (solely in their capacity as Zynerba
`
`shareholders) (including known and unknown Claims brought directly), arising out
`
`of, relating to, or in connection with the institution, prosecution, assertion,
`
`settlement, or resolution of the Derivative Matters or the Released Claims;
`
`provided, however, that nothing herein shall in any way release, waive, impair, or
`
`restrict the rights of any Party to enforce the terms of this Settlement.
`
`1.8
`
`“Demand” means the demand made by the Shareholder on December 22, 2020 by
`
`letter pursuant to 8 Del. C. § 220 to inspect certain documents of Zynerba.
`
`1.9
`
`“Derivative Action” means the consolidated Quartararo Matter and Itkis Matter,
`
`captioned In re Zynerba Pharmaceuticals, Inc. Derivative Litigation, Lead Case
`
`No. 1:20-cv-00557-CFC.
`
`1.10
`
`1.11
`
`“Derivative Matters” means, collectively, the Derivative Action and the Demand.
`
`“Derivative Plaintiffs” means, collectively, Phillip Quartararo and Dmitry Itkis.
`
`- 9 -
`
`
`
`Case 1:20-cv-00557-CFC Document 30-1 Filed 05/07/21 Page 11 of 31 PageID #: 447
`
`1.12
`
`“Effective Date” means the first date by which all of the events and conditions
`
`specified in §IV, ¶ 6.1 herein have been met and have occurred.
`
`1.13
`
`“Fee and Expense Amount” means the sum to be paid to Plaintiffs’ Counsel for
`
`their attorneys’ fees and expenses, as detailed in §IV, ¶¶5.1-5.2 of this Stipulation,
`
`subject to approval by the Court.
`
`1.14
`
`“Final” means the time when an order or judgment that has not been reversed,
`
`vacated, or modified in any way and is no longer subject to appellate review, either
`
`because of disposition on appeal and conclusion of the appellate process (including
`
`potential writ proceedings) or because of passage, without action, of time for
`
`seeking appellate or writ review. More specifically, it is that situation when (1)
`
`either no appeal or petition for review by writ has been filed and the time has passed
`
`for any notice of appeal or writ petition to be timely filed in the Derivative Action;
`
`or (2) an appeal has been filed and the court of appeals has either affirmed the order
`
`or judgment or dismissed that appeal and the time for any reconsideration or further
`
`appellate review has passed; or (3) a higher court has granted further appellate
`
`review, and that court has either affirmed the underlying order or judgment or
`
`affirmed the court of appeals’ decision affirming the order or judgment or
`
`dismissing the appeal or writ proceeding.
`
`1.15
`
`“Individual Defendants” means, collectively: Armando Anido, James E.
`
`Fickenscher, John P. Butler, Warren D. Cooper, William J. Federici, Thomas L.
`
`Harrison, Daniel L. Kisner, Kenneth I. Moch, and Pamela Stephenson.
`
`- 10 -
`
`
`
`Case 1:20-cv-00557-CFC Document 30-1 Filed 05/07/21 Page 12 of 31 PageID #: 448
`
`1.16
`
`“Insurer” means the directors’ and officers’ liability insurers for the Defendants,
`
`and is inclusive of their respective reinsurers.
`
`1.17
`
`“Itkis Matter” means the shareholder derivative action filed in this Court, captioned
`
`Itkis v. Anido, et al., Case No. 1:20-cv-01657-CFC.
`
`1.18
`
`“Judgment” means the final order and judgment to be rendered by the Court,
`
`1.19
`
`1.20
`
`substantially in the form attached hereto as Exhibit D.
`
`“Mediator” means Michelle Yoshida of Phillips ADR.
`
`“Notice to Current Zynerba Shareholders” or “Notice” means the Notice to Current
`
`Zynerba Shareholders of Proposed Settlement and Dismissal with Prejudice of
`
`Derivative Action, substantially in the form of Exhibit B attached hereto.
`
`1.21
`
`“Person(s)” means an
`
`individual, corporation,
`
`limited
`
`liability company,
`
`professional corporation, partnership,
`
`limited partnership,
`
`limited
`
`liability
`
`partnership, association, joint stock company, estate, legal representative, trust,
`
`unincorporated association, government or any political subdivision or agency
`
`thereof, and any business or legal entity, and their spouses, heirs, predecessors,
`
`successors, administrators, parents, subsidiaries, affiliates, representatives, or
`
`assignees.
`
`1.22
`
`“Plaintiffs’ Counsel” means: (i) The Brown Law Firm, P.C., 240 Townsend Square,
`
`Oyster Bay, New York 11771; (ii) Bragar Eagel & Squire, P.C, 810 Seventh
`
`Avenue, Suite 620, New York, New York 10019; and (iii) Glancy Prongay &
`
`Murray LLP, 712 Fifth Avenue, 31st Floor, New York, New York 10019.
`
`- 11 -
`
`
`
`Case 1:20-cv-00557-CFC Document 30-1 Filed 05/07/21 Page 13 of 31 PageID #: 449
`
`1.23
`
`“Preliminary Approval Order” means the Order to be entered by the Court,
`
`substantially in the form of Exhibit C attached hereto, including, inter alia,
`
`preliminarily approving the terms and conditions of the Settlement as set forth in
`
`this Stipulation, directing that notice be provided to Current Zynerba Shareholders,
`
`and scheduling a Settlement Hearing to consider whether the Settlement and Fee
`
`and Expense Amount should be finally approved.
`
`1.24
`
`“Quartararo Matter” means the shareholder derivative action filed in this Court,
`
`captioned Quartararo v. Anido, et al., Case No. 1:20-cv-00557-CFC.
`
`1.25
`
`“Zynerba” or the “Company” means nominal defendant Zynerba Pharmaceuticals,
`
`Inc. and includes all of its subsidiaries, predecessors, successors, affiliates, officers,
`
`directors, employees, and agents.
`
`1.26
`
`“Related Persons” means each and all of a Person’s past, present, or future family
`
`members, spouses, domestic partners, parents, associates, affiliates, divisions,
`
`subsidiaries, officers, directors, shareholders, owners, members, representatives,
`
`employees, attorneys, financial or investment advisors, consultants, underwriters,
`
`investment banks or bankers, commercial bankers, insurers, reinsurers, excess
`
`insurers, co-insurers, advisors, principals, agents, heirs, executors, trustees, estates,
`
`beneficiaries, distributees, foundations, general or limited partners or partnerships,
`
`joint ventures, personal or legal representatives, administrators, or any other person
`
`or entity acting or purporting to act for or on behalf of any Person, and each of their
`
`respective predecessors, successors, and assigns.
`
`- 12 -
`
`
`
`Case 1:20-cv-00557-CFC Document 30-1 Filed 05/07/21 Page 14 of 31 PageID #: 450
`
`1.27
`
`“Released Claims” means all Claims, including known and Unknown Claims,
`
`against any of the Released Persons that (i) were asserted or could have been
`
`asserted derivatively in any of the Derivative Matters; (ii) would have been barred
`
`by res judicata had the Derivative Matters been fully litigated to final judgment; or
`
`(iii) that could have been, or could in the future be, asserted derivatively in any
`
`forum or proceeding or otherwise against any of the Released Persons that (a)
`
`concern, arise out of or relate, directly or indirectly, in any way to any of the subject
`
`matters, allegations, transactions, facts, occurrences, representations, statements, or
`
`omissions alleged, involved, set forth, or referred to in any complaint or demand
`
`letter in the Derivative Matters including, but not limited to, claims for breach of
`
`fiduciary duty, waste of corporate assets, unjust enrichment, violations of the
`
`Exchange Act, contribution and indemnification, money damages, disgorgement,
`
`any and all demands, actions, damages, claims, rights or causes of action, or
`
`liabilities whatsoever, provided that Released Claims shall not include claims to
`
`enforce the terms of this Settlement. For the avoidance of doubt, the Released
`
`Claims include the Shareholder’s Demand.
`
`1.28
`
`“Released Person(s)” means, collectively, each and all of the Defendants and their
`
`Related Persons, and Defendants’ Counsel.
`
`1.29
`
`“Settlement” means the settlement of the Derivative Matters as documented in this
`
`Stipulation.
`
`1.30
`
`“Settlement Hearing” means a hearing by the Court to review the adequacy,
`
`fairness, and reasonableness of the Settlement set forth in this Stipulation and to
`
`- 13 -
`
`
`
`Case 1:20-cv-00557-CFC Document 30-1 Filed 05/07/21 Page 15 of 31 PageID #: 451
`
`determine: (i) whether to enter the Judgment; and (ii) all other matters properly
`
`before the Court.
`
`1.31
`
`“Parties” means, collectively, each of the Plaintiffs (derivatively on behalf of
`
`Zynerba), each of the Individual Defendants, and nominal defendant Zynerba.
`
`1.32
`
`1.33
`
`“Shareholder” means Rainer Machek.
`
`“Stipulation” means this Stipulation and Agreement of Settlement, dated April 28,
`
`2021.
`
`1.34
`
`“Unknown Claims” means any Released Claims that any Party or any Current
`
`Zynerba Shareholder (claiming in the right of, or on behalf of, Zynerba) does not
`
`know or suspect to exist in his, her or its favor at the time of the release of the
`
`Released Persons which, if known by him, her or it, might have affected his, her or
`
`its settlement with and release of the Released Persons, or might have affected his,
`
`her or its decision not to object to this Settlement. Unknown Claims include those
`
`claims in which some or all of the facts comprising the claim may be suspected, or
`
`even undisclosed or hidden. With respect to any and all Released Claims, the
`
`Parties stipulate and agree that, upon the Effective Date, they shall expressly waive,
`
`and every Current Zynerba Shareholder shall be deemed to have, and by operation
`
`of the Judgment shall have, expressly waived the provisions, rights, and benefits of
`
`California Civil Code § 1542, which provides:
`
`A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE
`CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT
`TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE
`RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE
`MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE
`DEBTOR OR RELEASED PARTY.
`
`- 14 -
`
`
`
`Case 1:20-cv-00557-CFC Document 30-1 Filed 05/07/21 Page 16 of 31 PageID #: 452
`
`The Parties shall expressly waive, and every Current Zynerba Shareholder shall be
`
`deemed to have, and by operation of the Judgment shall have, expressly waived any
`
`and all provisions, rights, and benefits conferred by any law of any state or territory
`
`of the United States, or principle of common law or foreign law, which is similar,
`
`comparable or equivalent in effect to California Civil Code § 1542. The Parties
`
`and/or any Current Zynerba Shareholder may hereafter discover facts in addition to
`
`or different from those which he, she or it now knows or believes to be true with
`
`respect to the subject matter of the Released Claims, but the Parties shall expressly
`
`have, and every Current Zynerba Shareholder shall be deemed to have, and by
`
`operation of the Judgment shall have, fully, finally, and forever settled and released
`
`any and all Released Claims, known or unknown, suspected or unsuspected,
`
`contingent or non-contingent, whether or not concealed or hidden, which now exist,
`
`or heretofore have existed, upon any theory of law or equity now existing or coming
`
`into existence in the future, including, but not limited to, conduct which is
`
`negligent, reckless, intentional, with or without malice, or a breach of any duty, law
`
`or rule, without regard to the subsequent discovery or existence of such different or
`
`additional facts. The Parties acknowledge, and every Current Zynerba Shareholder
`
`shall be deemed by operation of the Judgment to have acknowledged, that the
`
`foregoing waivers were separately bargained for and a key element of the
`
`Settlement.
`
`2. Terms of the Settlement
`
`- 15 -
`
`
`
`Case 1:20-cv-00557-CFC Document 30-1 Filed 05/07/21 Page 17 of 31 PageID #: 453
`
`2.1
`
`The benefits of the Settlement consist of the Reforms, the terms of which are fully
`
`set forth in Exhibit A attached hereto. Zynerba and its Board acknowledge that the filing,
`
`prosecution, and resolution of the Derivative Action was a material precipitating factor in the
`
`Board’s adoption, implementation, and maintenance of the Reforms, that the Reforms confer
`
`substantial material benefits on the Company and its shareholders, and that the Reforms would not
`
`have been enacted at this time but for the efforts of counsel for Plaintiffs.
`
`2.2
`
`Zynerba shall ensure that the Reforms have been adopted no later than thirty (30)
`
`days from the date that the Court enters the Judgment, unless other timing is expressly provided in
`
`Exhibit A, and shall maintain the Reforms for at least five (5) years after the date that the Court
`
`enters the Judgment.
`
`3. Procedure for Implementing the Settlement
`
`3.1
`
`Promptly after execution of this Stipulation, the Plaintiffs shall submit this
`
`Stipulation, together with its exhibits, to the Court and apply for entry of the Preliminary Approval
`
`Order in this Court, substantially in the form of Exhibit C attached hereto, requesting, inter alia:
`
`(i) preliminary approval of the Settlement set forth in this Stipulation; (ii) approval of the method
`
`of providing notice of the proposed Settlement to Current Zynerba Shareholders; (iii) approval of
`
`the form of notice substantially in the form of Exhibit B attached hereto; and (iv) a date for the
`
`Settlement Hearing.
`
`3.2 Within ten (10) business days after the Court’s entry of the Preliminary Approval
`
`Order, Zynerba shall issue the Notice via a press release on GlobeNewswire, file with the SEC the
`
`Notice and Stipulation as exhibits to a Form 8-K and post the Notice together with the Stipulation
`
`on the Investor Relations page of Zynerba’s corporate website. The Notice will contain a link to
`
`- 16 -
`
`
`
`Case 1:20-cv-00557-CFC Document 30-1 Filed 05/07/21 Page 18 of 31 PageID #: 454
`
`the Investor Relations page of Zynerba’s corporate website where the Notice and Stipulation will
`
`be posted, which posting will be maintained through the date of the Settlement Hearing. Zynerba
`
`shall undertake the administrative responsibility, and shall be solely responsible, for paying the
`
`costs and expenses related to, and giving notice of, the settlement of the Derivative Matters to
`
`Current Zynerba Shareholders in the manner set forth in this paragraph. The Parties believe the
`
`manner of the notice procedures set forth in this paragraph constitute adequate and reasonable
`
`notice to Current Zynerba Shareholders pursuant to applicable law and due process.
`
`3.3
`
`Plaintiffs’ Counsel shall request that the Court hold the Settlement Hearing at least
`
`forty-five (45) calendar days after the deadline to provide the notice described in §IV, ¶3.2 above
`
`to Current Zynerba Shareholders to approve the Settlement and the Fee and Expense Amount.
`
`3.4
`
`Pending the Court’s determination as to final approval of the Settlement, Plaintiffs
`
`and Plaintiffs’ Counsel, and any Current Zynerba Shareholders, derivatively on behalf of Zynerba,
`
`are barred and enjoined from commencing, prosecuting, instigating, or in any way participating in
`
`the commencement or prosecution of any action asserting or relating to any Released Claims
`
`against any of the Released Persons in any court or tribunal.
`
`4. Releases
`
`4.1
`
`Upon the Effective Date, Zynerba, Plaintiffs, and each Current Zynerba
`
`Shareholder shall be deemed to have, and by operation of the Judgment shall have, fully, finally,
`
`and forever released, relinquished, and discharged the Released Claims against the Released
`
`Persons. Zynerba, Plaintiffs, and each Current Zynerba Shareholder shall be deemed to have, and
`
`by operation of the Judgment shall have, covenanted