Case 1:20-cv-00557-CFC Document 30-1 Filed 05/07/21 Page 1 of 31 PageID #: 437
`Case 1:20-cv-00557-CFC Document 30-1 Filed 05/07/21 Page 1 of 31 PageID #: 437
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`EXHIBIT 1
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`EXHIBIT 1
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`Case 1:20-cv-00557-CFC Document 30-1 Filed 05/07/21 Page 2 of 31 PageID #: 438
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF DELAWARE
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`IN RE ZYNERBA PHARMACEUTICALS, INC.
`DERIVATIVE LITIGATION
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`Lead Case No. 1:20-cv-00557-CFC
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`STIPULATION AND AGREEMENT OF SETTLEMENT
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`This Stipulation and Agreement of Settlement (the “Stipulation”), dated April 28, 2021,
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`is made and entered into by and among the following Parties (as defined herein), each by and
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`through their respective counsel: (i) the plaintiffs to the above-captioned consolidated shareholder
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`derivative action (the “Derivative Action”), Phillip Quartararo (“Quartararo”) and Dmitry Itkis
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`(“Itkis”) (collectively, the “Derivative Plaintiffs”), derivatively on behalf of Zynerba
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`Pharmaceuticals, Inc. (“Zynerba” or the “Company”); (ii) shareholder Rainer Machek (the
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`“Shareholder,” and together with the Derivative Plaintiffs, “Plaintiffs”); (iii) the nominal
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`defendant Zynerba; and (iv) the named defendants Armando Anido, James E. Fickenscher, John
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`P. Butler, Warren D. Cooper, William J. Federici, Thomas L. Harrison, Daniel L. Kisner, Kenneth
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`I. Moch, and Pamela Stephenson in the Derivative Action (collectively, the “Individual
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`Defendants,” and together with Zynerba, “Defendants”), all of whom are current or former
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`members of Zynerba’s Board of Directors (the “Board”) and/or senior officers of Zynerba. This
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`Stipulation, subject to the approval of the United States District Court for the District of Delaware
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`(the “Court”), is intended by the Parties to fully, finally, and forever compromise, resolve,
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`discharge, and settle the Derivative Matters (as defined herein) and the Released Claims (as
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`defined herein) and to result in the complete dismissal of the Derivative Action with prejudice
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`and the complete satisfaction of the Demand (as defined herein), upon the terms and subject to
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`the conditions set forth herein, and without any admission or concession as to the merits of any
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`of the Parties’ claims or defenses.
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`1
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`

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