Exhibit 10.1

 

EXECUTION VERSION

 

CONTINGENT STOCK RIGHTS AGREEMENT

 

by and between

 

Menlo Therapeutics Inc.

 

and

 

American Stock Transfer & Trust Company, LLC

 

as

 

Rights Agent

 

 

 

Dated as of March 9, 2020

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page Section 1. Holders of CSRs; Appointment of Rights Agent 2 Section 2. No
Certificates 2 Section 3. Registration by the Rights Agent 2 Section 4. Rights
of CSR Holder 2 Section 5. Non-transferability 3 Section 6. Transfer of CSRs 4
Section 7. Exercisability of CSRs 4 Section 8. Conversion Procedures 6
Section 9. Payment of Taxes; Tax Reporting 7 Section 10. Reservation of Menlo
Common Stock 7 Section 11. Listing of Common Stock 8 Section 12. Adjustment of
CSRs 8 Section 13. No Fractional Shares 10 Section 14. Dividends or Other
Distributions 10 Section 15. Notices to CSR Holders 10 Section 16. Notices to
the Company and Rights Agent 10 Section 17. Supplements and Amendments; Actions
11 Section 18. Enforcement of Rights of Holders 13 Section 19. Certain Rights of
the Rights Agent 13 Section 20. Designation; Removal; Successor Rights Agent 15
Section 21. Successors 15 Section 22. Termination 15 Section 23. Governing Law
16 Section 24. Benefits of this Agreement 16 Section 25. Counterparts 16
Section 26. Headings 16

 

i

 

 

INDEX OF DEFINED TERMS

 

Agreement 1 Commission 1 Company 1 CSR 1 CSR Register 2 CSRs 1 Current Stock
Price 10 Effective Time 1 Efficacy Determination 4 Exchange Ratio 5 Foamix 1
Foamix Share 1 Holder 2 Menlo Common Stock 1 Menlo Merger Sub 1 Merger 1 Merger
Agreement 1 Milestone Date 4 Outside Expiration Date 5 Permitted Transfer 3
Registration Statement 1 Reorganizations 8 Rights Agent 1 Securities Act 1
Serlopitant Efficacy Expiration Date 5 Serlopitant Significance 5 shares of
Menlo Common Stock 9 Statistical Significance 5 Termination Date 6 Transfer
Agent 8 Withholding Agent 7

 

ii

 

 

This CONTINGENT STOCK RIGHTS AGREEMENT (this “Agreement”), dated as of March 9,
2020, is entered into by and between Menlo Therapeutics Inc., a Delaware
corporation (the “Company”), and American Stock Transfer & Trust Company, LLC, a
New York limited liability trust company, as Rights Agent (the “Rights Agent”).

 

W I T N E S S E T H:

 

WHEREAS, the Company, Giants Merger Subsidiary Ltd., a company incorporated
under the laws of the State of Israel and registered under No. 516103165 with
the Israeli Registrar of Companies, and a direct, wholly-owned subsidiary of the
Company (“Menlo Merger Sub”), and Foamix Pharmaceuticals Ltd., a company
incorporated under the laws of the State of Israel and registered under No.
51-336881-1 with the Israeli Registrar of Companies (“Foamix”), have entered
into an Agreement and Plan of Merger, dated as of November 10, 2019 (as may be
amended and restated from time to time, the “Merger Agreement”), pursuant to
which, at the Effective Time (as defined in the Merger Agreement, the “Effective
Time”), Menlo Merger Sub will be merged (the “Merger”) with and into Foamix,
with Foamix continuing as the surviving corporation and as a wholly owned
subsidiary of the Company;

 

WHEREAS, the consideration to be paid by the Company pursuant to the Merger
Agreement includes one contingent stock right as hereinafter described (a “CSR”
and collectively, the “CSRs”) for each ordinary share, par value NIS 0.16 per
share, of Foamix (each, a “Foamix Share”) issued and outstanding immediately
prior to the Effective Time;

 

WHEREAS, each person who from time to time holds one or more CSRs shall be
entitled to the conversion of such CSRs for such number of shares of Common
Stock, par value $0.0001 per share, of the Company (the “Menlo Common Stock”),
in the amounts and subject to the terms and conditions set forth herein;

 

WHEREAS, a registration statement on Form S-4 (No. 333-235351) (the
“Registration Statement”) with respect to, among other securities, the shares of
Menlo Common Stock issuable pursuant to the CSRs, has been prepared and filed by
the Company with the Securities and Exchange Commission (the “Commission”) and
has become effective in accordance with the Securities Act of 1933, as amended
(the “Securities Act”);

 

WHEREAS, the parties have done all things necessary to make the CSRs, when
issued pursuant to the Merger Agreement and hereunder, the valid obligations of
the Company, and to make this Agreement a valid agreement of the Company, in
accordance with its terms;

 

WHEREAS, the Company desires the Rights Agent to act on behalf of the Company,
and the Rights Agent is willing to act in connection with the issuance,
transfer, exchange and conversion of CSRs as provided herein; and

 

WHEREAS, terms used herein but not defined herein, shall have the meanings set
forth in the Merger Agreement.

 

NOW, THEREFORE, in consideration of the premises and mutual agreements herein,
the Company and the Rights Agent hereby agree as follows:

 

 

 

Section 1.          Holders of CSRs; Appointment of Rights Agent.

 

(a)               As provided in the Merger Agreement, effective as of the
Closing, (i) each Holder will be entitled to one CSR for each Foamix Share
issued and outstanding immediately prior to the Effective Time that is validly
accepted for payment, and paid for, pursuant to Section 2.1(a)(ii) of the Merger
Agreement, and (ii) each Foamix Warrant that is assumed by the Company pursuant
to Section 5.20 of the Merger Agreement will become exercisable for one CSR for
each Foamix Share that the holder of such Foamix Warrant would have been
entitled to receive had such Foamix Warrant been exercised prior to the
Effective Time.

 

(b)               The Company hereby appoints American Stock Transfer & Trust
Company, LLC as the Rights Agent to act as agent for the Company in accordance
with the instructions hereinafter set forth in this Agreement, and the Rights
Agent hereby accepts such appointment. The Company may from time to time appoint
such co-rights agents as it may deem necessary or desirable. The Rights Agent
shall have no duty to supervise, and shall in no event be liable for, the acts
or omissions of any such co-rights agents. In the event of the appointment of a
co-rights agent pursuant to this Section 1, the Company shall cause such
co-rights agent to become vested with the same powers, rights, duties and
responsibilities as if it had originally been named as Rights Agent.

 

Section 2.          No Certificates. The CSRs shall not be evidenced by a
certificate or other instrument.

 

Section 3.          Registration by the Rights Agent.

 

(a)               The Company and the Rights Agent may deem and treat the
registered holder (the “Holder”) of a CSR as the absolute owner thereof for all
purposes, and neither the Company nor the Rights Agent shall be affected by any
notice to the contrary.

 

(b)               The Company shall cause to be kept at the Rights Agent’s
principal office a register (the “CSR Register”) in which the Rights Agent shall
provide for the up-to-date registration of CSRs. CSRs shall be registered in the
names and addresses of, and in the denomination as set forth in, the applicable
letter of transmittal accompanying the Foamix Shares surrendered by the holder
thereof in connection with the Merger pursuant to the Merger Agreement. The CSRs
issued in consideration for 102 Common Stock shall be registered in the name of
the 102 Trustee (as defined in the Merger Agreement) in the CSR Register for the
benefit of the applicable beneficial holder. A Holder may make a written request
to the Rights Agent or the Company to change such Holder’s address of record in
the CSR Register. The written request must be duly executed by the Holder. Upon
receipt of such written request by the Rights Agent or the Company, the Rights
Agent shall promptly record the change of address in the CSR Register. The
Rights Agent shall provide a copy of the CSR Register to the Company upon
request.

 

Section 4.          Rights of CSR Holder.

 

(a)               Nothing contained in this Agreement shall be construed as
conferring upon any Holder, by virtue of being a Holder of a CSR, the right to
receive dividends, or the right to vote or to consent or to receive notice as
stockholders in respect of the meetings of stockholders or the election of
directors of the Company or any other matter, or any rights of any kind or
nature whatsoever as a stockholder of the Company, either at law or in equity.

 

2

 

 

(b)               The CSRs will not represent any equity or ownership interest
in the Company, any constituent company to the Merger or any of their respective
affiliates. It is hereby acknowledged and agreed that a CSR shall not constitute
a security of the Company or of the Surviving Corporation. The rights of a
Holder in respect of the CSRs are limited to those expressed in this Agreement.
Notwithstanding anything herein or in the Merger Agreement to the contrary, none
of the Company, Menlo Merger Sub, or any of their representatives shall have any
liability, responsibility or obligation of any kind to any Holder in their
capacity as such on any basis (including in contract, tort, under federal or
state securities law or otherwise) with respect to, arising out of, or relating
to, this Agreement, the CSRs or the Merger, except to the extent otherwise
expressly provided for in this Agreement.

 

(c)               A Holder may at any time, at such Holder’s option, abandon all
of such Holder’s remaining rights represented by CSRs by transferring such CSR
to the Company or a person nominated in writing by the Company without
consideration in compensation therefor, and such rights will be cancelled.
Nothing in this Agreement is intended to prohibit the Company or its affiliates
from offering to acquire or acquiring the CSRs, in private transactions or
otherwise, for consideration in its sole discretion.

 

Section 5.          Non-transferability. The CSRs and any interest therein shall
not be sold, assigned, pledged, encumbered or in any other manner transferred or
disposed of, in whole or in part, directly or indirectly, other than through a
Permitted Transfer (as defined herein) and, in the case of a Permitted Transfer,
only in accordance with Section 6 hereof and in compliance with applicable
United States federal and state securities laws and the terms and conditions
hereof. Any attempted sale, assignment, transfer, pledge, encumbrance or
disposition of CSRs, in whole or in part, in violation of this Section 5 shall
be void ab initio and of no effect. In addition, each Holder, by virtue of its
acceptance of a CSR, shall be deemed to have agreed to not facilitate or
recognize any attempt by any beneficial owner of such CSR, including any former
street holder of Foamix Shares or any broker, dealer, custodian bank or other
nominee of a former street holder of Foamix Shares to sell, assign, transfer,
pledge, encumber or in any other manner transfer or dispose of, in whole or in
part, directly or indirectly, an interest in such CSR other than through a
Permitted Transfer. A “Permitted Transfer” shall mean (a) with respect to all
CSRs, the transfer of any or all of the CSRs on death by will or intestacy; (b)
with respect to all CSRs other than CSRs issued in consideration for 102 Common
Stock (as defined in the Merger Agreement), a transfer of CSRs (i) by instrument
to an inter vivos or testamentary trust in which the CSRs are to be passed to
beneficiaries upon the death of the trustee; (ii) pursuant to a court order of a
court of competent jurisdiction (such as in connection with divorce, bankruptcy
or liquidation); or (iii) a transfer made by operation of law (such as a
merger); provided that any such transferred CSR shall remain subject to the
terms and conditions of this Agreement.

 

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Section 6.          Transfer of CSRs.

 

(a)               Subject to the restrictions on transferability set forth in
Section 5 hereof, the Rights Agent shall, from time to time, register the
transfer of any outstanding CSRs pursuant to a Permitted Transfer upon the CSR
Register, upon delivery to the Rights Agent of a written instrument or
instruments of transfer and other requested documentation in form satisfactory
to the Company and the Rights Agent, duly executed by the registered Holder or
Holders thereof or by the duly appointed legal representative thereof or by a
duly authorized attorney, such signature to be guaranteed by a participant in a
recognized Signature Guarantee Medallion Program. A request for a transfer of a
CSR shall be accompanied by such documentation establishing satisfaction of the
conditions set forth in Section 5 hereof, as applicable, as may be reasonably
requested by the Company (including opinions of counsel, if appropriate). Upon
receipt of documentation reasonably satisfactory to the Company, the Company
shall authorize the Rights Agent to permit the transfer of a CSR. The Rights
Agent shall not permit the transfer of a CSR until it is so authorized by the
Company. No transfer of a CSR shall be valid until registered in the CSR
Register and any transfer not duly registered in the CSR Register will be void
ab initio. All transfers of CSRs registered in the CSR Register shall be the
valid obligations of the Company, representing the same rights to receive shares
of Menlo Common Stock as the CSRs transferred then entitled such transferee to
receive, and shall entitle the transferee to the same benefits and rights under
this Agreement as those held by the transferor. No fractional CSRs will be
registered. Notwithstanding anything herein to the contrary, and subject to any
other provision in the Withholding Tax Ruling, the 104H Interim Ruling, and the
104H Tax Ruling (as such terms are defined in the Merger Agreement) or any other
written instructions provided by the Israel Tax Authority, it is hereby
clarified that no transfer of a CSR under this Agreement shall be permitted
and/or effected, unless the Company and the Rights Agent are fully satisfied
that any and all withholding obligations with respect to Israeli taxes have been
met. For this purpose, the provisions of Section 9 below shall be applicable to
any transfers hereto.

 

(b)               No service charge shall be made for any registration of
transfer of CSRs, but the Company may require payment of a sum sufficient to
cover any stamp or other tax or other governmental charge that is imposed in
connection with any such registration of transfer. The Rights Agent shall have
no duty or obligation to take any action under any Section of this Agreement
which requires the payment by a Holder of a CSR of applicable taxes and charges
unless and until the Rights Agent is satisfied that all such taxes and/or
charges have been paid.

 

Section 7.          Exercisability of CSRs.

 

(a)               As used herein, “Milestone Date” shall mean the date on which
the Efficacy Determination is delivered to the Company. For purposes of this
Agreement, “Efficacy Determination” means (i) the top-line primary endpoint
results of both Phase III PN Trials as delivered in the form set forth (and
subject to the terms and conditions set forth) in Exhibit 2.4(g)(ii) hereto by
QST Consultations, LTD to the Company; or (ii) if the top-line primary endpoint
results of only one Phase III PN Trials is delivered in the form set forth (and
subject to the terms and conditions set forth) in Exhibit 2.4(g)(ii) hereto by
QST Consultations, LTD to the Company on or before May 31, 2020, such results as
delivered in such form.

 

(b)               Subject to the terms of this Agreement, each CSR shall become
convertible and shall entitle the Holder thereof to receive from the Company the
number of fully paid and nonassessable shares of Menlo Common Stock equal to the
Exchange Ratio (as defined below) together, if applicable, with cash payable in
lieu of fractional shares as provided in Section 13 hereof and any dividends or
distributions payable as provided in Section 14 hereof, in each case subject to
any applicable withholding tax.

 

4

 

 

(i)           The “Exchange Ratio” shall mean:

 

(1)      (A) if the Efficacy Determination reports that Serlopitant Significance
was not achieved in both Phase III PN Trials or (B) the Milestone Date does not
occur on or before May 31, 2020 (the “Outside Expiration Date”), then each CSR
will be converted into 1.2082 shares of Menlo Common Stock pursuant to the terms
and conditions of this Agreement;

 

(2)      if the Efficacy Determination reports that (A) Serlopitant Significance
was achieved in only one Phase III PN Trial on or before the Outside Expiration
Date, and (B) Serlopitant Significance was not achieved or has not been
determined in the other Phase III PN Trial on or before the Outside Expiration
Date, then each CSR will be converted into 0.6815 shares of Menlo Common Stock
pursuant to the terms and conditions of this Agreement; or

 

(3)      if the Efficacy Determination reports that Serlopitant Significance was
achieved in both Phase III PN Trials on or before the Outside Expiration Date,
then the CSR will automatically be terminated, and the Holder thereof shall not
be entitled to any shares of Menlo Common Stock relating to the CSR or any other
rights under this Agreement (the date on which the CSR will be automatically
terminated, the “Serlopitant Efficacy Expiration Date”).

 

(4)      “Serlopitant Significance” shall mean (as set forth in and in
accordance with the Efficacy Determination) achievement of proof of
statistically significant superiority of serlopitant treatment over placebo
treatment on the primary endpoint (meaning that (A) the Serlopitant 5 mg percent
success rate is numerically greater than the placebo percent success rate and
(B) the P-value is less than 0.05) determined when comparing Worst
Itch-Numerical Rating Scale (WI-NRS) 4-point responder rates between treatments
at Week 10, which analysis shall be based upon the “Intent-to-Treat” population
where missing data is imputed using a Markov Chain Monte Carlo (MCMC) multiple
imputation method and where the primary analytical method is a
Cochran-Mantel-Haenszel test.

 

(c)               From and after the Effective Time, (i) the Company shall use
reasonable best efforts to cause Synteract, Inc. and TFS International AB to
complete the Phase III PN Trials and QST Consultations, LTD to deliver the
Efficacy Determination, concurrently for both Phase III PN Trials, to the
Company, on or before the Outside Expiration Date; and (ii) the Company shall
publicly disclose a summary of the results reported in any Efficacy
Determination within three (3) Business Days of the Milestone Date. In the event
that either Phase III PN Trial does not demonstrate Serlopitant Significance,
then the Company shall have no further obligations under this Section 7(c) or
otherwise to conduct any further clinical trials with respect to Serlopitant in
the United States, or Europe, as applicable.

 

5

 

 

Section 8.          Conversion Procedures.

 

(a)               Subject to the provisions of Section 7 hereof, if Serlopitant
Significance was not achieved in either Phase III PN Trial on or before the
Outside Expiration Date, then within ten (10) Business Days of the occurrence of
the earlier of the Milestone Date or the Outside Expiration Date and, subject to
the tax withholding procedure described in Sections 8(e) and 9(b) below, the
Company shall credit (or shall cause its Transfer Agent to credit) the
appropriate number of book-entry shares of Menlo Common Stock (as determined in
accordance with Section 7(b)) to each Holder in the name of such Holder as
recorded in the CSR Register. Such book-entry shares of Menlo Common Stock shall
be deemed to have been issued and any person so named therein shall be deemed to
have become a holder of record of such shares of Menlo Common Stock as of the
Milestone Date or Outside Expiration Date, as applicable.

 

(b)               If Serlopitant Significance was not achieved in either Phase
III PN Trial on or before the Outside Expiration Date, then within ten (10)
Business Days of the Company informing the Rights Agent in writing of the
occurrence of the Milestone Date or the Outside Expiration Date (as applicable)
and the consideration to be paid to each Holder pursuant to Section 7(b), and
subject to the tax withholding procedure described in Sections 8(e) and 9(b)
below, the Company shall deliver to the Rights Agent any cash necessary to be
paid to Holders in lieu of fractional shares as provided in Section 13 hereof,
and the Rights Agent shall deliver to each Holder at his, her or its address
appearing on the CSR Register, (i) a written notice specifying the number of
shares of Menlo Common Stock (if any) that each CSR was converted into and to
whom the shares of Menlo Common Stock were issued and the Rights Agent shall
promptly record such issuance in the CSR Register and (ii) a check reflecting
the amount of any cash in lieu of fractional shares to be provided to such
Holder as provided in Section 13 hereof and, if applicable, amounts payable
pursuant to Section 14. Notwithstanding the foregoing, any cash necessary to be
paid to holders who received the CSRs in consideration for 102 Common Stock,
shall be payable by a wire transfer to the 102 Trustee.

 

(c)               Notwithstanding any other provisions of this Agreement, any
portion of the cash provided by the Company to the Rights Agent as a reserve for
purposes of payments to Holders of cash in lieu of fractional shares pursuant to
Section 13 hereof and, if applicable, amounts payable pursuant to Section 14
that remains unclaimed after the first anniversary of the Milestone Date
(including by means of uncashed checks or invalid addresses on the CSR Register)
(the “Termination Date”) (or such earlier date immediately prior to such time as
such amounts would otherwise escheat to, or become property of, any governmental
entity) shall, to the extent permitted by law, become the property of the
Company free and clear of any claims or interest of any person previously
entitled thereto, and no consideration or compensation shall be payable
therefor.

 

(d)               The Rights Agent shall keep copies of this Agreement available
for inspection by the Holders during normal business hours at its office. The
Company shall supply the Rights Agent from time to time with such numbers of
copies of this Agreement as the Rights Agent may request.

 

6

 

 

(e)               Prior to crediting (or causing its Transfer Agent to credit)
the appropriate number of book-entry shares of Menlo Common Stock to each Holder
in the name of such Holder pursuant to Section 8(a) hereof and delivering cash
to the Rights Agent for payment to the Holders in lieu of fractional shares
pursuant to Section 13 hereof, the Company shall deliver to the Withholding
Agent (as defined in Section 9(b)) a list of all Holders and the number of
shares to be credited thereto and/or cash to be paid thereto, and the
Withholding Agent shall be entitled to deduct or withhold from such shares
and/or cash (if required, in accordance with Section 9(b) below). Upon
completion of any required withholding the Company shall credit (or cause its
Transfer Agent to credit) the appropriate number of shares of Menlo Common Stock
to the Holders pursuant to Section 8(a) and deliver to the Rights Agent the
appropriate amount of cash in lieu of fractional shares to be paid to the
Holders pursuant to Section 8(b).

 

Section 9.          Payment of Taxes; Tax Reporting.

 

(a)               The Company will pay all stamp, transfer or other taxes or
governmental charges, if any, attributable to the initial issuance of shares of
Menlo Common Stock upon the conversion of any CSR; provided, however, that
neither the Company nor the Rights Agent shall be required to pay any tax or
taxes which may be payable in respect of any transfer of a CSR or, upon
conversion of a CSR, issuance of any shares of Menlo Common Stock in a name
other than that of the Holder of a CSR as recorded in the CSR Register, and the
Company shall not be required to issue or deliver such CSR unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.

 

(b)               Foamix, the Company, Exchange Agent (as defined in the Merger
Agreement), the 102 Trustee, the Surviving Company, and any other Person who has
any obligation to deduct or withhold from any consideration payable pursuant to
this Agreement (each such Person, a “Withholding Agent”) shall be entitled to
deduct and withhold from any consideration payable or otherwise deliverable
pursuant to this Agreement such amounts as are required to be deducted or
withheld therefrom, all in accordance with the provisions of Sections 2.2(h)
through 2.2(k) of the Merger Agreement, which shall apply to the consideration
payable pursuant to this Agreement, mutatis mutandis, including the issuance or
transfer of any CSR, the conversion thereof, the issuance of shares or the
payment of cash in lieu of fractional shares.

 

(c)               The Rights Agent shall comply with all applicable laws and
shall adhere to the provisions set forth in the Withholding Tax Ruling, the 104H
Interim Ruling, and the 104H Tax Ruling (as such terms are defined in the Merger
Agreement), and any other written instructions provided by the Israel Tax
Authority, including, for the avoidance of doubt, regarding Tax reporting and
withholding (including under the tax laws the State of Israel) with respect to
any consideration payable or deliverable to any Holder of CSRs pursuant to this
Agreement.

 

Section 10.      Reservation of Menlo Common Stock.

 

(a)               The Company will at all times reserve and keep available, free
from preemptive rights, out of the aggregate of its authorized but unissued
Menlo Common Stock or the authorized and issued Menlo Common Stock held in its
treasury, for the purpose of enabling it to satisfy any obligation to issue
shares of Menlo Common Stock upon conversion of CSRs, the maximum number of
shares of Menlo Common Stock which may then be deliverable upon conversion of
all outstanding CSRs.

 

7

 

 

(b)               The Company will keep a copy of this Agreement on file with
the transfer agent for Menlo Common Stock (the “Transfer Agent”) and with every
subsequent transfer agent for any shares of the Company’s capital stock issuable
upon conversion of the CSRs. The Company will provide or otherwise make
available any cash which may be payable as provided in Section 13 and Section 14
hereof. The Company will furnish such Transfer Agent a copy of all notices of
adjustments and certificates related thereto transmitted to each Holder pursuant
to Section 15 hereof.

 

(c)               The Company covenants that all shares of Menlo Common Stock
which may be issued upon conversion of CSRs will, upon issue, be validly
authorized and issued, fully paid, nonassessable, free of preemptive rights and
free from all taxes, liens, charges and security interests with respect to the
issuance thereof. The Company will use its reasonable best efforts to obtain all
such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company to perform
its obligations under this Agreement.

 

Section 11.      Listing of Common Stock. The Company shall from time to time
use its reasonable best efforts so that immediately upon their issuance upon the
conversion of any CSR the shares of Menlo Common Stock will be listed on the
principal national securities exchange in the United States of America, if any,
on which the Company’s other shares of Menlo Common Stock is then listed.

 

Section 12.      Adjustment of CSRs.

 

(a)               The Exchange Ratio shall be adjusted to reflect fully the
appropriate effect of any stock split, reverse stock split, stock dividend
(including any dividend or distribution of securities convertible into Menlo
Common Stock), reorganization, recapitalization, reclassification or other like
change with respect to Menlo Common Stock having a record date on or after the
date hereof and prior to the Milestone Date.

 

(b)               In case of (i) any capital reorganization, other than in the
cases referred to in Section 13(a) hereof and other than any capital
reorganization that does not result in any reclassification of the outstanding
shares of Menlo Common Stock into shares of other stock or other securities or
property, or (ii) the consolidation or merger of the Company with or into
another corporation (other than a merger or consolidation in which the Company
is the continuing corporation and which does not result in any reclassification
of the outstanding shares of Menlo Common Stock into shares of other stock or
other securities or property), or (iii) the sale of all or substantially all of
the assets of the Company, in each case on or after the date hereof and prior to
the Milestone Date (collectively such actions being hereinafter referred to as
“Reorganizations”), there shall thereafter be deliverable upon conversion of any
CSR in accordance with the terms hereof (in lieu of the number of shares of
Menlo Common Stock theretofore deliverable) the number of shares of stock or
other securities, property or cash to which a holder of the number of shares of
Menlo Common Stock that would otherwise have been deliverable upon the
conversion of such CSR would have been entitled upon such Reorganization if the
Milestone Date had occurred and such CSR had been converted in full immediately
prior to such Reorganization. In case of any Reorganization, appropriate
adjustment, as determined in good faith by the board of directors of the
Company, whose determination shall be described in a duly adopted resolution
certified by the Company’s Secretary or Assistant Secretary, shall be made in
the application of the provisions herein set forth with respect to the rights
and interests of Holders so that the provisions set forth herein shall
thereafter be applicable, as nearly as possible, in relation to any such shares
or other securities, property or cash thereafter deliverable upon conversion of
CSRs.

 

8

 

 

(c)               The Company shall not effect any such Reorganization unless
prior to or simultaneously with the consummation thereof the successor
corporation (if other than the Company) resulting from such Reorganization or
the corporation or other entity purchasing such assets shall expressly assume,
by a supplemental contingent stock rights agreement or other acknowledgment
executed and delivered to the Rights Agent, the obligation to deliver to the
Rights Agent and to cause the Rights Agent to deliver to each such Holder such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such Holder may be entitled to in accordance with the terms hereof
upon the occurrence of the Milestone Date, and the due and punctual performance
and observance of each and every covenant, condition, obligation and liability
under this Agreement to be performed and observed by the Company in the manner
prescribed herein. The provisions of Section 13(b) and Section 13(c) shall apply
to successive Reorganization transactions.

 

(d)               Irrespective of any adjustments in the number or kind of
shares issuable upon the conversion of the CSRs, CSRs theretofore or thereafter
issued may continue to express the same dollar value and number and kind of
shares as are stated in the CSRs initially issuable pursuant to this Agreement.

 

(e)               Whenever an adjustment is made to the terms of the CSRs
pursuant to this Section 13, the Company shall provide the notices required by
Section 16 hereof.

 

(f)                The Rights Agent has no duty to determine when an adjustment
under this Section 13 should be made, how it should be made or what it should
be. The Rights Agent has no duty to determine whether any provisions of a
supplemental contingent stock rights agreement under Section 13(b) are correct.
The Rights Agent makes no representation as to the validity or value of any
securities or assets issuable upon conversion of CSRs. The Rights Agent shall
not be responsible for the Company’s failure to comply with this Section 13.

 

(g)               For purpose of this Section 13, the term “shares of Menlo
Common Stock” shall mean (i) shares of the class of stock designated as Common
Stock, par value $0.0001 per share, of the Company as of the date of this
Agreement, and (ii) shares of any other class of stock resulting from successive
changes or reclassification of such shares consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value. In
the event that at any time, as a result of an adjustment made pursuant to this
Section 13, the Holders of CSRs shall become entitled to receive any securities
of the Company other than, or in addition to, shares of Menlo Common Stock,
thereafter the number or amount of such other securities so issuable upon
conversion of each CSR shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the shares of Menlo Common Stock issuable hereunder contained in
Section 13(a), and the provisions of Section 6, Section 7, Section 8, Section 9,
Section 10 and Section 13 with respect to the shares of Menlo Common Stock
issuable hereunder or Menlo Common Stock shall apply on like terms to any such
other securities.

 

9

 

 

Section 13.      No Fractional Shares. The Company shall not be required to
issue fractional shares of Menlo Common Stock upon conversion of CSRs. If more
than one CSR shall be convertible at the same time with respect to the same
Holder, the number of full shares of Menlo Common Stock which shall be issuable
upon the conversion thereof shall be computed on the basis of the aggregate
number of shares of Menlo Common Stock issuable upon the conversion of the CSRs.
If any fraction of a share of Menlo Common Stock would, except for the
provisions of this Section 13, be issuable on the conversion of any CSRs, the
Company shall pay, without interest, an amount determined by the Current Stock
Price. The “Current Stock Price” shall equal the average per share closing sale
prices of Menlo Common Stock on the Nasdaq Stock Market as reported by the Wall
Street Journal for the five (5) full trading days ending on the fifth (5th)
trading date after the later of (i) the Milestone Date or (ii) the Expiration
Date.

 

Section 14.      Dividends or Other Distributions. No dividend or other
distribution declared with respect to Menlo Common Stock with a record date
prior to the Milestone Date shall be paid to Holders of CSRs. To the extent any
shares of Menlo Common Stock are issued to Holders pursuant to Section 8(a),
there shall be paid to such Holders the amount of dividends or other
distributions, without interest, declared with a record date after the Milestone
Date.

 

Section 15.      Notices to CSR Holders. Upon any adjustment pursuant to
Section 13 hereof, the Company shall give prompt written notice of such
adjustment to the Rights Agent and shall cause the Rights Agent, on behalf of
and at the expense of the Company, within ten (10) days after notification is
received by the Rights Agent of such adjustment, to mail by first class mail,
postage prepaid, to each Holder a notice of such adjustment(s) and shall deliver
to the Rights Agent a certificate of the Chief Financial Officer of the Company,
setting forth in reasonable detail (i) the terms of such adjustment(s), (ii) a
brief statement of the facts requiring such adjustment(s) and (iii) the
computation by which such adjustment(s) was made. Where appropriate, such notice
may be given in advance and included as a part of the notice required under the
other provisions of this Section 15.

 

Section 16.      Notices to the Company and Rights Agent. Any notice or demand
authorized by this Agreement to be given or made by the Rights Agent or by any
Holder to or on the Company shall be sufficiently given or made when received at
the office of the Company expressly designated by the Company as its office for
purposes of this Agreement (until the Rights Agent is otherwise notified in
accordance with this Section 16 by the Company), as follows:

 

Menlo Therapeutics Inc.
200 Cardinal Way, 2nd Floor

Redwood City, California 94063
Fax: (650) 249-0205
Attention: Steven Basta

 

10

 

 

with a copy to:

 

Skadden, Arps, Slate, Meagher & Flom LLP
4 Times Square
New York, NY 10036
Fax: (212) 735-2000
Attention: Marie L. Gibson, Esq.

 

Meitar Liquornik Geva Leshem Tal
16 Abba Hillel Silver Rd.
Ramat Gan 5250608, Israel
Fax: 972 3 610 3755
Attention: J. David Chertok

 

Latham & Watkins LLP
140 Scott Drive
Menlo Park, CA 94025
Attention: Mark V. Roeder, Joshua M. Dubofsky

Emails: Mark.Roeder@lw.com, Josh.Dubofsky@lw.com

 

Any notice pursuant to this Agreement to be given by the Company or by any
Holder(s) to the Rights Agent shall be sufficiently given when received by the
Rights Agent at the address appearing below (until the Company is otherwise
notified in accordance with this Section 16 by the Rights Agent).

 

American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219

 

Attention: Relationship Management

 

Section 17.      Supplements and Amendments; Actions.

 

(a)               Without the consent of any Holders, the Company, at any time
and from time to time, may enter into one or more amendments hereto, for any of
the following purposes:

 

(i)           to evidence the succession of another person to the Company and
the assumption by any such successor of the covenants of the Company herein;
provided that such succession and assumption is in accordance with the terms of
this Agreement;

 

(ii)        to evidence the succession of another person as a successor Rights
Agent and the assumption by any successor of the covenants and obligations of
such Rights Agent herein; provided that such succession and assumption is in
accordance with the terms of this Agreement;

 

(iii)      to add to the covenants of the Company such further covenants,
restrictions, conditions or provisions as the Company shall consider to be for
the protection of Holders; provided that in each case, such provisions shall not
adversely affect the rights of the Holders;

 

11

 

 

(iv)       to cure any ambiguity, to correct or supplement any provision herein
that may be defective or inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising under
this Agreement; provided that in each case, such provisions shall not adversely
affect the rights of Holders;

 

(v)         as may be necessary or appropriate to ensure that CSRs are not
subject to registration under the Securities Act or the U.S. Securities Exchange
Act of 1934, as amended and the rules and regulations made thereunder, or any
applicable state securities or “blue sky” laws;

 

(vi)       to cancel CSRs (i) in the event that any Holder has abandoned its
rights in accordance with Section 4(c) or (ii) following the transfer of such
CSRs to the Company or its affiliates in accordance with Section 5; or

 

(vii)      as may be necessary or appropriate to ensure that the Company
complies with applicable law.

 

In addition to the foregoing, upon the delivery of a certificate from an
appropriate officer of the Company which states that the proposed supplement or
amendment is in compliance with the terms of this Section 17, the Rights Agent
hereby agrees to enter into one or more amendments hereto to evidence the
succession of another person as a successor Rights Agent and the assumption by
any successor of the covenants and obligations of such Rights Agent herein.

 

(b)               With the written consent of the Holders of not less than a
majority of the then outstanding CSRs delivered to the Company, the Company may
enter into one or more amendments hereto for the purpose of adding, eliminating
or changing any provision of this Agreement if such addition, elimination or
change is in any way adverse to the rights of Holders. It shall not be necessary
for any written consent of Holders under this Section 17(b) to approve the
particular form of any proposed amendment, but it shall be sufficient if such
written consent shall approve the substance thereof.

 

(c)               The consent of each Holder affected shall be required for any
amendment pursuant to which the number of shares of Menlo Common Stock issuable
upon conversion of CSRs would be decreased (not including adjustments
contemplated hereunder).

 

(d)               Promptly after the execution by the Company of any amendment
pursuant to the provisions of this Section 17, the Company shall mail by first
class mail, postage prepaid, a notice thereof to the Holders at their addresses
as they shall appear on the CSR Register, setting forth in general terms the
substance of such amendment.

 

(e)               Upon the execution of any amendment under this Section 17,
this Agreement shall be modified in accordance therewith, such amendment shall
form a part of this Agreement for all purposes and every Holder shall be bound
thereby.

 

12

 

 

(f)                The Rights Agent shall be entitled to receive and shall be
fully protected in relying upon an officers’ certificate and opinion of counsel
as conclusive evidence that any such amendment or supplement is authorized or
permitted hereunder, that it is not inconsistent herewith, and that it will be
valid and binding upon the Company in accordance with its terms.

 

Section 18.      Enforcement of Rights of Holders. Any actions seeking
enforcement of the rights of Holders hereunder may be brought either by the
Rights Agent or the Holders of a majority of the issued and then outstanding
CSRs.

 

Section 19.      Certain Rights of the Rights Agent. The Rights Agent undertakes
the duties and obligations imposed by this Agreement upon the following terms
and conditions, by all of which the Company and the Holders, by their acceptance
of CSRs, shall be bound:

 

(a)               The statements contained herein and in any notice delivered by
the Company shall be taken as statements of the Company, and the Rights Agent
assumes no responsibility for the correctness of any of the same except such as
describe the Rights Agent or any action taken by it. The Rights Agent assumes no
responsibility with respect to the distribution of the CSRs except as herein
otherwise provided.

 

(b)               The Rights Agent shall not be responsible for any failure of
the Company to comply with the covenants contained in this Agreement or in the
CSRs to be complied with by the Company.

 

(c)               The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either by itself
(through its employees) or by or through its attorneys or agents (which shall
not include its employees) and shall not be responsible for the misconduct of
any agent appointed with due care.

 

(d)               The Rights Agent may consult at any time with legal counsel
satisfactory to it (who may be counsel for the Company), and the Rights Agent
shall incur no liability or responsibility to the Company or to any Holder in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in accordance with the opinion or the advice of such counsel.

 

(e)               Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless such evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by the Chairman of the Board, the President,
Chief Financial Officer, one of the Vice Presidents, the Treasurer or the
Secretary of the Company and delivered to the Rights Agent; and such certificate
shall be full authorization to the Rights Agent for any action taken or suffered
in good faith by it under the provisions of this Agreement in reliance upon such
certificate.

 

(f)                The Company agrees to (i) pay the Rights Agent reasonable
compensation for all services rendered by the Rights Agent in the performance of
its duties under this Agreement as agreed upon in writing by the Rights Agent
and the Company on or prior to the date of this Agreement, (ii) reimburse the
Rights Agent for all reasonable and properly documented out-of-pocket expenses,
taxes and governmental charges and other charges of any kind and nature incurred
by the Rights Agent (including reasonable fees and expenses of the Rights
Agent’s counsel and agents) in the performance of its duties under this
Agreement and (iii) indemnify the Rights Agent and hold it harmless against any
and all liabilities, including judgments, costs and counsel fees, for anything
done or omitted by the Rights Agent in the performance of its duties under this
Agreement, except as a result of (y) the Rights Agent’s gross negligence, bad
faith or willful misconduct or breach of this Agreement; or (z) the Rights Agent
(or anyone on its behalf) not complying with and/or adhering to the provisions
of the Withholding Tax Ruling, the 104H Interim Ruling, and the 104H Tax Ruling
(as such terms are defined in the Merger Agreement), or any other written
instructions provided by the Israel Tax Authority, or otherwise with respect to
any tax withholding made or not made by the Rights Agent (or anyone on its
behalf).

 

13

 

 

(g)               The Rights Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to involve
expense unless the Company or one or more Holders shall furnish the Rights Agent
with reasonable security and indemnity satisfactory to the Rights Agent for any
costs and expenses which may be incurred, but this provision shall not affect
the power of the Rights Agent to take such action as the Rights Agent may
consider proper, whether with or without any such security or indemnity. All
rights of action under this Agreement or under any of the CSRs may be enforced
by the Rights Agent, and any such action, suit or proceeding instituted by the
Rights Agent shall be brought in its name as Rights Agent, and any recovery of
judgment shall be for the ratable benefit of the Holders, as their respective
rights or interests may appear.

 

(h)               The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any other securities of
the Company or become pecuniarily interested in any transactions in which the
Company may be interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not Rights Agent under this
Agreement or such director, officer or employee. Nothing herein shall preclude
the Rights Agent from acting in any other capacity for the Company or for any
other legal entity, including, without limitation, acting as Transfer Agent or
as a lender to the Company or an affiliate thereof.

 

(i)                 The Rights Agent shall act hereunder solely as agent, and
its duties shall be determined solely by the provisions hereof. The Rights Agent
shall not be liable for anything which it may do or refrain from doing in
connection with this Agreement except for (i) its own gross negligence, bad
faith or willful misconduct; and (ii) such actions as provided in Section
19(f)(ii) above.

 

(j)                 The Rights Agent will not incur any liability or
responsibility to the Company or to any Holder for any action taken in reliance
on any notice, resolution, waiver, consent, order, certificate, or other paper,
document or instrument reasonably believed by it to be genuine and to have been
signed, sent or presented by the proper party or parties.

 

(k)               The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity of any CSR; nor shall the Rights Agent by any act hereunder be deemed
to make any representation or warranty as to the authorization or reservation of
any shares of Menlo Common Stock (or other stock) to be issued pursuant to this
Agreement or any CSR, or as to whether any shares of Menlo Common Stock (or
other stock) will, when issued, be validly issued, fully paid and nonassessable.

 

14

 

 

(l)                 The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the President, any Vice President or the Secretary of the
Company, and to apply to such officers for advice or instructions in connection
with its duties, and shall not be liable for any action taken or suffered to be
taken by it in good faith and without negligence in accordance with instructions
of any such officer or officers.

 

Section 20.      Designation; Removal; Successor Rights Agent. The Rights Agent
may resign at any time and be discharged from its duties under this Agreement by
giving to the Company thirty (30) days’ notice in writing. The Company may
remove the Rights Agent or any successor rights agent by giving to the Rights
Agent or successor rights agent thirty (30) days’ notice in writing. If the
Rights Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Rights Agent, subject to
the provisions of the Withholding Tax Ruling, the 104H Interim Ruling, and the
104H Tax Ruling (as such terms are defined in the Merger Agreement), and
obtaining written approval from the Israel Tax Authority. If the Company shall
fail to make such appointment within a period of thirty (30) days after such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by any Holder (who
shall with such notice submit his, her or its CSR for inspection by the
Company), then any Holder may apply to any court of competent jurisdiction for
the appointment of a successor to the Rights Agent. Pending appointment of a
successor rights agent, either by the Company or by such court, the duties of
the Rights Agent shall be carried out by the Company. Any successor rights
agent, whether appointed by the Company or such a court, shall be a bank or
trust company in good standing, incorporated under the laws of the United States
of America or any State thereof or the District of Columbia and having at the
time of its appointment as rights agent a combined capital and surplus of at
least $10,000,000. After appointment, the successor rights agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the former
Rights Agent shall deliver and transfer to the successor rights agent any
property at the time held by it hereunder, and execute and deliver any further
assurance, conveyance, act or deed necessary for such purpose. In the event of
such resignation or removal, the Company or the successor rights agent shall
mail by first class mail, postage prepaid, to each Holder, written notice of
such removal or resignation and the name and address of such successor rights
agent. Failure to file any notice provided for in this Section 20, however, or
any defect therein, shall not affect the legality or validity of the resignation
or removal of the Rights Agent or the appointment of the successor rights agent,
as the case may be.

 

Section 21.      Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company, the Rights Agent or any Holder shall bind
and inure to the benefit of their respective successors, assigns, heirs and
personal representatives.

 

Section 22.      Termination. This Agreement shall terminate on the earlier of
(i) the Serlopitant Efficacy Expiration Date and (ii) the Termination Date.
Notwithstanding anything to the contrary contained herein, the indemnification
contained in Section 19(f) shall survive termination of this Agreement.

 

15

 

 

Section 23.      Governing Law. THIS AGREEMENT AND EACH CSR ISSUED HEREUNDER
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
DELAWARE, REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE
PRINCIPLES OF CONFLICT OF LAWS THEREOF.

 

Section 24.      Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Rights Agent and the Holders any legal or equitable right, remedy or claim under
this Agreement; but this Agreement shall be for the sole and exclusive benefit
of the Company, the Rights Agent and the Holders.

 

Section 25.      Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same agreement.

 

Section 26.      Headings. The headings and table of contents contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.

  

[Signature Pages Follow]

 

16

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed, as of the day and year first above written.

 

Menlo Therapeutics Inc.      
                                                         By:
[tm2012017d1_ex10-1img001.jpg]      Name: Steve Basta     Title: Chief Executive
Officer           American Stock Transfer & Trust Company, LLC, as Rights Agent
                                                          By:
 [tm2012017d1_ex10-1img002.jpg]     Name: Michael Legregin     Title: Senior
Vice President

 

[Signature Page to Contingent Stock Rights Agreement]