Exhibit 10.1

 

Form of Contingent Value Rights Agreement

 

This Contingent Value Rights Agreement, dated as of [__], 2020 (this
“Agreement”), is entered into by and between AcelRx Pharmaceuticals, Inc., a
Delaware corporation (“Parent”), and [____], as Rights Agent (the “Rights
Agent”).

 

RECITALS

 

Whereas, Parent, Consolidation Merger Sub, Inc., a Delaware corporation and a
wholly-owned indirect subsidiary of Parent (“Merger Sub”), and Tetraphase
Pharmaceuticals, Inc., a Delaware corporation (including in its capacity as the
surviving corporation in the Merger, the “Company”), have entered into an
Agreement and Plan of Merger dated as of March 15, 2020 (as it may be amended or
supplemented from time to time pursuant to the terms thereof, the “Merger
Agreement”), pursuant to which, at the Effective Time (as defined in the Merger
Agreement, the “Effective Time”), Merger Sub will merge with and into Company
(the “Merger”), with the Company continuing as the surviving corporation and as
a wholly owned indirect subsidiary of the Parent;

 

Whereas, pursuant to the Merger Agreement, Parent has agreed to provide to the
Company’s stockholders the right to receive contingent value rights as
hereinafter described;

 

Whereas, a registration statement on Form S-4 (No. [____]) with respect to the
shares of Parent Common Stock issuable pursuant to the Merger Agreement and
issuable pursuant to the contingent value rights as provided herein has been
prepared and filed by Parent with the Securities and Exchange Commission and has
become effective in accordance with the Securities Act of 1933, as amended (the
“Securities Act”); and

 

Whereas, the Rights Agent is willing to act in connection with the issuance,
transfer, exchange and payment of such contingent value rights as provided
herein.

 

Now, Therefore, in consideration of the premises and mutual agreements herein,
Parent and the Rights Agent hereby agree as follows:

 

1.

DEFINITIONS

 

1.1.     Definitions. Capitalized terms used but not otherwise defined herein
shall have the meanings ascribed to them in the Merger Agreement. As used in
this Agreement, the following terms shall have the following meanings:

 

“Acting Holders” means, at the time of determination, Holders of at least 40% of
the outstanding CVRs as set forth on the CVR Register.

 

“Affiliate” means, with respect to any specified Person, any other Person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with such specified Person; “control”
means the ownership, directly or indirectly, of more than 50% of the voting
securities entitled to vote for the directors (or similar officials) of a Person
or the possession, by contract or otherwise, of the authority to direct the
management and policies of a Person.

 

“Calendar Quarter” means each period of three consecutive months commencing on
January 1, April 1, July 1 and October 1 of each calendar year.

 

“Calendar Year” means the period of four consecutive Calendar Quarters beginning
on January 1 and ending on December 31 of each calendar year.

 

 

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“Change of Control” means (i) a sale or other disposition of all or
substantially all of the assets of either Parent or the Company on a
consolidated basis (other than to any direct or indirect wholly owned subsidiary
of Parent), (ii) a merger or consolidation involving either Parent or the
Company in which Parent or the Company, respectively, is not the surviving
entity, and (iii) any other transaction involving either Parent or the Company
in which Parent or the Company, respectively, is the surviving entity but in
which the stockholders of Parent or the Company, respectively, immediately prior
to such transaction own less than fifty percent (50%) of the surviving entity's
voting power immediately after the transaction, other than any bona fide equity
financing transaction solely related to the continued financing of the
operations of Parent and its subsidiaries.

 

“Commercially Reasonable Efforts” means, with respect to a task related to a
product, the efforts required to carry out such task in a diligent and sustained
manner without undue interruption, pause or delay, which level is at least
commensurate with the level of efforts that a pharmaceutical company of
comparable size and resources as those of Parent and its Affiliates would devote
to a product of similar potential (including commercial potential), taking into
account its proprietary position and profitability (including pricing and
reimbursement status, but excluding the obligation to pay the Milestone Amounts
under this Agreement), anticipated or actual market conditions and economic
return potential, the regulatory environment, and other relevant technical,
commercial, legal, scientific and/or medical factors.

 

“CVRs” means the rights of Holders to receive contingent payments of cash and
Parent Common Stock pursuant to the Merger Agreement and this Agreement.

 

“CVR Register” has the meaning set forth in Section 2.3(b).

 

“DTC” means The Depository Trust Company or any successor entity thereto.

 

“Event of Default” has the meaning set forth in Section 6.1(a).

 

“Holder” means a Person in whose name a CVR is registered in the CVR Register at
the applicable time.

 

“Independent Accountant” has the meaning set forth in Section 4.5(a).

 

“Licensee” means any non-Affiliate third party granted a license by Parent or
its Affiliates under the Company IP to make, have made, use, sell, offer for
sale, or import XERAVA in the U.S., but shall exclude any (i) third party
distributor of XERAVA that has no royalty or other payment obligations to any
Parent or any of its Affiliates that are calculated based on amounts invoiced or
received by such third party for sales of XERAVA or (ii) a third party
distributor of XEVARA that (x) does not take title to XEVARA, (y) does not
invoice XEVARA sales to third party customers and (z) is responsible only for
inventory management and distribution with respect XEVARA on behalf of Parent or
its Affiliates.

 

“Milestone” means each of Milestone 1, Milestone 2 and Milestone 3.

 

“Milestone 1” means achievement of annual Net Sales of at least $20,000,000
during the Calendar Year ending on December 31, 2021.

 

“Milestone 2” means achievement of annual Net Sales of at least $35,000,000
during any Calendar Year ending on or before December 31, 2024.

 

 

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“Milestone 3” means achievement of annual Net Sales of at least $55,000,000
during any calendar year ending on or before December 31, 2024.

 

“Milestone Amount” means each of Milestone 1 Amount, Milestone 2 Amount and
Milestone 3 Amount.

 

“Milestone 1 Amount” means, with respect to the achievement of Milestone 1, an
amount per CVR equal to the quotient of $2,500,000 divided by the aggregate
number of CVRs issued pursuant to the Merger Agreement and this Agreement,
without interest (it being understood and agreed that all Milestones or a
combination of any two Milestones can be earned in the same year, in which case
all such applicable Milestone Amounts shall be payable).

 

“Milestone 2 Amount” means, with respect to the achievement of Milestone 2, an
amount per CVR equal to the quotient of $4,500,000 divided by the aggregate
number of CVRs issued pursuant to the Merger Agreement and this Agreement,
without interest (it being understood and agreed that all Milestones or a
combination of any two Milestones can be earned in the same year, in which case
all such applicable Milestone Amounts shall be payable).

 

“Milestone 3 Amount” means, with respect to the achievement of Milestone 3, an
amount per CVR equal to the quotient of $5,500,000 divided by the aggregate
number of CVRs issued pursuant to the Merger Agreement and this Agreement,
without interest (it being understood and agreed that all Milestones or a
combination of any two Milestones can be earned in the same year, in which case
all such applicable Milestone Amounts shall be payable).

 

“Milestone Cash Amount” has the meaning set forth in Section 2.4(a)(i)

 

“Milestone Non-Achievement Certificate” has the meaning set forth in
Section 2.4(g).

 

“Milestone Notice” has the meaning set forth in Section 2.4(a)(i)

 

“Milestone Payment Date” has the meaning set forth in Section 2.4(a).

 

“Milestone Stock Amount” has the meaning set forth in Section 2.4(a)(i)

 

“Milestone Stock Price” means the average closing price of a share of Parent
Common Stock on the Nasdaq Global Select Market for the 10 most recent trading
days that Parent Common Stock has traded ending on the trading day one day prior
to the date of the applicable Milestone Payment Date.

 

“Net Sales” means the gross amount invoiced by Parent, any of its Affiliates
(including the Surviving Corporation) or any of its Licensees (each, a “Selling
Party”) to a third party for sales or distribution of XERAVA in the U.S., less
the following deductions as calculated in accordance with GAAP consistently
applied:

 

(i)     customary trade, cash and quantity discounts given to customers;

 

(ii)     rebates, credits and allowances given by reason of rejections returns,
damaged or defective product or recalls;

 

(iii)     government-mandated rebates, credits and adjustments paid or deducted;

 

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(iv)     customary price adjustments, allowances, credits, chargeback payments,
discounts, rebates, free of charge concessions, fees and reimbursements granted
or made to managed care organizations, group purchasing organizations or other
buying groups, pharmacy benefit management companies, health maintenance
organizations and any other providers of health insurance coverage, health care
organizations or other health care institutions (including hospitals), health
care administrators, patient assistance or other similar programs, or to federal
state/provincial, local and other governments, including their agencies;

 

(v)     reasonable and customary freight, shipping, insurance and other
transportation expenses, if borne by the applicable Selling Party without
reimbursement from any third party;

 

(vi)     amounts written off as uncollectable debt; provided that the amount of
any uncollectable debt deducted pursuant to this exception and actually
collected in a subsequent Calendar Quarter shall be included in Net Sales for
such subsequent Calendar Quarter; and

 

(vii)     sales, value-added, excise taxes, tariffs and duties, and other taxes
and government charges directly related to the sale, delivery or use of XERAVA
(but not including taxes assessed against the net income derived from such
sale).

 

Furthermore, Net Sales shall not include use of or sale at or below the direct
manufacturing cost of XERAVA by Parent, its Affiliates (including the Surviving
Corporation) and/or its sublicensees of XERAVA for non-clinical or clinical
studies, patient-assistance programs or charitable donations.

 

Resales or sales of XERAVA made in good faith between or among any Selling Party
shall not be included in the calculation of Net Sales but the subsequent resale
or sale to a non-Affiliate third party (other than a Selling Party) shall be
included in the computation of Net Sales.

 

All Net Sales shall be computed in Dollars, and where any Net Sales are
calculated in a currency other than Dollars, they shall be translated into
Dollars in accordance with GAAP.

 

“Officer’s Certificate” means a certificate signed by the chief executive
officer, president, chief financial officer, any vice president, the controller,
the treasurer or the secretary, in each case of Parent, in his or her capacity
as such an officer, and delivered to the Rights Agent.

 

“Parent Share Cap” shall mean a number of shares of Parent Common Stock (rounded
down to the nearest whole share) equal to 19.9% of the total number of shares of
Parent Common Stock that are issued and outstanding immediately prior to the
execution and delivery of the Merger Agreement by Parent, Merger Sub and the
Company.

 

“Permitted Transfer” means a transfer of CVRs (a) upon death of a Holder by will
or intestacy; (b) by instrument to an inter vivos or testamentary trust in which
the CVRs are to be passed to beneficiaries upon the death of the trustee; (c)
pursuant to a court order; (d) by operation of law (including by consolidation
or merger) or without consideration in connection with the dissolution,
liquidation or termination of any corporation, limited liability company,
partnership or other entity; (e) in the case of CVRs held in book-entry or other
similar nominee form, from a nominee to a beneficial owner and, if applicable,
through an intermediary, as allowable by DTC; or (f) as provided in Section
2.13.

 

“Reorganization” has the meaning set forth in Section 2.7(a) .

 

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“Rights Agent” means the Rights Agent named in the first paragraph of this
Agreement, until a successor Rights Agent becomes such pursuant to the
applicable provisions of this Agreement, and thereafter “Rights Agent” shall
mean such successor Rights Agent.

 

“Share” means each share of Company Common Stock outstanding immediately prior
to the Effective Time, except any (i) shares of Company Common Stock held by the
Company or any wholly-owned Subsidiary of the Company as of immediately prior to
the Effective Time (or held in the Company’s treasury), (ii) shares of Company
Common Stock held by Parent, Merger Sub or any other wholly-owned Subsidiary of
Parent as of immediately prior to the Effective Time or (iii) Dissenting Company
Shares.

 

“Transfer Agent” has the meaning set forth in Section 2.6(b).

 

“U.S.” means the United States of America and its territories, districts and
possessions.

 

1.2.     Rules of Construction. For purposes of this Agreement, the parties
hereto agree that: (a) whenever the context requires, the singular number shall
include the plural, and vice versa; (b) the masculine gender shall include the
feminine and neuter genders; the feminine gender shall include the masculine and
neuter genders; and the neuter gender shall include masculine and feminine
genders; (c) the word “extent” in the phrase “to the extent” means the degree to
which a subject or other thing extends, and does not simply mean “if”; (d) the
words “include” and “including,” and variations thereof, shall not be deemed to
be terms of limitation, but rather shall be deemed to be followed by the words
“without limitation;” (e) the meaning assigned to each capitalized term defined
and used in this Agreement is equally applicable to both the singular and the
plural forms of such term, and words denoting any gender include all genders;
(f) where a word or phrase is defined in this Agreement, each of its other
grammatical forms has a corresponding meaning unless the context otherwise
requires; (g) a reference to any specific Legal Requirement or to any provision
of any Legal Requirement includes any amendment to, and any modification,
re-enactment or successor thereof, any legislative provision substituted
therefor and all rules, regulations and statutory instruments issued thereunder
or pursuant thereto; (h) references to any agreement or Contract are to that
agreement or Contract as amended, modified or supplemented; (i) they have been
represented by legal counsel during the negotiation and execution and delivery
of this Agreement and therefore waive the application of any Legal Requirement,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document; and (j) the word “or” shall not be exclusive (i.e., “or” shall be
deemed to mean “and/or”) unless the subjects of the conjunction are mutually
exclusive. The headings contained in this Agreement are for convenience of
reference only, shall not be deemed to be a part of this Agreement and shall not
be referred to in connection with the construction or interpretation of this
Agreement. All references to “Dollars” or “$” are to United States Dollars,
unless expressly stated otherwise.

 

2.

CONTINGENT VALUE RIGHTS

 

2.1.     CVRs. As provided in the Merger Agreement, effective as of the
Effective Time, (i) each Share shall be converted into the right to receive the
Merger Consideration, which includes one CVR, and (ii) each Company Warrant that
is assumed and converted pursuant to Section 5.3(c) of the Merger Agreement
shall be treated in accordance with its terms. The initial Holders shall be
determined pursuant to the terms of the Merger Agreement and this Agreement, and
a list of the initial Holders shall be furnished to the Rights Agent by or on
behalf of Parent in accordance with Section 4.1 hereof.

 

2.2.     Non-transferable. The CVRs may not be sold, assigned, transferred,
pledged, encumbered or in any other manner transferred or disposed of, in whole
or in part, other than through a Permitted Transfer, and, in the case of a
Permitted Transfer, only in accordance with Section 2.3(c) hereof and in
compliance with applicable United States federal and state securities laws and
the terms and conditions hereto. Any such sale, assignment, transfer, pledge,
encumbrance or disposal of CVRs, in whole or in part, in violation of this
Section 2.2, shall be null and void and of no effect.

 

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2.3.     No Certificate; Registration; Registration of Transfer; Change of
Address.

 

(a)     The CVRs shall not be evidenced by a certificate or other instrument.

 

(b)     The Rights Agent shall keep a register (the “CVR Register”) for the
purpose of identifying the Holders and registering CVRs and transfers of CVRs as
herein provided. The CVR Register will initially show one position for Cede &
Co. representing all of the CVRs that are issued to the holders of Shares held
by DTC on behalf of the street holders of the Shares. The Rights Agent will have
no responsibility whatsoever directly to the street name holders or DTC
participants with respect to transfers of CVRs. With respect to any payments to
be made under Section 2.4 below, the Rights Agent will accomplish such payment
to any former street name holders of the Shares by sending such payments to DTC.
The Rights Agent will have no responsibilities whatsoever with regard to the
distribution of payments by DTC to such street name holders.

 

(c)     Subject to the restrictions on transferability set forth in Section 2.2,
every request made to transfer a CVR must be in writing and accompanied by a
written instrument of transfer in form reasonably satisfactory to the Rights
Agent pursuant to its written guidelines, duly executed by the Holder thereof,
the Holder’s attorney duly authorized in writing, the Holder’s personal
representative or the Holder’s survivor, as applicable, and setting forth in
reasonable detail the circumstances relating to the transfer. Upon receipt of
such written notice, the Rights Agent shall, subject to its reasonable
determination that the transfer instrument is in proper form and the transfer
otherwise complies with the other terms and conditions of this Agreement
(including the provisions of Section 2.2), register the transfer of the CVRs in
the CVR Register and notify the Parent of the same. Any registration, transfer
or assignment of the CVRs shall be without charge to the Holder (other than
payment of a sum to the extent necessary to cover any stamp or other Tax or
other governmental charge that is imposed in connection with any such
registration, transfer or assignment). All duly transferred CVRs registered in
the CVR Register shall be the valid obligations of Parent and shall entitle the
transferee to the same benefits and rights under this Agreement as those held
immediately prior to the transfer by the transferor. No transfer of a CVR shall
be valid unless and until registered in the CVR Register.

 

(d)     A Holder may make a written request to the Rights Agent to change such
Holder’s address of record in the CVR Register. The written request must be duly
executed by the Holder. Upon receipt of such written request, the Rights Agent
is hereby authorized to, and shall promptly, record the change of address in the
CVR Register.

 

2.4.     Payment Procedures.

 

(a)     If any Milestone is achieved, then, in each case, on a date (a
“Milestone Payment Date”) that is within 60 days following the last day of such
Calendar Quarter in which such Milestone is achieved:

 

(i)     Parent will deliver to the Rights Agent (A) a notice (a “Milestone
Notice”) indicating (1) the achievement of such Milestone and that the Holders
are entitled to receive the applicable Milestone Amount, and (2) Parent’s
election as to which portion of such Milestone Amount shall be settled by
payment of cash (the “Milestone Cash Amount”) pursuant to Section 2.4(b) or by
credit of Parent Common Stock (the “Milestone Stock Amount”) pursuant to
Section 2.4(c), and (B) cash in the aggregate amount of the Milestone Cash
Amount (if such amount is greater than zero).

 

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(ii)     Subject to the terms of this Agreement, including Section 2.4(d), each
CVR shall entitle the Holder thereof to receive from Parent the number of fully
paid and nonassessable shares of Parent Common Stock equal to the applicable
Milestone Stock Amount (determined by dividing such amount by the Milestone
Stock Price), together, if applicable, with any Milestone Cash Amount, any cash
payable in lieu of fractional shares as provided in Section 2.8 and any
dividends or distributions payable as provided Section 2.9, in each case subject
to any applicable withholding Tax.

 

(b)     The Rights Agent shall promptly, and in any event within 10 Business
Days of receipt of a Milestone Notice, as well as any letter of instruction
reasonably required by the Rights Agent, send each Holder at its registered
address a copy of such Milestone Notice. If any Milestone Cash Amount is payable
to the Holders, then at the time the Rights Agent sends a copy of such Milestone
Notice to the Holders, the Rights Agent shall also pay to each Holder, subject
to any applicable withholding Tax, the applicable Milestone Cash Amount (the
amount of which each Holder is entitled to receive shall be based on the
applicable Milestone Cash Amount multiplied by the number of CVRs held by such
Holder as reflected in the CVR Register), in accordance with the corresponding
letter of instruction (i) by check mailed to the address of such Holder
reflected in the CVR Register as of 5:00 p.m. New York City time on the date of
the applicable Milestone Notice or (ii) with respect to any such Holder that is
due an amount in excess of $100,000 in the aggregate who has provided the Rights
Agent wiring instructions in writing as of the close of business on the date of
the Milestone Notice, by wire transfer of immediately available funds to the
account specified on such instruction.

 

(c)     Promptly following the Milestone Payment Date, and in any event within
10 Business Days, subject to any withholding Tax, Parent shall (i) pay the
applicable Milestone Stock Amount by crediting (or shall cause its Transfer
Agent to credit) the appropriate number of book-entry shares of Parent Common
Stock (as determined in accordance with Section 2.4(a)(ii)) to each Holder in
the name of such Holder as recorded in the CVR Register, and such book-entry
shares of Parent 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 Parent Common Stock as of the applicable Milestone Payment Date, and
(ii) deliver to the Rights Agent any cash necessary to be paid to Holders in
lieu of fractional shares as provided in Section 2.8 hereof, and the Rights
Agent shall deliver to each Holder at his, her or its address appearing on the
CVR Register, (x) a written notice specifying the number of shares of Parent
Common Stock (if any) paid for each CVR and to whom the shares of Parent Common
Stock were issued and the Rights Agent shall promptly record such issuance in
the CVR Register and (y) a check reflecting the amount of any cash in lieu of
fractional shares to be provided to such Holder as provided in Section 2.8
hereof and, if applicable, amounts payable pursuant to Section 2.9.

 

(d)     Notwithstanding anything to the contrary herein, in no event shall
Parent credit (or have any obligation to credit) pursuant to, or in connection
with, the CVRs a number of shares of Parent Common Stock that exceeds the Parent
Share Cap; provided that this Section 2.4(d) shall not be deemed to limit any
Holder’s right to receive any Milestone Amount in full (it being understood that
any portion of a Milestone Amount that would otherwise exceed the Parent Share
Cap shall be paid as a Milestone Cash Amount).

 

(e)     Notwithstanding any other provisions of this Agreement, any portion of
the cash provided by Parent to the Rights Agent as a reserve for purposes of
payments to Holders of cash in lieu of fractional shares pursuant to Section 2.8
hereof and, if applicable, amounts payable pursuant to Section 2.4(b) or
Section 2.9 that remains unclaimed as of the first anniversary of the applicable
Milestone Payment Date (including by means of uncashed checks or invalid
addresses on the CVR Register) shall be delivered to Parent or its designee and
not disbursed to the Holders, and, thereafter, such Holders shall be entitled to
look to Parent (subject to abandoned property, escheat and other similar Laws)
only as general creditors thereof with respect to such cash that may be payable.

 

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(f)     Neither Parent, the Rights Agent nor any of their Affiliates shall be
liable to any Holder for any payments delivered to a public official pursuant to
any abandoned property, escheat law or other similar Legal Requirements.

 

(g)     If a Milestone is not achieved during any one of the 2021, 2022, 2023 or
2024 Calendar Years, then on or before the date that is 60 days after the
expiration of each such applicable Calendar Year period, Parent shall deliver to
the Rights Agent a certificate certifying that such Milestone has not occurred,
accompanied by a statement setting forth, in reasonable detail, a calculation of
Net Sales for the applicable period (each, a “Milestone Non-Achievement
Certificate”). The Rights Agent shall promptly, and in any event within
10 Business Days of receipt of a Milestone Non-Achievement Certificate, send
each Holder at its registered address a copy of such Milestone Non-Achievement
Certificate, including detail regarding the ability of a Holder or Holders to
dispute or contest such determination of non-achievement of a Milestone pursuant
to this Agreement. If the Rights Agent does not receive from the Acting Holders
a written objection to (i) a Milestone Non-Achievement Certificate with respect
to Milestone 1, if any, within 180 days of the delivery by the Rights Agent of
such Milestone Non-Achievement Certificate to the Holders in accordance with
this Section 2.4(g), the Holders shall be deemed to have accepted such Milestone
Non-Achievement Certificate and Parent and its Affiliates shall have no further
obligation with respect to Milestone 1 and the Milestone 1 Amount, and/or (ii) a
Milestone Non-Achievement Certificate with respect to Milestone 2 Milestone 3,
and/or Milestone 4, if any, within 180 days of the delivery by the Rights Agent
of such Milestone Non-Achievement Certificate with respect the 2024 Calendar
Year to the Holders in accordance with this Section 2.4(g), the Holders shall be
deemed to have accepted such Milestone Non-Achievement Certificate and Parent
and its Affiliates shall have no further obligation with respect to each such
Milestone and the applicable Milestone Amount.

 

2.5.     Withholding. Each of Parent, the Rights Agent, the Exchange Agent, the
Surviving Corporation, their respective Affiliates, and any other Person who has
any obligation to deduct or withhold from any consideration payable pursuant to
this Agreement shall be entitled to deduct and withhold from the amounts
otherwise payable pursuant to this Agreement such amounts as are required by any
law to be deducted and withheld, as may be reasonably determined by such Person.
To the extent that amounts are so withheld and remitted to the appropriate
Governmental Body in accordance with applicable Legal Requirements, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the Person in respect of which such deduction and withholding was
made.

 

2.6.     Reservation of Parent Common Stock.

 

(a)     Parent will at all times reserve and keep available, free from
preemptive rights, out of the aggregate of its authorized but unissued Parent
Common Stock or the authorized and issued Parent Common Stock held in its
treasury, for the purpose of enabling it to satisfy any obligation to issue
shares of Parent Common Stock to the Holders of CVRs, the maximum number of
shares of Parent Common Stock, subject to Section 2.4(d), which may then be
deliverable to the Holders of all outstanding CVRs.

 

(b)     Parent will keep a copy of this Agreement on file with the transfer
agent for Parent Common Stock (the “Transfer Agent”) and with every subsequent
transfer agent for any shares of Parent Common Stock issuable to Holders of the
CVRs. Parent will provide or otherwise make available any cash which may be
payable as provided in Section 2.8 and Section 2.9 hereof. Parent will furnish
such Transfer Agent a copy of all notices of adjustments and certificates
related thereto transmitted to each Holder pursuant to Section 2.10 hereof.

 

(c)     Parent covenants that all shares of Parent Common Stock which may be
issued upon payment of CVRs 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.
Parent 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 Parent to perform its obligations under
this Agreement.

 

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2.7.     Adjustment of CVRs.

 

(a)     In case of any capital reorganization, other than any capital
reorganization that does not result in any reclassification of the outstanding
shares of Parent Common Stock into shares of other stock or other securities or
property (collectively any such actions being hereinafter referred to as
“Reorganizations”) and/or any Change of Control, appropriate adjustment 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 payment of
CVRs.

 

(b)     Whenever an adjustment is made to the terms of the CVRs pursuant to this
Section 2.7, Parent will deliver to the Rights Agent a notice of such
Reorganization or Change of Control within 3 Business Days of the closing of
such Reorganization or Change of Control, setting forth in reasonable detail the
terms of such Reorganization or Change of Control and any adjustments made
pursuant to this Section 2.7. The Rights Agent shall promptly, and in any event
within 10 Business Days of receipt of such a notice, send each Holder a copy of
such notice in accordance with Section 7.2

 

(c)     The Rights Agent has no duty to determine when an adjustment under this
Section 2.7 should be made, how it should be made or what it should be. The
Rights Agent makes no representation as to the validity or value of any
securities or assets issuable upon payment of CVRs. The Rights Agent shall not
be responsible for the Parent’s failure to comply with this Section 2.7.

 

(d)     For purpose of this Section 2.7, the term “shares of Parent Common
Stock” shall mean (i) shares of the class of stock designated as Common Stock,
par value $0.001 per share, of Parent 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 2.7, the Holders of CVRs shall become entitled to receive any securities
of Parent other than, or in addition to, shares of Parent Common Stock,
thereafter the number or amount of such other securities so issuable upon
payment of each CVR shall be subject to terms as nearly equivalent as
practicable to the provisions with respect to the shares of Parent Common Stock
issuable hereunder.

 

2.8.     No Fractional Shares. Parent shall not be required to issue fractional
shares of Parent Common Stock upon payment of CVRs, and no certificates or scrip
for any such fractional shares shall be issued. If more than one CVR shall be
payable at the same time with respect to the same Holder, the number of full
shares of Parent Common Stock which shall be issuable upon the payment thereof
shall be computed on the basis of the aggregate number of shares of Parent
Common Stock issuable upon the payment of such CVRs. If any fraction of a share
of Parent Common Stock would, except for the provisions of this Section 2.8, be
issuable on the payment of any CVRs, Parent shall pay in cash the dollar amount
(rounded to the nearest whole cent, with numbers ending with .5 or more being
rounded up to the nearest whole cent), without interest, determined by
multiplying such fraction by the Milestone Stock Price.

 

2.9.     Dividends or Other Distributions. No dividend or other distribution
declared with respect to Parent Common Stock with a record date prior to the
applicable Milestone Payment Date shall be paid to Holders of CVRs. To the
extent any shares of Parent Common Stock are issued to Holders pursuant to
Section 2.4(a)(ii), there shall be paid to such Holders the amount of dividends
or other distributions, without interest, declared with a record date after the
applicable Milestone Payment Date.

 

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2.10.     Notices to CVR Holders. Upon any adjustment pursuant to Section 2.7,
Parent 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 Parent,
within 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 Parent, 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 by Parent may be given in advance and
included as a part of the notice to the Holders required under the other
provisions of this Section 2.10.

 

2.11.     Holding of Funds. All funds received by the Rights Agent under this
Agreement that are to be distributed or applied by the Rights Agent in the
performance of services hereunder (the “Funds”) shall be held by the Rights
Agent as agent for Parent and deposited in one or more bank accounts to be
maintained by the Rights Agent in its name as agent for Parent. Until paid
pursuant to the terms of this Agreement, the Rights Agent will hold the Funds
through such accounts in: deposit accounts of commercial banks with Tier 1
capital exceeding $1 billion or with an average rating above investment grade by
S&P (LT Local Issuer Credit Rating), Moody’s (Long Term Rating) and Fitch
Ratings, Inc. (LT Issuer Default Rating) (each as reported by Bloomberg Finance
L.P.). The Rights Agent shall have no responsibility or liability for any
diminution of the Funds that may result from any deposit made by the Rights
Agent in accordance with this paragraph, including any losses resulting from a
default by any bank, financial institution or other third party; provided that
in the event the Funds are diminished below the level required for the Rights
Agent to make cash payments as required under this Agreement, including any such
diminishment as a result of investment losses, Parent shall promptly pay
additional cash to the Rights Agent in an amount equal to the deficiency in the
amount required to make such payments. The Rights Agent may from time to time
receive interest, dividends or other earnings in connection with such deposits.
The Rights Agent shall not be obligated to pay such interest, dividends or
earnings to the Parent, any Holder or any other Person, unless there is a
diminution of the Funds due to a deposit or investment made by the Rights Agent,
in which case, the Rights Agent agrees that such interest, dividends or earnings
shall accrue to the benefit of Parent to the extent of such diminution of the
Funds.

 

2.12.     No Voting, Dividends or Interest; No Equity or Ownership Interest.

 

(a)     Nothing contained in this Agreement shall be construed as conferring
upon any Holder, by virtue of being a Holder of a CVR (and not, for the
avoidance of doubt, shares of Parent Common Stock issued pursuant to a CVR), the
right to receive dividends other than as provided in Section 2.9, 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 Parent or any or any
other matter, or any other rights of any kind or nature whatsoever as a
stockholder of Parent, either at law or in equity.

 

(b)     The CVRs shall not represent any equity or ownership interest in Parent
or in any constituent company to the Merger or any of their respective
Subsidiaries or Affiliates. The rights of a Holder in respect of the CVRs are
limited to those expressed in this Agreement and the Merger Agreement.

 

2.13.     Ability to Abandon CVR. A Holder may at any time, at such Holder’s
option, abandon all of such Holder’s remaining rights in a CVR by transferring
such CVR to Parent or any of its Affiliates without consideration therefor.
Nothing in this Agreement shall prohibit Parent or any of its Affiliates from
offering to acquire or acquiring any CVRs for consideration from the Holders, in
private transactions or otherwise, in its sole discretion. Any CVRs acquired by
Parent or any of its Affiliates shall be automatically deemed extinguished and
no longer outstanding for purposes of the definition of Acting Holders and
Section 5 and Section 6.

 

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3.     THE RIGHTS AGENT

 

3.1.     Certain Duties and Responsibilities. Parent hereby appoints the Rights
Agent to act as rights agent for Parent in accordance with the express terms and
conditions set forth in this Agreement (and no implied terms and conditions),
and the Rights Agent hereby accepts such appointment. The Rights Agent shall not
have any liability for any actions taken, suffered or omitted to be taken in
connection with this Agreement, except to the extent of its gross negligence,
bad faith or willful or intentional misconduct.

 

3.2.     Certain Rights of the Rights Agent. The Rights Agent undertakes to
perform such duties and only such duties as are specifically set forth in this
Agreement, and no implied covenants or obligations shall be read into this
Agreement against the Rights Agent. In addition:

 

(a)     the Rights Agent may rely and shall be protected and held harmless by
Parent in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order or other paper or document believed by it in good faith to be genuine and
to have been signed or presented by the proper party or parties;

 

(b)     whenever the Rights Agent shall deem it desirable that a matter be
proved or established prior to taking, suffering or omitting any action
hereunder, the Rights Agent may rely upon an Officer’s Certificate, which
certificate shall be full authorization and protection to the Rights Agent, and
the Rights Agent shall, in the absence of gross negligence, bad faith or willful
or intentional misconduct on its part, incur no liability and be held harmless
by Parent for or in respect of any action taken, suffered or omitted to be taken
by it under the provisions of this Agreement in reliance upon such certificate;

 

(c)     the Rights Agent may engage and consult with counsel of its selection
and the written advice of such counsel or any opinion of counsel shall be full
and complete authorization and protection and shall be held harmless by Parent
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon;

 

(d)     the permissive rights of the Rights Agent to do things enumerated in
this Agreement shall not be construed as a duty;

 

(e)     the Rights Agent shall not be required to give any note or surety in
respect of the execution of such powers or otherwise in respect of the premises;

 

(f)     the Rights Agent shall not be liable for or by reason of, and shall be
held harmless by Parent with respect to any of the statements of fact or
recitals contained in this Agreement or be required to verify the same, but all
such statements and recitals are and shall be deemed to have been made by Parent
only;

 

(g)     the Rights Agent shall have no liability and shall be held harmless by
Parent in respect of the validity of this Agreement or the execution and
delivery hereof (except the due execution and delivery hereof by the Rights
Agent and the enforceability of this Agreement against the Rights Agent assuming
the due execution and delivery hereof by Parent); nor shall it be responsible
for any breach by Parent of any covenant or condition contained in this
Agreement;

 

(h)     Parent agrees to indemnify the Rights Agent for, and hold the Rights
Agent harmless against, any loss, liability, damage, judgement, fine, penalty,
claim, demands, suits or expense arising out of or in connection with Rights
Agent’s duties under this Agreement, including the reasonable out-of-pocket
costs and expenses of counsel in defending Rights Agent against any loss,
liability, damage, judgement, fine, penalty, claim, demands, suits or expense,
unless such loss has been determined by a court of competent jurisdiction to be
a result of Rights Agent’s gross negligence, bad faith or willful or intentional
misconduct;

 

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(i)     Anything to the contrary notwithstanding, in the absence of fraud or
willful or intentional misconduct on the part of the Rights Agent, (i) the
Rights Agent shall not be liable for any special, punitive, indirect,
consequential or incidental loss or damage of any kind whatsoever (including but
not limited to lost profits) arising out of any act or failure to act hereunder,
even if the Rights Agent has been advised of the likelihood of such loss or
damage or has foreseen the possibility or likelihood of such damages and (ii)
the aggregate liability of the Rights Agent arising in connection with this
Agreement, whether in contract, or in tort, or otherwise, is limited to, and
shall not exceed, the amounts paid or payable hereunder by Parent to the Rights
Agent as fees and charges;

 

(j)     Parent agrees (i) to pay the fees and expenses of the Rights Agent in
connection with this Agreement agreed upon in writing by the Rights Agent and
Parent prior to the data hereof, and (ii) to reimburse the Rights Agent for all
taxes and governmental charges, reasonable out-of-pocket expenses and other
charges of any kind and nature incurred by the Rights Agent in the execution of
this Agreement (other than Taxes imposed on or measured by the Rights Agent’s
net income and franchise or similar Taxes imposed on it (in lieu of net income
Taxes)); and

 

(k)     No provision of this Agreement shall require the Rights Agent to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.

 

3.3.     Resignation and Removal; Appointment of Successor.

 

(a)     The Rights Agent may resign at any time by giving written notice thereof
to Parent specifying a date when such resignation shall take effect, which
notice shall be sent at least 60 days prior to the date so specified but in no
event shall such resignation become effective until a successor Rights Agent has
been appointed and accepted such appointment in accordance with Section 3.4.
Parent has the right to remove the Rights Agent at any time by specifying a date
when such removal shall take effect but no such removal shall become effective
until a successor Rights Agent has been appointed and accepted such appointment
in accordance with Section 3.4. Notice of such removal shall be given by Parent
to the Rights Agent, which notice shall be sent at least 60 days prior to the
date so specified.

 

(b)     If the Rights Agent provides notice of its intent to resign, is removed
or becomes incapable of acting, Parent shall, as soon as is reasonably
practicable, appoint a qualified successor Rights Agent who shall be a stock
transfer agent of national reputation or the corporate trust department of a
commercial bank. Notwithstanding the foregoing, if Parent shall fail to make
such appointment within a period of sixty (60) days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent, then the incumbent
Rights Agent may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. The successor Rights Agent so appointed
shall, forthwith upon its acceptance of such appointment in accordance with
Section 3.4, become the successor Rights Agent.

 

(c)     Parent shall give notice of each resignation and each removal of a
Rights Agent and each appointment of a successor Rights Agent through the
facilities of DTC in accordance with DTC’s procedures and/or by mailing written
notice of such event by first-class mail to the Holders as their names and
addresses appear in the CVR Register. Each notice shall include the name and
address of the successor Rights Agent. If Parent fails to send such notice
within 10 Business Days after acceptance of appointment by a successor Rights
Agent, the successor Rights Agent shall cause the notice to be transmitted at
the expense of Parent. Failure to give any notice provided for in this Section
3.3, however, 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.

 

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(d)     Notwithstanding anything else in this Section 3.3, unless consented to
in writing by the Acting Holders, Parent shall not appoint as a successor Rights
Agent any Person that is not a stock transfer agent of national reputation or
the corporate trust department of an international commercial bank.

 

3.4.     Acceptance of Appointment by Successor. Every successor Rights Agent
appointed hereunder shall, at or prior to such appointment, execute, acknowledge
and deliver to Parent and to the retiring Rights Agent an instrument accepting
such appointment and a counterpart of this Agreement, and thereupon such
successor Rights Agent, without any further act, deed or conveyance, shall
become vested with all the rights, powers, trusts and duties of the retiring
Rights Agent. On request of Parent or the successor Rights Agent, the retiring
Rights Agent shall execute and deliver an instrument transferring to the
successor Rights Agent all the rights, powers, trusts and duties of the retiring
Rights Agent.

 

4.        COVENANTS

 

4.1.     List of Holders. Parent shall furnish or cause to be furnished to the
Rights Agent, in a form as received from Parent’s Transfer Agent, the names and
addresses of the Holders within 10 days of the Effective Time.

 

4.2.     Books and Records. Parent shall, and shall cause its subsidiaries to,
keep true, complete and accurate records in sufficient detail to enable the
Holders and their consultants or professional advisors to determine the amounts
payable hereunder.

 

4.3.     Payment of Milestone Cash Amounts. Parent shall duly and promptly
deposit with the Rights Agent for payment to the Holders the Milestone Cash
Amounts, if any, in the manner provided for in Section 2.4 and in accordance
with the terms of this Agreement.

 

4.4.     Further Assurances. Parent agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered, all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.

 

4.5.     Audit Rights.

 

(a)     Until December 31, 2025, upon reasonable advance written notice from the
Acting Holders, Parent shall permit an independent certified public accounting
firm of nationally recognized standing selected by such Acting Holders and
reasonably acceptable to Parent (the “Independent Accountant”) to have access at
reasonable times during normal business hours to the books and records of Parent
and its Affiliates as may be reasonably necessary to evaluate and verify
Parent’s calculation of Net Sales hereunder; provided that (x) such Acting
Holders (and the Independent Accountant) enter into customary confidentiality
agreements reasonably satisfactory to Parent with respect to the confidential
information of Parent or its Affiliates to be furnished pursuant to this Section
4.5 and (y) such access does not unreasonably interfere with the conduct of the
business of Parent or any of its Affiliates. The fees charged by such accounting
firm shall be borne by Parent. The Independent Accountant shall provide Parent
with a copy of all disclosures made to the Acting Holders. The decision of such
accounting firm shall be final, conclusive and binding on Parent and the
Holders, shall be nonappealable and shall not be subject to further review,
absent manifest error. Parent shall not enter into any transaction constituting
a Change of Control unless such agreement contains provisions that would permit
such accounting firm with such access to the records of the other party in such
Change of Control if and to the extent as are reasonably necessary to ensure
compliance with this Section 4.5. The audit rights set forth in this Section
4.5(a) may not be exercised by the Acting Holders more than once in any given
twelve (12) month period.

 

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(b)     If, in accordance with the procedures set forth in Section 4.5(a), the
Independent Accountant concludes that any Milestone Amount should have been paid
but was not paid when due, Parent shall promptly, and in any event within thirty
(30) days of the date the Independent Accountant delivers to Parent the
Independent Accountant’s written report, pay each Holder such Milestone Amount
(to the extent not paid on a subsequent date), plus interest at the thirty (30)
day U.S. dollar “prime rate” effective for the date such payment was due, as
reported by Bloomberg, from when such Milestone Amount should have been paid, as
applicable, to the date of actual payment, pursuant to Section 2.4(a)(i) and
Sections 2.4(b) and 2.4(c), as applicable.

 

4.6.     Commercially Reasonable Efforts. Commencing upon the Closing and
continuing until the earlier of December 31, 2024 or the achievement of all
Milestones, Parent shall, and shall cause its Affiliates and Licensees to, use
Commercially Reasonable Efforts to achieve the Milestones. Without limiting the
foregoing, neither Parent nor any of its Affiliates shall act in bad faith for
the purpose of avoiding achievement of any Milestone or the payment of any
Milestone Amount.

 

5.         AMENDMENTS

 

5.1.     Amendments without Consent of Holders.

 

(a)     Without the consent of any Holders, Parent, 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 Parent and the
assumption by any such successor of the covenants of Parent 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 such successor of the covenants and obligations
of the 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 Parent such further covenants,
restrictions, conditions or provisions as Parent shall consider to be for the
protection of the Holders; provided that, in each case, such provisions do not
adversely affect the interests of the Holders;

 

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

 

(v)     as may be necessary or appropriate to ensure that the CVRs are not
subject to registration under the Securities Act, the Exchange Act or any
applicable state securities or “blue sky” laws; provided that, such provisions
shall not adversely affect the interests of the Holders;

 

(vi)     to evidence the assignment of this Agreement by Parent as provided in
Section 7.3; or

 

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

 

In addition to the foregoing, upon the request of Parent, 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 in accordance with the
terms of this Agreement and the assumption by any successor of the covenants and
obligations of such Rights Agent herein, without modification of such covenants
or obligations other than as permitted by this Section 5.1.

 

(b)     Without the consent of any Holders, Parent and the Rights Agent, at any
time and from time to time, may enter into one or more amendments hereto to
reduce the number of CVRs, in the event any Holder agrees to renounce such
Holder’s rights under this Agreement in accordance with Section 7.4 or to
transfer CVRs to Parent pursuant to Section 2.13.

 

(c)     Promptly after the execution by Parent and the Rights Agent of any
amendment pursuant to the provisions of this Section 5.1, Parent shall mail (or
cause the Rights Agent to mail) a notice thereof through the facilities of DTC
in accordance with DTC’s procedures and/or by first class mail to the Holders at
their addresses as they appear on the CVR Register, setting forth such
amendment.

 

5.2.     Amendments with Consent of Holders.

 

(a)     Subject to Section 5.1 (which amendments pursuant to Section 5.1 may be
made without the consent of any Holder), with the written consent of the Holders
of not less than a majority of the outstanding CVRs as set forth in the CVR
Register, whether evidenced in writing or taken at a meeting of the Holders,
Parent and the Rights Agent may enter into one or more amendments hereto for the
purpose of adding, eliminating or changing any provisions of this Agreement,
even if such addition, elimination or change is materially adverse to the
interest of the Holders.

 

(b)     Promptly after the execution by Parent and the Rights Agent of any
amendment pursuant to the provisions of this Section 5.2, Parent shall mail (or
cause the Rights Agent to mail) a notice thereof through the facilities of DTC
in accordance with DTC’s procedures and/or by first class mail to the Holders at
their addresses as they appear on the CVR Register, setting forth such
amendment.

 

5.3.     Execution of Amendments. Prior to executing any amendment permitted by
this Section 5, the Rights Agent shall be entitled to receive, and shall be
fully protected in relying upon, an opinion of counsel selected by Parent and
reasonably acceptable to Rights Agent stating that the execution of such
amendment is authorized or permitted by this Agreement.

 

5.4.     Effect of Amendments. Upon the execution of any amendment under this
Section 5, 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.

 

6.

REMEDIES OF THE HOLDERS

 

6.1.     Event of Default.

 

(a)     “Event of Default” with respect to the CVRs, means each one of the
following events which shall have occurred and be continuing (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of Legal Requirements, pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
Governmental Body or otherwise): (i) default in the payment by Parent pursuant
to the terms of this Agreement of all or any part of a Milestone Amount after a
period of ten (10) Business Days after the Milestone Amount shall become due and
payable and (ii) material default in the performance, or breach in any material
respect, of any other covenant or warranty of Parent hereunder, and continuance
of such default or breach for a period of sixty (60) days after a written notice
specifying such default or breach and requiring it to be remedied is given,
which written notice states that it is a “Notice of Default” hereunder and is
sent by registered or certified mail to Parent and the Rights Agent by the
Acting Holders.

 

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(b)     If an Event of Default described above occurs and is continuing (and has
not been cured or waived), then, and in each and every such case, the Acting
Holders by notice in writing to Parent and the Rights Agent, may, in their
discretion, commence a suit to protect the rights of the Holders, including to
obtain payment for any amounts then due and payable.

 

6.2.     Suits by Holders. Except for the rights of the Rights Agent set forth
herein, the Acting Holders will have the sole right, on behalf of all Holders,
by virtue of or under any provision of this Agreement, to institute any action
or proceeding with respect to this Agreement, and no individual Holder or other
group of Holders will be entitled to exercise such rights. Notwithstanding the
foregoing, (a) the right of any Holder of any CVR to receive payment of the
amounts that a Milestone Notice indicates are payable in respect of such CVR on
or after the applicable due date, or to institute any action or proceeding for
the enforcement of any such payment on or after such due date, shall not be
impaired or affected without the consent of such Holder and (b) in the event of
an insolvency proceeding of the Parent, individual Holders shall be entitled to
assert claims in such insolvency proceeding and take related actions in pursuit
of such claims with respect to any payment that may be claimed by or on behalf
of the Parent or by any creditor of the Parent.

 

7.           OTHER PROVISIONS OF GENERAL APPLICATION

 

7.1.     Notices to the Rights Agent and Parent. Any notice or other
communication required or permitted to be delivered to Parent or the Rights
Agent under this Agreement shall be in writing and shall be deemed properly
delivered, given and received (a) upon receipt when delivered by hand, (b) two
Business Days after being sent by registered mail or by courier or express
delivery service, (c) if sent by email transmission prior to 6:00 p.m.
recipient’s local time, upon transmission when receipt is confirmed or (d) if
sent by email transmission after 6:00 p.m. recipient’s local time and receipt is
confirmed, the Business Day following the date of transmission; provided that in
each case the notice or other communication is sent to the physical address or
email address, as applicable, set forth beneath the name of such party below (or
to such other physical address or email address as such party shall have
specified in a written notice given to the other party):

 

If to the Rights Agent, to it at:

 

[ ]

[Address]

Attention: [ ]

Facsimile: [ ]

Email: [ ]

 

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If to Parent, to it at:

AcelRx Pharmaceuticals, Inc.

351 Galveston Drive

Redwood City, California 94063

Attention: Chief Financial Officer

Phone: 650-216-3500

 

with a copy to:

 

AcelRx Pharmaceuticals, Inc.

351 Galveston Drive

Redwood City, California 94063

Attention: Legal Department

Phone: 650-216-3500
Email: legal@acelrx.com

with a copy to:

Cooley LLP
101 California Street, 5th Floor

 

San Francisco, CA 94111

 

Attention: Robert Phillips; Rama Padmanabhan

 

E-mail: rphillips@cooley.com; rama@cooley.com

 

Facsimile: (415) 693-2222

 

The Rights Agent or Parent may specify a different address, facsimile number or
email address by giving notice in accordance with this Section 7.1.

 

7.2.     Notice to Holders. Where this Agreement provides for notice to Holders,
such notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and transmitted through the facilities of DTC in
accordance with DTC’s procedures or mailed, first-class postage prepaid, to each
Holder affected by such event, at the Holder’s address as it appears in the CVR
Register, not later than the latest date, and not earlier than the earliest
date, if any, prescribed for the giving of such notice. In any case where notice
to Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders.

 

7.3.     Successors and Assigns. Parent may assign, in its sole discretion and
without the consent of any other Person, any or all of its rights, interests and
obligations hereunder to one or more direct or indirect wholly owned
subsidiaries of Parent for so long as they remain wholly owned subsidiaries of
Parent and any such subsidiary may assign any or all of its rights, interests
and obligations hereunder to one or more other direct or indirect wholly owned
subsidiaries of Parent for so long as they remain wholly owned subsidiaries of
Parent; provided that each such assignee agrees to assume and be bound by all of
the terms and conditions of this Agreement; provided, further, that Parent shall
remain liable for the performance by each such assignee of all covenants,
agreements and obligations of Parent hereunder. This Agreement will be binding
upon, inure to the benefit of and be enforceable by Parent’s successors and each
assignee. Each of Parent’s successors and each assignee shall, by a supplemental
contingent consideration payment agreement or other acknowledgement executed and
delivered to the Rights Agent, expressly agree to assume and be bound by all of
the terms and conditions of this Agreement. This Agreement shall not restrict
Parent’s or any successor’s ability to merge or consolidate or enter into or
consummate any Change of Control; provided, that in the event of a Change of
Control, Parent or the Company, as applicable, shall cause the acquirer to
assume Parent’s obligations, duties and covenants under this Agreement, in which
case the obligation to issue Parent Common Stock set forth herein shall be
assumed by the ultimate parent company in such Change of Control and the equity
issuable hereunder shall be the equity of such new Person. Except as otherwise
permitted herein, Parent may not assign this Agreement without the prior written
consent of the Acting Holders. Any attempted assignment of this Agreement or any
such rights in violation of this Section 7.3 shall be void and of no effect.

 

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7.4.     No Third Party Beneficiaries. Nothing in this Agreement, express or
implied, shall give to any Person (other than the Rights Agent and its permitted
successors and assigns, Parent, Parent’s permitted successors and assignees, and
the Holders and the Holders’ successors and assigns pursuant to Permitted
Transfers, each of whom is intended to be, and is, a third party beneficiary
hereunder) any benefit or any legal or equitable right, remedy or claim under
this Agreement or under any covenant or provision herein contained, all such
covenants and provisions being for the sole benefit of the Rights Agent and its
permitted successors and assigns, Parent, Parent’s permitted successors and
assignees, and the Holders and the Holders’ successors and assigns pursuant to
Permitted Transfers. The rights hereunder of Holders and their successors and
assigns pursuant to Permitted Transfers are limited to those expressly provided
in this Agreement. Notwithstanding anything to the contrary contained herein,
any Holder or Holder’s successor or assign pursuant to a Permitted Transfer may
at any time agree to renounce, in whole or in part, whether or not for
consideration, its rights under this Agreement by written notice to the Rights
Agent and Parent, which notice, if given, shall be irrevocable, and Parent may,
in its sole discretion, at any time offer consideration to Holders in exchange
for their agreement to irrevocably renounce their rights, in whole or in part,
hereunder.

 

7.5.     Governing Law; Jurisdiction. This Agreement, the CVRs and all actions
arising under or in connection herewith and therewith (whether sounding in
contract, tort or otherwise) shall be governed by and construed in accordance
with the he laws of the State of Delaware, without giving effect to any laws,
rules or provisions that would cause the application of the laws of any
jurisdiction other than the State of Delaware. In any action between any of the
parties arising out of or relating to this Agreement or the CVRs: (a) each of
the parties irrevocably and unconditionally consents and submits to the
exclusive jurisdiction and venue of the Chancery Court of the State of Delaware;
and (b) each of the parties irrevocably waives the right to trial by jury. All
rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.

 

7.6.     Severability. In the event that any provision of this Agreement, or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement shall
continue in full force and effect and the application of such provision to other
Persons or circumstances shall be interpreted so as reasonably to effect the
intent of the parties. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.

 

7.7.     Termination. This Agreement shall be terminated and of no force or
effect, the parties hereto shall have no liability hereunder (other than with
respect to monies due and owing by Parent to Rights Agent), and no payments
shall be required to be made, or stock to be credited, upon the earlier to occur
of (a) the payment in full of the Milestone 1 Amount, the Milestone 2 Amount and
the Milestone 3 Amount, by Parent crediting (or cause its Transfer Agent to
credit) the full amount of shares of Parent Common Stock reflecting each
Milestone Stock Amount to each Holder in the name of such Holder as recorded in
the CVR Register and the mailing by the Rights Agent to the address of each
Holder as reflected in the CVR Register the full amount of each Milestone Cash
Amount and the potential cash payments in lieu of fractional shares, in each
case, as required to be credited or paid, as applicable, under the terms of this
Agreement, (b) December 31, 2024, if Milestone 2 and/or Milestone 3 has not been
achieved on or prior to such date, and (c) the termination of the Merger
Agreement in accordance with its terms. Notwithstanding the foregoing, no such
termination shall affect any rights or obligations accrued prior to the
effective date of such termination or Sections 2.4(e), 2.4(f), 2.4(g), 3.2, 4.5,
7.4, 7.5, 7.6, 7.8, 7.9, 7.10 or this Section 7.7, which shall survive the
termination of this Agreement, or the resignation, replacement or removal of the
Rights Agent.

 

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7.8.     Entire Agreement; Counterparts. As it relates to the Rights Agent, this
Agreement constitutes the entire agreement of the parties hereto and supersedes
all contemporaneous and prior agreements and understandings, both written and
oral, among or between any of the parties hereto, with respect to the subject
matter hereof. As between the Parent and the Company this Agreement and the
Merger Agreement constitute the entire agreement and supersede all
contemporaneous and prior agreements and understandings, both written and oral,
among or between any of the parties, with respect to the subject matter hereof.
If and to the extent that any provision of this Agreement is inconsistent or
conflicts with the Merger Agreement, this Agreement shall govern and be
controlling. This Agreement may be executed in counterparts, each of which shall
be deemed an original and all of which shall constitute one and the same
instrument. The exchange of a fully executed Agreement (in counterparts or
otherwise) by PDF shall be sufficient to bind the parties hereto to the terms
and conditions of this Agreement.

 

7.9.     No Fiduciary Obligations. Each of Parent and the Rights Agent
acknowledges and agrees that the other party, its Affiliates and their
respective officers, directors and controlling Persons do not owe any fiduciary
duties to the first party or any of its respective Affiliates, officers,
directors or controlling Persons. The only obligations of the Parent and the
Rights Agent to each other and their Affiliates and their respective officers,
directors and controlling Persons arising out of this Agreement are the
contractual obligations expressly set forth in this Agreement.

 

7.10.    Confidentiality. The Rights Agent and the Parent agree that all books,
records, information and data pertaining to the business of the other party,
including inter alia, personal, non-public Holder information, which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement including the fees for services set forth in the attached schedule
shall remain confidential, and shall not be voluntarily disclosed to any other
person, except as may be required by a valid order of an arbitration panel,
court or governmental body of competent jurisdiction or is otherwise required by
law or regulation, including SEC or Nasdaq rules and regulations, or pursuant to
subpoenas from state or federal government authorities (e.g., in divorce and
criminal actions).

 

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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed
on its behalf by its duly authorized officers as of the day and year first above
written.

 

 

 

 

ACELRX PHARMACEUTICALS, INC.

 

 

 

 

 

 

By:

 

 

 

Name: 

 

 

 

Title: 

 

 

          [Rights Agent]             By:       Name:        Title:     

 

[Signature Page to Contingent Value Rights Agreement]