CLDA Clinical Data, Inc. (MM)

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

SCHEDULE 14D-9

(Rule 14d-101)

 

Solicitation/Recommendation Statement Under Section 14(d)(4)

of the Securities Exchange Act of 1934

 

 

 

 

CLINICAL DATA, INC.

(Name of Subject Company)

 

CLINICAL DATA, INC.

(Name of Person Filing Statement)

 

Common Stock, $0.01 par value per share

Laurus Warrant Exercisable for Shares of Common Stock

2005 Warrants Exercisable for Shares of Common Stock

2006 Warrants Exercisable for Shares of Common Stock

2008 Warrants Exercisable for Shares of Common Stock

2009 Series A Warrants Exercisable for Shares of Common Stock

2009 Series B Warrants Exercisable for Shares of Common Stock

Clinical Data Notes Convertible into Shares of Common Stock

(Title of Class of Securities)

 

Common Stock, $0.01 par value per share — 18725U109

Laurus Warrant Exercisable for Shares of Common Stock — Not Applicable

2005 Warrants Exercisable for Shares of Common Stock — Not Applicable

2006 Warrants Exercisable for Shares of Common Stock — Not Applicable

2008 Warrants Exercisable for Shares of Common Stock — Not Applicable

2009 Series A Warrants Exercisable for Shares of Common Stock — Not Applicable

2009 Series B Warrants Exercisable for Shares of Common Stock — Not Applicable

Clinical Data Notes Convertible into Shares of Common Stock — Not Applicable

(CUSIP Number of Class of Securities)

 

 

 

Caesar J. Belbel

Executive Vice President, Chief Legal Officer and Secretary

Clinical Data, Inc.

One Gateway Center, Suite 702

Newton, MA 02458

(617) 527-9933

 

(Name, Address and Telephone Number of Person Authorized to Receive Notices and

Communications on Behalf of the Person Filing Statement)

 

 

 

 

With copies to:

 

Marc A. Recht, Esq.

Barbara L. Borden, Esq.

Cooley LLP

500 Boylston Street, 14th Floor

Boston, MA 02116

(617) 937-2300

 

 

 

TABLE OF CONTENTS

 

 

(a) Name and Address.   The name of the subject company to which this Solicitation/Recommendation Statement on Schedule 14D-9 (together with any annexes attached hereto, this “Schedule 14D-9”) relates is Clinical Data, Inc., a Delaware corporation (“Clinical Data”). The address of the principal executive offices of Clinical Data is One Gateway Center, Suite 702, Newton, MA 02458, and its telephone number is (617) 527-9933. In this Schedule 14D-9, “we,” “us,” “our” and “Clinical Data” refer to Clinical Data, Inc.

 

(b) Securities.   The titles of the classes of equity securities to which this Schedule 14D-9 relates are (i) the common stock, $0.01 par value per share (“Shares”), of Clinical Data, (ii) that certain warrant, dated August 31, 2006, issued by Clinical Data to Laurus Master Fund, Ltd. (the “Laurus Warrant”), (iii) all of the warrants issued by Clinical Data pursuant to that certain Securities Purchase Agreement, dated as of November 17, 2005 between Clinical Data and the investors named therein (the “2005 Warrants”), (iv) all of the warrants issued by Clinical Data pursuant to that certain Securities Purchase Agreement, dated as of June 13, 2006 between Clinical Data and the investors named therein (the “2006 Warrants”), (v) all of the warrants issued by Clinical Data pursuant to that certain Securities Purchase Agreement, dated as of September 26, 2008 between Clinical Data and the purchasers named therein (the “2008 Warrants”), (vi) all of the warrants with an exercise price of $8.12 per share issued by Clinical Data pursuant to that certain Securities Purchase Agreement, dated as of February 25, 2009 between Clinical Data and the buyers named therein (the “2009 Series A Warrants”), (vii) all of the warrants with an exercise price of $9.744 per share issued by Clinical Data pursuant to that certain Securities Purchase Agreement, dated as of February 25, 2009 between Clinical Data and the buyers named therein (the “2009 Series B Warrants” and together with the 2009 Series A Warrants, the “2009 Warrants”), and (viii) all of the convertible notes dated February 25, 2009 issued by Clinical Data pursuant to that certain Securities Purchase Agreement dated February 25, 2009 by and among Clinical Data, New River Management V, LP and RJK, L.L.C. and in an aggregate principal amount of $50,000,000 (the “Clinical Data Notes”). The Laurus Warrant, 2005 Warrants, 2006 Warrants, 2008 Warrants and 2009 Warrants are referred to herein as the “In-the-Money Warrants.” The Shares, In-the-Money Warrants and Clinical Data Notes are referred to herein as the “Securities.” As of the close of business on March 3, 2011, there were (i) 31,090,561 Shares issued and outstanding, (ii) the Laurus Warrant exercisable for 19,216 Shares issued and outstanding, (iii) 2005 Warrants exercisable for 108,850 Shares issued and outstanding, (iv) 2006 Warrants exercisable for 143,774 Shares issued and outstanding, (v) 2008 Warrants exercisable for 757,461 Shares issued and outstanding, (vi) 2009 Series A Warrants exercisable for 1,527,650 Shares issued and outstanding, (vii) 2009 Series B Warrants exercisable for 1,527,650 Shares issued and outstanding, and (viii) Clinical Data Notes convertible into 6,110,599 Shares issued and outstanding.

 

 

(a) Name and Address.   The name, address and telephone number of Clinical Data, which is the person filing this Schedule 14D-9, are set forth in Item 1(a) above. Clinical Data’s website is www.clda.com . The website and the information on or available through the website are not a part of this Schedule 14D-9, are not incorporated herein by reference and should not be considered a part of this Schedule 14D-9.

 

(b) Tender Offer.   This Schedule 14D-9 relates to the tender offer (the “Offer”) by Magnolia Acquisition Corp., a Delaware corporation (“Purchaser”). Purchaser is wholly-owned subsidiary of FL Holding CV, a Netherlands limited partnership (“Parent”), and Parent is an indirect wholly-owned subsidiary of Forest Laboratories, Inc. (“Forest”). The Offer is disclosed in a Tender Offer Statement on Schedule TO, dated March 8, 2011 (as amended or supplemented from time to time, and together with the exhibits thereto, the “Schedule TO”), to purchase, subject to the conditions set forth in the Offer to Purchase, dated March 8, 2011 (as amended or supplemented from time to time, the “Offer to Purchase”), and in the related Letters of Transmittal (as amended or supplemented from time to time, the “Letters of Transmittal”). The Schedule TO was filed with the Securities and Exchange Commission (the “SEC”) on March 8, 2011. Copies of the Offer to Purchase and Letters of Transmittal are being mailed together with this Schedule 14D-9 and filed as Exhibits (a)(1)(A), (a)(1)(B), (a)(1)(C), (a)(1)(D), (a)(1)(E), (a)(1)(F), (a)(1)(G), (a)(1)(H) and (a)(1)(I), and are incorporated herein by reference.

The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of February 22, 2011 (the “Merger Agreement”), among Clinical Data, Forest, Parent and Purchaser. The Merger Agreement provides, among other things, that following the acceptance by Parent of Securities validly tendered in the Offer (the “Acceptance Time”) and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement and in accordance with the relevant provisions of the Delaware General Corporation Law (the “DGCL”) and other applicable law, Purchaser will merge with and into Clinical Data, with Clinical Data being the surviving corporation (the “Merger” and together with the Offer and the other transactions contemplated by the Merger Agreement, the “Transactions”), and at such time (the “Effective Time”), each Security that is outstanding and that has not been accepted for purchase pursuant to the Offer (other than Shares that are held by (i) Clinical Data, Parent, Purchaser or any of their respective wholly-owned subsidiaries, which will cease to exist with no consideration to be paid in exchange therefor, and (ii) stockholders of Clinical Data, if any, who properly perfect their appraisal rights under the DGCL) will be converted into the right to receive the consideration provided under the Merger Agreement for such Security as described below.

 

The Merger Agreement also provides that the Merger may be consummated regardless of whether the Offer is completed through a one-step Merger if the stockholders of Clinical Data have adopted the Merger Agreement at a meeting of stockholders (the “One-Step Merger”). On or about the date hereof, Clinical Data will file a preliminary proxy statement for a special meeting of stockholders to approve the adoption of the Merger Agreement and the Merger will be consummated either through the Offer followed by a Merger or directly through a One-Step Merger depending on whether the Offer or the One-Step Merger can be consummated first. If the Offer is consummated prior to the date of the special meeting to adopt the Merger Agreement, then the special meeting will not be held. A copy of the Merger Agreement is filed as Exhibit (e)(1) hereto and is incorporated herein by reference.

 

The initial expiration date of the Offer is 12:00 midnight, New York City time, at the end of the day on Monday, April 4, 2011, subject to extension in certain circumstances as permitted by the Merger Agreement and applicable law.

 

Pursuant to the Offer, Purchaser has offered to purchase all of the issued and outstanding Shares for (i) $30.00 per Share in cash without interest and subject to any tax withholding (the “Cash Portion”) plus (ii) a contractual right, pursuant to a Contingent Value Rights Agreement (the “CVR Agreement”) that provides each stockholder the right to receive additional contingent payments of up to $6.00 per Share in cash upon the achievement of certain milestones as set forth in the CVR Agreement (the “Contingent Consideration” and, together with the Cash Portion, the “Offer Price”).

 

Pursuant to the Offer, Purchaser has offered to purchase the Laurus Warrant, if outstanding, for (i) the product of $10.00 multiplied by the number of Shares subject to such warrant as of immediately prior to the Parent’s acceptance of the Securities validly tendered in the Offer or upon the Effective Time, as applicable, and (ii) the right to receive the Contingent Consideration with respect to each of the total number of Shares that would have been issuable upon exercise in full of such Laurus Warrant as of immediately prior to the Acceptance Time or the Effective Time, as applicable.

 

Pursuant to the Offer, Purchaser has offered to purchase all of the outstanding 2005 Warrants for (i) the product of $14.90 multiplied by the number of Shares subject to such 2005 Warrant as of immediately prior to the Acceptance Time or the Effective Time, as applicable, and (ii) the right to receive the Contingent Consideration with respect to each of the total number of Shares that would have been issuable upon exercise in full of the 2005 Warrant as of immediately prior to the Acceptance Time or the Effective Time, as applicable.

 

Pursuant to the Offer, Purchaser has offered to purchase all of the outstanding 2006 Warrants for (i) the product of $17.71 multiplied by the number of Shares subject to such 2006 Warrant as of immediately prior to the Acceptance Time or the Effective Time, as applicable, and (ii) the right to receive the Contingent Consideration with respect to each of the total number of Shares that would have been issuable upon exercise in full of the 2006 Warrant as of immediately prior to the Acceptance Time or the Effective Time, as applicable.

Pursuant to the Offer, Purchaser has offered to purchase all of the outstanding 2008 Warrants for (i) the product of $13.56 multiplied by the number of Shares subject to such 2008 Warrant as of immediately prior to the Acceptance Time or the Effective Time, as applicable, and (ii) the right to receive the Contingent Consideration with respect to each of the total number of Shares that would have been issuable upon exercise in full of the 2008 Warrant as of immediately prior to the Acceptance Time or the Effective Time, as applicable.

 

Pursuant to the Offer, Purchaser has offered to purchase all of the outstanding 2009 Series A Warrants for (i) the product of $21.88 multiplied by the number of Shares subject to such 2009 Series A Warrant as of immediately prior to the Acceptance Time or the Effective Time, as applicable, and (ii) the right to receive the Contingent Consideration with respect to each of the total number of Shares that would have been issuable upon exercise in full of the 2009 Series A Warrant as of immediately prior to the Acceptance Time or the Effective Time, as applicable.

 

Pursuant to the Offer, Purchaser has offered to purchase all of the outstanding 2009 Series B Warrants for (i) the product of $20.26 multiplied by the number of Shares subject to such 2009 Series B Warrant as of immediately prior to the Acceptance Time or the Effective Time, as applicable, and (ii) the right to receive the Contingent Consideration with respect to each of the total number of Shares that would have been issuable upon exercise in full of the 2009 Series B Warrant as of immediately prior to the Acceptance Time or the Effective Time, as applicable.

 

Pursuant to the Offer, Purchaser has offered to purchase all of the outstanding Clinical Data Notes for (i) the product of $30.00 multiplied by the maximum number of Shares into which such Clinical Data Note is convertible immediately prior to the Acceptance Time or the Effective Time, as applicable and (ii) the right to receive the Contingent Consideration with respect to each of the total number of Shares that would have been issuable upon conversion in full of the Clinical Data Note as of immediately prior to the Acceptance Time or the Effective Time, as applicable.

 

Pursuant to the CVR Agreement, the holders of Securities will be entitled to receive cash payments for each Share acquired by Purchaser in the Offer (or, in the case of In-the-Money Warrants and the Clinical Data Notes, for each Share that would have been issuable upon the exercise or conversion thereof), with each payment conditioned upon the achievement of the applicable milestone related to the commercialization of Viibryd ^tm (“Viibryd”) and other products containing vilazodone hydrochloride (the “Product”) as follows:

 

Milestone #1 .   Parent will be obligated to pay $1.00 in the event that the aggregate net sales of the Product in the United States in any four consecutive calendar quarters occurring between the Merger and the fifth anniversary of the Merger equal or exceed a total of $800,000,000.

 

Milestone #2 .   Parent will be obligated to pay $2.00 in the event that the aggregate net sales of the Product in the United States in any four consecutive calendar quarters occurring between the Merger and the sixth anniversary of the Merger equal or exceed a total of $1,100,000,000.

 

Milestone #3 .   Parent will be obligated to pay $3.00 in the event that aggregate net sales of the Product in the United States in any four consecutive calendar quarters occurring between the Merger and the seventh anniversary of the Merger equal or exceed a total of $1,500,000,000.

 

The five, six and seven year periods described above may be extended in certain circumstances in the event that the commercial launch of the Product occurs more than six months after the completion of the Merger. The terms of the Contingent Consideration described above reflect the parties’ agreement over the sharing of potential economic upside benefits from future net sales of the Product in the United States and do not necessarily reflect anticipated sales of the Product. There can be no assurance that such levels of net sales will occur or that any or all of the Contingent Consideration payments will be made. The right to the Contingent Consideration as evidenced by the CVR Agreement is a contractual right only and will not be transferable, except in the limited circumstances specified in the CVR Agreement.

 

The foregoing summary of the Offer is qualified in its entirety by the more detailed description and explanation contained in the Offer to Purchase and accompanying Letters of Transmittal, copies of which have

been respectively filed as Exhibits (a)(1)(A), (a)(1)(B), (a)(1)(C), (a)(1)(D), (a)(1)(E), (a)(1)(F), (a)(1)(G), (a)(1)(H) and (a)(1)(I) hereto.

 

According to the Schedule TO, the address of the principal executive offices of Forest, Parent and Purchaser is 909 Third Avenue, New York, New York 10022-4731, and their telephone number is (212) 421-7850.

 

 

Except as set forth or incorporated by reference in this Schedule 14D-9, including in the Information Statement of Clinical Data attached to this Schedule 14D-9 as Annex I hereto, which is incorporated by reference herein (the “Information Statement”), to the knowledge of Clinical Data, as of the date hereof, there are no material agreements, arrangements or understandings, or any actual or potential conflicts of interest between Clinical Data or its affiliates and (i) Clinical Data, its executive officers, directors or affiliates, or (ii) Forest, Parent, Purchaser or their respective executive officers, directors or affiliates. The Information Statement is being furnished to Clinical Data’s stockholders pursuant to Section 14(f) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 14f-1 promulgated under the Exchange Act, in connection with Purchaser’s right pursuant to the Merger Agreement to designate persons to the board of directors of Clinical Data following the Acceptance Time other than at a meeting of the stockholders of Clinical Data.

 

Any information that is incorporated herein by reference shall be deemed modified or superseded for purposes of this Schedule 14D-9 to the extent that any information contained herein modifies or supersedes such information.

 

 

Clinical Data’s executive officers and the members of its board of directors may be deemed to have interests in the Transactions that may be different from or in addition to those of Clinical Data’s stockholders, generally. These interests may create potential conflicts of interest. The board of directors of Clinical Data was aware of these interests and considered them, among other things, in reaching its decision to approve the Merger Agreement and the Transactions.

 

For further information with respect to the arrangements between Clinical Data and its executive officers, directors and affiliates described in this Item 3, please also see the Information Statement, including the information under the headings “Security Ownership of Management and Certain Beneficial Owners,” “Compensation Discussion and Analysis,” “Summary Compensation Table,” “Grants of Plan-Based Awards in 2010 Fiscal Year,” “Executive Employment Agreements,” “Outstanding Equity Awards at 2010 Fiscal Year-End,” “Termination of Employment and Change of Control Arrangements,” and “Director Compensation in Fiscal Year 2010.”

 

Outstanding Shares held by Directors and Executive Officers

 

Certain of our directors and executive officers own Shares that, upon the Acceptance Time (if tendered in connection with the Offer) or consummation of the Merger, will be converted into the right to receive the Cash Portion per Share plus Contingent Consideration per Share on the same terms and conditions as the other stockholders of Clinical Data. As of February 22, 2011, the directors and executive officers of Clinical Data beneficially owned, in the aggregate, 11,271,500 Shares, excluding Shares issuable upon exercise of options to purchase Shares, conversion of deferred stock units, conversion of warrants and conversion of notes, which are all discussed below. The following table sets forth the total number of outstanding Shares beneficially owned by such executive officers and directors on February 22, 2011, the Cash Portion they would have received in the Merger for such Shares (without taking into account any applicable tax withholdings), and the total number of Shares that would have been entitled to the right to receive the Contingent Consideration, assuming

the Merger was completed or the Acceptance Time occurred on February 22, 2011. No cash value has been attributed to the Contingent Consideration.

 

 

 

 

Treatment of Stock Options

 

As of February 22, 2011, there were 2,831,946 Shares subject to outstanding stock options granted under our Amended and Restated 2005 Equity Incentive Plan (the “2005 Plan”), our 2002 Incentive and Stock Plan (the “2002 Plan”) and the Genaissance Pharmaceuticals, Inc. 2000 Amended and Restated Equity Incentive Plan (the “2000 Plan” and, collectively with the 2005 Plan and 2002 Plan, the “Equity Incentive Plans”) to our current executive officers and directors. Similar to the treatment of stock options held by all our other employees, upon the consummation of the Merger, each outstanding stock option granted under our Equity Incentive Plans (whether or not vested) with an exercise price that is less than $36.00 and held by our executive officers and directors will be canceled and converted automatically into the right to receive (i) cash per share in the amount by which $30.00 exceeds the per share exercise price for such stock option and (ii) the Contingent Consideration with respect to each of the total number of Shares subject to such stock option. If the exercise price of the stock option equals or exceeds $36, the holder of such stock option will not be entitled to any consideration in connection with the Merger.

 

The following table sets forth the total amount of the Cash Portion that our executive officers and directors would have received (without taking into account any applicable tax withholdings) and total number of Shares that would have been entitled to Contingent Consideration, in respect of their vested and unvested stock options assuming the Merger was completed on February 22, 2011 and no vested stock options were disposed of prior to that time. For purposes of this table: (1) out-of-the-money stock options ( i.e. , those

with an exercise price greater than $36.00 per share) are not included; and (2) no cash value has been attributed to the Contingent Consideration.

 

 

Treatment of Restricted Stock

 

Our chairman, Randal J. Kirk, and two of our directors, Larry Horner and Scott Tarriff, hold shares of restricted stock granted under our 2005 Plan that were unvested as of February 22, 2011. Under the terms of each of the restricted stock agreements between Clinical Data and each director, the vesting of the unvested shares of restricted stock held by a director will be accelerated and fully vested upon a change of control of Clinical Data. The consummation of the Merger will constitute a change of control under each of the aforementioned restricted stock agreements. None of our executive officers held any shares of restricted stock as of February 22, 2011.

 

The following table sets forth the total amount of cash that our directors would have received in respect of their unvested restricted stock (without taking into account any applicable tax withholdings) and the total number of Shares that would have been entitled to Contingent Consideration, assuming the Merger was completed on February 22, 2011 and such Shares were accelerated and fully vested immediately prior to the Effective Time and converted into the right to receive an amount in cash equal to the Cash Portion and Contingent Consideration. No cash value has been attributed to the Contingent Consideration.

 

 

Treatment of Deferred Stock Units

 

Larry Horner, one of our directors, holds deferred stock units (“DSUs”) previously granted to him by Clinical Data. As of February 22, 2011, each of Mr. Horner’s DSUs was fully vested. At the Effective Time, each DSU outstanding will be canceled and converted automatically into the right to receive

the Cash Portion and the Contingent Consideration with respect to each of the total number of Shares issuable upon conversion of such DSU. The following table sets forth the total amount of upfront cash consideration (without taking into account any applicable tax withholdings) that Mr. Horner would have received in respect of his DSUs and the number of Shares that would have been entitled to Contingent Consideration, assuming the Merger was completed on February 22, 2011. No cash value has been attributed to the Contingent Consideration.

 

 

Treatment of Warrants

 

Certain of our directors and their affiliates hold In-the-Money Warrants that were outstanding as of February 22, 2011 issued pursuant to those certain securities purchase agreements described under “Securities” in Item 1(b) above. Upon the consummation of the Merger, each outstanding warrant with a exercise price that is less than $36.00 will be canceled as permitted by the terms thereof and converted into the right to receive cash consideration and the Contingent Consideration for each share issuable upon the exercise of such warrants. The amount of cash consideration each director will receive in the Merger for their In-the-Money Warrants will depend on the type of warrant they hold.

 

Mr. Kirk currently owns 2008 Warrants and 2009 Warrants. For each 2008 Warrant Mr. Kirk holds he will receive (i) the product of $13.56 multiplied by the number of Shares subject to such 2008 Warrant as of immediately prior to the Acceptance Time or the Effective Time, as applicable, and (ii) the right to receive the Contingent Consideration with respect to each of the total number of Shares that would have been issuable upon exercise in full of the 2008 Warrant as of immediately prior to the Acceptance Time or the Effective Time, as applicable. For each 2009 Warrant Mr. Kirk holds he will receive (i) the product of, in the case of the Series A 2009 Warrants, $21.88, and in the case of the Series B 2009 Warrants, $20.26, multiplied by the number of Shares subject to such 2009 Warrant as of immediately prior to the Acceptance Time or the Effective Time, as applicable, and (ii) the right to receive the Contingent Consideration with respect to each of the total number of Shares that would have been issuable upon exercise in full of the 2009 Warrant as of immediately prior to the Acceptance Time or the Effective Time, as applicable.

 

Messrs. Horner, Tarriff and Malman beneficially own 2005 Warrants. For each 2005 Warrant Messrs. Horner, Tarriff and Malman hold they will receive (i) the product of $14.90 multiplied by the number of Shares subject to such 2005 Warrant as of immediately prior to the Acceptance Time or the Effective Time, as applicable, and (ii) the right to receive the Contingent Consideration with respect to each of the total number of Shares that would have been issuable upon exercise in full of the 2005 Warrant as of immediately prior to the Acceptance Time or the Effective Time, as applicable

 

In addition, Mr. Horner also beneficially owns 2006 Warrants. For each 2006 Warrant Mr. Horner holds, he will receive (i) the product of $17.71 multiplied by the number of Shares subject to such 2006 Warrant as of immediately prior to the Acceptance Time or the Effective Time, as applicable, and (ii) the right to receive the Contingent Consideration with respect to each of the total number of Shares that would have been issuable upon exercise in full of the 2006 Warrant as of immediately prior to the Acceptance Time or the Effective Time, as applicable.

 

The following table sets forth the total amount of upfront cash consideration (without taking into account any applicable tax withholdings) and the total number of Shares that would have been entitled to Contingent Consideration that our directors and certain of their affiliates holding In-the-Money Warrants would have received for the cancellation, if permitted by the terms thereof, and conversion of these In-the-Money Warrants, assuming the Merger was completed on February 22, 2011 and the In-the-Money Warrants were

either tendered in the Offer and accepted by Parent or automatically converted into the right to receive the Merger consideration as described above. No cash value has been attributed to the Contingent Consideration.

 

 

 

 

Treatment of Clinical Data Notes

 

On February 25, 2009, Clinical Data entered into a Securities Purchase Agreement with certain affiliates of our chairman, Randal J. Kirk, pursuant to which such affiliates hold Clinical Data Notes as of February 22, 2011 in the aggregate principal amount of $50,000,000 that are convertible into 6,110,599 Shares. Upon the consummation of the Merger, all of the outstanding Clinical Data Notes will be converted into the right to receive (i) the product of $30.00 multiplied by the maximum number of Shares into which such Clinical Data Note is convertible immediately prior to the Acceptance Time or the Effective Time, as applicable and (ii) the right to receive the Contingent Consideration with respect to each of the total number of Shares that would have been issuable upon conversion in full of the Clinical Data Note as of immediately prior to the Acceptance Time or the Effective Time, as applicable.

 

The following table sets forth the total amount of upfront cash consideration (without taking into account any applicable tax withholdings) that Mr. Kirk and his affiliates would have received for the cancellation of the Clinical Data Notes and the number of Shares that would have been entitled to Contingent Consideration, assuming the Merger was completed on February 22, 2011 and the notes were either tendered in the Offer and accepted by Parent or automatically converted into the right to receive the Merger consideration as described above. No cash value has been attributed to the Contingent Consideration.

 

 

 

 

Employment Arrangements

 

Clinical Data has previously entered into executive employment agreements with Andrew Fromkin, our President and Chief Executive Officer, C. Evan Ballantyne, our Chief Financial Officer and Executive Vice President, Caesar Belbel, our Chief Legal Officer, Secretary and Executive Vice President, Carol Reed, our Chief Medical Officer and Executive Vice President, and James Shaffer, our Chief Commercial Officer and Executive Vice President. All of Clinical Data’s current executive employment agreements provide that the executive’s employment may be terminated with or without Cause at any time by Clinical Data, or by the executive with or without Good Reason (as such terms are defined in the executive employment agreements). The payments due to the executives upon termination by Clinical Data without Cause or by the executives for Good Reason, include (1) any salary and vacation accrued and unpaid as well as any unpaid bonus earned with respect to any fiscal year ending on or preceding the date of termination and any unreimbursed expenses and any other payments and benefits to which the executive may be entitled under Clinical Data’s benefit

plans, (2) the amount of the executive’s then current base salary for the twelve months following the date of termination, (3) all premiums for health and other benefits during the twelve month period following the date of termination and (4) immediate vesting of the officer’s unvested equity awards, with an extension of the eligible exercise period. In addition, if the executive’s employment is terminated for any reason other than for Cause, the executive may be entitled to receive such additional severance benefits as the board of directors of Clinical Data, in its sole discretion, may decide, including a bonus for the pro-rata portion of the executive’s annual bonus for the performance year in which his or her employment is terminated.

 

The following table sets forth for each executive officer of Clinical Data the estimated amount of cash severance pay, and the value of health, disability and dental benefits to which the executive officer would have been entitled assuming that the Merger was completed on February 22, 2011 and all such executive officers were terminated immediately after the closing without “Cause” or for “Good Reason,” as applicable.

 

 

Indemnification of Directors and Officers; Insurance

 

The Merger Agreement provides that, from and after the earlier of the Acceptance Time and the Effective Time, Parent will cause the surviving corporation to fulfill and honor the obligations of Clinical Data pursuant to (i) each indemnification agreement in effect as of February 22, 2011 between Clinical Data and individuals Clinical Data has previously agreed to indemnify, including the executive officers and current directors of Clinical Data, and (ii) for a period of six years from and after the earlier of the Acceptance Time and the Effective Time, any indemnification, expense advancement and exculpation provision set forth in the certificate of incorporation, bylaws or other organizational documents of Clinical Data. Parent has further agreed during the period of six years from and after the earlier of the Acceptance Time and the Effective Time, to not amend, repeal or modify the current indemnification provisions in Clinical Data’s certificate of incorporation, bylaws, or other organizational documents in any manner that could adversely affect an indemnified person’s rights thereunder and to also indemnify and hold harmless, and provide advancement of expenses to, to the fullest extent permitted by applicable law, each director and officer against any costs, fees and expenses, judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with (i) any acts or omissions occurring or alleged to occur prior to, or as of, the completion of the Merger in their capacity as a director, officer, employee or agent of Clinical Data or any of its subsidiaries or (ii) any of the transactions contemplated by the Merger Agreement.

 

For a period of six years after the earlier of the Acceptance Time and the Effective Time, Parent has also agreed to cause the surviving corporation to maintain in effect directors’ and officers’ liability and insurance coverage on terms and conditions that are no less favorable than our current policy. During this six year period, Parent (or the surviving corporation) will only be required to pay aggregate premiums for insurance up to 200% of the current annual premium for Clinical Data’s directors’ and officers’ liability insurance policy. Alternatively, Clinical Data may obtain a prepaid tail policy prior to the consummation of the Merger to provide currently indemnified persons with directors’ and officers’ liability insurance in respect of acts or omissions occurring at or prior to the earlier of the Acceptance Time and the Effective Time for a period of six years following such time, provided that the aggregate premium for such tail policy

does not exceed 600% of Clinical Data’s current annual premium for its directors’ and officers’ liability insurance policy.

 

Representation on the Board of Directors

 

Following the Acceptance Time, Parent has the right to elect or designate such number of directors (the “Parent Designees”), rounded down to the next whole number, on the board of directors of Clinical Data that will give Parent, subject to compliance with Section 14(f) of the Exchange Act and Rule 14f-1 thereunder, representation on the board of directors of Clinical Data equal to the product of (i) the total number of directors on the board of directors of Clinical Data, and (ii) the percentage that the aggregate number of Shares purchased by Purchaser pursuant to the Offer bears to the total number of Shares outstanding at the Acceptance Time. However, Parent will not be entitled to designate any directors to serve on the board of directors of Clinical Data unless it is the beneficial owner of Shares entitling it to exercise at least a majority of the voting power of the outstanding Shares. Under the Merger Agreement, Clinical Data is required, upon request by Parent, to take all actions necessary to enable the Parent Designees to be elected or appointed to the board of directors of Clinical Data, including (i) by promptly filling vacancies or newly created directorships on the board of directors of Clinical Data, (ii) promptly increasing the size of the board of directors of Clinical Data, and/or (iii) promptly securing the resignations of such number of its incumbent directors to the extent necessary to provide Parent with such level of representation.

 

The Merger Agreement also provides that in the event that the Parent Designees are elected or designated to the board of directors of Clinical Data, then, until the Effective Time, the board of directors of Clinical Data shall have at least two directors who are directors on the date of the Merger Agreement and not affiliates, representatives or designees of Parent or Purchaser (“Continuing Directors”). If the Parent Designees are elected or designated to the board of directors of Clinical Data, the approval of a majority of the Continuing Directors is required prior to the Effective Time, to take certain actions, including (i) amending or terminating the Merger Agreement, (ii) amending Clinical Data’s Certificate of Incorporation or Bylaws, (iii) extending the time for the performance of any of the obligations or other acts of Parent or Purchaser, (iv) waiving compliance with any covenant of Parent or Purchaser or any condition to any obligation of Clinical Data or waiving of any right of Clinical Data under the Merger Agreement, (v) changing the board of directors of Clinical Data’s recommendation regarding the Merger Agreement or the Transactions, (vi) consenting or acting by the board of directors of Clinical Data with respect to the Merger Agreement or the Merger, or (vii) exercising or waiving of any of Clinical Data’s rights or remedies under the Merger Agreement or otherwise with respect to the Transactions.

 

The foregoing summary concerning representation on the board of directors of Clinical Data does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which has been filed as Exhibit (e)(1) hereto and is incorporated herein by reference.

 

 

Merger Agreement

 

On February 22, 2011, Clinical Data, Forest, Parent and Purchaser entered into the Merger Agreement. The summary of the material provisions of the Merger Agreement contained in Section 11 of the Offer to Purchase and the description of the Conditions of the Offer contained in Section 15 of the Offer to Purchase are incorporated herein by reference. Such summary and description are qualified in their entirety by reference to the Merger Agreement, which is filed as Exhibit (e)(1) hereto and is incorporated herein by reference.

 

Non-Disclosure Agreement

 

On December 11, 2007, Clinical Data and Forest entered into a Non-Disclosure Agreement, which the parties amended on May 6, 2010 (as amended, the “Non-Disclosure Agreement”). Under the terms of the Non-Disclosure Agreement, Forest agreed that, subject to certain exceptions, any non-public information regarding Clinical Data and its subsidiaries or affiliates furnished to Forest or to its representatives for the purposes of evaluating a potential transaction between the parties would, for a period of three years from the

date of the Non-Disclosure Agreement, be kept confidential, except as provided in the Non-Disclosure Agreement. Additionally, Forest further agreed that, subject to certain exceptions, Forest would not hire for employment any employee of Clinical Data for a period of three years from the date of the Non-Disclosure Agreement. Forest also agreed that during such period, it would not, without the written consent of the board of directors of Clinical Data, acquire any securities of Clinical Data, propose any merger, joint venture or similar transaction, advise or influence the voting of Clinical Data’s securities, seek to control or influence Clinical Data’s management or board of directors or communicate with Clinical Data’s stockholders regarding the subject matter of the Non-Disclosure Agreement. Pursuant to the amendment, these restrictions on business combination or soliciting proposals for an acquisition transaction would not apply after the public announcement by Clinical Data’s board of directors approving or recommending such business combination, the solicitation by Clinical Data of offers for a business combination or the commencement by a third party of a tender offer for at least 50% of the voting securities of Clinical Data.

 

Such summary and description of the Non-Disclosure Agreement are qualified in its entirety by reference to the Non-Disclosure Agreement and the amendment thereto, which are filed as Exhibits (e)(3) and (e)(4) hereto, respectively, and are incorporated herein by reference.

 

 

Securityholder Tender and Support Agreement

 

On February 22, 2011 Parent and Purchaser entered into the Securityholder Tender and Support Agreement (the “Support Agreement”) with the executive officers and directors of Clinical Data and certain affiliates thereof (the “Supporting Stockholders”) in their capacities as stockholders, warrant holders and note holders of Clinical Data, pursuant to which the Supporting Stockholders have agreed to tender, and not withdraw, all outstanding Shares beneficially owned by them or acquired by them after such date, and all In-the-Money Warrants and Clinical Data Notes beneficially owned by them (collectively, “Subject Securities”) in the Offer no later than seven business days after receipt by such Supporting Stockholder of all documents or instruments required to be delivered pursuant to the terms of the Offer.

 

The Support Agreement also provides that the Supporting Stockholders, if their Subject Securities have not been previously accepted for payment pursuant to the Offer, will, at any meeting of Clinical Data’s stockholders (or in connection with any written consent of such stockholders), vote or cause to be voted such Subject Securities (i) in favor of (A) the adoption of the Merger Agreement, and (B) without limiting the preceding clause (A), the approval of any proposal to adjourn or postpone such stockholders’ meeting to a later date if there are not sufficient votes for adoption of the Merger Agreement on the date on which such stockholders’ meeting is held, and (ii) against any action or agreement that would reasonably be expected to materially impede, hinder, interfere with, prevent, delay or adversely affect the consummation of the transactions contemplated by the Merger Agreement, including any agreement or arrangement related to an alternative acquisition proposal. In furtherance of the Supporting Stockholders’ covenants under the Support Agreement, the Supporting Stockholders agreed to appoint Parent as their attorney-in-fact and proxy to attend all meetings of Clinical Data’s stockholders, and to vote their Subject Securities in favor of adoption of the Merger Agreement and against the actions described in clause (ii) of the immediately preceding sentence (or grant or withhold a written consent in connection therewith).

 

Such summary and description of the Support Agreement are qualified in its entirety by reference to the Support Agreement, which is filed as Exhibit (e)(19) hereto and is incorporated herein by reference.

 

The Merger Agreement and Support Agreement have been filed as exhibits to the Schedule 14D-9 to provide stockholders with information regarding their terms and are not intended to modify or supplement any factual disclosures about Clinical Data in Clinical Data’s public reports filed with the SEC. The Merger Agreement and Support Agreement and the summary of their terms contained in the Offer to Purchase filed by Purchaser with the SEC on March 8, 2011, are incorporated herein by reference, and are not intended to provide any other factual information about Clinical Data. The representations, warranties and covenants contained in each agreement were made only for the purposes of such agreement and as of specified dates,

were solely for the benefit of the parties to the agreements, and may be subject to limitations agreed upon by such parties. The representations and warranties may have been made for the purposes of allocating contractual risk between the parties to the agreements instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Neither investors nor stockholders are third-party beneficiaries under the Merger Agreement and Support Agreement. Accordingly, investors and stockholders should not rely on such representations, warranties and covenants as characterizations of the actual state of facts or circumstances described therein. Information concerning the subject matter of such representations and warranties may change after the date of the agreements, which subsequent information may or may not be fully reflected in the parties’ public disclosures.

 

 

On February 21, 2011, the board of directors of Clinical Data unanimously (i) determined that the Merger Agreement, the Support Agreement and the Transactions are advisable, fair to and in the best interests of the holders of Shares, (ii) authorized and approved the execution, delivery and performance of the Merger Agreement by Clinical Data and declared that the Merger Agreement is advisable and (iii) resolved to recommend that the holders of Shares, In-the-Money Warrants and Clinical Data Notes accept the Offer and tender their Shares, In-the-Money Warrants and Clinical Data Notes pursuant to the Offer, and that holders of Shares adopt the Merger Agreement.

 

Accordingly, and for other reasons described in more detail below, the board of directors of Clinical Data unanimously recommends that holders of Shares, In-the-Money Warrants and Clinical Data Notes accept the Offer and tender their Shares, In-the-Money Warrants and Clinical Data Notes pursuant to the Offer, and that holders of Shares adopt the Merger Agreement and approve the Merger.

 

A joint press release, dated February 22, 2011, issued by Clinical Data and Forest announcing the Offer, is included as Exhibit (a)(1)(M) hereto and is incorporated herein by reference.

 

 

Clinical Data retained J.P. Morgan Securities LLC (“J.P. Morgan”) to assist Clinical Data in exploring potential strategic opportunities for Viibryd while Clinical Data was completing the second Phase 3 trial and long-term safety study of Viibryd pursuant to an engagement letter with J.P. Morgan dated April 16, 2009. Clinical Data retained J.P. Morgan because of its prior history of working with Clinical Data and its knowledge of the industry. In March and April 2009, J.P. Morgan contacted approximately 50 pharmaceutical companies on a global basis about potential interest in Viibryd, including Forest. Nine of the parties who were contacted signed confidentiality agreements and six received management presentations. Forest declined to enter into partnering discussions at this time and did not receive a management presentation. No partnering or acquisition proposals resulted from these discussions.

 

Following receipt of positive data in June 2009 from the second Phase 3 trial and long-term safety study of Viibryd, J.P. Morgan contacted 21 of the pharmaceutical companies it had contacted earlier in 2009, including Forest, about potential interest in strategic partnering opportunities for Viibryd. The second process resulted in a large pharmaceutical company (“Company A”) submitting a licensing proposal. Clinical Data determined that the licensing proposal was unattractive from a financial point of view. In early 2010, Clinical Data resumed discussions with Company A about a possible licensing transaction or acquisition of Clinical Data. Company A conducted preliminary due diligence and submitted an offer to acquire Clinical Data for $24.00 per share. After a period of negotiation between the parties, Company A increased its offer to acquire Clinical Data to $27.00 per share, subject to completion of confirmatory due diligence and the negotiation of a definitive transaction agreement. At this time, Clinical Data entered into an amended and restated engagement letter with J.P. Morgan dated March 11, 2010. Following late-stage negotiations between Company A and Clinical Data, Company A determined not to pursue the acquisition and terminated all discussions with Clinical Data.

In March 2010, Clinical Data filed its New Drug Application (“NDA”) for Viibryd with the FDA and in May 2010, the FDA approved the Viibryd NDA for standard review. During this time, Clinical Data continued discussions with several parties potentially interested in a transaction with Clinical Data.

 

In early May 2010, the Chairman of the Board of Directors of Clinical Data contacted Forest about a potential transaction that could take the form of an acquisition of the Viibryd program or an acquisition of Clinical Data. On May 6, 2010, Forest and Clinical Data amended a confidentiality agreement, dated December 11, 2007, to extend the term of the standstill provision and to provide for termination of the standstill provision in certain specified circumstances including if Clinical Data solicited proposals for a business combination. In June 2010, Clinical Data, with the assistance of J.P. Morgan, contacted 17 pharmaceutical companies, including Forest, to determine interest in pursuing a strategic transaction with Clinical Data. Three pharmaceutical companies, including Forest, conducted due diligence. On June 22, 2010, members of Clinical Data’s senior management made a presentation to representatives of Forest at Forest’s office in New York City.

 

In the Fall of 2010, all three pharmaceutical companies engaged in the due diligence process, including Forest, informed Clinical Data that they would not pursue a transaction prior to learning the outcome of the FDA’s review of the NDA for Viibryd on its Prescription Drug User Fee Act (“PDUFA”) date of January 22, 2011. Subsequently, in November 2010, Clinical Data sent to two of the pharmaceutical companies, including Forest, a term sheet that contemplated the sale of the Clinical Data subsidiary holding Viibryd in exchange for upfront cash payments, milestones and profit sharing. The term sheet also provided that if certain milestones were not achieved by the acquiror, then the acquiror would grant Clinical Data an exclusive sublicense to commercialize Viibryd outside of the United States. Neither party pursued any substantive discussions regarding the term sheet or any potential transaction.

 

On December 8, 2010, a representative of Forest contacted Clinical Data to arrange a follow up call on Forest’s open diligence questions from the Fall process. The parties held a diligence call on December 17, 2010. On December 30, 2010, a representative of Clinical Data sent Forest an e-mail informing Forest that Clinical Data was negotiating the product label for Viibryd with the FDA and discussing post-marketing requirements and that Clinical Data continued to be encouraged that it was on track to obtain a decision from the FDA on the Viibryd NDA by the PDUFA date. The e-mail did not disclose any specific information about the label negotiations. The e-mail further stated that Clinical Data had decided not to provide potentially interested parties any further updates on the FDA process until Clinical Data completed the process with the FDA. On January 6, 2011, a representative of Clinical Data gave Forest a brief update on the outcome of one of the Forest’s open diligence questions.

 

On January 21, 2011, the FDA notified Clinical Data and issued a press release that it had approved the marketing of Viibryd in the United States for the treatment of adult patients with major depressive disorder. Following the FDA’s press release, Forest and several other companies contacted Clinical Data.

 

On January 24, 2011, Clinical Data issued its own press release regarding the FDA’s approval of Viibryd. After Clinical Data’s press release, several companies contacted Clinical Data and expressed interest in a potential transaction. Clinical Data also held a conference call for investors on January 24, 2011. During the conference call, Clinical Data’s chief executive officer stated that Clinical Data would “continue to explore the possibility of obtaining a change of control transaction” that is acceptable to Clinical Data’s board of directors and its stockholders. On February 2, 2011, Reuters published an interview with Clinical Data’s Chairman of the board of directors, Randal J. Kirk, in which Mr. Kirk stated that “[w]hile we work on our final commercial launch plans, we’ll have this brief period in which we investigate whether there’s a change of control transaction that would satisfy our shareholders, and then otherwise move on and continue to develop the company.”

 

On January 28, 2011, Clinical Data’s board of directors held a special meeting with management and representatives of J.P. Morgan. During the meeting, Mr. Kirk reviewed the preliminary inquiries concerning a potential strategic transaction received by Clinical Data following the announcement of the approval of Viibryd. Representatives of J.P. Morgan then reviewed the proposed process for reviewing potential proposals, including updated information to be sent to the eight pharmaceutical companies already committed to

confidentiality agreements who had requested updated information from Clinical Data, the proposed process letters to be sent to interested parties and the proposed bid deadline. Clinical Data’s board of directors discussed strategic alternatives and approved proceeding with the proposed process. To facilitate an efficient process, Clinical Data’s board of directors also established a transaction committee, comprised of Larry D. Horner, Randal J. Kirk and Scott L. Tarriff. Clinical Data’s board of directors delegated to the transaction committee authority to identify, consider and evaluate proposals involving a change of control of Clinical Data, engage in negotiations of proposals, take action with respect to proposals and determine whether such proposals are in the best interest of Clinical Data and its stockholders. Clinical Data’s board of directors reserved for itself the authority to approve any specific transaction.

 

Following the FDA’s January 21, 2011 announcement, and Clinical Data’s January 24, 2011 announcement, J.P. Morgan had contact with 23 pharmaceutical companies, including Forest, about a potential sale of the company. Clinical Data and J.P. Morgan contacted parties based on prior discussions concerning strategic partnering opportunities and, in some cases, in-bound expressions of interest. No potential financial buyers were contacted because the pre-revenue profile of Clinical Data was inconsistent with targets pursued by financial buyers. A total of 11 of the contacted companies received updated information under confidentiality agreements. Several other companies indicated they did not need additional diligence and were evaluating whether or not they would submit a proposal to acquire the Clinical Data.

 

On January 28, 2011, J.P. Morgan distributed a process letter with a form of merger agreement prepared by Cooley LLP (“Cooley”), outside counsel to Clinical Data, to the eight parties that expressed interest, including Forest. The process letter set a deadline of February 17, 2011 for submitting bids consistent with the terms outlined in J.P. Morgan’s letter. The draft merger agreement contemplated an all-cash transaction effected through a cash tender offer for all of the outstanding shares of Clinical Data common stock, all outstanding warrants to purchases shares of Clinical Data common stock and all outstanding convertible notes of Clinical Data issued on February 25, 2009. The draft merger agreement also contemplated that certain unspecified officers and directors of Clinical Data would enter into support agreements and commit to tender their shares of common stock, warrants and convertible notes of Clinical Data and vote outstanding shares of common stock of Clinical Data in favor of the merger and provided that the support agreements would terminate upon termination of the merger agreement or a change in the board recommendation. The draft merger agreement also specified a termination fee of two percent of the merger consideration.

 

Three companies, including Forest and Company B and Company C conducted substantial due diligence in the electronic data room and through meetings with Clinical Data management.

 

On January 31, 2011, Clinical Data’s transaction committee met with representatives of management and J.P. Morgan and received an update on the interactions J.P. Morgan had to date with the eight parties that received the bid letter. On February 4, 2011, the transaction committee again met with representatives of management and J.P. Morgan and received an update on interactions with the interested parties.

 

On February 7, 2011, Clinical Data’s board of directors held a regular meeting. During the meeting, the transaction committee gave the board a report on the status of the strategic review process, including a summary of interactions with potential parties. During the meeting, the board of directors also reviewed the results of operations for the fiscal quarter ended December 31, 2010, Clinical Data’s cash position and Clinical Data’s cash requirements for the commercial launch of Viibryd, its research and development and ongoing operations.

 

On February 11, 2011, a representative of Clinical Data, representatives of J.P. Morgan, representatives of Cooley and representatives of Hunton & Williams LLP (“Hunton”), outside counsel to Third Security, an entity affiliated with Mr. Kirk and a large stockholder of Clinical Data, had a call with representatives of Forest, representatives of Morgan Stanley, the financial advisor to Forest, and representatives of Covington & Burling LLP (“Covington”), outside counsel to Forest, to discuss Forest’s proposal that the potential tender offer include a minimum tender condition that would permit Forest to complete the acquisition of Clinical Data through a short-form merger immediately following completion of the tender offer in order to address Forest structuring considerations. Forest also proposed that the parties pursue holding a special meeting of stockholders of Clinical Data to approve a one-step merger while pursuing the tender offer and that the parties

would close either the two-step cash tender followed by the short-form merger or the one-step merger depending upon which transaction could be consummated first. Forest and its counsel also asked certain diligence questions during the call.

 

Later in the day on February 11, 2011, the transaction committee met with representatives of management and J.P. Morgan. J.P. Morgan informed the committee that three parties, Forest and Company B and Company C remained active in the process and were expected to submit bids. In addition, J.P. Morgan advised the transaction committee that several other parties were still considering submitting bids, though they had not been in active discussions with Clinical Data or J.P. Morgan.

 

During the week of February 14, 2011, Clinical Data’s closing stock price increased from $28.44 per share to as high as $33.90 per share. Clinical Data believes the stock price increased as a result of speculation that Clinical Data was pursuing merger discussions because, following Clinical Data’s chief executive officer’s withdrawal from presenting at an upcoming BIO CEO conference, two analysts speculated that the cancellation was likely due to change of control discussions and several reports were published in the financial press about the cancellation and possible change of control discussions. At this time, several parties indicated to J.P. Morgan that they were not in a position to submit a proposal for an acquisition in the high $20’s per share range and cited the significant run-up in Clinical Data’s stock price as their reason for declining to pursue an acquisition.

 

On February 16, 2011, representatives of Forest participated in a telephone conference with representatives of Clinical Data to review the status of Clinical Data’s supply chain arrangements for Viibryd.

 

On February 16, 2011, Company B informed J.P. Morgan that Company B would not be submitting an offer on the bid date, but would consider submitting a proposal for a structured transaction, involving an acquisition of Clinical Data in parallel with Clinical Data spinning off all of its assets and operations other than any assets related to Viibryd. On February 17, 2011, Company C informed J.P. Morgan that Company C would not be submitting a proposal.

 

On February 17, 2011, Forest submitted a proposed mark-up of the merger agreement. Later on February 17, 2011, Forest submitted a written bid to acquire all of the outstanding common stock of Clinical Data for $30.00 per share, all of the outstanding warrants for $30.00 per share less the applicable exercise price of the warrants, all of the outstanding convertible notes for $30.00 for each share of common stock into which the notes are convertible and all options for $30.00 per share less the applicable exercise price. Forest’s bid also included a termination fee of four percent of the merger consideration and indebtedness assumed. In the mark-up of the merger agreement, Forest proposed pursuing the dual track, two-step cash tender offer with a minimum condition that enabled closing a short-form merger immediately following the tender offer and a one-step cash merger. Forest also proposed a termination fee of four percent of all merger consideration and indebtedness assumed.

 

On February 17, 2011, Clinical Data’s transaction committee held a meeting with representatives of J.P. Morgan, Cooley and management present, to discuss the status of the process and bid received. J.P. Morgan updated the transaction committee on the feedback received from Company B and Company C and described the bid received from Forest and the discussions with Forest’s financial advisor. Representatives of Cooley summarized the general approach reflected in Forest’s proposed revisions to the merger agreement and the primary issues in the draft merger agreement. J.P. Morgan indicated that it had not yet gone to its fairness committee to determine whether it could provide a fairness opinion with respect to the proposal made by Forest. The transaction committee discussed the Forest proposal, the possibility of a structured transaction with Company B, Clinical Data’s strategic alternatives and Clinical Data’s closing stock price, and agreed that Clinical Data should continue to seek a higher price from Forest and continue to discuss a possible transaction with Company B.

 

On February 17 and 18 representatives of Clinical Data discussed the proposed terms of the Forest proposal and Clinical Data sought a higher cash price per share. Forest indicated that it was unwilling to increase the upfront cash price from $30.00 per share but that Forest would consider using a contingent value

right based on Forest achieving results for Viibryd that exceeded expectations underlying the $30.00 per share price. Representatives of Clinical Data proposed a potential structure for a contingent value right.

 

On February 18, 2011, Clinical Data’s board of directors held a special meeting to discuss the status of the process and the proposal received from Forest. Clinical Data management and representatives of J.P. Morgan and Cooley attended the meeting. Mr. Kirk gave an overview of the process, including the fact that Forest indicated it was unwilling to increase the upfront cash purchase price of $30.00 per share but that Forest was willing to consider using a contingent value right. Mr. Kirk also outlined the potential terms of a contingent value right that he had proposed through the parties’ financial advisors. Representatives of J.P. Morgan then gave an in-depth review of the process conducted since 2009 to obtain a partnering arrangement for Viibryd or a sale of the company. The representatives of J.P. Morgan then left the meeting. Representatives of Cooley reviewed the fiduciary duties of Clinical Data’s board of directors and other legal considerations in the context of considering the proposal from Forest and other strategic alternatives. Cooley next described the general approach taken by Forest in the draft merger agreement and the primary issues in the draft agreement. Representatives of J.P. Morgan (excluding a representative of J.P. Morgan whom J.P. Morgan excluded from its fairness review process because of his ownership of less than 0.5% of Clinical Data securities) then rejoined the meeting and reviewed its financial analysis of the merger consideration, and indicated that J.P. Morgan had determined that it would be able to render a fairness opinion at the $30.00 per share offer price. The board of directors then discussed valuation and strategic alternatives and agreed that Clinical Data should continue to pursue a contingent value right as a means of providing more than $30.00 per share in value to the Clinical Data stockholders.

 

On February 19, 2011, Forest proposed to Clinical Data a contingent value right with a maximum payment of $6.00 per share with milestones based on achieving certain U.S. sales of Viibryd following the closing of the proposed transaction. The Chairman of the Board, with assistance of J.P. Morgan, evaluated the proposed terms of the contingent value right and engaged in negotiations regarding the terms through the financial advisors of Clinical Data and Forest.

 

On February 19, 2011, Clinical Data’s transaction committee held a meeting with representatives of management and J.P. Morgan to discuss the proposed contingent value right agreement being negotiated with Forest. J.P. Morgan also updated the committee on discussions with Company B about a potential structured transaction. Following a discussion, the transaction committee instructed J.P. Morgan to seek to have the contingent value right offered by Forest structured as a tradable security.

 

Later on February 19, 2011, J.P. Morgan informed Morgan Stanley that Clinical Data would seek to finalize negotiations based on the terms of Forest’s revised proposal.

 

On February 19, 2011, Cooley and Covington had an initial telephone call to discuss the drafting process and key outstanding issues, including Clinical Data’s counter proposal of a three percent termination fee, the circumstances under which the tender and support agreement would terminate, the purchase price of the warrants and convertible notes, covenants to be included in the contingent value right agreement and the structure and tradability of the contingent value rights. Cooley and Covington had a subsequent telephone call later that day in which Covington conveyed Forest’s positions on the key issues discussed earlier in the day, including the fact that the contingent value rights could not be tradable under Forest’s structure for the proposed transaction and that Forest was willing to accept a termination fee of 3.5% of the merger consideration and indebtedness assumed. Cooley subsequently delivered a revised draft of the merger agreement, together with a draft of the contingent value right agreement to Covington. Thereafter, the parties engaged in negotiations of the merger agreement and contingent value right agreement until early morning on February 22, 2011.

 

On February 20, 2011, Company B contacted J.P. Morgan and indicated that after further review it did not see sufficient value in Stedivaze and Viibryd to support a proposal.

 

On February 20, 2011, Covington delivered a draft of the tender and support agreement, which was reviewed and negotiated by Hunton as counsel to Third Security and by Cooley.

On February 21, 2011, Clinical Data’s board of directors held a meeting with financial and legal advisors and management of Clinical Data. During the meeting, representatives of Cooley updated the board of directors on negotiations that occurred since the last meeting. Representatives of Cooley then reviewed the key provisions of the merger agreement, including structure and timing considerations given the dual track, two-step cash tender followed by a merger and one-step merger being pursued, offer conditions, regulatory approvals, non-solicitation clause and fiduciary exceptions that would permit Clinical Data to negotiate and accept an unsolicited superior proposal, subject to compliance with the merger agreement and Forest’s matching rights, the change in board recommendation section, termination provisions, termination fee and circumstances under which the termination fee would be payable. Representatives of Cooley also reviewed the contingent value right agreement, including structure, milestones and milestone periods, including the provision for extension of the milestone periods in specified circumstances if the commercial launch of Viibryd does not occur within six months of closing of the transaction. Finally, representatives of Cooley reviewed the tender and support agreement, including the termination provisions and number of subject securities. Clinical Data’s board of directors asked questions and discussed at length the merger agreement, contingent value right agreement and related documentation. J.P. Morgan next presented its analysis of the per share consideration to be paid to the holders of Clinical Data common stock, including the net present value of the contingent value rights. J.P. Morgan then delivered an oral opinion, subsequently confirmed in writing, based upon and subject to the factors, assumptions, qualifications and limitations set forth in the opinion, as of the date of the opinion, that, the per share consideration to be paid to the holders of the Clinical Data common stock in the Transaction (other than Mr. Kirk and entities affiliated with Mr. Kirk) was fair, from a financial point of view to such holders. After further discussion, Clinical Data’s board of directors unanimously approved the merger agreement, the contingent value right agreement and the tender and support agreement and determined that the merger agreement, contingent value right agreement, the tender and support agreement and the transactions contemplated therein are advisable, fair to and in the best interests of the holders of Clinical Data common stock and resolved to recommend that Clinical Data’s stockholders, warrant holders and note holders tender their common stock, in-the-money warrants and convertible notes pursuant to the Offer, and that holders of Shares adopt the Merger Agreement.

 

Early in the morning on February 22, 2011, the Merger Agreement and Support Agreement were signed and later that day, Forest and Clinical Data issued a joint press release announcing the execution of the Merger Agreement. A copy of the press release has been filed as Exhibit (a)(1)(M) and is incorporated herein by reference.

 

 

On February 21, 2011, the board of directors of Clinical Data unanimously (i) determined that the Merger Agreement, the Support Agreement and the Transactions are advisable, fair to and in the best interests of the holders of Shares, (ii) authorized and approved the execution, delivery and performance of the Merger Agreement by Clinical Data and declared advisable the Merger Agreement and (iii) resolved to recommend that Clinical Data’s stockholders, warrant holders and note holders tender their Shares, In-the-Money Warrants and Clinical Data Notes to the Offer, and that holders of Shares adopt the Merger Agreement.

 

Clinical Data’s board of directors considered numerous factors, including the following factors, each of which is supportive of its decision to approve the Merger Agreement and the Transactions and to recommend the Transactions to Clinical Data’s stockholders, warrant holders and note holders:

 

 

 

 

 

Clinical Data’s board of directors also considered a variety of risks and other potentially negative factors of the Merger Agreement and the Transactions, including the following:

 

 

 

 

 

Clinical Data’s board of directors concluded that the risks, uncertainties, restrictions and potentially negative factors associated with the Offer and Merger were outweighed by the potential benefits of the Offer and Merger.

 

The foregoing discussion of the board of directors’ reasons for its recommendation to accept the Offer is not meant to be exhaustive, but addresses the material information and factors considered by the board of directors in consideration of its recommendation. In view of the wide variety of factors considered by board of directors in connection with the evaluation of the Offer and the complexity of these matters, the board of directors did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. Rather, the directors made their determinations and recommendations based on the totality of the information presented to them, and the judgments of individual members of the board of directors may have been influenced to a greater or lesser degree by different factors. In arriving at their respective recommendations, the members of the board of directors considered the interests of executive officers and directors of Clinical Data as described under “Interests of Our Directors and Executive Officers in the Merger.”

 

 

To Clinical Data’s knowledge, after making reasonable inquiry, all the Supporting Stockholders currently intend to tender or cause to be tendered pursuant to the Offer (i) any and all Shares beneficially owned by such Supporting Stockholders (excluding any Shares that are the subject of unexercised In-the-Money Warrants or stock options or unconverted Clinical Data Notes or deferred stock units, as applicable), (ii) any additional Shares with respect to which such Supporting Stockholders become the beneficial owner (including, without limitation, whether by purchase, by the exercise of In-the-Money Warrants or stock options or conversion of Clinical Data Notes or otherwise) following the date of the Merger Agreement, (iii) any and all Clinical Data Notes beneficially owned by Supporting Stockholders, and (iv) any and all In-the-Money Warrants beneficially owned by such Supporting Stockholders. In addition, to Clinical Data’s knowledge, after making reasonable inquiry, all of the Supporting Stockholders currently intend to vote all Shares beneficially owned by such Supporting Stockholders in favor of the adoption of the Merger Agreement.

 

In addition, the Supporting Stockholders have entered into the Support Agreement, pursuant to which each has agreed, in such Securityholder’s capacity as a holder of Shares, In-the-Money Warrants and Clinical Data Notes to tender all of such Supporting Stockholders’ Shares, In-the-Money Warrants and Clinical Data Notes, as well as any additional Shares that he, she or it may acquire (pursuant to the exercise of options or deferred stock units or otherwise), to Purchaser in the Offer. The Securityholder Tender and Support Agreement will terminate in the event the Merger Agreement is terminated. As of March 7, 2011, the Shares subject to the Securityholder Tender and Support Agreement (including for this purpose all Shares issuable upon the exercise or conversion of warrants, convertible notes and stock options held by such parties, whether vested or unvested) represented in the aggregate approximately 52.37% of the issued and outstanding Shares (calculated on a fully-diluted basis).

 

 

Clinical Data’s management prepares projections of its expected financial performance as a standalone company as part of its ongoing management of the business and updated the projections in connection with its

review of strategic alternatives. These projections were provided to J.P. Morgan for its review and analysis in connection with its fairness opinion and used by the board of directors of Clinical Data in connection with its review of strategic alternatives.

 

The information set forth below is included solely to give Clinical Data stockholders, warrant holders and note holders access to the financial projections that were made available to J.P. Morgan and is not included in this Schedule 14D-9 in order to influence any stockholder, warrant holder or note holder of Clinical Data to make any investment decision with respect to the Offer or Merger or any other purpose, including whether or not to seek appraisal rights with respect to the Shares.

 

The financial projections were not prepared with a view toward public disclosure, or with a view toward compliance with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial forecasts, or United States generally accepted accounting principles. Neither Clinical Data’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the prospective financial information included below, or expressed any opinion or any other form of assurance on such information or its achievability.

 

The financial projections estimate EBIT (calculated as net revenue minus cost of goods sold (including royalties), sales and marketing, research and development, general and administrative, milestone payments pursuant to contracts and amortization expenses) and EBITA (calculated as EBIT plus depreciation and amortization). The financial projections reflect numerous estimates and assumptions made by Clinical Data with respect to general business, economic, competitive, regulatory, market and financial conditions and other future events, as well as matters specific to Clinical Data’s business, such as product pricing and reimbursement rates, product launch dates, market penetration, market exclusivity, receipt of regulatory approvals for Viibryd outside the United States and for other indications, including Generalized Anxiety Disorder (GAD), and regulatory approval for Stedivaze, required investments, availability of capital to fund product launches and operations until Clinical Data is cash flow positive and levels of operating expenses, all of which are difficult to predict and many of which are beyond Clinical Data’s control. These financial projections were risk-adjusted based on management’s assessment of the probability of achieving the projections. For this purpose, management assumed a 85% probability of success for Viibryd receiving FDA approval in the United States for the treatment of GAD and a 72% net probability of success for Stedivaze receiving FDA approval. The financial projections were also weighted based on management’s assessment of the probability of retaining product exclusivity for Viibryd. For this purpose, management assumed a 20% probability of retaining exclusivity until 2020 and a 80% probability of retaining exclusivity until 2022. The financial projections reflect subjective judgment in many respects and, therefore, are susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. As such, the financial projections constitute forward-looking information and are subject to risks and uncertainties that could cause the actual results to differ materially from the projected results, including, but not limited to, Clinical Data’s performance and ability to achieve project revenue and operating results over the applicable period, risks relating to market penetration and pricing and reimbursement, risks relating to the exclusivity period, regulatory approvals risks for Stedivaze, adverse changes in applicable laws, regulations or rules, and the factors described under “Risk Factors” in Clinical Data’s Annual Report on Form 10-K for the year ended March 31, 2010, and Clinical Data’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2010. The financial projections cannot, therefore, be considered a guaranty of future operating results, and the projections should not be relied upon as such.

 

The inclusion of the financial projections should not be regarded as an indication that Clinical Data, J.P. Morgan or anyone who received the projections then considered, or now considers, the projections to be material information of Clinical Data or a reliable prediction of future events, and this information should not be relied upon as such. Clinical Data views the financial projections as non-material because of the inherent risks and uncertainties associated with such long-range projections. None of Clinical Data, J.P. Morgan or any of their affiliates intends to, and each of them disclaims any obligation to, update, revise or correct the projections if any of it is or becomes inaccurate (even in the short term).

 

The financial projections should be evaluated, if at all, in conjunction with the historical financial statements and other information regarding Clinical Data contained in Clinical Data’s public filings with the

SEC. The financial projections do not take into account any circumstances or events occurring after the date they were prepared, including the Transactions. Further, the financial projections do not take into account the effect of any failure of the Offer or Merger to be consummated and should not be viewed as accurate or continuing in that context. Stockholders are cautioned not to place undue, if any, reliance on the financial projections included in this Schedule 14D-9.

 

The non-generally accepted accounting principles (“non-GAAP”) projections provided to J.P. Morgan included the following projections of Clinical Data’s future financial performance:

 

 

For purposes of evaluating the proposed CVR Agreement, management of Clinical Data also prepared financial projections of revenue of Viibryd in the United States assuming Viibryd is owned by and commercially launched by Forest in 2011. Management prepared a base case, low case and high case of projected revenue, with differing assumptions on the size of Forest’s sales force, expected market penetration, growth in the size of the major depressive disorder market (“MDD”), product price increases and approval of Viibryd for other indications. The projections were provided to J.P. Morgan for its review and analysis in connection with its fairness opinion and used by the board of directors of Clinical Data in connection with its review of strategic alternatives. As in the case of the financial projections of Clinical Data as a standalone company, the financial projections constitute forward-looking information and are subject to risks and uncertainties that could cause the actual results to differ materially from the projected results, including, but not limited to, the fact that the management of Clinical Data will not control the commercial launch of Viibryd, the size of the sale force, pricing and reimbursement or other decisions that may impact the rate of product sales or market penetration.

 

The financial projections were not prepared with a view toward public disclosure, or with a view toward compliance with published guidelines of the SEC, the guidelines established by the American Institute of

Certified Public Accountants for preparation and presentation of financial forecasts, or U.S. generally accepted accounting principles. Neither Clinical Data’s independent registered public accounting firm nor any other independent accountants have compiled, examined or performed any procedures with respect to the prospective financial information included below, nor have they expressed any opinion or any other form of assurance on such information or its achievability.

 

The inclusion of these financial projections should not be regarded as an indication that the milestones for payments under the CVR Agreement will be achieved or that Clinical Data or J.P. Morgan believes that this information is a reliable prediction of future events, and this information should not be relied upon as such.

 

The non-GAAP projections provided to J.P. Morgan included the following projections set forth below.

 

Risk-adjusted Revenue (in millions)