Item 1.01 Entry into a Material Definitive Agreement.
Acquisition of IriSys, LLC
Unit Purchase Agreement and Seller Note
On August 13, 2021, Recro Pharma, Inc. (the “Company”) entered into a Unit Purchase Agreement (the “Purchase Agreement”) by and among the Company, IriSys, LLC, a California limited liability company (“IriSys”), IriSys, Inc., a California corporation (“IriSys Parent”), Continent Pharmaceuticals U.S., Inc., a Delaware corporation, and EPS Americas Corp., a Delaware corporation (each, a “Seller” and collectively, the “Sellers”), and IriSys Parent, in its capacity as the representative of the Sellers, pursuant to which the Company agreed to purchase 100% of the outstanding units of IrySis from the Sellers (the “Acquisition”). The closing of the Acquisition (the “Closing”) occurred simultaneously with execution of the Purchase Agreement.
Located in San Diego, California, IriSys provides contract pharmaceutical product development and manufacturing services, specializing in formulation research and development and good manufacturing practices of clinical trial materials and specialty pharmaceutical products.
The total purchase price (the “Purchase Price”) payable by the Company for the Acquisition was approximately $49.85 million, subject to certain adjustments as provided in the Purchase Agreement based on transaction expenses, cash and cash equivalents, indebtedness and net working capital of IriSys at the Closing. The Purchase Price consisted of: (i) $25.5 million in cash paid to the Sellers at the Closing; (ii) 9,302,718 shares of the Company’s common stock, par value $0.01 per share, to be issued to the Sellers six (6) months after the Closing; and (iii) a subordinated promissory note issued to certain Sellers by the Company in the aggregate principal amount of approximately $6.1 million (the “Note”). The Note is unsecured, has a three-year term, and bears interest at a rate of six percent (6%) per annum. The Note may be prepaid in whole or in part at any time prior to the maturity date. The Note is expressly subordinated in right of payment and priority to the Company’s existing loans with Athyrium Capital Management issued under that certain Credit Agreement, dated as of November 17, 2017 (as amended from time to time, the “Credit Agreement”), by and among the Company, the Company’s subsidiaries named as guarantors therein (the “Guarantors”), the lenders party thereto (the “Lenders”), and Athyrium Opportunities III Acquisition LP (“Athyrium Opportunities III”) as administrative agent.
The Purchase Agreement contains customary representations and warranties regarding the Company and the Sellers, and customary covenants of the Company and the Sellers.
Sixth Amendment to Credit Agreement
On August 13, 2021, the Company entered into a Sixth Amendment to Credit Agreement (the “Amendment”) by and among the Company, the Guarantors, the Lenders, and Athyrium Opportunities III, in its capacity as the administrative agent.
The Amendment provides (i) the Lenders’ consent regarding the Acquisition, (ii) Athyrium Opportunities III’s and the Lenders’ consent to changes made to the Credit Agreement, including permitting the Note, subject to a subordination agreement which subordinates the obligations of the Company under the Note to the obligations under the Credit Agreement, (iii) for the inclusion of an updated fee letter in connection with the Credit Agreement, specifying the fees the Company will pay to Athyrium Opportunities III and the Lenders in connection with the Credit Agreement, as amended by the Amendment, and (iii) an extension of the maturity date of the loan issued under the Credit Agreement from March 31, 2023 to December 31, 2023.
The foregoing description of the Purchase Agreement, the Note, the Amendment, and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety by reference to the Purchase Agreement, the Form of Note, and the Amendment, copies of which are filed as Exhibits 10.1, 10.2, and 10.3 hereto and are hereby incorporated into this Current Report on Form 8-K by reference. The Purchase Agreement has been included to provide shareholders and investors with information regarding its terms. It is not intended to provide any other factual information about the Company, the Sellers or IriSys. In particular, the assertions embodied in the representations and warranties contained in the Purchase Agreement are subject to qualifications and limitations agreed to by the respective parties in connection with negotiating the terms of the Purchase Agreement, including information contained in a confidential disclosure schedule provided by the Sellers and IriSys to the Company in connection with the signing of the Purchase Agreement. The confidential disclosure schedule attached to the Purchase Agreement contains information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the Purchase Agreement. Moreover, certain representations and warranties in the Purchase Agreement were used for the purpose of allocating risk between the Company and the Sellers rather than establishing matters as facts. Accordingly, shareholders and investors should not rely on the representations and warranties in the Purchase Agreement as characterizations of the actual state of facts about the Company, the Sellers, or IriSys.