CLDA Clinical Data, Inc. (MM)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

SCHEDULE 14A

 

(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT

 

SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934

 

Filed by the Registrant  þ

 

Filed by a Party other than the Registrant  o

 

Check the appropriate box:

 

þ  Preliminary Proxy Statement

 

o   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

o  Definitive Proxy Statement

 

o  Definitive Additional Materials

 

o  Soliciting Material Pursuant to §240.14a-12

 

Clinical Data, Inc.

(Name of Registrant as Specified in its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

o   No fee required.

 

 

Common Stock, $0.01 par value per share, of Clinical Data, Inc. (“Common Stock”).

 

 

 

45,844,350 (includes 4,556,521 shares issuable upon exercise of options with an exercise price of less than $36.00, 2,068 deferred stock units, 4,084,601 shares of Common Stock issuable pursuant to the exercise of outstanding warrants with an exercise price below $36.00, and 6,110,599 shares of Common Stock issuable pursuant to the exercise of outstanding convertible notes)

 

 

 

Solely for purposes of calculating the registration fee, the maximum aggregate value of the transaction was calculated as the sum of (A) 31,090,561 shares of Common Stock multiplied by the sum of (i) $30.00 and (ii) $0.30 (the result of $30.30, the average of the high and low prices of the shares of Common Stock as reported on the NASDAQ Global Market on March 7, 2011, less $30.00, such amount, the “Attributed CVR Value”), (B) 4,556,521 shares of Common Stock issuable pursuant to the exercise of outstanding options with exercise prices below $36.00 multiplied by the sum of (i) $15.05 (which is equal to $30.00 minus the weighted average exercise price per share of such options) and (ii) the Attributed CVR Value, (C) 2,068 shares of Common Stock issuable pursuant to the outstanding deferred stock units multiplied by the sum of (i) $30.00 per share and (ii) the Attributed CVR Value, (D) 19,216 shares of Common Stock issuable pursuant to the exercise of that certain warrant, dated August 31, 2006, issued by Clinical Data, Inc. to Laurus Master Fund, Ltd. multiplied by the sum of (i) $10.00 (which is equal to $30.00 minus the exercise price of such warrant) and (ii) the Attributed CVR Value, (E) 108,850 shares of Common Stock issuable pursuant to the exercise of warrants issued by Clinical Data, Inc. pursuant to that certain Securities Purchase Agreement, dated as of November 17, 2005, between Clinical Data, Inc. and the investors named therein multiplied by the sum of (i) $14.90 (which is equal to $30.50 minus the exercise price of such warrants) and (ii) the Attributed CVR Value, (F) 143,774 shares of Common Stock issuable pursuant to the exercise of those certain warrants issued by Clinical Data, Inc. pursuant to that certain Securities Purchase Agreement, dated as of June 13, 2006, between Clinical Data, Inc. and the investors named therein multiplied by the sum of (i) $17.71 (which is equal to $30.68 minus the exercise price of such warrants) and (ii) the Attributed CVR Value, (G) 757,461 shares of Common Stock issuable pursuant to the exercise of those certain warrants issued by Clinical Data, Inc. pursuant to that certain Securities Purchase Agreement, dated as of September 26, 2008, between Clinical Data, Inc. and the purchasers named therein multiplied by the sum of (i) $13.56 (which is equal to $30.00 minus the exercise price of such warrants) and (ii) the Attributed CVR Value, (H) 3,055,300 shares of Common Stock issuable pursuant to the exercise of those certain warrants issued by Clinical Data, Inc. pursuant to that certain Securities Purchase Agreement, dated as of February 25, 2009, between Clinical Data, Inc. and the purchasers named therein multiplied the sum of (i) by $21.07 (which is equal to $30.00 minus the weighted average exercise price of such warrants) and (ii) the Attributed CVR Value, and (I) 6,110,599 shares of Common Stock issuable pursuant to the exercise of outstanding convertible notes multiplied by the sum of (i) $30.00 and (ii) the Attributed CVR Value.

 

 

 

$1,277,432,391

 

 

(5)  Total fee paid:

 

 

$148,309.90

 

 

 

 

 

 

 

 

 

 

CLINICAL DATA, INC.

One Gateway Center, Suite 702
Newton, Massachusetts 02458
(617) 527-9933

 

Dear Stockholder:

 

We cordially invite you to attend a special meeting of stockholders of Clinical Data, Inc., (“Clinical Data”), to be held at the offices of Cooley LLP, 500 Boylston Street, 14th Floor, Boston, MA 02116-3736 at 10:00 a.m., local time, on April   , 2011 (“Special Meeting”). Holders of record of Clinical Data common stock, $0.01 par value per share (the “Shares”), at the close of business on March 3, 2011 (the “Record Date”) will be entitled to vote at the Special Meeting or any adjournment or postponement of the Special Meeting.

 

On February 22, 2011, Clinical Data entered into a definitive agreement to be acquired by an affiliate of Forest Laboratories, Inc. (“Forest”). At the Special Meeting, we will ask you to adopt that agreement, which is called the Merger Agreement. The Merger Agreement is among Clinical Data, FL Holding CV (“Parent”), Magnolia Acquisition Corp. (“Purchaser”) and Forest, and under this agreement Purchaser will merge with and into Clinical Data (the “Merger”), which will survive the Merger and become a wholly-owned, indirect subsidiary of Forest. Parent is an entity organized under the laws of the Netherlands and an indirect, wholly-owned subsidiary of Forest. Purchaser is a Delaware corporation and a wholly-owned subsidiary of Parent.

 

We are also asking you to expressly grant us the authority to vote your shares to adjourn the Special Meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the Special Meeting to approve the adoption of the Merger Agreement. The Purchaser has separately commenced a tender offer (the “Offer”) for all of the outstanding common stock, in-the-money warrants and convertible notes of Clinical Data. We will hold this Special Meeting only if Purchaser is unable to complete its Offer based on the conditions contained in the Merger Agreement.

 

If the Merger is completed, for each share of Clinical Data common stock that you own you will be entitled to receive (i) $30.00 in cash, without interest and subject to any tax withholding, and (ii) a contractual right, pursuant to a Contingent Value Rights Agreement (the “CVR Agreement”) that provides each stockholder and certain other equity holders the right to receive additional contingent payments upon the achievement of certain milestones as set forth in the CVR Agreement. Following the Merger, you will have no ongoing ownership interest in the continuing business of Clinical Data. We cannot complete the Merger unless all of the conditions to closing are satisfied, including the adoption of the Merger Agreement by the affirmative vote of the holders of a majority of the outstanding shares of Clinical Data common stock as of the Record Date.

 

The board of directors of Clinical Data reviewed and considered the terms and conditions of the Merger and (i) determined that the Merger Agreement, the securityholder tender and support agreement among Parent and Purchaser and certain securityholders of Clinical Data and the transactions contemplated thereby are advisable, fair to and in the best interests of the holders of Clinical Data’s common stock, (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 Clinical Data’s stockholders, warrant holders and note holders tender their shares, in-the-money warrants and convertible notes pursuant to the Offer and holders of Shares adopt the Merger Agreement.

 

THE BOARD OF DIRECTORS OF CLINICAL DATA UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ADOPTION OF THE MERGER AGREEMENT (AND, IF NECESSARY, “FOR” THE ADJOURNMENT OF THE SPECIAL MEETING FOR THE PURPOSE OF SOLICITING ADDITIONAL PROXIES TO VOTE IN FAVOR OF ADOPTING THE MERGER AGREEMENT) AND THAT YOU ACCEPT THE OFFER AND TENDER YOUR COMMON STOCK, IN-THE-MONEY WARRANTS AND CONVERTIBLE NOTES OF CLINICAL DATA, RESPECTIVELY, PURSUANT TO THE OFFER. YOUR VOTE IS IMPORTANT.

 

In connection with the Merger Agreement, certain Clinical Data stockholders, including eleven of our officers and directors and entities affiliated with a certain director, who beneficially own, in the aggregate

 

In the materials accompanying this letter, you will find a Notice of Special Meeting of Stockholders, a proxy statement relating to the actions to be taken by our stockholders at the Special Meeting and a proxy card. The proxy statement includes other important information about the Merger Agreement and the Merger. We encourage you to read the entire proxy statement and its annexes, including the Merger Agreement and CVR Agreement, carefully.

 

Your vote is very important. Whether or not you plan to attend the Special Meeting, please complete, sign, date and return your proxy card in the enclosed envelope as promptly as possible or appoint a proxy over the Internet or by telephone as instructed in these materials. It is important that your shares be represented and voted at the Special Meeting. If you attend the Special Meeting, you may vote in person as you wish, even though you have previously returned your proxy card or appointed a proxy over the Internet or by telephone. The failure to vote your shares of Clinical Data common stock will have the same effect as voting “AGAINST” the proposal to adopt the Merger Agreement.

 

If your shares of Clinical Data common stock are held in street name by your bank, brokerage firm or other nominee, your bank, brokerage firm or other nominee will be unable to vote your shares of Clinical Data common stock without instructions from you. You should instruct your bank, brokerage firm or other nominee as to how to vote your shares of Clinical Data common stock, following the procedures provided by your bank, brokerage firm or other nominee. The failure to instruct your bank, brokerage firm or other nominee to vote your shares of Clinical Data common stock “FOR” approval of the proposal to adopt the Merger Agreement will have the same effect as voting “AGAINST” the proposal to adopt the Merger Agreement.

 

On behalf of the board of directors of Clinical Data, I thank you for your support and urge you to vote “FOR” the adoption of the Merger Agreement and “FOR ” the adjournment of the Special Meeting, if necessary, to solicit additional proxies.

 

Sincerely,

 

Andrew Fromkin

Chief Executive Officer

 

March   , 2011

 

THE MERGER HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THE MERGER AGREEMENT OR THE TRANSACTION CONTEMPLATED THEREBY, INCLUDING THE MERGER, OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

CLINICAL DATA, INC.

One Gateway Center, Suite 702,
Newton, Massachusetts 02458
(617) 527-9933

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL  , 2011

 

Dear Stockholder:

 

You are cordially invited to attend the Special Meeting of Stockholders of Clinical Data, Inc., a Delaware corporation (“Clinical Data”), that will be held at the offices of Cooley LLP, 500 Boylston Street, 14th Floor, Boston, MA 02116-3736 at 10:00 a.m., local time, on April   , 2011, (the “Special Meeting”). The Purchaser has separately commenced a tender offer (the “Offer”) for all of the outstanding common stock, in-the-money warrants and convertible notes of Clinical Data. We will hold this Special Meeting only if Purchaser is unable to complete its Offer based on the conditions contained in the Merger Agreement. The purpose of the Special Meeting is to:

 

1. To consider and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of February 22, 2011, among Clinical Data, FL Holding CV, Magnolia Acquisition Corp., and Forest Laboratories, Inc. (the “Merger Agreement”), under which Magnolia Acquisition Corp will merge with and into Clinical Data (the “Merger”), which will survive the merger and become a wholly-owned subsidiary of FL Holding CV; and

 

2. To consider and vote upon a proposal to adjourn the Special Meeting, if necessary, for the purpose of soliciting additional proxies to vote in favor of the adoption of the Merger Agreement.

 

FL Holding CV (“Parent”) is an entity organized under the laws of the Netherlands and an indirect, wholly-owned subsidiary of Forest Laboratories, Inc. (“Forest”), a Delaware corporation. Magnolia Acquisition Corp. (“Purchaser”) is a Delaware corporation and a wholly-owned subsidiary of Parent.

 

The board of directors of Clinical Data reviewed and considered the terms and conditions of the Merger and unanimously (i) determined that the Merger Agreement, the securityholder tender and support agreement among Parent and Purchaser and certain securityholders of Clinical Data and the transactions contemplated thereby are advisable, fair to and in the best interests of the holders of Clinical Data’s common stock, (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 Clinical Data’s stockholders, warrant holders and note holders tender their shares, in-the-money warrants and convertible notes pursuant to the Offer (as defined below) and that Clinical Data’s stockholders adopt the Merger Agreement. This item of business to be submitted to a vote of the stockholders at the Special Meeting is more fully described in the attached proxy statement, which we urge you to read carefully. The board of directors of Clinical Data also recommends that you expressly grant us the authority to vote your shares to adjourn the Special Meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the Special Meeting to adopt the Merger Agreement.

 

Stockholders of record of Clinical Data common stock, $0.01 par value per share (the “Shares”), at the close of business on March 3, 2011 (the “Record Date”), are entitled to notice of and to vote at the Special Meeting and any adjournment or postponement of the Special Meeting. The proxy statement is dated March   , 2011, and is first being mailed to stockholders of Clinical Data on or about March   , 2011. Your vote is important. Adoption of the Merger Agreement will require the affirmative vote of the holders of a majority of the Shares outstanding as of the Record Date.

 

Clinical Data stockholders will have the right to demand appraisal of their Shares and obtain payment in cash for the fair value of their Shares, but only if they perfect their appraisal rights and comply with the applicable provisions of Delaware law. A copy of the Delaware statutory provisions relating to appraisal rights is attached as Annex E to the attached proxy statement, and a summary of these provisions can be found under “The Merger — Appraisal Rights” in the attached proxy statement.

You should not send any certificates representing Shares with your proxy card. Upon the closing of the Merger, you will be sent instructions regarding the procedure to exchange your stock certificates for the cash Merger consideration.

 

THE BOARD OF DIRECTORS OF CLINICAL DATA UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ADOPTION OF THE MERGER AGREEMENT (AND, IF NECESSARY, “FOR” THE ADJOURNMENT THE SPECIAL MEETING FOR THE PURPOSE OF SOLICITING ADDITIONAL PROXIES TO VOTE IN FAVOR OF ADOPTING THE MERGER AGREEMENT) AND THAT YOU ACCEPT THE OFFER AND TENDER YOUR COMMON STOCK, IN-THE-MONEY WARRANTS AND CONVERTIBLE NOTES OF CLINICAL DATA, RESPECTIVELY, PURSUANT TO THE OFFER. YOUR VOTE IS IMPORTANT.

 

Your vote is very important, regardless of the number of Shares you own. Even if you plan to attend the Special Meeting in person, we request that you complete, sign, date and return your proxy card in the enclosed envelope, or appoint a proxy over the Internet or by telephone as instructed in these materials, to ensure that your shares will be represented at the Special Meeting if you are unable to attend. If you sign, date and mail your proxy card without indicating how you wish to vote, your proxy will be counted as a vote in favor of the adoption of the Merger Agreement and, if necessary, to adjourn the Special Meeting for the purposes of soliciting additional proxies to vote in favor of adopting the Merger Agreement. If you fail to return your proxy card or if you fail to appoint a proxy over the Internet or by telephone, your shares will not be counted for purposes of determining whether a quorum is present at the Special Meeting and will have the same effect as a vote against the adoption of the Merger Agreement and against the adjournment of the Special Meeting for the purposes of obtaining additional proxies to vote in favor of the adoption of the Merger Agreement. If you do attend the Special Meeting and wish to vote in person, you may withdraw your proxy and vote in person. If your Shares are held in the name of your broker, bank or other nominee, you must obtain a proxy, executed in your favor, from the holder of record to be able to vote in person at the Special Meeting.

 

No person has been authorized to give any information or to make any representations other than those set forth in the proxy statement in connection with the solicitation of proxies made hereby, and, if given or made, such information must not be relied upon as having been authorized by Clinical Data or any other person.

 

By Order of the board of directors of Clinical Data,

 

Andrew Fromkin

Chief Executive Officer

 

March   , 2011

Newton, Massachusetts

 

 

 

 

In addition to delivering the proxy materials for the Special Meeting to be held on April   , 2011 to stockholders by mail, the proxy statement for such meeting is also is available at www.clda.com .

 

TABLE OF CONTENTS

 

 

 

This Summary Term Sheet, together with the “Questions and Answers About the Special Meeting and Merger,” highlights selected information in the proxy statement and may not contain all the information that may be important to you. You should carefully read this entire proxy statement and the other documents to which this proxy statement refers you for a more complete understanding of the matters being considered at the Special Meeting. In addition, you may obtain additional business and financial information about Clinical Data, Inc. without charge by following the instructions in “Other Matters — Where You Can Find More Information” beginning on page 81. We have included page references in parentheses to direct you to more complete descriptions of the topics presented in this summary. The Agreement and Plan of Merger, dated as of February 22, 2011 (the “Merger Agreement”), among FL Holding CV (“Parent”), Magnolia Acquisition Corp. (“Purchaser”), Forest Laboratories, Inc. (“Forest”) and Clinical Data, Inc. (“Clinical Data”), is attached as Annex A to this proxy statement and the Form of Contingent Value Rights Agreement to be entered into by Parent, Purchaser and a trustee designated by Parent (after consultation with and approval by Clinical Data) (the “CVR Agreement”), is attached as Annex B to this proxy statement. We encourage you to read the Merger Agreement and the CVR Agreement, as they are the legal documents that govern the Merger of a wholly-owned subsidiary of Forest Laboratories with Clinical Data, referred to in this proxy statement as the Merger. In this proxy statement, “we,” “us,” “our” and “Clinical Data” refer to Clinical Data, Inc.

 

The Merger and the Merger Agreement

 

The Parties to the Merger (see page 19).   Clinical Data, a Delaware corporation, is focused on the development and commercialization of first-in-class and best-in-class therapeutics. Forest, a Delaware corporation, together with its subsidiaries, develops, manufactures and sells branded forms of ethical drug products, most of which require a physician’s prescription. Parent, an entity organized under the laws of the Netherlands and a wholly-owned subsidiary of Forest, was formed principally for the purpose of holding certain non-U.S. assets of Forest. Purchaser, a Delaware corporation and a wholly-owned subsidiary of Parent, was organized by Parent to acquire Clinical Data and has not conducted any unrelated activities since its organization.

 

The Merger (see page 20).   You are being asked to vote to adopt the Merger Agreement. Pursuant to the Merger Agreement, Purchaser will merge with and into Clinical Data (the “Merger”) with Clinical Data being the surviving corporation in the Merger. As a result of the Merger, Clinical Data will become a wholly-owned subsidiary of Parent and will cease to be an independent, publicly-traded company. Following consummation of the Merger, the registration of Clinical Data common stock, $0.01 par value (the “Shares”), and our reporting obligations with respect to our common stock under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), will be terminated upon application to the Securities and Exchange Commission (the “SEC”). In addition, Clinical Data common stock will be delisted from the NASDAQ Global Market and deregistered under the Exchange Act, and we will no longer file periodic reports with the SEC on account of Clinical Data common stock.

 

Merger Consideration  — Treatment of Shares of Common Stock, In-the-Money Warrants and Clinical Data Notes (see page 54).   If the Merger is completed:

 

 

 

Merger Consideration  — Treatment of Equity Awards (see page 55).   If the Merger is completed, all of Clinical Data’s outstanding stock options (whether or not then vested or exercisable) with an exercise price per share that is less than $30.00 will be canceled and converted automatically into the right to receive (i) the product of (A) the amount, if any, by which $30.00 exceeds the per share exercise price of such stock option, without interest and subject to applicable tax withholding, multiplied by (B) the number of Shares subject to such stock option and (ii) the right to receive the Contingent Consideration with respect to each of the total number of Shares subject to such stock option. Each Clinical Data stock option with an exercise price per share that is less than $36.00 but equal to or greater than $30.00 will be canceled and converted automatically into the right to receive the Contingent Consideration with respect to each of the total number of Shares subject to such stock option, provided, that any Contingent Consideration payable with respect to such stock

option shall be reduced by the aggregate amount by which the total exercise price exceeds the product of (i) $30.00, multiplied by (ii) the number of Shares subject to such stock option. Each Clinical Data stock option with an exercise price per share equal to or greater than $36.00 will be canceled at the effective time of the Merger without any consideration paid to the holder.

 

No Solicitation Provisions (see page 59).   Under the Merger Agreement we are not permitted to take nor permit any of our directors, officers, employees or representatives to take any of the following actions:

 

 

In addition, the Merger Agreement provides that (subject to certain exceptions) our board of directors may not resolve, directly or indirectly, agree or publicly propose to take any of the following actions (any of the following a “Change in Recommendation”):

 

 

Notwithstanding these restrictions, under certain circumstances, and so long as Clinical Data complies with certain terms of the Merger Agreement described under “The Merger Agreement — No Solicitation Provisions,” the board of directors of Clinical Data may (i) respond to an unsolicited alternative acquisition proposal not obtained in breach of the Merger Agreement, provided that the board of directors of Clinical Data determines in good faith (after consultation with outside counsel and its financial advisor) that such acquisition proposal constitutes, or would reasonably be expected to lead to, a Superior Proposal (as defined in the section below entitled “The Merger Agreement — No Solicitation Provisions”) and that the failure to respond could reasonably be expected to constitute a breach of its fiduciary duties to our stockholders under Delaware law, by furnishing information subject to a confidentiality agreement, conducting discussions or negotiations with such third party, and to the extent permitted pursuant to and in compliance with the Merger Agreement, including the termination provisions set forth therein, entering into a binding written agreement concerning a transaction that constitutes a Superior Proposal, and (ii) make a Change in Recommendation in response to (a) an alternative acquisition proposal if the board of directors of Clinical Data determines in good faith, after consultation with our outside counsel, that such alternative acquisition proposal constitutes a Superior Proposal, provides Parent at least three business days notice of the intent to make a Change in Recommendation and certain information relating to the alternative acquisition proposal, and determines in good faith, after consultation with our outside counsel that failure to take such action could reasonably be expected to constitute a breach of its fiduciary duties to our stockholders under Delaware law, provided that at the end of the three business day period following the date of receipt of the notice (or, in the event that the applicable alternative acquisition proposal has been materially revised or modified, at the end of the second business day following the date of receipt of notice of such material revision or modification, if later), such alternative acquisition proposal has not been withdrawn and the board of directors of Clinical Data continues

to determine, in good faith, after consultation with outside counsel, that failure to make such a Change in Recommendation could reasonably be expected to constitute a breach of its fiduciary duties to Clinical Data’s stockholders under Delaware law, after taking into account any changes to the terms and conditions of the Merger Agreement offered by Parent so that a Change in Recommendation is no longer necessary and (b) an intervening event that does not relate to any alternative acquisition proposal, where, among other things, Clinical Data provides Parent at least two business days notice of the intent to make a Change in Recommendation, and at the end of the two business day period following the date of receipt of the notice, the board of directors of Clinical Data continues to determine, in good faith, after consultation with outside counsel, that failure to make such a Change in Recommendation could reasonably be expected to constitute a breach of its fiduciary duties to Clinical Data’s stockholders under Delaware law, after taking into account any changes to the terms and conditions of the Merger Agreement offered by Parent so that a Change in Recommendation is no longer necessary.

 

Conditions to the Merger (see page 66).   The respective obligations of Parent and Purchaser to consummate the Merger are subject to the satisfaction or waiver of certain conditions, including:

 

 

Termination of the Merger Agreement (see page 66).   The Merger Agreement may be terminated at any time prior to the effective time of the Merger even if (except as described below) our stockholders have adopted it at the Special Meeting and, in the case of a termination by us, provided that, if applicable, the termination fees and expenses described below have been paid, in the following circumstances:

 

 

 

(a) subject to certain limitations, if the consummation of the Merger shall not have occurred on or prior to the close of business on May 23, 2011 (or if the only the regulatory closing condition has not been satisfied, then June 23, 2011);

 

(b) if there shall be any legal requirement in effect that makes illegal or prohibits the consummation of the Merger, or any court of competent jurisdiction shall have issued any final and non-appealable restraining order, injunction or judgment prohibiting the consummation of the Merger;

 

(c) if for any reason other than the occurrence of the termination of the Offer, the Offer expires as a result of the non-satisfaction of one or more conditions to the closing of the Offer (the “Offer Conditions”), or is terminated or withdrawn prior to the acceptance time of the Offer (the “Acceptance Time”), without Purchaser having accepted for payment any securities tendered pursuant to the Offer; or

 

(d) if the required stockholder approval of the Merger shall not have been obtained at the Special Meeting duly convened therefor or at any adjournment or postponement thereof.

 

 

(a) if Purchaser shall have failed to commence the Offer within 10 business days of the date of the Merger Agreement or if, for any reason other than the occurrence of the termination of the Offer, Purchaser shall have failed to purchase all Securities validly tendered (and not validly withdrawn) as of the expiration of the Offer;

 

(b) if, at any time prior to the earlier to occur of the Acceptance Time or the receipt of the required stockholder approval of the Merger, (i) the board of directors of Clinical Data determines to accept, or enter into a definitive agreement with respect to, a Superior Proposal, (ii) Clinical Data has complied with non-solicitation and Change in Recommendation requirements of the Merger Agreement, and (iii) the board of directors of Clinical Data concurrently with such termination enters into a definitive agreement providing for such Superior Proposal and concurrently with such termination pays the requisite termination fee (as defined in the section below entitled “The Merger Agreement — Termination Fee; Expense Reimbursement”) to Parent; and

 

(c) if Parent has breached any of its covenants under the Merger Agreement, or if any of Parent’s representations or warranties are inaccurate, such that the conditions to closing relating to such covenants or representations and warranties would not be satisfied, in each case, subject to a right to cure.

 

 

(a) if, at any time prior to the earlier to occur of the Acceptance Time or receipt of the required stockholder approval of the Merger, a Change in Recommendation shall have occurred;

 

(b) if Clinical Data has breached any of its covenants under the Merger Agreement, or if any of Clinical Data’s representations or warranties are inaccurate, such that the conditions to closing relating to such covenants or representations and warranties would not be satisfied, in each case, subject to a right to cure; or

 

(c) if, at any time prior to the Acceptance Time, Clinical Data shall have breached its no solicitation or Change in Recommendation obligations under the Merger Agreement other than an immaterial breach.

 

Termination Fee; Expense Reimbursement (see page 70).   If the Merger Agreement is terminated under certain circumstances described under “The Merger Agreement — Termination Fee; Expense Reimbursement” beginning on page 70, including in connection with a Change in Recommendation, breach of our non-solicitation obligations and entering into a definitive agreement with respect to a Superior Proposal we may be required to pay to Parent a termination fee of $45,000,000. In certain circumstances, we may be required to reimburse Parent up to a maximum aggregate amount of $7,500,000 for all documented out-of-pocket fees and expenses incurred in connection with the Merger Agreement, the Offer and the Merger and if we enter into a

change of control transaction within 12 months of the termination of the Merger Agreement, pay the termination fee of $45,000,000 with a credit for the expenses previously reimbursed.

 

Contingent Value Rights Agreement

 

Prior to the earlier to occur of the consummation of the Offer or the Merger, Parent and Forest will enter into the CVR Agreement with a bank or trustee designated by Parent (after consultation with and approval of Clinical Data) governing the terms of the Contingent Consideration. The former holders of Shares, deferred stock units and options to acquire Shares, and the former holders of In-the-Money Warrants and Clinical Data Notes, will be entitled to receive the following cash payments for each Share acquired by Purchaser in the Offer or converted into the right to receive merger consideration in the Merger (or, in the case of deferred stock units and options to acquire Shares, and In-the-Money Warrants and 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 form of CVR Agreement is attached as Annex B to this proxy statement. For a more complete description of the CVR Agreement, see “The Contingent Value Rights Agreement” beginning on page 72.

 

Securityholder Tender and Support Agreement

 

Concurrently with the execution of the Merger Agreement, Parent and Purchaser entered into the Securityholder Tender and Support Agreement, dated as of February 22, 2011 (the “Support Agreement”), with the executive officers and directors of Clinical Data and certain affiliates thereof (the “Supporting Stockholders”), in their capacities as stockholders 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).

 

The Support Agreement is attached as Annex C to this proxy statement. For a more complete description of the Support Agreement, see “The Securityholder Tender and Support Agreement” beginning on page 73.

 

Tender Offer

 

On March 8, 2011, Purchaser commenced the Offer for all of the outstanding Shares, In-the-Money Warrants and Clinical Data Notes. The Offer contemplates that, after completion of the Offer and the satisfaction or waiver of all conditions, Purchaser will merge with Clinical Data and all outstanding Shares, other than Shares held by Forest, Parent, Purchaser or Clinical Data or Shares held by Clinical Data’s stockholders who validly exercised their appraisal rights under Delaware law, will be canceled and converted into the right to receive the same merger consideration as they would have received in the Merger, as set forth above. In addition, under the Offer, the holders of In-the-Money Warrants and Clinical Data Notes that tender their warrants and notes will also receive the same consideration they would receive in the Merger. The Offer was commenced pursuant to the Merger Agreement.

 

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. Under the terms of the Merger Agreement, the parties agreed, subject to the terms and conditions of the Merger Agreement, to complete the Merger whether or not the Offer is completed. If the Offer is not completed, the parties agreed, subject to the terms and conditions of the Merger Agreement, that the Merger could be completed after the receipt of the required stockholder approval of the adoption of the Merger Agreement that will be considered at the Special Meeting. We are soliciting proxies for the Special Meeting to obtain stockholder approval of the adoption of the Merger Agreement to be able to consummate the Merger regardless of the outcome of the Offer.

 

We refer in this proxy statement to the Offer and to terms of the Merger Agreement applicable to the Offer, however, the Offer is being made separately to the holders of Shares, In-the-Money Warrants and Clinical Data Notes and is not applicable to the Special Meeting.

 

The Special Meeting of Clinical Data Stockholders.

 

See “Questions and Answers About the Special Meeting and Merger” beginning on page 10 and “The Special Meeting” beginning on page 50.

 

Other Important Considerations.

 

Board Recommendation.   The board of directors of Clinical Data recommends that Clinical Data stockholders vote “FOR ” the adoption of the Merger Agreement and “FOR” the adjournment of the Special Meeting, if necessary, to solicit additional proxies. The board of directors of Clinical Data also recommends that Clinical Data securityholders accept the Offer and tender Clinical Data Shares, In-the-Money Warrants and Clinical Data Notes pursuant to the Offer. See “The Merger — Reasons for the Merger of Clinical Data and Recommendation of the Board of Directors” beginning on page 25.

 

Reasons for the Merger.   For a discussion of the material factors considered by the board of directors of Clinical Data in reaching their conclusions and the reasons why the board of directors of Clinical Data determined that the Merger is advisable, fair to and in the best interests of Clinical Data and our stockholders,

see “The Merger — Reasons for the Merger of Clinical Data and Recommendation of the Board of Directors” beginning on page 25.

 

Share Ownership of Directors and Executive Officers.   See “Security Ownership of Certain Beneficial Owners and Management” beginning on page 79.

 

Interests of Clinical Data’s Directors and Executive Officers in the Merger.   In considering the recommendation of the board of directors of Clinical Data in favor of the adoption of the Merger Agreement, you should be aware that there are provisions of the Merger Agreement that will result in certain benefits to our directors and executive officers, including the continuation of certain indemnification and insurance arrangements and the acceleration of stock options. See “The Merger — Interests of Our Directors and Executive Officers in the Merger” beginning on page 36.

 

As of March 1, 2011, our directors and executive officers collectively beneficially held in the aggregate approximately 54.0% of the outstanding Shares as of March 3, 2011 (including Shares issuable upon the exercise or conversion of options, deferred stock units, warrants and convertible notes held by such parties exercisable within 60 days of such date). See “Security Ownership of Certain Beneficial Owners and Management” beginning on page 79.

 

Opinion of the Financial Advisor (see page 30).   At the meeting of the board of directors of Clinical Data on February 21, 2011, J.P. Morgan Securities LLC (“J.P. Morgan”) rendered its oral opinion, subsequently confirmed in writing, to the board of directors of Clinical Data to the effect that, as of such date, and based upon and subject to the factors, assumptions, qualifications and limitations set forth in J.P. Morgan’s written opinion, the Shares Offer Price to be paid to the holders of Shares in the transactions contemplated by the Merger Agreement (other than Randal J. Kirk and entities affiliated with Mr. Kirk) was fair, from a financial point of view, to such holders. The full text of the written opinion of J.P. Morgan, dated February 21, 2011, which sets forth the assumptions made, matters considered and limitations on the review undertaken by J.P. Morgan in rendering its opinion, is attached as Annex D to this proxy statement. Clinical Data encourages you to read the opinion carefully in its entirety.

 

J.P. Morgan’s opinion was addressed to the board of directors of Clinical Data, was directed only to fairness, from a financial point of view, of the Shares Offer Price to be paid to the holders of Shares in the transactions contemplated by the Merger Agreement (other than Randal J. Kirk and entities affiliated with Mr. Kirk) and does not constitute a recommendation to any Clinical Data stockholder as to whether such stockholder should tender its Shares into the Offer or how such stockholder should vote with respect to the Merger or any other matter. J.P. Morgan’s opinion was necessarily based on economic, market and other conditions as in effect on, and the information made available to J.P. Morgan as of, the date of its opinion. Subsequent developments may affect the opinion and J.P. Morgan does not have any obligation to update, revise, or reaffirm its opinion. J.P. Morgan’s opinion was limited to the fairness, from a financial point of view, of the Shares Offer Price to be paid to the holders of the Shares in the transactions contemplated by the Merger Agreement (other than Randal J. Kirk and entities affiliated with Mr. Kirk), and J.P. Morgan expressed no opinion as to the fairness of the transactions contemplated by the Merger Agreement (the “Transactions”) to, or any consideration paid in connection therewith by, the holders of any other class of securities, creditors or other constituencies of Clinical Data or as to the underlying decision by Clinical Data to engage in the Transactions. Furthermore, J.P. Morgan expressed no opinion with respect to the amount or nature of any compensation to any officers, directors, or employees of any party to the Transactions, or any class of such persons relative to the Shares Offer Price to be paid to the holders of the Shares in the Transactions or with respect to the fairness of any such compensation. See “The Merger— Opinion of the Financial Advisor” beginning on page 8.

 

Regulatory Matters (see page 44).   Under the HSR Act and the related rules and regulations that have been issued by the Federal Trade Commission (the “FTC”), certain acquisitions of voting securities or assets may not be consummated until Premerger Notification and Report Forms have been filed for review by the FTC and the Antitrust Division of the Department of Justice (the “Antitrust Division”), and certain waiting period requirements have been satisfied. These requirements apply to Purchaser’s acquisition of the Shares in

the Offer and the Merger. Under the HSR Act, the purchase of Shares may not be completed until the expiration of a 15-calendar day waiting period following the filing of certain required information and documentary material concerning the Offer with the FTC and the Antitrust Division, unless the waiting period is earlier terminated by the FTC and the Antitrust Division. Each of Forest and Clinical Data have filed their Premerger Notification and Report Form under the HSR Act with the FTC and the Antitrust Division in connection with the purchase of Shares in the Offer and the Merger on March 2, 2011, and the required waiting period with respect to the Offer and the Merger will expire at 11:59 p.m., New York City time, on March 17, 2011.

 

Tax Consequences (see page 42).   The Merger will be a taxable transaction for U.S. federal income tax purposes (and may also be a taxable transaction under applicable state, local and foreign income or other tax laws) if you are a U.S. person, as defined under “The Merger — Material U.S. Federal Income Tax Consequences of the Merger.” For U.S. federal income tax purposes, a U.S. holder of Clinical Data common stock generally will recognize capital gain or loss at the time of the Merger equal to the difference, if any, between the sum of the amount of cash and the fair market value of the Contingent Consideration received by the U.S. holder in exchange for such Clinical Data common stock, and the U.S. holder’s adjusted tax basis in such Clinical Data common stock. Pursuant to the CVR Agreement, the parties to the CVR Agreement have agreed or will agree, as applicable, to treat and report any Contingent Consideration payments (except to the extent of any imputed interest) for all tax purposes as additional consideration for the sale of Clinical Data common stock in the Merger, except as required by applicable law. You should consult your own tax advisor for a full understanding of how the Merger will affect your U.S. federal, state and local and/or foreign taxes and, if applicable, the tax consequences of the receipt of cash and Contingent Consideration in connection with the Merger. See “The Merger — Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 42.

 

Appraisal Rights (see page 46).   Shares that are outstanding immediately prior to the Merger and held by any dissenting stockholder who properly perfects his, her or its appraisal rights will not be converted into the right to receive the Merger consideration. Instead, the dissenting stockholder will be entitled to an appraisal and payment for his, her or its dissenting Shares in accordance with and subject to Section 262 of the Delaware General Corporation Law (the “DGCL”). For more information regarding appraisal rights, see “Appraisal Rights” beginning on page 96. In addition, a copy of Section 262 of the DGCL is attached as Annex E to this proxy statement.

 

Stockholder Litigation (see page 46).   Between February 22, 2011 and March 7, 2011, six putative class action lawsuits have been filed against Clinical Data, members of the board of directors of Clinical Data, Forest, Purchaser and FL Holding CV arising out of the Merger (the “Lawsuits”). Four of the Lawsuits have been filed in the State of Delaware, one of the Lawsuits has been filed in the Commonwealth of Massachusetts and the remaining Lawsuits has been filed in the United States District Court for the District of Massachusetts. The Lawsuits allege that the members of the board of directors of Clinical Data breached their fiduciary duties of loyalty, independence, good faith and fair dealing to our stockholders by entering into the Merger Agreement because they, among other things (i) failed to maximize stockholder value; (ii) used a process that was unfair and inadequate and tailored to better their own interests at the expense of Clinical Data’s public stockholders; (iii) failed to implement a bidding mechanism to foster a fair auction or took steps to avoid competitive bidding; and (iv) agreed to preclusive deal protection terms. The Lawsuits also allege that Forest, Purchaser and Clinical Data aided and abetted the board of directors of Clinical Data in breaching their fiduciary duties. Plaintiffs in these suits seek to stop or delay the acquisition of Clinical Data by Forest or rescission of the Merger in the event it is consummated and seek monetary damages in an unspecified amount to be determined at trial.

 

The following questions and answers are intended to address briefly some commonly asked questions regarding the Merger, the Merger Agreement, the CVR Agreement and the Special Meeting. These questions and answers may not address all questions that may be important to you as a stockholder of Clinical Data. Please refer to the “Summary Term Sheet” and the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to in this proxy statement, all of which you should read carefully. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions under “Where You Can Find More Information” beginning on page 81.

 

 

 

 

 

 

 

 

 

 

 

Written notices of revocation and other communications with respect to revocation of any proxies should be addressed to: Corporate Secretary, Clinical Data, Inc., One Gateway Center, Suite 702, Newton, Massachusetts 02458.

 

If you have instructed a bank, broker or other nominee to vote your Shares, you must follow directions received from your bank, broker or other nominee to change those instructions. You cannot vote Shares held in “street name” by returning a proxy card directly to us or by voting in person at the Special Meeting, unless you obtain a legal proxy card from your bank, broker or other nominee.

 

 

 

 

Q.  What is the difference between being a “stockholder of record” and a “beneficial owner?”

 

 

This proxy statement, and the documents to which we refer you in this proxy statement, include forward-looking statements based on estimates and assumptions. There are forward-looking statements throughout this proxy statement, including, without limitation, under the headings “Summary Term Sheet,” “The Merger,” “The Special Meeting,” “Unaudited Financial Forecasts,” “Opinion of the Financial Advisor” and in statements containing words such as “anticipates,” “believes,” “contemplates,” “continues,” “could,” “estimates,” “forecasts,” “projects,” “expects,” “likely,” “may,” “predict,” “potential,” “should,” “will,” or “would” or other similar words or phrases. These statements are subject to risks, uncertainties and other factors, including, among others:

 

 

In addition, we are subject to risks and uncertainties and other factors detailed in our filings with the SEC, including our Annual Report on Form 10-K for the year ended March 31, 2010 and our most recent quarterly report on Form 10-Q and in subsequent filings with the SEC, which should be read in conjunction with this proxy statement. See “Other Matters — Where You Can Find More Information” on page 81. Many of the factors that will impact the completion of the proposed Merger are beyond our ability to control or predict. In light of the significant uncertainties inherent in the forward-looking statements contained in this proxy statement, readers should not place undue reliance on forward-looking statements. We cannot guarantee any future results, levels of activity, performance or achievements. The statements made in this proxy statement represent our views as of the date of this proxy statement, and it should not be assumed that the statements made in this proxy statement remain accurate as of any future date. Moreover, we assume no obligation to update forward-looking statements, except as required by law.

 

Clinical Data, Inc.

 

Clinical Data, Inc. is a Delaware corporation with headquarters in Newton, Massachusetts. Our mission is to develop first-in-class and best-in-category therapeutics. Our principal executive offices are located at One Gateway Center, Suite 702, Newton, Massachusetts 02458, and our telephone number is (617) 527-9933. For more information about us, please visit our website at www.clda.com . Our website address is provided as an inactive textual reference only. The information provided on our website is not part of this proxy statement, and therefore is not incorporated herein by reference. Clinical Data common stock is publicly traded on the NASDAQ Global Market under the ticker symbol “CLDA.”

 

Forest Laboratories, Inc.

 

Forest Laboratories, Inc., is a Delaware corporation that together with its subsidiaries, develops, manufactures and sells branded forms of ethical drug products, most of which require a physician’s prescription. Forest’s principal executive offices are located at 909 Third Avenue, New York, New York 10022, and its telephone number is (212) 421-7850. For more information about Forest, please visit its website at www.frx.com . The information provided on Forest’s website is not part of this proxy statement, and therefore is not incorporated herein by reference. Forest’s common stock is publicly traded on the New York Stock Exchange under the ticker symbol “FRX.”

 

FL Holding CV

 

FL Holding CV is an entity organized under the laws of the Netherlands and is an indirect wholly-owned subsidiary of Forest Laboratories, Inc. was formed principally for the purpose of holding certain non-U.S. assets of Forest. The principal executive offices of FL Holding CV is Cox Hallett Wilkinson, Cumberland House, 1 Victoria Street, 4 ^th Floor, Hamilton, Bermuda HM11, and its telephone number is (441) 295-4630.

 

Magnolia Acquisition Corp.

 

Magnolia Acquisition Corp. is a Delaware corporation and a wholly-owned subsidiary of FL Holding CV and an indirect wholly-owned subsidiary of Forest Laboratories, Inc. Magnolia Acquisition Corp. was organized by Parent to acquire Clinical Data and has not conducted any unrelated activities since its organization. The principal executive offices of Magnolia Acquisition Corp. are located at 909 Third Avenue, New York, New York 10022-4731, and its telephone number is (212) 421-7850.

 

The discussion of the Merger, the Merger Agreement and the CVR Agreement contained in this section summarizes the material terms of the Merger, the Merger Agreement and the CVR Agreement. Although we believe that the description covers the material terms of the Merger, the Merger Agreement and the CVR Agreement, this summary may not contain all of the information that is important to you. We urge you to read this proxy statement, the Merger Agreement, a copy of which is attached to this proxy statement as Annex A , the CVR Agreement, a copy of which is attached to this proxy statement as Annex B, and the other documents referred to herein (including the annexes) carefully for a more complete understanding of the Merger, Merger Agreement and the CVR Agreement.

 

Background of Offer and Merger

 

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 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 was 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 Clinical Data. 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 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, 2011, 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 Clinical Data. 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

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 alone 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

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.

 

Reasons for the Merger of Clinical Data and Recommendation of the Board of Directors

 

On February 21, 2011, the board of directors of Clinical Data unanimously (i) determined that the Merger Agreement, the Support Agreement and the transactions contemplated thereby 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 the 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 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 Clinical Data’s 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.”

 

Unaudited Financial Forecasts

 

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 also 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’s 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 proxy statement in order to influence any stockholder, warrant holder or note holder of Clinical Data to make any investment decision with respect to the 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 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, 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. 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. 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 Generalized Anxiety Disorder (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 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 projection 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 forecasts. 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 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 proxy statement. The financial projections estimate EBIT (calculated at net revenue minus costs of goods sold (including royalties) minus sales and marketing, research and development, general and administrative, milestone payments pursuant to contracts and ammortization) and EBIT (calculated as EBIT plus depreciation and ammortization).

 

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, 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

 

 

Opinion of the Financial Advisor

 

Pursuant to an engagement letter dated March 11, 2010 (the “J.P. Morgan Engagement Letter”), Clinical Data retained J.P. Morgan to act as its financial advisor in connection with a possible transaction.

 

At the meeting of the board of directors of Clinical Data on February 21, 2011, J.P. Morgan rendered its oral opinion, subsequently confirmed in writing, to the board of directors of Clinical Data to the effect that, as of such date, and based upon and subject to the factors, assumptions, qualifications and limitations set forth in J.P. Morgan’s written opinion, the Offer Price to be paid to the holders of Shares in the Transactions (other than Randal J. Kirk and entities affiliated with Mr. Kirk) was fair, from a financial point of view, to such holders.

 

The full text of the written opinion of J.P. Morgan, dated February 21, 2011, which sets forth the assumptions made, matters considered and limitations on the review undertaken by J.P. Morgan in rendering its opinion, is attached as Annex D to this proxy statement. Clinical Data encourages you to read the opinion carefully in its entirety. J.P. Morgan’s written opinion was addressed to the board of directors of Clinical Data, was directed only to the fairness, from a financial point of view, of the Shares Offer Price to be paid to the holders of Shares in the Transactions (other than Randal J. Kirk and entities affiliated with Mr. Kirk), and does not constitute a recommendation to any Clinical Data stockholder as to whether such stockholder should tender its shares into the Offer or how such stockholder should vote with respect to the Merger or any other matter. The Shares Offer Price to be paid to the holders of Shares in the Transactions was determined in negotiations between Clinical Data and Purchaser, and the decision to approve and declare advisable the Merger Agreement and the CVR Agreement and recommend that the holders of the 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 the holders of the Shares adopt the Merger Agreement was made independently by the board of directors of Clinical Data. The issuance of J.P. Morgan’s opinion has been approved by a fairness opinion committee of J.P. Morgan. The summary of the opinion of J.P. Morgan set forth herein is qualified in its entirety by reference to the full text of the written opinion.

 

In arriving at its opinion, J.P. Morgan, among other things:

 

 

In addition, J.P. Morgan held discussions with certain members of the management of Clinical Data with respect to certain aspects of the Transaction, and the past and current business operations of Clinical Data, the financial condition and future prospects and operations of Clinical Data, and certain other matters J.P. Morgan believed necessary or appropriate to its inquiry.

 

In giving its opinion, J.P. Morgan relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished to or discussed with it by Clinical Data or otherwise reviewed by or for it, and J.P. Morgan did not independently verify (nor did it assume responsibility or liability for independently verifying) any such information or its accuracy or completeness. J.P. Morgan did not conduct, and was not provided with any valuation or appraisal of any assets or liabilities, nor did it evaluate the solvency of Clinical Data or the Purchaser under any state or federal laws relating to bankruptcy, insolvency or similar matters. In relying on financial analyses and forecasts provided to it or derived therefrom, J.P. Morgan assumed that such analyses and forecasts had been reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by management as to the expected future results of operations and financial condition of Clinical Data to which such analyses or forecasts relate. J.P. Morgan expressed no view as to such analyses or forecasts or the assumptions on which they were based. J.P. Morgan also assumed that the Transactions and the other transactions contemplated by the Merger Agreement will be consummated as described in the Merger Agreement and that the definitive Merger Agreement, including the CVR Agreement, would not differ in any material respect from the draft thereof furnished to it. J.P. Morgan also assumed that the representations and warranties made by Clinical Data and the Purchaser in the Merger Agreement and the related agreements are and will be true and correct in all respects material to its analysis. J.P. Morgan is not a legal, regulatory or tax expert and relied on the assessments made by advisors to Clinical Data with respect to such issues. J.P. Morgan further assumed that all material governmental, regulatory or other consents and approvals necessary for the consummation of the Transactions will be obtained without any adverse effect on Clinical Data or on the contemplated benefits of the Transaction.

 

J.P. Morgan’s opinion was necessarily based on economic, market and other conditions as in effect on, and the information made available to J.P. Morgan as of, the date of its opinion. Subsequent developments may affect the opinion and J.P. Morgan does not have any obligation to update, revise, or reaffirm its opinion. J.P. Morgan’s opinion was limited to the fairness, from a financial point of view, of the Shares Offer Price to be paid to the holders of the Shares in the Transactions (other than Randal J. Kirk and entities affiliated with

Mr. Kirk), and J.P. Morgan expressed no opinion as to the fairness of the Transactions to, or any consideration paid in connection therewith by, the holders of any other class of securities, creditors or other constituencies of Clinical Data or as to the underlying decision by Clinical Data to engage in the Transaction. Furthermore, J.P. Morgan expressed no opinion with respect to the amount or nature of any compensation to any officers, directors, or employees of any party to the Transaction, or any class of such persons relative to the Shares Offer Price to be paid to the holders of the Shares in the Transactions or with respect to the fairness of any such compensation.

 

The projections furnished to J.P. Morgan for Clinical Data were prepared by or at the direction of the management of Clinical Data. Clinical Data does not publicly disclose internal management projections of the type provided to J.P. Morgan in connection with J.P. Morgan’s analysis of the Transaction, and such projections were not prepared with a view toward public disclosure. These projections were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of management, including, without limitation, factors related to general economic and competitive conditions and prevailing interest rates. Accordingly, actual results could vary significantly from those set forth in such projections.

 

In accordance with customary investment banking practice, J.P. Morgan employed generally accepted valuation methods in reaching its opinion. The following is a summary of the material financial analyses utilized by J.P. Morgan in connection with providing its opinion. The financial analyses summarized below include information presented in tabular format. In order to fully understand J.P. Morgan’s financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data described below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of J.P. Morgan’s financial analyses. All market data used by J.P. Morgan in its analyses was as of February 21, 2011.

 

Analysis of Merger consideration

 

J.P. Morgan conducted an analysis of the consideration to be received by the holders of Shares in the Transaction. Such consideration is equal to (i) $30.00 per share in cash without interest and subject to any tax withholding plus (ii) a contingent right, pursuant to the CVR Agreement which in the aggregate could result in payments of up to $6.00 per Share in cash if certain conditions are satisfied as described more fully in the section entitled “The Contingent Value Rights Agreement” beginning on page 72. For analytical purposes, J.P. Morgan, utilizing a discount rate of 11.0%, calculated a present value of the Contingent Consideration at approximately $3.14 per share based on a probability-weighted blend of the base, low and high projections prepared by management. These projections assumed that Viibryd is owned by and commercially launched by the Purchaser in 2011. J.P. Morgan noted that the combined value of the Cash Portion and the calculated present value Contingent Consideration totaled approximately $33.14 per share (the “Estimated Shares Offer Price Valuation”). However, there is no guarantee that the conditions triggering the payment of the Contingent Consideration will be satisfied.

 

Discounted Cash Flow Analysis

 

J.P. Morgan conducted a discounted cash flow (“DCF”) analysis for the purpose of determining the fully diluted equity value per share of the Shares using financial projections prepared by Clinical Data’s management for each business segment. These projections assumed that Clinical Data continued as a standalone entity. 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 Generalized Anxiety Disorder (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 DCF analysis was then prepared by valuing Clinical Data on a “sum of the parts” basis as the sum of the DCF values of the following segments:

 

 

 

 

J.P. Morgan calculated and analyzed the unlevered free cash flows that each of these segments is expected to generate during the forecast period provided by Clinical Data management. The unlevered cash flows were then discounted to present values using a range of discount rates from 10% to 12%. This range of discount rates was based upon an analysis of the weighted average cost of capital of Clinical Data conducted by J.P. Morgan. The present value of unlevered cash flows were then adjusted for Clinical Data’s excess cash. Terminal values were not factored into the DCF analysis as the projections covered the lifespan of the products, and Clinical Data is projected to fully utilize the NOLs.

 

Based on the foregoing, this analysis indicated an implied range of per share prices for the Shares of approximately $25.89 to $30.66 with a midpoint valuation of $28.16, compared to the Estimated Shares Offer Price Valuation of approximately $33.14 as calculated including the Cash Portion and the present value of the Contingent Consideration. J.P. Morgan noted that, under some circumstances, the conditions required for the payment of the Contingent Consideration would not be met, resulting in a Shares Offer Price of solely the Cash Portion of $30.00 per share.

 

Public Company Multiples

 

Solely for reference purposes, using publicly available information, J.P. Morgan compared selected financial data of Clinical Data with similar data for selected publicly traded companies engaged in businesses which J.P. Morgan judged to be analogous and most relevant to Clinical Data’s business. The companies selected by J.P. Morgan include the following:

 

 

These companies were selected, among other reasons, because they share similar business characteristics to Clinical Data based on operational characteristics and financial metrics. In addition, each of these companies also received regulatory approval for their lead product since September of 2009 and have or intend to independently commercialize their lead product in the United States. Other categories of publicly traded companies were reviewed by J.P. Morgan for reference purposes only. None of the companies utilized in the analysis were deemed to be identical to Clinical Data. Accordingly, a complete analysis of the results of the following calculations cannot be limited to a quantitative review of such results and involves complex considerations and judgments concerning the differences in the financial and operating characteristics of the companies compared to Clinical Data’s and other factors that could affect the public trading value of the companies and Clinical Data.

 

Using publicly available information, J.P. Morgan calculated the firm value to revenue multiples for each of the selected companies. For purposes of this analysis, a company’s firm value was calculated as the diluted equity value using the treasury stock method based on options outstanding as of that company’s latest filings as of the date of J.P. Morgan’s opinion plus the value of such company’s indebtedness and minority interests

and preferred stock as of that company’s latest filings as of the date of J.P. Morgan’s opinion, minus such company’s cash, cash equivalents and marketable securities as of Clinical Data’s latest filings as of the date of J.P. Morgan’s opinion. The firm value was divided by publicly available consensus estimates of equity research projections of future calendarized year revenues for 2013, which is referred to below as “2013 FV/Revenue,” and 2014, which is referred to below as “2014 FV/Revenue,” to derive trading multiples for each company.

 

Based on the results of this analysis and other factors which it considered appropriate, J.P. Morgan applied a FV/2013 Revenue multiple reference range of 1.6x to 3.7x to Clinical Data’s 2013 Revenue, a Firm Value/2014 Revenue multiple reference range of 1.2x to 2.8x to Clinical Data’s 2014 Revenue and then calculated Clinical Data’s implied equity value per share. J.P. Morgan based its calculations on non-risk-adjusted management projections provided by Clinical Data. The analysis showed the following:

 

 

Historical Share Price Analysis

 

J.P. Morgan reviewed, solely for reference purposes, the price performance of the Shares during the 52-week period ending February 18, 2011. J.P. Morgan noted that the low and high trading prices per share during that period were $11.14 and $33.90, respectively, compared to the closing price per share of $33.90 on February 18, 2011 and the Estimated Shares Offer Price Valuation of approximately $33.14. J.P. Morgan also noted that the Estimated Shares Offer Price Valuation of $33.14 represented a premium of 31.7% to the closing price per share of the Shares on January 24, 2011 of $25.17, the date that Clinical Data announced FDA approval for Viibryd and the potential for a change of control transaction, as well as a premium of 17.7% to the volume weighted average price per share of the Shares for the period from January 24, 2011 to February 18, 2011.

 

Analyst Price Targets

 

J.P. Morgan reviewed, solely for reference purposes, the price targets for the Shares by certain equity research analysts during the periods both before and after FDA approval for Viibryd. During the pre-approval period between October 1, 2010 and January 21, 2011, the price targets ranged from $23.00 per share to $37.00 per share, and during the post-approval period between January 23, 2011 and February 10, 2011, the price targets ranged from $29.00 per share to $46.00 per share, compared to the closing price per share of $33.90 on February 18, 2011 and the Estimated Shares Offer Price Valuation of approximately $33.14.

 

Selected Transactions Analysis

 

J.P. Morgan compared the proposed financial terms of the Transactions with the publicly available financial terms of certain transactions involving companies J.P. Morgan considered potentially relevant and the consideration received for such companies. J.P. Morgan noted specifically that none of the companies acquired in the transactions reviewed by J.P. Morgan had a lead product with a sufficiently comparable market opportunity, which required sufficiently comparable resources to commercialize, or was at a sufficiently comparable stage of development.

 

General

 

The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented or utilized by J.P. Morgan. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. J.P. Morgan believes that the foregoing summary and its analyses must be considered as a whole and that selecting portions of the foregoing summary and these analyses, without considering all of its analyses as a whole, could create an incomplete view of the processes underlying its analyses and opinion. In arriving at its opinion, J.P. Morgan did not attribute any particular weight to any analyses or factors considered by it and did not form an opinion

as to whether any individual analysis or factor (positive or negative), considered in isolation, supported or failed to support its opinion. Rather, J.P. Morgan considered the results of all its analyses as a whole and made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. Analyses based on forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control of the parties and their advisors. Accordingly, forecasts and analyses used or made by J.P. Morgan are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by those analyses. Moreover, J.P. Morgan’s analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be bought or sold. None of the selected companies reviewed as described in the above summary is identical to Clinical Data. However, the companies selected were chosen because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgan’s analysis, may be considered similar to those of Clinical Data. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies compared to Clinical Data.

 

The opinion of J.P. Morgan was one of the many factors taken into consideration by the board of directors of Clinical Data in making its determination to approve the Transaction. The analyses of J.P. Morgan as summarized above should not be viewed as determinative of the opinion of the board of directors of Clinical Data with respect to the value of Clinical Data, or of whether the board of directors of Clinical Data would have been willing to agree to different or other forms of consideration.

 

As a part of its investment banking and financial advisory business, J.P. Morgan and its affiliates are continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. J.P. Morgan was selected to advise Clinical Data and deliver an opinion to the board of directors with respect to the Transactions on the basis of such experience and J.P. Morgan’s prior services for Clinical Data.

 

J.P. Morgan acted as financial advisor to Clinical Data with respect to the proposed Transactions and will receive a fee from Clinical Data for its services, a substantial portion of which will become payable only if the proposed Transactions is consummated. In addition, Clinical Data has agreed to indemnify J.P. Morgan for certain liabilities arising out of our engagement. During the two years preceding the date of its opinion letter, J.P. Morgan and its affiliates have had commercial or investment banking relationships with the Purchaser, for which it or such affiliates received customary compensation. Specifically, J.P. Morgan’s commercial banking affiliate is an agent bank and a lender under a revolving credit facility of, and performs treasury and cash management services for, the Purchaser (or its affiliates). In addition, J.P. Morgan’s asset management affiliate manages certain investment assets for the Purchaser (or its affiliates). In addition, one of J.P. Morgan’s senior officers, who has been actively involved in J.P. Morgan’s engagement by Clinical Data in connection with the Transaction, owns less than 0.5% of the outstanding shares of the Shares and warrants of Clinical Data, which he has held for approximately five years. In the ordinary course of their businesses, J.P. Morgan and its affiliates may actively trade the debt and equity securities of Clinical Data or Purchaser (or its affiliates) for their own accounts or for the accounts of customers and, accordingly, they may at any time hold long or short positions in those securities.

 

Pursuant to the J.P. Morgan Engagement Letter, Clinical Data has agreed to pay J.P. Morgan a fee, based upon a percentage of the aggregate Cash Portion, in the amount of approximately $18.9 million, of which $1.0 million was payable at the time J.P. Morgan delivered its opinion to the board of directors of Clinical Data and the balance of which is payable only if the Transactions is consummated. J.P. Morgan will also be entitled to receive additional fees in the future equal to 1.5% of the cash amounts actually paid in respect of the Contingent Consideration, if any, ultimately paid to holders of Shares. In addition, Clinical Data also agreed to reimburse J.P. Morgan for all reasonable and documented out-of-pocket expenses reasonably incurred by J.P. Morgan under the J.P. Morgan Engagement Letter, including the fees and disbursements of its legal counsel. Clinical Data also agreed to indemnify J.P. Morgan and related parties against certain liabilities arising out of its engagement.

Delisting and Deregistration of Clinical Data Common Stock

 

If the Merger is completed, Clinical Data common stock will be delisted from the NASDAQ Global Market and deregistered under the Exchange Act. Therefore, the provisions of the Exchange Act will no longer apply to Clinical Data, including the requirement that we furnish a proxy or information statement to our stockholders in connection with meetings of our stockholders. We will also no longer be required to file periodic reports with the SEC.

 

Effects on Clinical Data if the Merger is Not Completed

 

If Clinical Data’s stockholders do not adopt the Merger Agreement, or if the Merger is not completed for any other reason, stockholders will not receive any payment for their Shares in connection with the Merger. Instead, Clinical Data will remain an independent public company and Clinical Data common stock will continue to be listed and traded on the NASDAQ Global Market. In addition, if the Merger is not completed, we expect that management will operate the business in a manner similar to that in which it is being operated today and that Clinical Data stockholders will continue to be subject to the same risks and opportunities as they currently are, including, among other things, general industry, economic, regulatory and market conditions. Accordingly, if the Merger is not consummated, there can be no assurance as to the effect of these risks and opportunities on the future value of your Shares. From time to time, the board of directors of Clinical Data will evaluate and review, among other things, our business operations, properties, dividend policy and capitalization and make such changes as are deemed appropriate and continue to seek to identify strategic alternatives to enhance stockholder value. If Clinical Data’s stockholders do not adopt the Merger Agreement, or if the Merger is not consummated for any other reason, there can be no assurance that any other transaction acceptable to Clinical Data will be offered, or that the business, prospects or results of operations of Clinical Data will not be adversely impacted. We may also be required to pay Parent’s expenses and the termination fees as described in “The Merger Agreement — Termination Fee; Expense Reimbursement.”

 

Interests of Our Directors and Executive Officers in the Merger

 

In considering the recommendation of the board of directors of Clinical Data with respect to the Merger, you should be aware that some of our directors and executive officers have interests in the Merger that are different from, or in addition to, the interests of our stockholders generally. These interests may present them with actual or potential conflicts of interest, and these interests, to the extent material, are described below. The board of directors of Clinical Data was aware of these interests and considered them, among other matters, in approving the Merger Agreement and the Merger.

 

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 Consideration per Share plus Contingent Consideration per Share on the same terms and conditions as the other stockholders of Clinical Data as described under “The Merger Agreement — Treatment of Shares of Common Stock, In-the-Money Warrants and Clinical Data Notes.” 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 Consideration 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

Contingent Consideration, assuming the Merger was completed 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 equal or exceeds $36.00, 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 Cash Consideration 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 of the Merger and converted into the right to receive an amount in cash equal to the Cash Consideration and the right to receive 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 of the Merger, each DSU outstanding will be canceled and converted automatically into the right to receive the

Cash Consideration 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. Upon the consummation of the Merger, each outstanding warrant with an 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 of the Merger, 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 of the Merger, 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 of the Merger, 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 of the Merger, 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 of the Merger, 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 of the Merger, 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 of the Merger, 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 of the Merger, 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 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 Warrant, were 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

 

Through his affiliates, our chairman Randal J. Kirk also holds 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 of the Merger, 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 each Clinical Data Note as of immediately prior to the Acceptance Time or the effective time of the Merger, 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 automatically converted into the right to receive the Merger consideration as described above. No cash value has been attributed to the Contingent Consideration.