CONTINGENT VALUE RIGHTS
AGREEMENT
Contingent Value Rights
Agreement , dated May 28, 2009, by and among
Clinical Data ,
Inc. (“ Parent ”), a Delaware
corporation, and American Stock Transfer and Trust Co. , a
New York corporation, as Rights Agent (the “ Rights
Agent ”), in favor of each person (a “
Holder ”) who from time to time holds one or
more Contingent Value Rights (the “ CVRs
”) to receive a number of shares of Parent common stock,
$0.01 par value per share (the “ Parent Common
Stock ”), in the amounts and subject to the terms and
conditions set forth herein. A registration statement on
Form S-4 (No. 333-156011) (the “ Registration
Statement ”) with respect to, among other securities,
the CVRs, has been prepared and filed by Parent with the Securities
and Exchange Commission (the “ Commission
”) and has become effective in accordance with the Securities
Act of 1933 (the “ Act ”). This Agreement
is entered into in connection with the Agreement and Plan of Merger
and Reorganization (the “ Merger Agreement
”) dated as of October 27, 2008, as amended, by and
among Parent, API Acquisition Sub II, LLC (“ Merger
Sub ”), and Avalon Pharmaceuticals, Inc. (the “
Company ”), which sets forth the allocation of
one CVR for each outstanding share of Company Common Stock, such
CVR payable in up to 0.01175 shares of Parent Common Stock (each as
defined in the Merger Agreement).
Section 1. Appointment of Rights Agent. Parent hereby
appoints the Rights Agent to act as agent for the Holders in
accordance with the instructions set forth herein, and the Rights
Agent hereby accepts such appointment, upon the terms and
conditions hereinafter set forth.
Section 2. Form of CVR Certificate.
2.1 The CVRs shall be evidenced by certificates (the “
CVR Certificates ”), substantially in the form
set forth in Exhibit A hereto. The CVR Certificates may have
such letters, numbers, or other marks of identification or
designation and such legends, summaries, or endorsements printed,
lithographed, or engraved thereon as Parent may deem appropriate
and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with applicable law or with any
rule or regulation made pursuant thereto.
2.2 The CVR Certificates shall be executed on behalf of
Parent by the manual or facsimile signature of the present or any
future President or Vice President of Parent, attested by the
manual or facsimile signature of the present or any future
Secretary or Assistant Secretary of Parent. CVR Certificates shall
be dated as of the date of the initial issuance thereof or the date
of any subsequent transfer, as the case may be.
3.1 The Rights Agent shall maintain the books and records
for the registration, and the registration of transfer, of the CVR
Certificates in which shall be registered the names and addresses
of the Holders of the CVRs evidenced by the CVR Certificates in
registered form and the certificate numbers and denominations of
such CVR Certificates.
3.2 Prior to transfer of the CVR Certificates as provided
for herein, Parent and the Rights Agent shall deem and treat the
registered Holder thereof as the absolute owner of the
CVR
Certificates (notwithstanding any notation of ownership or other
writing thereon made by anyone other than Parent or the Rights
Agent), for the purpose of the CVR Consideration (as defined
herein) and for all other purposes, and neither Parent nor the
Rights Agent shall be affected by any notice to the
contrary.
Section 4. Payment and Exchange of CVRs.
4.1 Milestone and Exchange Ratio. For purposes of this
Agreement, “ Milestone Date ” means June
30, 2010, assuming that during the period from the execution date
of the Merger Agreement through and including June 30, 2010,
at least one Milestone Payment has been received by the Company or
its affiliates (including Parent). For purposes of this Agreement,
a “ Milestone Payment ” shall mean the
receipt by the Company or its affiliates (including Parent) during
the period commencing on the execution date of the Merger Agreement
through and including June 30, 2010 of a payment under either
the Exclusive License and Research Collaboration Agreement between
the Company and Merck & Co., Inc., dated March 5, 2007, or
the Amended Pilot Study Agreement between the Company and Novartis
Institute for Biomedical Research, Inc., dated September 9,
2005, up to a maximum aggregate amount of $5,000,000. If the
Milestone Date occurs, the Holders shall be entitled to the
following consideration, to be delivered by the Rights Agent in
accordance with the procedures set forth herein.
(a) Each CVR shall entitle the Holder thereof to
receive that number of shares of Parent Common Stock (the “
Rights Shares ”) equal to the quotient of
(a) a number obtained by (i) dividing one half of the
aggregate Milestone Payments received by the Company or its
affiliates (including Parent) by (ii) $12.49 (the “ Per
Share Price ”); and (b) 17,037,928.
(b) No fractional shares of Parent Common Stock shall
be issued pursuant to this Agreement. In lieu of fractional shares,
each Holder who would otherwise have been entitled to a fraction of
a share of Parent Common Stock hereunder (after aggregating all
fractional shares to be received by such Holder), shall receive,
without interest, an amount in cash (rounded to the nearest whole
cent) determined by multiplying such fraction by the Per Share
Price.
(c) In case prior to the Milestone Date Parent shall
(i) pay a stock dividend or make a distribution on or in
respect of Parent Common Stock in shares of Parent Common Stock,
(ii) subdivide the outstanding shares of Parent Common Stock,
(iii) combine the outstanding shares of Parent Common Stock
into a smaller number of shares, or (iv) issue by
reclassification of shares of Parent Common Stock any shares of
capital stock of the Company, then, in any such case, at the
Milestone Date, the Holder of a CVR shall be entitled to receive
the number of shares of capital stock of Parent which Holder would
have owned immediately following such action had the Milestone Date
occurred immediately prior thereto (with any record date
requirement being deemed to have been satisfied).
(d) If Parent shall, prior to the Milestone Date,
consolidate with or merge with or into another Person, or Parent
shall sell, transfer or lease all or substantially all of its
assets, or Parent shall change the Parent Common Stock into
property or other securities, then, in any such case, the Holder of
a CVR shall thereupon (and thereafter) be entitled to
receive,
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upon the
Milestone Date, the securities or other property to which (and upon
the same terms and with the same rights as) the Holder would have
been entitled if the Milestone Date had occurred immediately prior
to such consolidation or merger, such sale of assets or such change
(with any record date requirement being deemed to have been
satisfied). Parent shall take such steps in connection with such
consolidation or merger, such sale of assets or such change as may
be necessary to assure such Holder that the provisions of this
Agreement shall thereafter be applicable in relation to any
securities or property thereafter deliverable upon achievement of
such Milestone Date, including, but not limited to, obtaining a
written obligation to supply such securities or property upon
exercise and to be so bound by the CVRs.
(e) The Parent Common Stock (or other securities, cash
or other property) and cash in lieu of fractional shares issuable
pursuant to this Section 4.1 are referred to collectively
herein as the “ CVR Consideration.
”
(f) Upon the occurrence of each adjustment or
readjustment pursuant to this Section 4.1, Parent at its
expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish (i) to each
holder of a CVR a certificate setting forth in reasonable detail
the event requiring the adjustment and the amount of such
adjustment, and (ii) to the Rights Agent a certificate setting
forth any adjustments made to any of the certificates.
4.2 Exchange of Certificates. As soon as practicable after
the Milestone Date (and in no event later than thirty
(30) days after the Milestone Date), Parent shall notify the
Rights Agent of the occurrence of the Milestone Date, the aggregate
Milestone Payments received by the Company or its affiliates
(including Parent) and the Per Share Price, and the Rights Agent
shall, upon being provided with the notice and instructions for
surrender referred to below, promptly thereafter mail to all
Holders of record of CVRs (i) notice of the occurrence of the
Milestone Date and of the number of Rights Shares per CVR that
Holders are entitled to receive upon surrender of their CVR
Certificates and (ii) instructions for surrendering their CVR
Certificates in exchange for a certificate representing shares of
Parent Common Stock and cash in lieu of fractional shares
(calculated in accordance with Section 4.1(a) and 4.1(b),
respectively). Upon surrender of CVR Certificates for cancellation
to the Rights Agent, together with a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss of,
and title to, the CVR Certificates shall pass, only upon delivery
of the CVR Certificates to the Rights Agent) and other requested
documents and in accordance with the instructions thereon, the
Holder of such Certificates shall be entitled to receive in
exchange therefor (a) a certificate representing that number
of whole shares of Parent Common Stock into which the CVRs
theretofore represented by the CVR Certificates so surrendered
shall have been converted pursuant to the provisions of this
Agreement and (b) a check in the amount of any cash due
pursuant to Section 4.1(b) or Section 4.4. No interest
shall be paid or shall accrue on any such amounts. Until
surrendered in accordance with the provisions of this Section, each
CVR Certificate shall represent for all purposes only the right to
receive the CVR Consideration and, if applicable, amounts under
Section 4.4. Shares of Parent Common Stock into which the CVRs
shall be converted at the Milestone Date shall be deemed to have
been issued on the Milestone Date. Subject to Section 6
hereof, if any certificates representing shares of Parent Common
Stock are to be issued in a name other than that in which the CVR
Certificate surrendered is registered, it shall be a condition of
such exchange that the person requesting such exchange
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shall deliver
to the Rights Agent all documents necessary to evidence and effect
such transfer and shall pay to the Rights Agent any transfer or
other taxes required by reason of the issuance of a certificate
representing shares of Parent Common Stock in a name other than
that of the registered Holder of the CVR Certificate surrendered,
or establish to the satisfaction of the Rights Agent that such tax
has been paid or is not applicable. Beginning the date which is six
months following the Milestone Date, Parent shall act as the Rights
Agent and thereafter any holder of an unsurrendered CVR Certificate
shall look solely to Parent for any amounts to which such Holder
may be due, subject to applicable law. Notwithstanding any other
provisions of this Agreement, any portion of the CVR Consideration
remaining unclaimed five years after the Milestone Date (or such
earlier date immediately prior to such time as such amounts would
otherwise escheat to, or become property of, any governmental
entity) shall be returned to the Parent.
4.3 Lost Certificates. If any CVR Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such CVR Certificate to be lost,
stolen or destroyed and, if required by Parent or the Rights Agent,
the posting by such person of a bond in such reasonable amount as
Parent or the Rights Agent may direct as indemnity against any
claim that may be made against it with respect to such CVR
Certificate, the Rights Agent shall deliver in exchange for such
lost, stolen or destroyed CVR Certificate (a) if prior to the
Milestone Date, a new CVR Certificate of like tenor and evidencing
the number of CVRs evidenced by the CVR Certificate so lost, stolen
or destroyed or (b) if after the Milestone Date, the
applicable certificates representing shares of Parent Common Stock,
cash in lieu of fractional shares and any amounts due pursuant to
Section 4.4.
4.4 Distributions with Respect to Unexchanged Shares. No
dividend or other distribution declared with respect to Parent
Common Stock with a record date after the Milestone Date shall be
paid to holders of unsurrendered CVR Certificates until such
holders surrender such CVR Certificates. Upon the surrender of such
CVR Certificates in accordance with Section 4.2, there shall
be paid to such holders, promptly after such surrender, the amount
of dividends or other distributions, without interest, declared
with a record date after the Milestone Date and not paid because of
the failure to surrender such CVR Certificates for
exchange.
4.5 Withholding Rights. Parent shall be entitled to deduct
and withhold from the consideration otherwise payable pursuant to
this Agreement to any Holder of CVRs such amounts as it is required
to deduct and withhold with respect to the making of such payment
under any provision of federal, state, local or foreign tax law. To
the extent that amounts are so withheld by Parent, such withheld
amounts shall be treated for all purposes of this Agreement as
having been paid to the Holder of the CVRs in respect of which such
deduction and withholding was made.
Section 5. Non-Transferability and Registration of
CVRs.
5.1 The CVRs and any interest therein may not be sold,
assigned, pledged, encumbered, or in any other manner transferred
or disposed of, in whole or in part, other than in accordance with
Section 6 hereof.
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5.2 The CVRs and the Rights Shares have been registered
under the Act pursuant to the Registration Statement declared
effective under the Act. Parent covenants and agrees:
(a) to prepare and file with the Commission such
amendment and supplements to the Registration Statement and the
prospectus used in connection therewith as may be
necessary;
(b) as expeditiously as possible, to register or
qualify the CVRs and the Rights Shares under the securities or
“Blue Sky” laws of each jurisdiction in which such
registration or qualification is necessary; and
(c) to pay all expenses of the Parent in complying
with this Section 5.2, including, without limitation,
(A) all registration and filing fees, (B) all printing
expenses, (C) all fees and disbursements of counsel
and
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