| Item 1.01 | Entry Into a Material Definitive Agreement. |
On March 25, 2019, Recro Pharma, Inc. (the “Company”) entered into an agreement (the “Agreement”) with Engine Capital, L.P., Engine Jet Capital, L.P., Engine Investments, LLC, and Arnaud Ajdler (collectively, “Engine” or the “Investors” and each an “Investor”), regarding appointment of Arnaud Ajdler to the Company’s Board of Directors (the “Board”) and certain other matters.
Pursuant to the Agreement, the Company agreed to increase the size of the Board from eight to nine directors and appoint Mr. Ajdler as a Class I director to the Board with a term expiring at the Company’s 2021 Annual Meeting of Shareholders and to appoint Mr. Ajdler to at least one committee of the Board. During Mr. Ajdler’ s term, Mr. Ajdler will, and the Investors will cause Mr. Ajdler to meet all then-applicable director independence and other standards of the Company, NASDAQ and the Securities and Exchange Commission (the “SEC”) and then-applicable provisions of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder. If, during the Restricted Period (as defined below), Mr. Ajdler is unable to serve or is removed as director, the Board will give due consideration to any replacement recommended by the Investors.
Pursuant to the Agreement, from the period starting on the date of the Agreement and continuing until ten business days prior to the deadline for the submission of shareholder nominations of directors and business proposals for the 2020 Annual Meeting of Shareholders (the “Restricted Period”), the Investors agreed to (a) cause all shares of the Company’s common stock or any other securities entitled to vote in the election of directors, or securities convertible into such securities entitled to vote (“Voting Securities”) beneficially owned by them to be present for quorum purposes; and (b) vote, or cause to be voted, all Voting Securities beneficially owned by them in favor of the election of all director candidates nominated by the Board and otherwise in accordance with the Board’s recommendation, including in favor of each other matter recommended for shareholder approval, with the exception of any tender offer, exchange offer, merger, consolidation, business combination or otherchange-of-control transaction of the Company.
In addition, during the Restricted Period, each member of the Investors (directly or indirectly) is prohibited from, among other things (i) making, participating in or encouraging any “solicitation” (as such term is used in the proxy rules of the SEC) of proxies or consents with respect to the election or removal of directors or any other matter or proposal; (ii) seeking, alone or in concert with others, election or appointment to, or representation on, the Board or the removal of any member of the Board; (iii) calling or seeking to call or initiate the convening of a special meeting of shareholders, or encouraging the calling of a special meeting of shareholders; (iv) forming, joining (whether or not in writing), encouraging, influencing, advising or participating in a partnership, limited partnership, syndicate or other group, including a “group” as defined pursuant to Section 13(d) of the Exchange Act, with respect to any Voting Securities (other than any group comprised solely of Investors); (v) taking any action in support of, or making any proposal or request that constitutes controlling, changing or influencing the Board or management of Company, including any plans or proposals to change the number or term of directors or to fill any vacancies on the Board; (vi) acquiring, whether by purchase, tender or exchange offer, through the acquisition of control of another person, by joining a partnership, limited partnership, syndicate or other group, including a “group” as defined pursuant to Section 13(d) of the Exchange Act, through swap or hedging transactions, or otherwise, any securities of Company or any rights decoupled from the underlying securities of Company that would result in the Investors in the aggregate owning, controlling or otherwise having any beneficial or other ownership interest of more than 9.9% of the then-outstanding Voting Securities; (vii) other than through open market broker sale transactions or underwritten public offerings, selling Voting Securities to any person other than another Investor, that would result in such purchaser owning more than 4.9% of the then-outstanding Voting Securities; and (viii) other than with other Investors, have any discussions or communications, or enter into any agreements, understandings or arrangements (whether written or oral), with, or advise, finance, assist or encourage, any person, in connection with any of the foregoing.
The Agreement further provides, among other things, that (i) until the second anniversary of the Agreement, neither party shall threaten or pursue any litigation proceeding against the other, subject to certain exceptions; (ii) until the expiration of the Restricted Period, neither party nor any of its affiliates, family members or associates, shall disparage the other party, subject to certain exceptions; and (iii) the Company will reimburse Engine for up to $50,000 of its reasonably incurred and documentedout-of-pocket fees and expenses (including reasonable legal fees) incurred in connection with the negotiation and execution of the Agreement.
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