<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 1996
REGISTRATION NO. 333-12675
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------------
CV THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8731 43-1570294
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
</TABLE>
------------------------------
3172 PORTER DRIVE
PALO ALTO, CA 94304
(415) 812-0585
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------
LOUIS G. LANGE, M.D., PH.D.
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
CV THERAPEUTICS, INC.
3172 PORTER DRIVE
PALO ALTO, CA 94304
(415) 812-0585
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
ALAN C. MENDELSON, ESQ. DAVID J. SEGRE, ESQ.
DEBORAH A. MARSHALL, ESQ. ISSAC J. VAUGHN, ESQ.
COOLEY GODWARD LLP BRIDGET LOGTERMAN, ESQ.
FIVE PALO ALTO SQUARE HAROLD DEGRAFF, ESQ.
3000 EL CAMINO REAL WILSON, SONSINI, GOODRICH & ROSATI,
PALO ALTO, CA 94306-2155 PROFESSIONAL CORPORATION
(415) 843-5000 650 PAGE MILL ROAD
PALO ALTO, CA 94306
(415) 493-9300
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(o) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.001 par value......... 2,875,000 $14.00 $40,250,000 $13,639(3)
</TABLE>
(1) Includes 375,000 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a).
(3) Of this amount, $11,897 was paid in connection with the initial filing of
the Registration Statement on September 25, 1996, with respect to a Proposed
Maximum Aggregate Offering Price of $34,500,000. The additional amount of
the registration fee has been calculated pursuant to Rule 457 with respect
to the additional $5,750,000 of the Proposed Maximum Aggregate Offering
Price.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION
DATED OCTOBER 29, 1996
2,500,000 SHARES
[LOGO]
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
All of the 2,500,000 shares of Common Stock (the "Common Stock") offered hereby
(the "Offering") are being sold by CV Therapeutics, Inc. ("CVT" or the
"Company").
Prior to this offering, there has been no public market for the Common Stock of
the Company. It is currently estimated that the initial public offering price
for the Common Stock will be between $12.00 and $14.00 per share. See
"Underwriting" for factors to be considered in determining the initial public
offering price. The Company has applied for listing of the Common Stock on the
Nasdaq National Market under the symbol "CVTX."
SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
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Per Share $ $ $
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Total (3) $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $925,000.
(3) The Company has granted to the Underwriters an option, exercisable within 30
days after the date of this Prospectus, to purchase up to an additional 375,000
shares of Common Stock on the same terms as set forth above solely to cover
over-allotments, if any. If such option is exercised in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
The shares of Common Stock offered by this Prospectus are being offered by the
Underwriters, subject to prior sale, when, as and if delivered to and accepted
by the Underwriters, and subject to approval of certain legal matters by Wilson,
Sonsini, Goodrich & Rosati, Professional Corporation, counsel for the
Underwriters. It is expected that delivery of the shares of Common Stock offered
hereby will be made against payment therefor on or about , 1996 at the
offices of J.P. Morgan Securities Inc., 60 Wall Street, New York, New York.
J.P. MORGAN & CO.
INVEMED ASSOCIATES, INC.
UBS SECURITIES
, 1996
<PAGE>
Graphical description of molecular cardiology platform
Graphical description of the integration
of market needs and molecular cardiology
CVT's product development programs are at an early stage. Products, if any,
resulting from such programs cannot be made available for commercial sale unless
and until regulatory approval is obtained. The Company will be required to
complete clinical trials to demonstrate the safety and efficacy of any potential
products prior to filing for regulatory approval.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
<PAGE>
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. SEE "UNDERWRITING."
<PAGE>
No person has been authorized to give any information or to make any
representations not contained in this Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or any Underwriter. This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, the Common Stock in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Company subsequent to the date hereof.
No action has been or will be taken in any jurisdiction by the Company or by any
Underwriter that would permit a public offering of the Common Stock or
possession or distribution of this Prospectus in any jurisdiction where action
for the purpose is required, other than in the United States. Persons into whose
possession this Prospectus comes are required by the Company and the
Underwriters to inform themselves about and to observe any restrictions as to
the offering of the Common Stock and the distribution of this Prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary............................. 4
Risk Factors................................... 7
The Company.................................... 15
Use of Proceeds................................ 15
Dividend Policy................................ 15
Capitalization................................. 16
Dilution....................................... 17
Selected Consolidated Financial Data........... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 19
<CAPTION>
PAGE
<S> <C>
Business....................................... 22
Management..................................... 38
Certain Transactions........................... 48
Principal Stockholders......................... 51
Description of Capital Stock................... 54
Shares Eligible for Future Sale................ 56
Underwriting................................... 58
Legal Matters.................................. 59
Experts........................................ 59
Additional Information......................... 59
Index to Consolidated Financial Statements..... F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
The Company intends to furnish its stockholders with annual reports containing
audited consolidated financial statements examined by its independent auditors
and will make available quarterly reports containing interim unaudited
consolidated financial statements for each of the first three quarters of each
fiscal year.
CV Therapeutics, Inc. and the CV Therapeutics logo are trademarks of the
Company. All brand names or trademarks appearing in this Prospectus are the
property of their respective holders.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS. THE DISCUSSION IN THIS PROSPECTUS
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES
INCLUDING, BUT NOT LIMITED TO, THOSE SPECIFICALLY IDENTIFIED HEREIN. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HERE.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS," AS
WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES (I) A 1-FOR-10 REVERSE
SPLIT OF THE COMPANY'S OUTSTANDING COMMON STOCK EFFECTED IN OCTOBER 1996; (II)
THE ISSUANCE OF 792,898 SHARES OF COMMON STOCK UPON THE NET EXERCISE OF CERTAIN
WARRANTS UPON THE CLOSING OF THE OFFERING; (III) THE CONVERSION OF ALL
OUTSTANDING SHARES OF PREFERRED STOCK INTO SHARES OF COMMON STOCK TO BE EFFECTED
UPON THE CLOSING OF THE OFFERING; AND (IV) NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION.
THE COMPANY
The Company is a biopharmaceutical company focused exclusively on the
application of molecular cardiology to the discovery, development and
commercialization of novel, small molecule drugs for the treatment of chronic
cardiovascular diseases. Molecular cardiology was developed, in part, by CVT
scientists and their academic collaborators and is based upon the application of
molecular biology and genetics to cardiovascular diseases. This discipline has
yielded new insights into the mechanisms underlying chronic cardiovascular
diseases and has enhanced the search for innovative cardiovascular drugs by
providing an increasing number of new molecular targets for drug discovery. To
date, CVT has discovered five compounds and completed the strategic in-license
of a sixth compound for treatment of chronic cardiovascular diseases.
Cardiovascular disease is the leading cause of death in the United States,
claiming more than 950,000 lives in 1993. The American Heart Association
projects the total cost of cardiovascular medications in the United States for
1996 at $11 billion.
Two of the Company's drug candidates, CVT-124 and ranolazine, are in clinical
trials. CVT-124 is an adenosine A(1) receptor antagonist discovered by CVT.
Adenosine A(1) receptor antagonists block certain actions of adenosine, a
hormone that modulates different functions of the cardiovascular system. CVT-124
has potential applications in the treatment of edema (fluid accumulation)
associated with congestive heart failure ("CHF") and in the prevention and
treatment of acute renal failure. A Phase I/II study completed by the Company in
the United States indicated that CVT-124 is generally well tolerated and
produces diuretic activity in healthy volunteers. Approximately one-quarter of
the 875,000 patients in the United States hospitalized with a primary diagnosis
of CHF exhibit resistance to current intravenous diuretic treatments. The
Company believes that these patients would represent the initial target market
for CVT-124 in this indication.
The Company's second compound in clinical trials, ranolazine, is a novel
compound for the treatment of angina. Ranolazine was licensed from Syntex
(U.S.A.), Inc. ("Syntex"), an indirect subsidiary of Roche Holding Limited
("Roche"), in March 1996. Its novel metabolic mechanism of action was
discovered, in part, by cardiovascular researchers now at or associated with
CVT. In Phase I and Phase II clinical trials conducted by Syntex, an immediate
release formulation of ranolazine ("ranolazine IR") was administered to over
1,200 patients. These clinical trials have indicated that ranolazine IR improved
exercise tolerance in angina patients without adversely affecting heart rate or
decreasing blood pressure, a clinical profile absent from currently available
drugs. Based on these data, as well as Syntex pilot Phase II data from a
sustained release formulation of ranolazine ("ranolazine SR") for intermittent
claudication (pain in the legs due to insufficient blood flow), the Company
intends to commence further clinical trials of ranolazine SR. The Company
believes ranolazine could particularly benefit angina patients who also suffer
from CHF or remain symptomatic despite maximal doses of currently available
anti-anginal drugs. In the United States, approximately 6.7 million patients are
currently diagnosed with angina. Based on published studies, approximately
one-third, or 2.2 million, are either diagnosed with both angina and CHF or are
resistant to currently available treatments. The Company believes these patients
would represent the initial target market for ranolazine.
4
<PAGE>
The four other compounds discovered by the Company are in preclinical studies.
CVT-313 is a selective inhibitor of the cell cycle enzyme, cyclin-dependent
kinase 2 ("CDK2"). The Company believes that CVT-313 may be useful in a variety
of cellular proliferative disorders, including the prevention of restenosis, as
an adjunct to coronary artery bypass surgery and as a treatment for
cardiomyopathy (heart muscle damage). CVT-634, an inhibitor of another cell
cycle regulating enzyme, is also being evaluated in animal models of chronic
cardiovascular disease. CVT-609 and CVT-429 are highly selective adenosine A(1)
receptor agonists which the Company believes may have potential activity in
treating certain common cardiac arrhythmias. The Company believes that compared
to current therapies, these compounds may offer an improved clinical profile for
immediate treatment of these arrhythmias including avoiding unwanted blood
pressure lowering effects.
In addition, the Company has discovered a novel inflammatory factor found in
human cardiovascular diseases, which it partnered to Bayer AG for continued
development.
BUSINESS STRATEGY
The Company's strategy is to become a leader in the development of novel,
cost-effective treatments for chronic cardiovascular diseases by leveraging its
expertise in molecular cardiology. The Company is developing products based on
small molecules designed to (i) utilize novel mechanisms of action, (ii) address
segments of the cardiovascular patient population which are either underserved
or not treatable by existing therapies, and (iii) offer the currently served
cardiovascular patient population the potential for improved efficacy with fewer
side effects than currently available drugs.
The Company believes that it can best utilize its internal resources by
concentrating its activities on discovery, preclinical evaluation and early
clinical phases of drug development. The Company intends to establish
partnerships with pharmaceutical companies for later stage clinical trials and
marketing and sales activities for its products. The Company believes that such
partnerships will enable the Company to more effectively and economically
develop and market its initial products.
DRUG DISCOVERY PLATFORM
CVT's drug discovery platform supports several programs, including those focused
on the adenosine A(1) receptor, the cell cycle and chronic inflammation in the
cardiovascular system. These programs have produced compounds currently in
clinical or preclinical development or outlicensed for use in third party drug
discovery programs. CVT's expertise in molecular cardiology and drug development
has been critical to the identification of these drug candidates.
The Company believes that its drug discovery platform allows it to efficiently
select novel, clinically relevant drug candidates that have a significant
probability of commercial potential. CVT first evaluates new targets with
respect to clinical relevance and suitability for small molecule inhibition. CVT
then utilizes a highly integrated, multidisciplinary approach to produce novel
small molecules as drug candidates for these targets. The Company combines
molecular modeling and combinatorial chemistry to assemble targeted libraries of
new chemical entities, an approach which the Company believes expedites the
identification of potential drug leads. The Company has developed a
comprehensive proprietary database correlating biological activity of candidate
drugs with their structures. From this database, CVT identifies final lead
compounds based on predetermined development criteria including potency,
specificity, manufacturability, and pharmacologic activity in animal and IN
VITRO models. The Company determines the proper selection of cell-based assays
and animal models of disease to enhance development of the drug candidate based
on its projected use in the clinical setting.
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. The principal
risks of the Offering include uncertainties related to the Company's early stage
of development, including the fact that the Company has not received marketing
approval for any of its products from regulatory authorities, uncertainties
related to clinical trials of ranolazine and CVT-124 and a history of operating
losses. See "Risk Factors."
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
COMMON STOCK OFFERED........................ 2,500,000 shares
COMMON STOCK OUTSTANDING AFTER THE 6,949,166 shares (1)
OFFERING...................................
USE OF PROCEEDS............................. Research and development, including
preclinical testing, clinical trials and
certain milestone payments; repayment of
certain indebtedness; and working capital and
general corporate purposes.
PROPOSED NASDAQ NATIONAL MARKET SYMBOL...... "CVTX"
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
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<S> <C> <C> <C> <C> <C> <C>
NINE MONTHS ENDED
INCEPTION (DEC. YEAR ENDED DECEMBER 31, SEPTEMBER 30,
IN THOUSANDS, EXCEPT PER SHARE 11, 1990) TO DEC. --------------------------------- ---------------------
DATA 31, 1992 1993 1994 1995 1995 1996
------------------ --------- ---------- ---------- ---------- ---------
(UNAUDITED)
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
License revenue.................. $ - $ - $ - $ - $ - $ 250
Operating expenses:
Research and development....... 1,167 4,731 8,823 12,856 10,099 5,834
General and administrative..... 429 947 2,802 3,402 2,367 2,186
------- --------- ---------- ---------- ---------- ---------
Total operating expenses......... 1,596 5,678 11,625 16,258 12,466 8,020
------- --------- ---------- ---------- ---------- ---------
Loss from operations............. (1,596) (5,678) (11,625) (16,258) (12,466) (7,770)
Interest (income) expense, net... 34 (161) (258) 466 288 597
------- --------- ---------- ---------- ---------- ---------
Net loss....................... $ (1,630) $ (5,517) $ (11,367) $ (16,724) $ (12,754) $ (8,367)
------- --------- ---------- ---------- ---------- ---------
------- --------- ---------- ---------- ---------- ---------
Pro forma net loss per share
(2)............................. $ (4.33) $ (3.37) $ (1.78)
---------- ---------- ---------
---------- ---------- ---------
Shares used in computing pro
forma net loss per share (2).... 3,861 3,780 4,708
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
<TABLE>
<CAPTION>
--------------------------
<S> <C> <C>
SEPTEMBER 30, 1996
--------------------------
IN THOUSANDS ACTUAL AS ADJUSTED(3)
---------- --------------
(UNAUDITED)
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments..................................... $ 10,484 $ 37,784
Working capital....................................................................... 8,689 35,989
Total assets.......................................................................... 15,661 42,961
Total debt and capital lease obligations.............................................. 5,027 3,027
Deficit accumulated during development stage.......................................... (43,628) (43,628)
Total stockholders' equity............................................................ 7,908 37,208
</TABLE>
- ------------------------
(1) Based on shares outstanding as of September 30, 1996. Includes 792,898
shares to be issued upon the net exercise of certain outstanding warrants upon
the closing of this Offering. Excludes as of September 30, 1996: (i) 803,338
shares of Common Stock issuable upon exercise of outstanding stock options at a
weighted average exercise price of $2.16 per share; (ii) 574,504 shares of
Common Stock issuable upon exercise of outstanding warrants at exercise prices
ranging from $2.50 to $25.00 per share and a weighted average exercise price of
$17.00; and (iii) 612,328 shares of Common Stock available for future grant
under the Company's 1992 Stock Option Plan, 1994 Equity Incentive Plan,
Non-Employee Directors' Stock Option Plan and Employee Stock Purchase Plan (the
"Stock Plans"). See "Management - Stock Plans", "- Director Compensation" and
"Description of Capital Stock."
(2) See Note 1 of Notes to Consolidated Financial Statements for a description
of the shares used in calculating pro forma net loss per share.
(3) Adjusted to give effect to the receipt of the estimated net proceeds from
the sale of 2,500,000 shares of Common Stock offered by the Company hereby at an
assumed initial public offering price of $13.00 per share and the repayment of a
$2.0 million portion of a debt financing with entities associated with Hambrecht
& Quist Group. See "Use of Proceeds."
6
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider, in addition to
the other information contained in this Prospectus, the following risk factors
in evaluating the Company and the Common Stock offered hereby.
UNCERTAINTIES RELATED TO EARLY STAGE OF DEVELOPMENT
The Company is a development stage company and must be evaluated in light of the
uncertainties and complications present in an early stage biopharmaceutical
company. In addition, all of the Company's products are at an early stage of
development. Since the Company's inception in 1990, substantially all of the
Company's resources have been dedicated to research and development, and the
Company has not generated any product revenue. Because all of the Company's
potential products are in research, preclinical or clinical development, product
revenues will not be realized for at least several years, if at all. Drug
discovery methods based upon molecular cardiology are relatively new, and there
can be no assurance that the Company will be able to employ these methods of
drug discovery successfully or that these methods will lead to the development
of commercially viable pharmaceutical products. Certain of the Company's
compounds within the Company's cell cycle, chronic inflammation and adenosine
A(1) receptor programs are in the early stages of research and development and
the Company does not expect to commence clinical trials for such new compounds
for several years. There can be no assurance that any of the Company's product
development efforts will be successfully completed, that any of the Company's
products will be proven to be safe and effective, that regulatory approvals will
be obtained at all or be as broad as sought, that the Company's products will be
capable of being produced in commercial quantities or that any products, if
introduced, will achieve market acceptance.
UNCERTAINTIES RELATED TO CLINICAL TRIALS
The Company's potential products are subject to the risks of failure inherent in
the development of pharmaceutical products. The Company currently has only two
products in clinical development, CVT-124 and ranolazine. The Company's product
candidates will require additional development, preclinical studies, clinical
trials and regulatory approval prior to commercialization. The results from
preclinical studies and early clinical trials may not be predictive of results
obtained in later clinical trials, and there can be no assurance that clinical
trials conducted by the Company will demonstrate sufficient safety and efficacy
to obtain the requisite approvals or that marketable products will result. For
example, in November 1995, based on unfavorable efficacy data from a Phase II
trial, the Company terminated its development program for the CVT-1 product for
treatment of primary hypercholesterolemia.
The rate of completion of the Company's clinical trials may be delayed by many
factors, including slower than anticipated patient enrollment, difficulty in
finding a sufficient number of patients fitting the appropriate trial profile or
in the acquisition of sufficient supplies of clinical trial materials or adverse
events occurring during the clinical trials. Completion of testing, studies and
trials may take several years, and the length of time varies substantially with
the type, complexity, novelty and intended use of the product. There can be no
assurance that the Company's drug discovery efforts will progress as expected or
that such efforts will lead to the discovery or development of any product. In
addition, data obtained from preclinical and clinical activities are susceptible
to varying interpretations, which could delay, limit or prevent regulatory
approval. Delays or rejections may be encountered based upon many factors,
including changes in regulatory policy during the period of product development.
No assurance can be given that any of the Company's development programs will be
successfully completed, that any investigational new drug ("IND") applications
will become effective or that additional clinical trials will be allowed by the
Food and Drug Administration ("FDA") or other regulatory authorities or that
clinical trials will commence as planned.
The Company's clinical development plan for ranolazine assumes that Phase I data
and data from several Phase II angina trials with ranolazine IR combined with
Phase I data and safety and tolerability data from a pilot Phase II trial for
intermittent claudication with ranolazine SR will be accepted by the FDA and
other regulatory authorities as a basis to initiate Phase III trials with
ranolazine SR. There can be no assurance that such clinical data will be
accepted by the FDA in support of initiation of such Phase III studies with
ranolazine SR for the treatment of angina or that the Company will not be
required or otherwise choose to conduct additional Phase II clinical trials of
ranolazine SR prior to commencement of Phase III clinical trials. As a result of
FDA reviews or
7
<PAGE>
complications that may arise in any phase of the clinical trial program, there
can be no assurance that the proposed schedules for IND and clinical protocol
submissions to the FDA, initiations of studies and completions of clinical
trials can be maintained. Any delays in the Company's clinical trials would have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business - Government Regulation."
DEPENDENCE ON COLLABORATIVE AND LICENSING ARRANGEMENTS
The Company's strategy for the research, development and commercialization of
its product candidates has required, and will continue to require, the Company
to enter into various arrangements with corporate and academic collaborators,
licensors, licensees and others, and the Company will therefore be dependent
upon the success of these parties in performing their responsibilities. The
Company is currently seeking a corporate partner for ranolazine prior to
conducting Phase III studies for treatment of angina. The Company may also seek
a corporate partner for CVT-124. There can be no assurance that the Company will
be able to enter into collaborative arrangements or license agreements on
acceptable terms, or at all, or that any or all of the contemplated benefits
from such collaborative arrangements or license agreements will be realized.
Failure to obtain such arrangements or agreements would result in delays in the
development of the Company's proposed products or the inability to proceed with
the development, manufacture or sale of products, or the loss of third party
licenses or could require the Company to fund development internally. If the
Company were required to fund development internally, its future capital
requirements would increase substantially. There can be no assurance that the
Company could obtain additional funds to meet such increased capital
requirements on acceptable terms, or at all.
Certain of the collaborative arrangements that the Company may enter into in the
future may place responsibility on the collaborative partner for preclinical
testing and clinical trials, for manufacturing and for preparation and
submission of applications for regulatory approval of potential pharmaceutical
products. The Company cannot control the amount and timing of resources which
its collaborative partners devote to the Company's programs or potential
products. Should a collaborative partner fail to develop or commercialize
successfully any product candidate to which it has rights, the Company's
business may be materially and adversely affected. There can be no assurance
that collaborators will not pursue other technologies or product candidates
either on their own or in collaboration with others.
Collaborative arrangements may also require the Company to expend funds and to
meet certain milestones, and there can be no assurance that the Company will be
successful in doing so. The Company's agreement with the University of Florida
Research Foundation, Inc. in the area of adenosine receptors requires the
Company to reach certain preclinical and clinical milestones within defined time
periods to maintain exclusive rights under the license. The Company's agreement
with Syntex for ranolazine requires it to make certain payments based on the
time and progress of development activities. Failure of the Company to meet its
obligations under its collaborative arrangements could result in a termination
of those arrangements and the loss of rights to the compounds under development
and could have a material adverse effect on the Company's business, financial
condition and results of operations.
There can be no assurance that disputes will not arise in the future with
respect to the ownership of rights to any technology developed with or by third
parties. These and other possible disagreements between collaborators and the
Company could lead to delays in the collaborative research, development or
commercialization of certain product candidates or could require or result in
litigation or arbitration, which would be time consuming and expensive, and
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business - Licenses and
Collaborations."
HISTORY OF LOSSES AND EXPECTATION OF FUTURE LOSSES; UNCERTAINTY OF FUTURE
PROFITABILITY; ACCUMULATED DEFICIT
Since its inception, the Company has been engaged in research and development
activities and has generated no product revenues. As of September 30, 1996, the
Company had an accumulated deficit of approximately $43.6 million. The process
of developing the Company's products will require significant additional
research and development, preclinical testing and clinical trials, as well as
regulatory approval. These activities, together with the Company's general and
administrative expenses, are expected to result in operating losses for the
foreseeable
8
<PAGE>
future. The Company will not receive product revenues unless and until it
completes clinical trials with respect to one or more products and successfully
commercializes such products. There can be no assurance that the Company will
generate revenues or achieve and sustain profitability in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
NEED FOR ADDITIONAL FUTURE CAPITAL; UNCERTAINTY OF ADDITIONAL FUNDING
The Company will require substantial additional funding after this Offering in
order to complete its research and development activities and commercialize any
potential products. The Company has financed its operations primarily through
the sale of preferred equity securities, equipment and leasehold improvement
financing and other debt financing. The Company has generated no product
revenue, and none is expected for at least several years. The Company
anticipates that its existing resources, including the proceeds of this Offering
and projected interest income, will enable the Company to maintain its current
and planned operations through 1998. However, there can be no assurance that the
Company will not require additional funding prior to such time. If the Company
is unable to establish and maintain additional corporate partnerships for the
development of CVT-124 and ranolazine, the Company's future capital requirements
will increase substantially. In addition, the Company's future capital
requirements will depend on many other factors, including scientific progress in
its research and development programs, the size and complexity of such programs,
the scope and results of preclinical studies and clinical trials, the ability of
the Company to establish and maintain corporate partnerships, the time and costs
involved in obtaining regulatory approvals, the costs involved in filing,
prosecuting and enforcing patent claims, competing technological and market
developments, the cost of manufacturing preclinical and clinical material and
other factors not within the Company's control. There can be no assurance that
such additional financing to meet the Company's capital requirements will be
available on acceptable terms or at all. Insufficient funds may require the
Company to delay, scale back or eliminate some or all of its research or
development programs or to lose rights under existing licenses or to relinquish
greater or all rights to product candidates at an earlier stage of development
or on less favorable terms than the Company would otherwise seek or may
adversely affect the Company's ability to operate as a going concern. If
additional funds are raised by issuing equity securities, substantial dilution
to existing stockholders may result. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
UNCERTAINTY OF MARKET ACCEPTANCE
The Company's future profitability is dependent on commercial acceptance of its
potential products. The Company believes that market acceptance of its potential
products will depend on the Company's ability to provide acceptable evidence of
the safety, efficacy and cost-effectiveness of its products, as well as the
marketing strength of the Company's corporate partners. In addition, third party
payors can indirectly affect the demand for the Company's potential products by
regulating the maximum amount of reimbursement that will be provided. There can
be no assurance that potential products developed by the Company will achieve
market acceptance among patients, physicians or third party payors, even if
necessary regulatory and reimbursement approvals are obtained. Failure to
achieve market acceptance would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business -
Marketing and Sales" and "- Government Regulation."
INTENSE COMPETITION; RAPID TECHNOLOGICAL CHANGE
The pharmaceutical and biopharmaceutical industries are subject to intense
competition and significant, rapid technological change. If regulatory approvals
are received, certain of the Company's potential products will compete with well
established, FDA approved proprietary and generic therapies that have generated
substantial sales over a number of years and which are reimbursed from
government health administration authorities and private health insurers. In
addition, CVT is aware of companies which are developing products that will
compete for the same disease markets as its potential products. Many of the
Company's competitors and potential competitors have substantially greater
product development capabilities and financial, scientific, marketing and sales
resources than the Company. Other companies may succeed in developing products
earlier than the Company, obtaining approvals for such products from the FDA
more rapidly than the Company and its corporate partners, or developing products
that are safer or more effective than those under development or proposed to be
developed by the Company and its corporate partners. There can be no assurance
that research and development by others will not render the Company's technology
or its potential products obsolete or non-competitive. In
9
<PAGE>
addition, there can be no assurance that the Company's competitors will not
develop more effective or more affordable products or achieve patent protection,
regulatory approval or product commercialization earlier than the Company. See
"Business - Competition."
UNCERTAINTY OF PATENT POSITION AND PROPRIETARY RIGHTS
The Company's success will depend to a significant degree on its ability to
obtain patents and licenses to patent rights, to maintain trade secrets and to
operate without infringing on the proprietary rights of others, both in the
United States and other countries. The Company has filed a number of United
States and foreign patent applications. In addition, in connection with its
corporate and academic collaborations, the Company has received licenses to a
number of issued patents and patent applications for CVT-124 and ranolazine. The
Company intends to continue to file applications as appropriate for patents
covering both its potential products and processes. There can be no assurance
that patents will issue from any of these applications, that any patent will
issue on technology arising from additional research or that patents that may
issue from such applications will be sufficient to protect the Company's
technology. Patent applications in the United States are maintained in secrecy
until a patent issues, and the Company cannot be certain that others have not
filed patent applications for technology covered by the Company's pending
applications or that the Company was the first to invent the technology that is
the subject of such patent applications. Competitors may have filed applications
for, or may have received patents and may obtain additional patents and
proprietary rights relating to, compounds, products or processes that block or
compete with those of the Company. If any of its competitors have filed patent
applications in the United States that claim technology also invented by the
Company, the Company may have to participate in interference proceedings
declared by the Patent and Trademark Office in order to determine priority of
invention and, thus, the right to a patent for the technology in the United
States, all of which could result in substantial cost to the Company. In
addition, litigation, which would result in substantial cost to the Company, may
be necessary to enforce any patents issued to the Company or to determine the
scope and validity of the proprietary rights of third parties. There can be no
assurance that any patents issued to the Company or to licensors from whom the
Company has licensed rights will not be challenged, invalidated or circumvented,
or that the rights granted thereunder will provide proprietary protection or
commercial advantage to the Company.
The commercial success of the Company will depend in part on the Company not
infringing patents issued to competitors and not breaching the licenses that
might cover technology used in the Company's potential products. Failure by the
Company to obtain a license to any technology required to commercialize its
potential products could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company also relies on trade secrets to develop and maintain its competitive
position. Although the Company protects its proprietary technology in part by
confidentiality agreements with its employees, consultants, collaborators,
advisors and corporate partners, there can be no assurance that these agreements
will not be breached, that the Company will have adequate remedies for any
breach or that the Company's trade secrets will not otherwise become known or be
discovered independently by its competitors. See "Business - Patents and
Proprietary Technology."
DEPENDENCE ON KEY PERSONNEL; NEED TO ATTRACT AND RETAIN KEY EMPLOYEES AND
CONSULTANTS
The Company is highly dependent on certain members of its management and
scientific staff. In addition, the Company relies on consultants and advisors.
The loss of any of these persons could have a material adverse effect on the
Company's business, financial condition and results of operations. In order to
pursue its research and product development plans, the Company will be required
to attract and retain additional qualified scientific and other personnel. There
can be no assurance that the Company will be successful in attracting and
retaining these skilled persons who generally are in high demand by
pharmaceutical and biopharmaceutical companies and by universities and other
research institutions. The failure to successfully attract and retain qualified
personnel, consultants and advisors may impede the achievement of development
objectives and have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, a substantial
portion of the stock options currently held by many of the Company's key
employees are vested and may be fully vested over the next several years before
the Company achieves significant revenues or profitability. The Company intends
to grant additional options and provide other forms of incentive compensation to
attract and retain such key personnel. See "Business - Scientific Advisory
Board" and "Management."
10
<PAGE>
LIMITED MANUFACTURING, MARKETING AND SALES EXPERIENCE
The Company has no experience in manufacturing, and currently lacks the
resources or capability to manufacture any of its potential products on a
clinical or commercial scale. The Company is currently, and will continue to be,
dependent on corporate partners, licensees or other third parties for the
manufacturing of clinical and commercial scale quantities of its products. There
can be no assurance that the Company will be able to maintain existing
agreements for manufacturing of clinical quantities of potential products, that
it will be able to enter into additional agreements with other third parties for
commercial scale manufacturing or that these parties will be able to develop
adequate manufacturing capabilities.
To date, the Company has no experience with sales, marketing or distribution.
The Company intends to rely on relationships with one or more pharmaceutical
companies with established distribution systems and direct sales forces to
market its products. In the event that the Company is unable to reach agreement
with one or more pharmaceutical companies to market its products, it may be
required to market its products directly and to develop a marketing and sales
force with technical expertise and with supporting distribution capability.
There can be no assurance that the Company will be able to establish in-house
sales and distribution capabilities or relationships with third parties, or that
it will be successful in commercializing any of its potential products. To the
extent that the Company enters into co-promotion or other licensing
arrangements, any revenues received by the Company will depend upon the efforts
of third parties, and there can be no assurance that such efforts will be
successful. See "Business - Marketing and Sales" and "- Manufacturing."
SIGNIFICANT GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
The research, testing, manufacture and marketing of drug products is subject to
extensive regulation by numerous regulatory authorities in the United States and
other countries. Failure to comply with FDA or other applicable regulatory
requirements may subject a company to administrative or judicially imposed
sanctions such as civil penalties, criminal prosecution, injunctions, product
seizure or detention, product recalls, total or partial suspension of
production, and FDA refusal to approve pending new drug applications ("NDAs") or
supplements to approved NDAs. The Company has not received regulatory approval
in the United States or any foreign jurisdiction for the commercial sale of any
of its products. The process of obtaining FDA and other required regulatory
approvals, including foreign approvals, often takes many years and can vary
substantially based upon the type, complexity and novelty of the products
involved. Furthermore, such approval process is extremely expensive and
uncertain. There can be no assurance that the Company's potential products will
be approved for marketing by the FDA. Even if regulatory approval of a product
is granted, there can be no assurance that the Company will be able to obtain
the labeling claims necessary or desirable for the promotion of those products.
FDA requirements prohibit the marketing or promotion of a drug for unapproved
indications. Furthermore, regulatory marketing approval may entail ongoing
requirements for postmarketing studies. If regulatory approval is obtained, the
Company will be subject to ongoing FDA obligations and continued regulatory
review. In particular, the Company or its third party manufacturer will be
required to adhere to regulations setting forth current Good Manufacturing
Practices ("cGMPs"), which require that the Company manufacture its products and
maintain its records in a prescribed manner with respect to manufacturing,
testing and quality control activities. Further, the Company or its third party
manufacturer must pass a preapproval inspection of its manufacturing facilities
by the FDA before obtaining marketing approval. Failure to comply with
applicable regulatory requirements may result in penalties such as restrictions
on a product's marketing or withdrawal of the product from the market. In
addition, identification of certain side effects after a drug is on the market
or the occurrence of manufacturing problems could cause subsequent withdrawal of
approval, reformulation of the drug, additional preclinical testing or clinical
trials and changes in labeling of the product.
Prior to the submission of an NDA, drugs developed by the Company must undergo
rigorous preclinical and clinical testing, which may take several years and the
expenditure of substantial resources. Before commencing clinical trials in
humans, the Company must submit to the FDA and receive clearance of an IND.
There can be no assurance that submission of an IND for future clinical testing
of any products under development or other future products of the Company would
result in FDA permission to commence clinical trials or that the Company will be
able to obtain the necessary approvals for future clinical testing in any
foreign jurisdiction. Success in preclinical studies or early stage clinical
trials does not assure success in later stage clinical trials. Data obtained
from preclinical and clinical activities are susceptible to varying
interpretations which could delay, limit or
11
<PAGE>
prevent regulatory approval. Further, there can be no assurance that if such
testing of products under development is completed, any such drug compounds will
be accepted for formal review by the FDA or any foreign regulatory body, or
approved by the FDA for marketing in the United States or by any such foreign
regulatory bodies for marketing in foreign jurisdictions. Future federal, state,
local or foreign legislation or administrative acts could also prevent or delay
regulatory approval of the Company's products. See "Business - Government
Regulation."
UNCERTAINTY OF PRODUCT PRICING AND REIMBURSEMENT
The ability of the Company and its potential corporate partners to market and
sell its potential products successfully will depend in part on the extent to
which reimbursement for the cost of such potential products and related
treatments will be available from government health administration authorities,
private health insurers and other organizations. Third party payors are
increasingly challenging the price of medical products and services. Significant
uncertainty exists as to the reimbursement status of newly-approved health care
products. In addition, for sales of the Company's products in Europe, the
Company will be required to seek reimbursement on a country-by-country basis. If
the Company or any potential corporate partners succeed in bringing any products
to market, there can be no assurance that these products will be considered cost
effective, that reimbursement will be available, or if available, that the
payors' reimbursement policies will not adversely affect the Company's or any
such potential corporate partner's ability to sell such products on a profitable
basis.
PRODUCT LIABILITY EXPOSURE; AVAILABILITY OF INSURANCE
The manufacture and sale of biopharmaceutical products involve an inherent risk
of product liability claims and associated adverse publicity. The Company
currently has only limited product liability insurance for clinical trials and
no commercial product liability insurance. There can be no assurance that it
will be able to maintain existing or obtain additional product liability
insurance on acceptable terms or with adequate coverage against potential
liabilities. Such insurance is expensive, difficult to obtain and may not be
available on acceptable terms, or at all. An inability to obtain sufficient
insurance coverage on reasonable terms or to otherwise protect against potential
product liability claims could prevent or inhibit the commercialization of the
Company's potential products. A successful product liability claim brought
against the Company in excess of its insurance coverage, if any, could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business - Product Liability Insurance."
HAZARDOUS AND RADIOACTIVE MATERIALS; ENVIRONMENTAL MATTERS
The Company's research and development processes involve the controlled use of
hazardous materials, chemicals and radioactive materials, and produce waste
products. The Company is subject to federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
such materials and waste products. Although the Company believes that its safety
procedures for handling and disposing of such materials comply with the
standards prescribed by such laws and regulations, the risk of contamination or
injury from these materials cannot be eliminated completely. In such event, the
Company could be held liable for any damages that result and any such liability
could exceed the resources of the Company. Although the Company believes that it
is in compliance in all material respects with applicable environmental laws and
regulations, there can be no assurance that it will not be required to incur
significant costs to comply with environmental laws and regulations in the
future, or that the Company's business, financial condition or results of
operations will not be materially adversely affected by current or future
environmental laws or regulations. See "Business - Government Regulation."
ABSENCE OF PRIOR PUBLIC MARKET; VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active market will develop or be
maintained. The initial public offering price will be negotiated between the
Company and the representatives of the Underwriters and may not be indicative of
future market prices. See "Underwriting" for information related to the method
of determining the initial public offering price. The market price of the shares
of Common Stock, like that of the common stock of many other biopharmaceutical
companies, is likely to be highly volatile. Factors such as the Company's
operating results, developments in the Company's relationships with corporate
partners, developments affecting the Company's corporate partners, announcements
of results of preclinical studies and clinical trials by the Company, its
corporate partners or its competitors, negative
12
<PAGE>
regulatory action or regulatory approval with respect to the Company or its
competitors, announcements of new products by the Company or its competitors,
developments related to patent or other proprietary rights by the Company or its
competitors, changes in the position of securities analysts with respect to the
Common Stock, and market conditions for biopharmaceutical or biotechnology
stocks in general, may cause the market price of the Common Stock to fluctuate,
perhaps substantially. In addition, in recent years the stock market in general,
and the shares of biopharmaceutical, biotechnology and healthcare companies in
particular, have experienced extreme price fluctuations. These broad market and
industry fluctuations may materially adversely affect the market price of the
Common Stock. In some future quarter the Company's operating results may be
below the expectations of public market analysts and investors, and, as a
result, the price of the Common Stock would likely be materially adversely
affected.
CONTROL BY EXISTING STOCKHOLDERS; ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER
PROVISIONS AND DELAWARE LAW
After this Offering, the Company's officers, directors and principal
stockholders will beneficially own approximately 17.96% of the outstanding
shares of Common Stock. As a result, such persons may have the ability to
effectively control the Company and direct its affairs and business. Such
concentration of ownership may also have the effect of delaying, deferring or
preventing a change in control of the Company. In addition, the Company's Board
of Directors will have the authority to issue up to 5,000,000 shares of
Preferred Stock and to determine the price, rights, preferences and privileges
of those shares without any further vote or action by the stockholders. The
rights of the holders of Common Stock will be subject to, and may be materially
adversely affected by, the rights of the holders of any Preferred Stock that may
be issued in the future. The issuance of Preferred Stock could have the effect
of making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. Furthermore, certain provisions of the
Company's Certificate of Incorporation may have the effect of delaying or
preventing changes in control or management of the Company, which could
adversely affect the market price of the Company's Common Stock. In addition,
the Company will be subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "Delaware Law"), an anti-takeover law. See
"Principal Stockholders" and "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of substantial shares of Common Stock in the public market after the
Offering could adversely affect the market price of the Common Stock. Upon
completion of the Offering, the Company will have outstanding 6,949,166 shares
of Common Stock. All of the 2,500,000 shares sold in the Offering will be freely
transferable as of the date of this Prospectus by persons other than
"affiliates" of the Company without restriction or further registration under
the Securities Act of 1933, as amended (the "Securities Act"). The remaining
4,449,166 shares of Common Stock that will be outstanding upon completion of the
Offering (the "Restricted Shares") will be held by officers, directors,
employees, consultants and other stockholders of the Company. The Restricted
Shares were sold by the Company in reliance upon exemptions from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act") and are "restricted securities" under the Securities Act.
Certain holders of Restricted Shares have agreed not to sell their shares
without the prior written consent of J.P. Morgan Securities Inc. for a period of
180 days from the date of this Prospectus. Upon completion of the Offering,
92,785 shares will be eligible for sale in the public market immediately
following the Offering. Beginning 180 days after commencement of the Offering,
2,481,313 Restricted Shares that are subject to lock-up agreements will become
eligible for sale in the public markets subject to Rule 144 and Rule 701 under
the Securities Act. The remaining 1,875,068 Restricted Shares, which are also
subject to such lock-up agreements, will become eligible for sale under Rule 144
at various dates thereafter as the holding period provisions of Rule 144 are
satisfied. As of September 30, 1996, 803,338 shares were issuable upon exercise
of currently outstanding options, all of which are subject to the lock-up
agreements described above. Of these shares, 317,093 will be vested 180 days
after commencement of the Offering. As of September 30, 1996, 574,504 shares
were issuable upon exercise of currently outstanding warrants, of which 490,004
shares are subject to the lock-up agreements described above. Of these shares,
186,926 will become eligible for sale in the public markets subject to Rule 144
beginning 180 days after commencement of the Offering and 303,078 shares will
become eligible for sale subject to Rule 144 at various dates thereafter as the
holding provisions of Rule 144 are satisfied. In addition, 84,500 shares
issuable upon exercise of warrants which are not subject to lock-up agreements,
will
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<PAGE>
become eligible for sale in the public markets beginning after September 15,
1997 pursuant to the terms of the individual warrants, subject to Rule 144.
Certain holders of shares of Common Stock and securities convertible into or
exercisable for shares of Common Stock have certain registration rights under a
registration rights agreement among such holders and the Company and certain
other agreements. In addition, following completion of the Offering, the Company
intends to register under the Securities Act approximately 1,415,666 shares of
Common Stock subject to outstanding stock options or reserved for issuance under
the Company's Non-Employee Directors' Stock Option Plan, 1994 Equity Incentive
Plan, 1992 Stock Option Plan and Employee Stock Purchase Plan (the "Stock
Plans") as well as stock options granted outside the Stock Plans. See
"Management - Director Compensation," "- Stock Plans," "Shares Eligible for
Future Sale" and "Description of Capital Stock - Registration Rights of Certain
Holders."
DILUTION; ABSENCE OF DIVIDENDS
The initial public offering price will be substantially higher than the book
value per share of Common Stock. Investors purchasing shares of Common Stock in
this Offering will therefore incur immediate, substantial dilution of $7.65 per
share in the net tangible book value of Common Stock. Additional dilution will
occur upon the exercise of outstanding options and warrants. See "Dilution." The
Company has never paid any cash dividends and does not anticipate paying cash
dividends in the foreseeable future. See "Dividend Policy."
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<PAGE>
THE COMPANY
The Company was incorporated in Delaware in December 1990 and changed its name
to CV Therapeutics, Inc. in June 1992. The Company's executive offices are
located at 3172 Porter Drive, Palo Alto, California 94304, and its telephone
number is (415) 812-0585.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be $29.3 million (approximately $33.8 million if
the over-allotment option is exercised in full) at an assumed initial public
offering price of $13.00 per share after deducting the estimated underwriting
discount and estimated offering expenses payable by the Company.
The Company anticipates using approximately $16.0 million of the net proceeds of
the Offering to fund research and development activities, including preclinical
testing, clinical trials in support of regulatory approvals and the payment of
development milestones. The Company currently intends to use approximately $2.0
million of the net proceeds of the Offering to repay a $2.0 million term loan
portion of a debt financing with entities associated with Hambrecht & Quist
Group. The $2.0 million term loan bears interest at the rate of 9% per year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources." The balance of the net proceeds
of the Offering are expected to be used for working capital and general
corporate purposes. In addition, a portion of the net proceeds may be used for
the acquisition of complementary businesses, products or technologies. The
Company has no present understandings, commitments or agreements, nor is it
engaged in any negotiations, with respect to any acquisition. Pending
application of the net proceeds of the Offering as described above, the Company
intends to invest such proceeds in short-term, investment-grade,
interest-bearing financial instruments.
The Company anticipates that its existing resources, including the net proceeds
of the Offering and projected interest income will enable the Company to
maintain its current and planned operations through 1998. The Company's forecast
of the period of time through which its financial resources will be adequate to
support its operations is a forward-looking statement that involves risks and
uncertainties, and actual results could vary as a result of a number of factors,
including those described in "Risk Factors" and elsewhere in this Prospectus.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital stock.
The Company currently intends to retain any future earnings to finance the
growth and development of its business and therefore does not anticipate paying
any cash dividends in the foreseeable future.
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<PAGE>
CAPITALIZATION
The following table sets forth as of September 30, 1996, (i) the pro forma
capitalization of the Company giving effect to the conversion of all outstanding
shares of Preferred Stock into Common Stock and the issuance of 792,898 shares
of Common Stock upon the net exercise of certain outstanding warrants upon the
closing of this Offering, and (ii) the pro forma capitalization as adjusted to
give effect to the receipt by the Company of the estimated net proceeds from the
sale of the shares of Common Stock offered hereby at an assumed initial public
offering price of $13.00 per share, after deducting the estimated underwriting
discount and estimated offering expenses payable by the Company, and the
repayment of the $2.0 million term loan portion of a debt financing with
entities associated with Hambrecht & Quist Group:
<TABLE>
<CAPTION>
----------------------
SEPTEMBER 30, 1996
----------------------
AS
IN THOUSANDS, EXCEPT PER SHARE DATA PRO FORMA ADJUSTED
---------- ----------
(UNAUDITED)
<S> <C> <C>
Total debt and capital lease obligations, less current portion...... $ 5,000 $ 3,000
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares
authorized; no shares issued and outstanding, pro forma
and as adjusted.................................................. - -
Common stock, $0.001 par value; 30,000,000 shares
authorized; 4,449,166 shares issued and outstanding, pro forma;
6,949,166 shares issued and outstanding, as adjusted (1)......... 52,793 82,093
Warrants to purchase Common Stock................................. 1,225 1,225
Notes receivable issued for stock................................. (171) (171)
Deferred compensation............................................. (2,311) (2,311)
Deficit accumulated during the development stage.................. (43,628) (43,628)
---------- ----------
Total stockholders' equity.......................................... 7,908 37,208
---------- ----------
Total capitalization.............................................. $12,908 $40,208
---------- ----------
---------- ----------
</TABLE>
- ------------------------
(1) Excludes as of September 30, 1996: (i) 803,338 shares of Common Stock
issuable upon exercise of outstanding stock options at a weighted average
exercise price of $2.16 per share; (ii) 574,504 shares of Common Stock issuable
upon exercise of outstanding warrants at exercise prices ranging from $2.50 to
$25.00 per share and a weighted average exercise price of $17.00 per share; and
(iii) 612,328 shares of Common Stock available for future grant under the Stock
Plans. See "Management - Stock Plans", "- Director Compensation" and
"Description of Capital Stock."
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DILUTION
The pro forma net tangible book value of the Company as of September 30, 1996
was approximately $7,908,000, or $1.78 per share of Common Stock. Pro forma net
tangible book value per share is determined by dividing the net tangible book
value (tangible assets less total liabilities) of the Company by the number of
shares of Common Stock outstanding at that date, after giving effect to the
issuance of 792,898 shares of Common Stock upon the net exercise of certain
outstanding warrants upon closing of this Offering. Without taking into account
any other changes in the net tangible book value after September 30, 1996, other
than to give effect to the receipt by the Company of the estimated net proceeds
from the sale of the 2,500,000 shares of Common Stock offered by the Company
hereby at an assumed initial public offering price of $13.00 per share, the pro
forma net tangible book value of the Company as of September 30, 1996 would have
been $37,208,000, or $5.35 per share. This represents an immediate increase in
the pro forma net tangible book value of $3.57 per share to existing
stockholders and an immediate dilution of $7.65 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price $13.00
Pro forma net tangible book value before the Offering $1.78
Increase attributable to new investors 3.57
----------
Pro forma net tangible book value after the Offering $5.35
----------
Dilution to new investors $7.65
----------
----------
</TABLE>
The following table summarizes, on a pro forma basis as of September 30, 1996,
after giving effect to the issuance of 792,898 shares of Common Stock upon the
net exercise of certain outstanding warrants upon closing of this Offering, the
difference between existing stockholders and purchasers of shares in the
Offering (at an assumed initial public offering price of $13.00 per share and
before deducting the underwriting discount and estimated offering expenses
payable by the Company) with respect to the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid:
<TABLE>
<CAPTION>
----------------------------------------------------------
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ---------- ---------- ---------- ----------
Existing stockholders 4,449,166 64.0% $52,037,000 61.6% $11.69
<S> <C> <C> <C> <C> <C>
New investors 2,500,000 36.0 32,500,000 38.4 13.00
---------- ---------- ---------- ----------
Total 6,949,166 100.0% $84,537,000 100.0%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The foregoing computations exclude as of September 30, 1996: (i) 803,338 shares
of Common Stock issuable upon exercise of outstanding stock options, at a
weighted average exercise price of $2.16 per share; (ii) 574,504 shares of
Common Stock issuable upon exercise of outstanding warrants, at exercise prices
ranging from $2.50 to $25.00 per share and a weighted average exercise price of
$17.00 per share; and (iii) 612,328 shares of Common Stock available for future
grant under the Stock Plans. To the extent that options or warrants are
exercised and shares of Common Stock are issued, there will be further dilution
to new investors. See "Management - Stock Plans", "- Director Compensation" and
"Description of Capital Stock."
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to the
Company's consolidated statements of operations data for the years ended
December 31, 1993, 1994 and 1995 and the consolidated balance sheet data at
December 31, 1994 and 1995 are derived from the consolidated financial
statements of the Company included elsewhere in this Prospectus which have been
audited by Ernst & Young LLP, independent auditors. The consolidated statement
of operations data for the period from inception (December 11, 1990) to December
31, 1992 and the consolidated balance sheet data at December 31, 1992 and 1993
are derived from consolidated financial statements audited by Ernst & Young LLP
not included in this Prospectus. The consolidated statements of operations data
for the nine months ended September 30, 1995 and 1996 and for the period from
inception (December 11, 1990) to September 30, 1996 and the consolidated balance
sheet data at September 30, 1996, are derived from unaudited consolidated
financial statements that have been prepared on the same basis as the audited
consolidated financial statements and in the opinion of management contain all
adjustments, consisting only of normal recurring adjustments, necessary for fair
presentation of the financial position at such date and the results of
operations for such periods. The historical results are not necessarily
indicative of the results of operations to be expected for the entire year. The
data set forth below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
INCEPTION INCEPTION
(DEC. 11, NINE MONTHS ENDED (DEC. 11,
1990) TO YEAR ENDED DECEMBER 31, SEPTEMBER 30, 1990) TO
DEC. 31, ------------------------------------- ------------------------ SEPTEMBER 30,
IN THOUSANDS, EXCEPT PER SHARE DATA 1992 1993 1994 1995 1995 1996 1996
----------- ----------- ----------- ----------- ----------- ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
License revenue...................... $ - $ - $ - $ - $ - $ 250 $ 250
Operating expenses:
Research and development........... 1,167 4,731 8,823 12,856 10,099 5,834 33,411
General and administrative......... 429 947 2,802 3,402 2,367 2,186 9,766
----------- ----------- ----------- ----------- ----------- ----------- --------------
Total operating expenses............. 1,596 5,678 11,625 16,258 12,466 8,020 43,177
----------- ----------- ----------- ----------- ----------- ----------- --------------
Loss from operations................. (1,596) (5,678) (11,625) (16,258) (12,466) (7,770) (42,927)
Interest (income) expense, net....... 34 (161) (258) 466 288 597 678
----------- ----------- ----------- ----------- ----------- ----------- --------------
Net loss......................... $ (1,630) $ (5,517) $ (11,367) $ (16,724) $ (12,754) $ (8,367) $ (43,605)
----------- ----------- ----------- ----------- ----------- ----------- --------------
----------- ----------- ----------- ----------- ----------- ----------- --------------
Pro forma net loss per share (1)..... $ (4.33) $ (3.37) $ (1.78)
----------- ----------- -----------
----------- ----------- -----------
Shares used in computing pro forma
net loss per share (1).............. 3,861 3,780 4,708
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------
DECEMBER 31,
----------------------------------------------
IN THOUSANDS 1992 1993 1994 1995
---------- ---------- ---------- ---------- SEPTEMBER
30,
1996
------------
(UNAUDITED)
CONSOLIDATED BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and short term $ 4,030 $ 5,466 $ 9,743 $ 5,569 $ 10,484
investments............................
Working capital......................... 3,904 5,196 7,686 271 8,689
Total assets............................ 5,375 7,662 16,099 11,448 15,661
Long-term portion of debt and capital 500 745 2,698 3,402 5,000
lease obligations......................
Deficit accumulated during development (1,653) (7,170) (18,537) (35,261) (43,628)
stage..................................
Total stockholders' equity.............. 4,568 6,363 10,561 1,804 7,908
</TABLE>
- ------------------------
(1) See Note 1 of Notes to Consolidated Financial Statements for a description
of the shares used in calculating pro forma net loss per share.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other parts of this Prospectus contain forward-looking statements
which involve risks and uncertainties. The Company's actual results may differ
materially from the results discussed in the forward-looking statements. Factors
that might cause such a difference include, but are not limited to, those
discussed in "Risk Factors."
OVERVIEW
CVT is a development stage biopharmaceutical company focused exclusively on the
application of molecular cardiology to the discovery, development and
commercialization of novel small molecule drugs for the treatment of chronic
cardiovascular disease. Since its inception in December 1990, substantially all
of the Company's resources have been dedicated to research and development. To
date, CVT has not generated any product revenue and does not expect to generate
any such revenues for at least several years. As of September 30, 1996, the
Company has an accumulated deficit of approximately $43.6 million. The Company
expects its sources of revenue, if any, for the next several years to consist of
payments under future corporate partnerships and interest income. The process of
developing the Company's products will require significant additional research
and development, preclinical testing and clinical trials, as well as regulatory
approval. These activities, together with the Company's general and
administrative expenses, are expected to result in operating losses for the
foreseeable future. The Company will not receive product revenue unless it
completes clinical trials and successfully commercializes one or more of its
products.
CVT is subject to risks common to biopharmaceutical companies, including risks
inherent in its research and development efforts and clinical trials, reliance
on collaborative partners, enforcement of patent and proprietary rights, the
need for future capital, potential competition and uncertainty of regulatory
approval. In order for a product to be commercialized, it will be necessary for
CVT and its collaborators to conduct preclinical tests and clinical trials,
demonstrate efficacy and safety of the Company's product candidates, obtain
regulatory clearances and enter into manufacturing, distribution and marketing
arrangements, as well as obtain market acceptance. There can be no assurance
that the Company will generate revenues or achieve and sustain profitability in
the future.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
REVENUES. The Company recognized revenues of $250,000 for the nine months ended
September 30, 1996, compared to no revenues for the nine months ended September
30, 1995. The revenue in 1996 was attributed to a non-refundable, up-front fee
earned from a license agreement with Bayer AG.
RESEARCH AND DEVELOPMENT EXPENSES. The Company's research and development
expenses decreased to $5.8 million for the nine months ended September 30, 1996,
compared to $10.1 million for the nine months ended September 30, 1995. The
higher expenses in 1995 were largely due to higher development expenditures
associated with the CVT-1 hypercholesterolemia program, which was terminated in
late 1995 and for which minimal costs were incurred in 1996. In addition,
research and development expenses decreased in 1996 as a result of a decrease in
research personnel and related expenses resulting from a reduction in headcount
in November 1995, partially offset by a $750,000 license fee paid to a
collaborative partner in March 1996 in equity securities. Under a current
license agreement, the Company may be obligated to make milestone payments
totaling $3.0 million to the licensor in 1997 unless the Company elects to
terminate the agreement. In addition, the Company expects research and
development expenses to increase significantly over the next several years as
the Company expands research and product development efforts and amortizes
deferred compensation expense. See Note 8 of Notes to Consolidated Financial
Statements.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were
$2.2 million for the nine months ended September 30, 1996 compared to $2.4
million for the nine months ended September 30, 1995.
19
<PAGE>
The Company expects general and administrative expense to increase in the future
due to an increase in the level of the Company's activities, additional expenses
associated with being a public company and amortization of deferred compensation
expense. See Note 8 of Notes to Consolidated Financial Statements.
INTEREST EXPENSE, NET. Interest expense, net increased to $597,000 for the nine
months ended September 30, 1996, compared to $288,000 for the nine months ended
September 30, 1995, as a result of higher loan balances and prepayment penalties
associated with a restructuring of the Company's debt, partially offset by
higher average cash balances. The Company expects that interest expense, net
will decrease as a result of lower debt costs associated with the Company's debt
restructuring and anticipated increases in interest income generated from the
proceeds of the Offering.
The Company records and amortizes over the related vesting periods deferred
compensation representing the difference between the exercise price of options
granted and the deemed fair value of its Common Stock at the time of grant.
Options generally vest over four years. Deferred compensation of approximately
$2.3 million will be recorded and amortized to both research and development
expenses as well as general and administrative expenses over the related vesting
periods of the options granted during the nine months ended September 30, 1996.
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
RESEARCH AND DEVELOPMENT EXPENSES. The Company's research and development
expenses increased to $12.9 million for the year ended December 31, 1995, from
$8.8 million for the year ended December 31, 1994, and $4.7 million for the year
ended December 31, 1993. Research and development expenses increased as a result
of higher development expenses primarily associated with the CVT-1 program which
was terminated in late 1995, along with higher expenses associated with the
hiring of additional personnel to support the Company's expanding research and
product development efforts.
GENERAL AND ADMINISTRATIVE EXPENSES. The Company's general and administrative
expenses increased to $3.4 million for the year ended December 31, 1995, from
$2.8 million for the year ended December 31, 1994, and $947,000 for the year
ended December 31, 1993, primarily as a result of costs associated with the
increasing level of the Company's activities, including increased headcount and
related expenses.
INTEREST EXPENSE, NET. Interest expense, net increased to $466,000 for the year
ended December 31, 1995, from interest (income), net of $(258,000) for the year
ended December 31, 1994, and interest (income), net of $(161,000) for the year
ended December 31, 1993. These changes relate primarily to increased debt
balances and decreased cash and investment balances.
The Company has not generated significant taxable income to date. At December
31, 1995, the net operating losses available to offset future taxable income for
federal income tax purposes were approximately $32.0 million. Because the
Company has experienced ownership changes, future utilization of the
carryforwards may be limited in any one fiscal year pursuant to Internal Revenue
Code regulations. The carryforwards expire at various dates beginning in 2007
through 2010 if not utilized. As a result of the annual limitation, a portion of
these carryforwards may expire before becoming available to reduce the Company's
federal income tax liabilities.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily through
private placements of preferred equity securities, equipment and leasehold
improvement financing and other debt financing. As of September 30, 1996, the
Company had received approximately $50.4 million in net proceeds from the sale
of equity securities, and approximately $8.9 million from equipment and
leasehold financings and term loans. On September 30, 1996, the Company
refinanced its existing debt obligations with a $5 million debt financing with
entities associated with Hambrecht & Quist Group. See Note 5 of Notes to
Consolidated Financial Statements.
Cash, cash equivalents and short-term investments at September 30, 1996 totalled
$10.5 million compared to $5.6 million at December 31, 1995. The increase in
1996 was due to receipt of the net proceeds from the sale of equity securities.
The Company's funds are currently invested in short-term, investment grade,
interest-bearing debt obligations.
20
<PAGE>
Net cash used in operations for the nine months ended September 30, 1996 was
$6.2 million, compared to $10.6 million for the nine months ended September 30,
1995. The decrease in cash used in operations was primarily a result of a
decrease in development expenses and reduced headcount and related expenses. Net
cash used in operations in 1995 was $14.3 million, compared to $10.3 million in
1994. Net cash used in operations increased primarily due to the increase in
development expenses, most of which were related to clinical trials and other
development expenditures for the CVT-1 program.
Through September 30, 1996, the Company had invested approximately $6.1 million
in property and equipment, of which approximately $4.4 million was financed
through the Equipment and Leasehold Financings. Minimum payments made under the
equipment and leasehold financings and other debt financings were approximately
$1.6 million in the nine months ended September 30, 1996 and $1.1 million in the
year ended December 31, 1995.
On September 27, 1996, the Company completed a refinancing of its existing debt
obligations with $5.0 million of debt financing from entities associated with
Hambrecht & Quist Group (the H&Q Debt Financings). The H&Q Debt Financings
consist of a $3.0 million term loan which bears interest at the rate of 9.0% per
annum, secured by all of the assets of the Company, and has a final maturity in
September 1999, and a $2.0 million term loan which bears interest at 9.0% per
annum due January 1, 1997. The Company has the option on or before December 31,
1996 to convert the $2.0 million term loan to an equipment lease which would
bear interest at the rate of 9.0% per annum and would have a final maturity in
September 1999. The Company intends to convert the term loan into an equipment
lease if it does not complete the Offering prior to December 31, 1996. If the
Company does not raise a minimum of $13.0 million in gross proceeds through the
sale of equity securities by March 1998, the Company can elect to defer payments
under either the term loan (or the equipment lease) until March 1998 and minimum
subsequent payments would total $3.2 million in 1998 and $1.8 million in 1999.
Otherwise, maximum payments could total $2.0 million, $1.7 million, and $1.3
million in 1997, 1998 and 1999, respectively. The Company intends to use $2.0
million of the net proceeds from the Offering to repay the $2.0 million term
loan due January 1997. See Note 5 of Notes to Consolidated Financial Statements.
The Company will require substantial additional funding after this Offering in
order to complete its research and development activities and commercialize any
potential products. The Company currently estimates that its existing resources,
including the net proceeds from this Offering and projected interest income,
will enable the Company to maintain its current and planned operations through
1998. However, there can be no assurance that the Company will not require
additional funding prior to such time. The Company's forecast of the period of
time through which its financial resources will be adequate to support its
operations is a forward-looking statement that involves risks and uncertainties,
and actual results could vary as a result of a number of factors, including
those described in "Risk Factors" and elsewhere in this Prospectus. If the
Company is unable to establish corporate partnerships for development of CVT-124
and ranolazine, the Company's future capital requirements will increase
substantially. In addition, the Company's future capital requirements will
depend on many other factors, including scientific progress in its research and
development programs, the size and complexity of such programs, the scope and
results of preclinical studies and clinical trials, the ability of the Company
to establish and maintain corporate partnerships, the time and costs involved in
obtaining regulatory approvals, the costs involved in filing, prosecuting and
enforcing patent claims, competing technological and market developments, the
cost of manufacturing preclinical and clinical material and other factors not
within the Company's control. There can be no assurance that such additional
financing to meet the Company's capital requirements will be available on
acceptable terms or at all. Insufficient funds may require the Company to delay,
scale back or eliminate some or all of its research or development programs, to
lose rights under existing licenses or to relinquish greater or all rights to
product candidates at an earlier stage of development or on less favorable terms
than the Company would otherwise choose or may adversely affect the Company's
ability to operate as a going concern. If additional funds are raised by issuing
equity securities, substantial dilution to existing stockholders may result.
21
<PAGE>
BUSINESS
OVERVIEW
The Company is a biopharmaceutical company focused exclusively on the
application of molecular cardiology to the discovery, development and
commercialization of novel, small molecule drugs for the treatment of chronic
cardiovascular diseases. Molecular cardiology was developed, in part, by CVT
scientists and their academic collaborators and is based upon the application of
molecular biology and genetics to cardiovascular diseases. This discipline has
yielded new insights into the mechanisms underlying chronic cardiovascular
diseases and has enhanced the search for innovative cardiovascular drugs by
providing an increasing number of new molecular targets for drug discovery. To
date, CVT has discovered five compounds and completed the strategic in-license
of a sixth compound for treatment of chronic cardiovascular diseases.
Two of the Company's drug candidates, CVT-124 and ranolazine, are in clinical
trials. CVT-124 is an adenosine A(1) receptor antagonist discovered by CVT.
Adenosine A(1) receptor antagonists block certain actions of adenosine, a
hormone that modulates different functions of the cardiovascular system. CVT-124
has potential applications in the treatment of edema (fluid accumulation)
associated with congestive heart failure ("CHF") and in the prevention and
treatment of acute renal failure. A Phase I/II study completed by the Company in
the United States indicated that CVT-124 is generally well tolerated and
produces diuretic activity in healthy volunteers. Approximately one-quarter of
the 875,000 patients in the United States hospitalized with a primary diagnosis
of CHF exhibit resistance to current intravenous diuretic treatments. The
Company believes that these patients would represent the initial target market
for CVT-124 in this indication.
The Company's second compound in clinical trials, ranolazine, is a novel
compound for the treatment of angina. Ranolazine was licensed from Syntex in
March 1996. Its novel metabolic mechanism of action was discovered, in part, by
cardiovascular researchers now at or associated with CVT. In Phase I and Phase
II clinical trials conducted by Syntex, ranolazine IR was administered to over
1,200 patients. These clinical trials have indicated that ranolazine IR improved
exercise tolerance in angina patients without adversely affecting heart rate or
decreasing blood pressure, a clinical profile absent from currently available
drugs. Based on these data, as well as Syntex pilot Phase II data with
ranolazine SR for intermittent claudication (pain in the legs due to
insufficient blood flow), the Company intends to commence further clinical
trials of ranolazine SR. The Company believes ranolazine could particularly
benefit angina patients who also suffer from CHF or remain symptomatic despite
maximal doses of currently available anti-anginal drugs. In the United States,
approximately 6.7 million patients are currently diagnosed with angina. Based on
published studies, approximately one-third, or 2.2 million, are either diagnosed
with both angina and CHF or are resistant to currently available treatments. The
Company believes these patients would represent the initial target market for
ranolazine.
Four other compounds discovered by the Company are in preclinical studies.
CVT-313 is a selective inhibitor of the cell cycle enzyme, cyclin-dependent
kinase 2 ("CDK2"). The Company believes that CVT-313 may be useful in a variety
of cellular proliferative disorders, including the prevention of restenosis, as
an adjunct to coronary artery bypass surgery and as a treatment for
cardiomyopathy (heart muscle damage). CVT-634, an inhibitor of another cell
cycle regulating enzyme, is also being evaluated in animal models of chronic
cardiovascular disease. CVT-609 and CVT-429 are highly selective adenosine A(1)
receptor agonists which the Company believes may have potential activity in
treating certain common cardiac arrhythmias. The Company believes that compared
to current therapies, these compounds may offer an improved clinical profile for
immediate treatment of these arrhythmias without unwanted blood pressure
lowering effects.
In addition, the Company has discovered a novel inflammatory factor found in
human cardiovascular diseases, which it partnered to Bayer AG for continued
development.
BACKGROUND
The cardiovascular system is comprised of the heart, the blood vessels, the
kidneys and the lungs. Together, the components of the cardiovascular system
deliver oxygen and other nutrients to the tissues of the body and remove waste
products. The heart propels blood through a network of arteries and veins. The
kidneys closely regulate the blood volume and the balance of electrolytes (such
as sodium, potassium and chloride) in the blood, and the lungs oxygenate the
blood and remove carbon dioxide. To accomplish these tasks, the cardiovascular
system must
22
<PAGE>
maintain adequate blood flow, or cardiac output. Cardiac output is determined by
such factors as heart rate and blood pressure, which in turn are controlled by a
variety of hormones such as adrenaline, angiotensin and adenosine. These
hormones are small molecules which exert their effects by binding to specific
receptors on the surfaces of a variety of cell types in the heart, lungs, blood
vessels and kidneys. Any significant disruption of this system results in
cardiovascular disease.
Cardiovascular disease is the leading cause of death in the United States,
claiming more than 950,000 lives in 1993. The American Heart Association
projects the total cost of cardiovascular medications in the United States for
1996 at $11 billion.
Chronic cardiovascular diseases, including atherosclerosis (hardening of the
arteries), hypertension (high blood pressure) and others, may cause permanent
damage to the heart and blood vessels, leading to CHF, (4.7 million patients),
angina (6.8 million patients) and, heart attack (1.5 million patients). CHF
occurs when the heart becomes weakened and, as a result, can no longer maintain
adequate blood circulation throughout the body. The kidneys respond to this
decrease in blood flow by increasing the retention of salt and water, leading to
chronic symptoms such as shortness of breath and edema (fluid retention) in the
legs and lungs. Molecular cardiology has provided new insight into the
mechanisms underlying chronic cardiovascular diseases, thus creating the
opportunity for improved therapies.
Over the past twenty years, drugs such as nitrates, beta blockers, calcium
channel blockers and ACE inhibitors, have been developed to treat cardiovascular
diseases. These drugs have contributed to an increase in the survival of
patients who suffer from chronic cardiovascular disease; however, they also can
cause a variety of undesirable side effects, including fatigue, depression,
impotence, headaches, palpitations and edema.
BUSINESS STRATEGY
The Company's strategy is to become a leader in the development of novel,
cost-effective treatments for chronic cardiovascular diseases by leveraging its
expertise in molecular cardiology. The Company is developing products based on
small molecules designed to (i) utilize novel mechanisms of action, (ii) address
segments of the cardiovascular patient population which are either underserved
or not treatable by existing therapies, and (iii) offer the currently served
cardiovascular patient population the potential for improved efficacy with fewer
side effects than available drugs.
The Company believes that it can best utilize its internal resources by
concentrating its activities on discovery, preclinical evaluation and early
clinical phases of drug development. The Company intends to establish
partnerships with pharmaceutical companies for later stage clinical trials and
marketing and sales activities for its products. The Company believes that such
partnerships will enable it to more effectively and economically develop and
market its initial products.
DRUG DISCOVERY PLATFORM
CVT's drug discovery platform supports several programs, including those focused
on the adenosine A(1) receptor, the cell cycle and chronic inflammation in the
cardiovascular system. These programs have produced compounds currently in
clinical or preclinical development or outlicensed for use in third party drug
discovery programs. CVT's expertise in molecular cardiology and drug development
has been critical to the identification of these drug candidates.
The Company believes that its drug discovery platform allows it to efficiently
select novel, clinically relevant drug candidates that have a significant
probability of commercial potential. CVT first evaluates new targets with
respect to clinical relevance and suitability for small molecule inhibition. CVT
then utilizes a highly integrated, multidisciplinary approach to produce novel
small molecules as drug candidates for these targets. The Company combines
molecular modeling and combinatorial chemistry to assemble targeted libraries of
new chemical entities, an approach which the Company believes expedites the
identification of potential drug leads. The Company has developed a
comprehensive proprietary database correlating biological activity of candidate
drugs with their structures. From this database, CVT identifies final lead
compounds based on predetermined development criteria including potency,
specificity, manufacturability, and pharmacologic activity in animal and IN
VITRO models. The Company determines the proper selection of cell-based assays
and animal models of disease to enhance development of the drug candidate based
on its projected use in the clinical setting.
23
<PAGE>
PRODUCTS UNDER DEVELOPMENT
The Company's products under development include:
<TABLE>
<CAPTION>
PRODUCT TARGET INDICATION DEVELOPMENT STATUS(1)
- ---------- -------------------- --------------------------- --------------------------
<S> <C> <C> <C>
CVT-124 A(1) receptor Edema associated with CHF Phase I/II completed
(antagonist) Acute Renal Failure Phase I completed
RANOLAZINE Glucose metabolism Angina Phase II completed
Intermittent Claudication Pilot Phase II completed
CVT-609 A(1) receptor Supraventricular Preclinical
(agonist) Tachycardia
CVT-429 A(1) receptor Supraventricular Preclinical
(agonist) Tachycardia
CVT-313 CDK2 Restenosis, Arterial Bypass Preclinical
Graft, Cardomyopathy
CVT-634 Proteasomal protease Restenosis, Arterial Bypass Preclinical
Graft, Cardiomyopathy
</TABLE>
- ------------------------
(1) "Phase II" indicates initial efficacy testing in a limited patient
population.
"Phase I/II" indicates testing in humans for safety and preliminary indications
of biological activity.
"Phase I" indicates initial safety testing and pharmacological profiling in
humans.
"Preclinical" indicates lead compound selected for development which meets
predetermined criteria for potency, specificity, manufacturability, and
pharmacologic activity in animal and IN VITRO models.
CVT-124
The Company believes that CVT-124 is the most potent and selective adenosine
A(1) receptor antagonist reported to date. Preclinical studies and clinical
trials have shown statistically significant increases in sodium excretion in
response to CVT-124. Thus, the Company believes that CVT-124 has the potential
to be an effective new therapy for treatment of edema due to CHF and prevention
and treatment of acute renal failure and is developing it for these uses.
CVT-124 was identified in the Company's adenosine A(1) receptor program. This
program is focused on the development of agents that are highly selective for
the adenosine A(1) receptor and has produced both antagonists and agonists to
this class of receptors. The Company continues to explore additional
applications of the technology developed in the adenosine A(1) receptor program.
Adenosine is a naturally occurring hormone that modulates different functions of
the heart, brain, kidney and blood vessels. Its actions are mediated in these
organs by two classes of receptors, A(1) and A(2), that stimulate very different
physiological effects that can be separately targeted in drug development.
Adenosine A(1) receptors are located on the proximal tubules of the kidney where
they stimulate reabsorption of sodium and hence of water. The Company believes
that it was among the first to identify the presence of these adenosine A(1)
receptors in the proximal tubule of the kidney. In contrast to A(1) receptors,
adenosine A(2) receptors stimulate the dilation of blood vessels in the heart,
muscles and kidney thereby lowering blood pressure.
CVT has focused on creating an adenosine A(1) receptor antagonist specific
enough to avoid blocking the A(2) receptor and thus avoiding unintended side
effects. This concept was developed based on the Company's insight into the
newly discovered role of the A(1) receptor on the proximal tubule cell of the
kidney and its potential importance in treatment of edema states, such as CHF,
which are characterized by excessive accumulation of sodium and water in the
body.
24
<PAGE>
INDICATIONS
EDEMA ASSOCIATED WITH CONGESTIVE HEART FAILURE. Approximately 4.7 million
people in the United States suffer from CHF, with an estimated 400,000 new
diagnoses each year. These patients typically seek medical help because of
edema, an accumulation of fluid in the lungs and extremities. Approximately
875,000 patients are hospitalized each year in the United States with a primary
diagnosis of CHF, and CHF is the leading cause of hospital admissions among
patients over 65. Approximately one-quarter of these hospitalized patients
exhibit resistance to current intravenous diuretic treatments. The Company
believes that these patients would represent the initial target market for
CVT-124 in this indication.
Edema fluid accumulates in the body because of adaptations by the kidney during
CHF. Each kidney is comprised of approximately one million tiny blood filtering
units called nephrons. (See Figure 1) Normally in each nephron, blood is
filtered at the renal glomerulus and sodium and water are reabsorbed by the
kidney at three locations further along the nephron. Fifty to seventy percent of
the filtered sodium is reabsorbed at the proximal tubule, the portion of the
nephron closest to the glomerulus. Up to 40% is reabsorbed at the loop of Henle,
and the remaining portion, usually less than 10%, is reabsorbed at the distal
tubule. The filtered, non-reabsorbed impurities wash out into the urine. In
patients suffering from CHF, blood flow through the kidney decreases because of
the poor pumping function of the heart. The kidney interprets this event as
blood loss and attempts to increase its retention of salt and water to maintain
blood pressure. It does this by shifting more (up to 99%) of its reabsorption of
sodium to the proximal tubule. The result is the harmful build-up of salt and
water in the body, leading to edema.
Graphical description of sodium reabsorption in the kidney
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Current treatment of CHF consists of therapy designed to improve the pumping
function of the heart combined with the administration of diuretics to eliminate
excess sodium and water from the body by blocking reabsorption in the kidney.
However, current diuretic therapies inhibit sodium reabsorption either at the
loop of Henle (furosemide) or the distal tubule (thiazides and spironolactone),
where as little as one percent of reabsorption of sodium can take place in
patients with advanced CHF. Since increasing amounts of sodium are reabsorbed
proximally as CHF worsens, distally acting drugs are correspondingly less
effective over time and patients become more symptomatic. Approximately one
quarter of hospitalized CHF patients exhibit resistance to current intravenous
diuretic therapies due to excessive fluid reabsorption in the proximal tubule,
and no therapy currently exists which targets this site of the disease process.
The dosage for the most commonly prescribed diuretics for edema associated with
CHF are often increased as the disease progresses, and therefore are
increasingly associated with toxic side effects, including potassium loss, which
may lead to an increased incidence of cardiac arrhythmias if potassium is not
monitored and replaced, and uric acid build-up which may lead to gout.
Preclinical studies conducted by the Company have indicated that CVT-124 acts as
a potent diuretic by blocking the adenosine A(1) receptors in the proximal
tubule that would ordinarily stimulate sodium reabsorption at that site. These
studies also indicated that CVT-124 acted at the distal tubule to reduce sodium
reabsorption and minimize potassium excretion. This combination of diuretic
mechanisms indicates a unique clinical profile as compared to currently
available drugs and suggests that CVT-124 may be particularly useful in the
treatment of edema associated with CHF on an acute and chronic basis.
Presentation of potential advantages of CVT over existing diuretics
CVT completed a double-blind, placebo-controlled Phase I/II trial of intravenous
CVT-124 in 26 healthy volunteers. Data from this trial support CVT-124's
combination of diuretic mechanisms. Statistically significant, dose-related
increases in sodium excretion were observed in response to CVT-124, amounting to
a doubling or more in the excretion of sodium compared to placebo. In contrast,
mean potassium excretion did not show clinically significant increases. Uric
acid excretion was also significantly increased by CVT-124 compared to placebo.
CVT-124 was generally well-tolerated.
ACUTE RENAL FAILURE. Acute renal failure is a decline in kidney function that
may require temporary or chronic therapy with dialysis procedures. Acute renal
failure is a complication of certain general medical conditions associated with
low blood flow and certain commonly used medications or diagnostic agents, such
as
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cyclosporine, gentamicin, amphotericin, cisplatin, and radiocontrast dye used in
x-ray studies. Because the A(1) receptor may be relevant in this type of kidney
failure, CVT is planning clinical trials in acute renal failure to assess the
opportunity for its treatment and prevention by CVT-124.
FUTURE DEVELOPMENT OF CVT-124
While the Company's clinical trials to date have utilized an intravenous
formulation of CVT-124, the Company intends to develop CVT-124 in intravenous
and oral formulations, both for the treatment of edema in fluid-retaining states
like CHF and for the treatment or prevention of acute renal failure. There can
be no assurance that CVT-124 will prove to be safe or efficacious in humans or
that CVT-124 will obtain FDA or other regulatory or foreign marketing approval
for any indication.
The Company is currently planning three clinical trials: a Phase II intravenous
trial in stable CHF (18-24 patients); a Phase II intravenous trial in renal
transplant patients with acute renal failure (30-40 patients); and a Phase I
trial to explore the feasibility of an oral formulation (6-8 patients). The
first of these trials is planned to begin in the first half of 1997. The
Company's current estimate of the commencement of various clinical trials
included in this Prospectus are forward-looking statements that involve risks
and uncertainties. The actual clinical trial dates could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including the Company's success in completing preclinical development
and the other factors set forth under "Risk Factors" and elsewhere in this
Prospectus.
RANOLAZINE
Ranolazine is a patented compound which has been tested by Syntex in Phase I and
Phase II trials in patients with angina. The compound fits the Company's
criteria for development candidates as it is a small molecule which works
through a novel mechanism of action. The Company successfully obtained a license
for ranolazine from Syntex in March 1996, after the acquisition of Syntex by
Roche. The Company is developing ranolazine to treat angina because the Company
believes it does not impair blood pressure or heart rate and has an improved
tolerability profile.
Ranolazine acts by modulating the body's metabolism to shift the source of
energy for the heart from fatty acid toward glucose. Ranolazine decreases the
heart's oxygen demand for a given level of cardiac work because less oxygen is
required to produce an equivalent amount of energy from glucose than from fatty
acids. The Company believes this effect on muscle metabolism may also benefit
patients suffering from intermittent claudication.
INDICATIONS
ANGINA. Angina is a clinical syndrome manifested by chest pain caused by
myocardial ischemia (insufficient blood flow to the heart muscle) due to
blockage of the coronary arteries. Patients usually experience chest pain on
exertion which can become more severe over time. In the United States,
approximately 6.7 million patients are currently diagnosed with angina. Based on
a published multicenter study involving over 5,000 angina patients, over half of
these patients are currently being treated with multiple medications, including
nitrates, beta blockers and calcium channel blockers. These anti-anginal drugs
accounted for over $3.0 billion in U.S. sales in 1995. Based on published
studies, approximately one-third, or 2.2 million, of angina patients are either
diagnosed with both angina and CHF or are resistant to currently available
treatments. The Company believes these patients would represent the initial
target market for ranolazine.
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All currently available drugs to treat angina reduce the heart's oxygen demand
by reducing cardiac work via hemodynamic mechanisms (reduction of pump function,
heart rate, and/or blood pressure). These hemodynamic effects can limit or
prevent the use of currently available drugs in patients whose blood pressure or
cardiac function is already decreased. These effects can be particularly
pronounced when these drugs are used in combination. Additional adverse effects
include lower extremity edema associated with calcium channel blockers,
impotence and depression associated with beta blockers and headaches associated
with nitrates. Consequently, for some patients, presently available medical
treatment cannot provide complete relief of angina without unacceptable adverse
effects. The following table sets forth the mechanisms through which
anti-anginal drugs operate:
<TABLE>
<CAPTION>
MECHANISMS FOR ANTI-ANGINAL AGENTS
CHANGE IN CHANGE IN BLOOD
THERAPY HEART RATE PRESSURE MECHANISM
<S> <C> <C> <C>
Nitrates None down arrow Vasodilation
Beta Blockers down arrow down arrow Decreased Pump Function
Calcium Channel Blockers down arrow down arrow Decreased Pump Function, Vasodilation
Ranolazine None None Metabolic Modulation
</TABLE>
Ranolazine IR has been administered to over 200 healthy human volunteers and
over 1,200 patients with ischemic heart disease or CHF in clinical trials
conducted by Syntex. Placebo controlled ranolazine IR trials involving treadmill
testing in patients with chronic stable angina have demonstrated statistically
significant and clinically meaningful increases in (i) exercise time to onset of
angina, (ii) total exercise duration, and (iii) exercise time to onset of an
electrocardiographic change associated with insufficient blood flow to the heart
muscle. The anti-anginal effect of ranolazine IR was observed in these trials
regardless of whether the drug was given alone or in combination with beta
blockers or calcium channel blockers, and the drug was generally well tolerated
without a significant incidence of adverse events.
In initial clinical trials, ranolazine IR was administered on a three times
daily schedule. To achieve a more commercially attractive product with a
twice-daily dosing schedule, Syntex developed ranolazine SR. In volunteer trials
conducted by Syntex, the SR formulation maintained ranolazine plasma
concentrations in the range associated with increased exercise times in the
stable angina trials of ranolazine IR.
Although CVT intends to pursue regulatory approval for treatment of all patients
with chronic angina, the Company believes angina patients who are resistant to
currently available treatments and those with angina and CHF would represent the
initial market for ranolazine.
INTERMITTENT CLAUDICATION. Intermittent claudication is a clinical syndrome
manifested by pain in the legs during exercise. Like angina, this syndrome is
caused by blockage or narrowing of arteries. These patients generally either
limit their activity or in severe cases undergo vascular surgery. Over two
million people in the United States suffer from intermittent claudication. Only
one drug is approved by the FDA to treat this condition in the United States,
and worldwide sales in 1995 were approximately $400 million.
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A pilot trial of ranolazine SR in patients with intermittent claudication was
completed by Syntex in 1994. Ranolazine SR was generally well tolerated and
exhibited a trend toward prolongation of exercise duration and time to onset of
claudication. This clinical trial was not intended to be large enough to
demonstrate statistical significance. Further trials will be required to
demonstrate the utility of ranolazine SR for this indication.
DEVELOPMENT HISTORY OF RANOLAZINE
Following the acquisition of Syntex by Roche in 1994, ranolazine clinical
development was discontinued. Previously, Syntex had met with the FDA to
establish a Phase III clinical development program for ranolazine SR in both
angina and intermittent claudication and had begun enrollment in an angina Phase
III trial in late 1994.
FUTURE DEVELOPMENT OF RANOLAZINE
CVT is actively seeking a corporate partner for the development of ranolazine,
prior to initiating new Phase III trials in angina which the Company currently
expects to involve several hundred patients. The Company's clinical development
plan for ranolazine assumes that Phase I data and several Phase II angina trials
with ranolazine IR combined with Phase I data and safety and tolerability data
from a pilot Phase II trial for intermittent claudication with ranolazine SR
will be accepted by the FDA to initiate Phase III trials with ranolazine SR.
There can be no assurance that such clinical data will be accepted by the FDA in
support of initiation of such Phase III trials with ranolazine SR or that the
Company will not be required or otherwise choose to conduct additional Phase II
clinical trials of ranolazine SR prior to commencement of Phase III clinical
trials. Commencement of the Phase III trials by Syntex in 1994 was based upon
Phase I and II ranolazine IR data combined with Phase I ranolazine SR data. The
Company has initiated pharmacological and mechanism studies and is engaged in
the transfer of manufacturing technology from Syntex. There can be no assurance
that the Company will obtain a corporate partner to initiate Phase III trials,
that ranolazine will obtain FDA or other regulatory or foreign marketing
approval for any indication.
CVT-609 AND CVT-429
CVT-609 and CVT-429 were designed and synthesized in the Company's adenosine
A(1) receptor program. The Company believes that CVT-609 and CVT-429 may have
potential application in treating supraventricular tachycardia, as well as
additional applications. Based on preclinical data, the Company believes CVT-609
and CVT-429 are among the most selective adenosine A(1) receptor agonists
reported. Preclinical studies conducted by the Company indicated that CVT-609
and CVT-429 slowed electrical impulses in the conduction tissue of the heart by
stimulating the adenosine A(1) receptor.
Supraventricular tachycardias (atrial fibrillation, atrial flutter and AV nodal
re-entrant tachycardias) are among the most common cardiac arrhythmias
complicating ischemic heart disease and cardiac surgical procedures and account
for over 300,000 new hospital admissions in the United States each year. They
originate in the atria as rapid and irregular heart beats that then spread to
the ventricles. The ventricular contractions stimulated by the atrial impulses
can be so fast and irregular that cardiac function can be severely compromised,
resulting in dangerously low blood pressure, fluid in the lungs, and ischemic
damage to the heart, brain and other organs.
Because of the severity of these conditions and the need to treat patients
quickly, intravenous therapies are typically used. Current medical therapies aim
to slow the heart to a normal rate but have significant limitations in the acute
care setting. Digitalis is effective in controlling heart rate, but requires a
long time to take effect, which can be dangerous in patients with a failing
heart. Calcium channel blockers, beta blockers and adenosine act quickly but are
themselves associated with hypotension and depressed cardiac function,
potentially exacerbating the condition of patients already experiencing cardiac
dysfunction as a complication of the tachycardia.
For the treatment of supraventricular tachycardia, selective stimulation of the
A(1) receptor is required to slow the heart rate without significant stimulation
of the A(2) receptor which would lower blood pressure. The Company has
identified CVT-609 and CVT-429 as candidates for clinical development of
intravenous agents and is proceeding with preclinical studies.
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CVT-313 AND CVT-634
CVT-313 and CVT-634 were designed and synthesized in the Company's cell cycle
inhibitor program. The goal of this program is to develop a new class of
therapeutics that suppresses abnormal cellular proliferation, which contributes
to progressive cardiovascular diseases. Excessive proliferation of
cardiovascular connective tissue cells or vascular smooth muscle cells causes
the scarring and loss of function that is characteristic of chronic diseases of
the heart, blood vessels and kidneys. Several of the Company's scientists and
scientific advisors have been among the leaders in identifying the role of cell
proliferation in causing a variety of cardiovascular diseases. As part of its
drug discovery strategy, the Company has focused upon newly discovered enzymes
referred to collectively as the cell cycle enzymes that regulate cellular
proliferation. In particular, two important targets identified by the Company,
CDK2 and the proteasomal protease, may have different clinical applications. The
Company is continuing to explore other cell cycle regulatory enzymes as
potential targets in this program. CVT 313 is a novel compound which
specifically inhibits CDK2, a critical regulatory protein which participates in
the control of the cell cycle. CDK2, whose three dimensional structure was first
determined by academic collaborators of the Company, is central to cellular
proliferation and was chosen as the Company's first target in the cell cycle
inhibitor program. Preclinical studies have shown significant reduction of
restenosis after vascular injury, both confirming the appropriate selection of
the target and identifying a potential initial clinical application.
CVT-634, also identified in this program, has been shown to be a potent
inhibitor of proteasomal protease, which regulates both CDK2 activation and
macrophage activation. CVT-634 has been shown in preclinical studies to control
smooth muscle cell proliferation. This compound is undergoing further
preclinical testing.
CHRONIC ANTI-INFLAMMATORY INHIBITORS
CVT is seeking to address chronic inflammatory diseases of the cardiovascular
system by targeting macrophage infiltration into the heart and kidney. Activated
macrophages are a type of white blood cell found in lesions associated with
virtually all chronic cardiovascular diseases, including atherosclerotic plaque,
and are known to secrete growth factors which promote cellular proliferation and
scarring. The Company has discovered a novel inflammatory factor in this program
which has been partnered to Bayer AG for continued development.
LICENSES AND COLLABORATIONS
CVT has licensed certain chemical compounds from academic collaborators and
other companies and has applied its drug discovery strategies to analog and
optimize these structures and to identify applications for preclinical and
clinical development. Once these drug candidates enter clinical trials, the
Company intends to establish strategic partnerships to expedite development and
commercialization. For those programs which provide knowledge useful in the
identification of compounds with potential application outside of chronic
cardiovascular disease, the Company intends to find corporate partners at the
preclinical stage. The Company's licenses and collaborations currently in effect
include:
UNIVERSITY OF FLORIDA RESEARCH FOUNDATION
In June 1994, the Company entered into a license agreement with the University
of Florida Research Foundation, Inc. ("UFRFI") under which the Company received
exclusive worldwide rights to develop adenosine A(1) receptor antagonists and
agonists for the detection, prevention and treatment of human and animal
diseases. In consideration for the license, the Company paid UFRFI an initial
license fee and is obligated to pay royalties based on net sales of products
which utilize the licensed technology. Pursuant to the agreement, the Company
must exercise commercially reasonable efforts to develop and commercialize one
or more products covered by the licensed technology and is obligated to meet
milestones in completing certain preclinical work. In the event the Company
fails to reach those milestones, UFRFI may convert the exclusive license into a
non-exclusive license. As part of the license agreement with UFRFI, the Company
entered into a research agreement with the University of Florida.
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SYNTEX/ROCHE
In March 1996, the Company entered into a license agreement with Syntex for
United States and foreign patent rights to a compound having the generic name of
ranolazine for products treating angina and certain other cardiovascular
indications. The agreement provides for Syntex to also supply certain quantities
of the compound to the Company. The license agreement is exclusive and worldwide
except for the following countries which Syntex licensed exclusively to Kissei
Pharmaceuticals, Ltd. of Japan: Japan, Korea, China, Taiwan, Hong Kong, the
Philippines, Indonesia, Singapore, Thailand, Malaysia, Vietnam, Myanmar, Laos,
Cambodia and Brunei. Under the license agreement, the Company paid an initial
license fee. In addition, the Company is obligated to make payments on the
achievement of certain development milestones and to make royalty payments based
on net sales of products which utilize the licensed technology. The Company is
required to use commercially reasonable efforts to develop the compound for
angina within certain milestone guidelines. The license agreement also sets
milestones within which the Company must launch products in each country covered
by the license or lose exclusivity in such territories.
BAYER AG
In May 1996, the Company granted an exclusive worldwide license to Bayer AG for
a novel inflammatory factor for preclinical and clinical development for any
therapeutic, prophylactic or diagnostic use in humans or animals. In
consideration of this license, Bayer AG paid the Company a non-refundable
license fee of $250,000, and agreed to make certain cash milestone payments
related to the progress of product development. Bayer AG is also obligated to
pay the Company royalties based on net sales of products which utilize the
licensed technology. The Company is responsible for the expenses of patent
prosecution for the licensed technology. Bayer AG may terminate the agreement
for any reason upon written notice to the Company.
MARKETING AND SALES
The Company currently has no sales, marketing or distribution capability. The
Company intends to rely on relationships with one or more pharmaceutical
companies with established distribution systems and direct sales forces to
market its products. In the event that the Company is unable to reach agreement
with one or more pharmaceutical companies to market its products, it may be
required to market its products directly and to develop a marketing and sales
force with technical expertise and with supporting distribution capability.
There can be no assurance that the Company will be able to establish in-house
sales and distribution capabilities or relationships with third parties, or that
it will be successful in commercializing any of its potential products. To the
extent that the Company enters into co-promotion or other licensing
arrangements, any revenues received by the Company will depend upon the efforts
of third parties, and there can be no assurance that such efforts will be
successful.
MANUFACTURING
CVT does not currently operate manufacturing facilities for clinical or
commercial production of its proposed products. The Company has no experience
in, and currently lacks the resources and capability to, manufacture any of its
proposed products on a commercial scale. Accordingly, the Company is, and will
continue to be, dependent on corporate partners, licensees or other third
parties for clinical and commercial scale manufacturing. The Company does have
experience in the transfer of synthetic technology from discovery to scale-up
manufacturing facilities, having successfully executed technology transfer for
the manufacture of clinical supplies of one orally administered agent and one
intravenously administered agent. CVT-124 is currently being manufactured to
supply clinical trials by a third party, and the Company is currently
negotiating with third party manufacturers for clinical scale production of
ranolazine. There can be no assurance that the Company will be able to reach
satisfactory agreements with its partners or third parties or that such parties
will be able to develop adequate manufacturing capabilities for commercial scale
quantities of products.
PATENTS AND PROPRIETARY TECHNOLOGY
Patents and other proprietary rights are important to the Company's business.
The Company's policy is to file patent applications and to protect technology,
inventions and improvements to inventions that are commercially
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important to the development of its business. The Company also relies on trade
secrets, confidentiality agreements and other protective measures to protect its
technology and proposed products. The Company's failure to obtain patent
protection or otherwise protect its proprietary technology or proposed products
may have a material adverse effect on the Company's competitive position and
business prospects.
The Company owns four pending patent applications in the United States relating
to an inflammatory factor licensed to Bayer AG, CVT-609/429, CVT-313 and
CVT-634, as well as one foreign patent application with respect to the
inflammatory factor licensed to Bayer. In addition, the Company has acquired an
exclusive license to one United States issued patent, two United States patent
applications and related foreign patent applications related to CVT-124. The
Company also has acquired a license which is exclusive in certain territories to
three United States issued patents, one United States patent application and
related foreign patent applications related to ranolazine. The patent
application process takes several years and entails considerable expense. There
is no assurance that patents will issue from these applications or, if patents
do issue, that the claims allowed will be sufficient to protect the Company's
technology. One of the primary patents relating to ranolazine will expire in May
2003 unless the Company is granted an extension based upon delays in the FDA
approval process.
Patent applications in the United States are maintained in secrecy until a
patent issues, and the Company cannot be certain that others have not filed
patent applications for technology covered by the Company's pending applications
or that the Company was the first to invent the technology that is the subject
of such patent application. Competitors may have filed applications for, or may
have received patents and may obtain additional patents and proprietary rights
relating to, compounds, products or processes that block or compete with those
of the Company. There can be no assurance that third parties will not assert
patent or other intellectual property infringement claims against the Company
with respect to its products or technology or other matters. There may be third
party patents and other intellectual property relevant to the Company's products
and technology which are not known to the Company.
Patent litigation is becoming more widespread in the biopharmaceutical industry.
Litigation may be necessary to defend against or assert claims of infringement,
to enforce patents issued to the Company, to protect trade secrets or know-how
owned by the Company, or to determine the scope and validity of the proprietary
rights of third parties. Although no third party has asserted that the Company
is infringing such third party's patent rights or other intellectual property,
there can be no assurance that litigation asserting such claims will not be
initiated, that the Company would prevail in any such litigation, or that the
Company would be able to obtain any necessary licenses on reasonable terms, if
at all. Any such claims against the Company, with or without merit, as well as
claims initiated by the Company against third parties, can be time-consuming and
expensive to defend or prosecute and to resolve. If other companies prepare and
file patent applications in the United States that claim technology also claimed
by the Company, the Company may have to participate in interference proceedings
to determine priority of invention which could result in substantial cost to the
Company even if the outcome is favorable to the Company.
The Company also relies on trade secrets, confidentiality agreements and other
protective measures to protect its technology and proposed products. There can
be no assurance that third parties will not independently develop equivalent
proprietary information or techniques, will not gain access to the Company's
trade secrets or disclose such technology to the public, or that the Company can
maintain and protect unpatented proprietary technology. The Company typically
requires its employees, consultants, collaborators, advisors and corporate
partners to execute confidentiality agreements upon commencement of employment
or other relationships with the Company. There can be no assurance, however,
that these agreements will provide meaningful protection or adequate remedies
for the Company's technology in the event of unauthorized use or disclosure of
such information, or that the parties to such agreements will not breach such
agreements.
GOVERNMENT REGULATION
FDA REQUIREMENTS FOR DRUG COMPOUNDS. The research, testing, manufacture and
marketing of drug products are extensively regulated by numerous governmental
authorities in the United States and other countries. In the United States,
drugs are subject to rigorous regulation by the FDA. The federal Food, Drug and
Cosmetic Act, as amended (the "FDC Act"), and the regulations promulgated
thereunder, and other federal and state statutes and regulations, govern, among
other things, the research, development, testing, manufacture, storage,
recordkeeping,
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labeling, promotion and marketing and distribution of pharmaceutical products.
Failure to comply with applicable regulatory requirements may subject a company
to administrative or judicially imposed sanctions such as civil penalties,
criminal prosecution, injunctions, product seizure or detention, product
recalls, total or partial suspension of product, and FDA refusal to approve
pending NDA applications or NDA supplements to approved applications.
The steps ordinarily required before a new pharmaceutical product may be
marketed in the United States include: (i) preclinical laboratory tests, IN VIVO
preclinical studies and formulation studies; (ii) the submission to the FDA of
an IND, which must become effective before clinical testing may commence; (iii)
adequate and well-controlled clinical trials to establish the safety and
effectiveness of the drug for each indication; (iv) the submission of a NDA to
the FDA; and (v) FDA review and approval of the NDA prior to any commercial sale
or shipment of the drug. Preclinical tests include laboratory evaluation of
product chemistry and formulation, as well as animal studies to assess the
potential safety and efficacy of the product. Preclinical tests must be
conducted in compliance with Good Laboratory Practice regulations and compounds
for clinical use must be formulated according to cGMP requirements. The results
of preclinical testing are submitted to the FDA as part of an IND. A 30-day
waiting period after the filing of each IND is required prior to the
commencement of clinical testing in humans. If the FDA has not commented on or
questioned the IND within this 30-day period, clinical studies may begin. If the
FDA has comments or questions, the questions must be answered to the
satisfaction of the FDA before initial clinical testing can begin. In addition,
the FDA may, at any time, impose a clinical hold on ongoing clinical trials. If
the FDA imposes a clinical hold, clinical trials cannot commence or recommence
without FDA authorization and then only under terms authorized by the FDA. In
some instances, the IND application process can result in substantial delay and
expense.
Clinical trials involve the administration of the investigational new drug to
healthy volunteers or patients under the supervision of a qualified principal
investigator. Clinical trials are conducted in accordance with Good Clinical
Practice regulations under protocols detailing the objectives of the study, the
parameters to be used in monitoring safety and the effectiveness criteria to be
evaluated. Each protocol must be submitted to the FDA as part of the IND.
Further, each clinical study must be conducted under the auspices of an
independent Institutional Review Board ("IRB") at the institution at which the
study will be conducted. The IRB will consider, among other things, ethical
factors, the safety of human subjects and the possible liability of the
institution. Clinical trials to support NDAs are typically conducted in three
sequential phases, but the phases may overlap. In Phase I, the initial
introduction of the drug into healthy human subjects or patients, the drug is
tested to assess metabolism, pharmacokinetics and pharmacological actions and
safety, including side effects associated with increasing doses. Phase II
usually involves studies in a limited patient population to (i) determine the
efficacy of the drug in specific, targeted indications, (ii) determine dosage
tolerance and optimal dosage and (iii) identify possible adverse effects and
safety risks. If a compound is found to be effective and to have an acceptable
safety profile in Phase II evaluations, Phase III trials are undertaken to
further evaluate clinical efficacy and to further test for safety within an
expanded patient population at geographically dispersed clinical study sites.
There can be no assurance that Phase I, Phase II or Phase III testing will be
completed successfully within any specified time period, if at all, with respect
to any of the Company's products subject to such testing.
After completion of the required clinical testing, generally an NDA is
submitted. FDA approval of the NDA is required before marketing may begin in the
United States. The NDA must include the results of extensive clinical and other
testing and the compilation of data relating to the product's chemistry,
pharmacology and manufacture, the cost of all of which is substantial. The FDA
reviews all NDAs submitted before it accepts them for filing and may request
additional information rather than accepting an NDA for filing. In such an
event, the NDA must be resubmitted with the additional information and, again,
is subject to review before filing. Once the submission is accepted for filing,
the FDA begins an in-depth review of the NDA. Under the FDC Act, the FDA has 180
days in which to review the NDA and respond to the applicant. The review process
is often significantly extended by FDA requests for additional information or
clarification regarding information already provided in the submission. The FDA
may refer the application to the appropriate advisory committee, typically a
panel of clinicians, for review, evaluation and a recommendation as to whether
the application should be approved. The FDA is not bound by the recommendation
of an advisory committee. If FDA evaluations of the NDA and the manufacturing
facilities are favorable, the FDA may issue either an approval letter or an
approvable letter, which usually
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contains a number of conditions that must be met in order to secure final
approval of the NDA. When and if those conditions have been met to the FDA's
satisfaction, the FDA will issue an approval letter, authorizing commercial
marketing of the drug for certain indications. As a condition of NDA approval,
the FDA may require postmarketing testing and surveillance to monitor the drug's
safety or efficacy. If the FDA's evaluation of the NDA submission or
manufacturing facilities is not favorable, the FDA may refuse to approve the NDA
or issue a not approvable letter, outlining the deficiencies in the submission
and often requiring additional testing or information. Notwithstanding the
submission of any requested additional data or information in response to an
approvable or not approvable letter, the FDA ultimately may decide that the
application does not satisfy the regulatory criteria for approval. Once granted,
product approvals may be withdrawn if compliance with regulatory standards is
not maintained or problems occur following initial marketing.
MANUFACTURING. Each domestic drug manufacturing facility must be registered
with FDA. Domestic drug manufacturing establishments are subject to periodic
inspection by the FDA and must comply with cGMP. Further, the Company or its
third party manufacturer must pass a preapproval inspection of its manufacturing
facilities by the FDA before obtaining marketing approval of any products. To
supply products for use in the United States, foreign manufacturing
establishments must comply with cGMP and are subject to periodic inspection by
the FDA or corresponding regulatory agencies in countries under reciprocal
agreements with the FDA. Drug product manufacturing establishments located in
California must be licensed by the State of California in compliance with local
regulatory requirements, and other states may have comparable regulations. The
Company uses and will continue to use third party manufacturers to produce its
products in clinical and commercial quantities. There can be no guarantee that
future FDA inspections will proceed without any compliance issues requiring the
expenditure of money or other resources.
FOREIGN REGULATION OF DRUG COMPOUNDS. Whether or not FDA approval has been
obtained, approval of a product by comparable regulatory authorities may be
necessary in foreign countries prior to the commencement of marketing of the
product in such countries. The approval procedure varies among countries, can
involve additional testing, and the time required may differ from that required
for FDA approval. Although there are some procedures for unified filings for
certain European countries with the sponsorship of the country which first
granted marketing approval, in general each country has its own procedures and
requirements, many of which are time consuming and expensive. Thus, there can be
substantial delays in obtaining required approvals from foreign regulatory
authorities after the relevant applications are filed. In Europe, marketing
authorizations may be submitted at either a centralized, a decentralized or a
national level. The centralized procedure is mandatory for the approval of
biotechnology products and provides for the grant of a single marketing
authorization which is valid in all European Community member states. As of
January 1995, a mutual recognition procedure is available at the request of the
applicant for all medicinal products which are not subject to the centralized
procedure. The Company will choose the appropriate route of European regulatory
filing to accomplish the most rapid regulatory approvals. There can be no
assurance that the chosen regulatory strategy will secure regulatory approvals
on a timely basis or at all.
HAZARDOUS MATERIALS. The Company's research and development processes involve
the controlled use of hazardous materials, chemicals and radioactive materials
and produce waste products. The Company is subject to federal, state and local
laws and regulations governing the use, manufacture, storage, handling and
disposal of such materials and waste products. Although the Company believes
that its safety procedures for handling and disposing of such materials comply
with the standards prescribed by such laws and regulations, the risk of
accidental contamination or injury from these materials cannot be eliminated
completely. In the event of such an accident, the Company could be held liable
for any damages that result and any such liability could exceed the resources of
the Company. Although the Company believes that it is in compliance in all
material respects with applicable environmental laws and regulations, there can
be no assurance that it will not be required to incur significant costs to
comply with environmental laws and regulations in the future, or that the
operations, business or assets of the Company will not be materially adversely
affected by current or future environmental laws or regulations.
34
<PAGE>
COMPETITION
The pharmaceutical and biopharmaceutical industries are subject to intense
competition and rapid and significant technological change. While several of
CVT's products target diseases for which there are presently no effective
therapies, CVT nevertheless is aware of companies which are developing products
that will compete for the same disease markets. For example, Kyowa Hakko Co.,
Ltd., Fujisawa Pharmaceutical, Japan and Discovery Therapeutics, Inc., are each
developing adenosine A(1) receptor antagonists. In addition, Sandoz and Glaxo
Wellcome P.L.C. both have adenosine A(1) receptor agonists under development. If
regulatory approvals are received, ranolazine may compete with several classes
of existing drugs for the treatment of angina, some of which are available in
generic form, including calcium channel blockers, beta blockers and nitrates.
There are also non-pharmacologic treatments such as coronary artery bypass
grafting ("CABG") and percutaneous transluminal coronary angioplasty ("PTCA").
However, for those patients who do not respond adequately to existing therapies
and remain symptomatic despite maximal treatment with existing anti-anginal
drugs and who are not candidates for CABG or PTCA, there is no currently
effective treatment. In refractory patients who are candidates for CABG or PTCA,
there is no effective pharmacologic treatment available. In the treatment of
intermittent claudication, ranolazine may compete with Trental, an FDA approved
drug developed by Hoechst Marion Roussel, Inc., beraprost, a prostaglandin being
developed by Bristol-Myers Squibb, Cilostazol, a prostaglandin E(1) derivative
being developed by Otsuka Pharmaceutical Co., Ltd., and L-carnitine, an amino
acid derivative being developed by Sigma Tau Pharmaceuticals, Inc.
CVT believes that the principal competitive factors in the markets for
ranolazine and CVT-124 will include the length of time to receive regulatory
approval, product performance, product price, product supply, marketing and
sales capability and enforceability of patent and other proprietary rights. CVT
believes that it is or will be competitive with respect to these factors.
Nonetheless, because the Company's products are still under development, the
relative competitive position of the Company in the future is difficult to
predict.
The Company expects that the pharmaceutical and biopharmaceutical industries
will continue to experience rapid technological development which may render the
Company's potential products non-competitive or obsolete. Many current and
potential competitors have substantially greater product development
capabilities and financial, marketing, scientific, and human resources than the
Company. Other companies may succeed in developing products earlier than the
Company, obtaining approvals for such products from the FDA more rapidly than
the Company or developing products that are safer and more effective than those
under development or proposed to be developed by the Company. While the Company
will seek to expand its technological capabilities in order to remain
competitive, there can be no assurance that research and development by others
will not render its technology or potential products obsolete or non-competitive
or result in treatments or cures superior to any therapy developed by the
Company, or that therapy developed by the Company will be preferred to any
existing or newly developed technologies.
PRODUCT LIABILITY INSURANCE
The manufacture and sale of human therapeutic products involve an inherent risk
of product liability claims and associated adverse publicity. The Company has
only limited product liability insurance for clinical trials and no commercial
product liability insurance. There can be no assurance that it will be able to
maintain existing or obtain additional product liability insurance on acceptable
terms or with adequate coverage against potential liabilities. Such insurance is
expensive, difficult to obtain and may not be available in the future on
acceptable terms, or at all. An inability to obtain sufficient insurance
coverage on reasonable terms or to otherwise protect against potential product
liability claims could prevent or inhibit the commercialization of the Company's
potential products. A product liability claim brought against the Company in
excess of its insurance coverage, if any, or a product withdrawal could have a
material adverse effect upon the Company's business, financial condition and
results of operations.
EMPLOYEES
As of September 30, 1996, CVT employed 44 individuals full-time, including 15
who hold doctoral degrees. Of the Company's total work force, 30 employees are
engaged in or directly support research and development
35
<PAGE>
activities and 14 are engaged in business development, finance and
administrative activities. The Company's employees are not represented by a
collective bargaining agreement. The Company believes its relations with its
employees are good.
FACILITIES
The Company currently leases a 61,081 square foot building in Palo Alto,
California, of which approximately 33,783 square feet are subleased to two third
parties. The initial term of the lease expires in February 2002 with an option
to renew for five years, and the subleases expire in March 1997 and March 1998,
respectively. CVT believes that this facility will be adequate to meet the
Company's needs for the foreseeable future.
SCIENTIFIC ADVISORY BOARD
CVT's Scientific Advisory Board ("SAB") consists of academic and industry
experts in the fields of medicine, chemistry and molecular and cellular biology.
The SAB reviews and evaluates the Company's research programs and advises the
Company with respect to technical matters. Each SAB member has entered into a
consulting agreement with the Company specifying the terms and scope of the
advisory relationship. All SAB members own shares or have been granted options
to acquire Common Stock of the Company. All of the SAB members are employed by
employers other than the Company and may have other commitments and consulting
contracts with other entities which may compete for such member's time with
their obligations to the Company. The Company's Scientific Advisory Board
includes the following individuals:
VICTOR J. DZAU, M.D. is Chairman of the Scientific Advisory Board. Dr. Dzau is
one of the world's leading researchers in the molecular and cellular biology of
cardiovascular diseases. Since September 1996, he has served as Chairman of the
Department of Medicine and Physician-in-Chief at the Brigham and Women's
Hospital in Boston, and as Hersey Professor of the Theory and Practice of
Medicine at Harvard Medical School. Between 1990 and September 1996, he served
as the William G. Irwin Professor of Medicine and chief of cardiovascular
medicine at Stanford University School of Medicine. In early 1995, he was
promoted to Arthur L. Bloomfield Professor and Chairman of Medicine at Stanford.
Previously, Dr. Dzau held several clinical and research appointments in
cardiology at Massachusetts General Hospital and Harvard Medical School, where
he was a postdoctoral fellow. He received his M.D. degree from McGill
University.
STUART A. AARONSON, M.D. is director of the Deraid H. Ruttenberg Cancer Center
at Mount Sinai School of Medicine, New York City, and is a world renowned growth
factor researcher and tumor biologist. He has established the role of numerous
cytokines in the function of blood vessels. He obtained his M.D. degree from the
University of California, San Francisco.
CHRISTOPHER FIELDING, PH.D. has been a faculty member at the University of
California, San Francisco over the past two decades, where he has served as the
Neider Professor of Cardiovascular Physiology since 1985. A recognized expert in
the field of cholesterol metabolism, Dr. Fielding received his Ph.D. from the
University of London and completed postdoctoral work in cell metabolism at
Oxford University.
RICHARD J. HAVEL, M.D. is a professor of medicine, Chief of Metabolism and past
Director of the Cardiovascular Research Institute at the University of
California, San Francisco. As a leader in both basic lipid research and clinical
lipid investigations for several decades, Dr. Havel is known for his pioneering
research on lipoprotein metabolism and for designing and conducting clinical
investigations of lipid reduction and coronary atherosclerosis. He recently
served on the Executive Committee of the Adult Treatment Panel of the National
Cholesterol Education Program. Dr. Havel is a member of the National Academy of
Sciences and received his M.D. degree from the University of Oregon.
RICHARD M. LAWN, PH.D. has served on part-time basis as the Vice President,
Molecular Cardiology at CVT since 1992. Since 1990 has been a Professor of
Medicine in the Division of Cardiovascular Medicine, Stanford University School
of Medicine. From 1980 to 1990, Dr. Lawn served as a senior scientist and later
as a staff scientist at Genentech, Inc. He received his Ph.D. in molecular,
cellular and developmental biology from the University of Colorado.
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<PAGE>
JEFFREY M. LEIDEN, M.D., PH.D. is the Frederick H. Rawson Professor of Medicine
and Pathology, and Chief of the Section of Cardiology at the University of
Chicago and a former Howard Hughes medical investigator. He is a leading
researcher in the areas of transcriptional regulation during mammalian
development and the development of novel gene therapy approaches for
cardiovascular disease. Dr. Leiden received his M.D. and Ph.D. degrees from the
University of Chicago and completed his postdoctoral and cardiology fellowships
at the Brigham and Women's Hospital, Harvard University.
PETER SCHULTZ, PH.D. is a professor of chemistry at the University of
California, Berkeley. He is recognized as an expert in protein
structure/function and pioneered combinatorial methods and the development of
catalytic antibodies. Dr. Schultz has received numerous awards including the
National Science Foundation Alan T. Waterman Award, the American Chemical
Society Award in Pure Chemistry and the Wolf Price in Chemistry. He is a
founding scientific advisor of Affymax, N.V. In 1993, Dr. Schultz was elected to
the National Academy of Sciences. He received his Ph.D. from California
Institute of Technology and worked as a National Institutes of Health
postdoctoral fellow at the Massachusetts Institute of Technology.
ERIC J. TOPOL, M.D. is the Chairman, Department of Cardiology and the Director,
Joseph J. Jacobs Center for Thrombosis and Vascular Biology at the Cleveland
Clinic Foundation. A noted clinician and expert on ischemic/ atherosclerotic
heart disease, Dr. Topol is chairman of several large multicenter, randomized
clinical trials of specific interventional procedures and therapeutics. He has
also served as an advisor to the National Institutes of Health and currently
serves on the FDA's advisory panel on cardiology. Dr. Topol received his M.D.
degree from the University of Rochester and completed his cardiology fellowship
at Johns Hopkins University.
SIR JOHN VANE, D.SC., F.R.S. is the Director General of the William Harvey
Research Institute at St. Bartholomew's Hospital Medical College in London.
Prior to joining that institution, he spent 12 years as group research and
development director at the Wellcome Foundation, Ltd. He was awarded the Nobel
Prize in 1982 for his work in prostaglandins and for discovering the mode of
action of aspirin. Sir John was a research scientist for 18 years at the Royal
College of Surgeons of England. He is highly regarded for his continuing
research in the areas of cardiovascular disease and chronic inflammation. Sir
John holds both a D.Phil. and D.Sc. and is a Fellow of the Royal Society, the
Royal College of Physicians and the Royal College of Surgeons.
37
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and key employees of the Company and their
ages as of September 30, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ----------------------------------------------------------
<S> <C> <C>
Louis G. Lange, M.D., Ph.D. 48 Chairman of the Board and Chief Executive Officer
Kathleen A. Stafford 38 Chief Financial Officer
Michael M. Wick, M.D., Ph.D. 50 Senior Vice President, Research
George F. Schreiner, M.D., Ph.D. 47 Vice President, Medical Science and Preclinical Research
Andrew A. Wolff, M.D. 41 Vice President, Clinical Research and Development
Michael J. Sterns, D.V.M. 38 Director of Business Development
Samuel D. Colella (1)(2) 56 Director
Thomas L. Gutshall (2) 58 Director
Barbara J. McNeil, M.D., Ph.D. (2) 55 Director
J. Leighton Read, M.D. (1) 45 Director
Costa G. Sevastopoulos, Ph.D. (1) 53 Director
Isaac Stein (2) 49 Director
</TABLE>
- ------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
LOUIS G. LANGE, M.D., PH.D., was a founder of the Company and has served as its
Chairman of the Board and Chief Executive Officer since August 1992. From July
1980 to August 1992, Dr. Lange served on the faculty of Washington University
School of Medicine, including as Chief of Cardiology at Jewish Hospital in St.
Louis, Missouri from May 1985 to August 1992, and as a full professor of
medicine from July 1990 until August 1992. Dr. Lange is internationally
recognized as an expert in the field of molecular mechanisms of cardiovascular
disease. He holds an M.D. from Harvard Medical School and a Ph.D. in
biochemistry from Harvard University.
KATHLEEN A. STAFFORD has served as Chief Financial Officer of the Company since
December 1995. From May 1995 to December 1995, Ms. Stafford served as a
consultant to the Company in the area of financial affairs. From January 1994 to
October 1994, Ms. Stafford served as a Vice President and the Chief Financial
Officer for ONYX Pharmaceuticals, Inc., a biotechnology company. From February
1989 until January 1994, Ms. Stafford served as Treasurer for Amgen, Inc., a
biopharmaceutical company. Ms. Stafford holds a B.S. in combined science from
Santa Clara University and an M.B.A. from Virginia Polytechnic Institute.
MICHAEL M. WICK, M.D., PH.D., has served as Senior Vice President, Research for
the Company since November 1995. From May 1995 to November 1995, Dr. Wick served
as Vice President, Biological Chemistry for the Company. From September 1990
until May 1995, he served as the Executive Director of Oncology-Immunology
Research and Discovery at Lederle Laboratories, American Cyanamid Inc., a
pharmaceutical company. In addition, from May 1994 to May 1995, he served as the
Executive Director of Clinical Research for Oncology and Chairman of the Joint
Immunex American Cyanamid Research and Development Committee. He holds an M.D.
from Harvard Medical School and a Ph.D. in chemistry from Harvard University.
GEORGE F. SCHREINER, M.D., PH.D., has served as Vice President, Medical Science
& Preclinical Research for the Company since January 1993. Dr. Schreiner has
also served as a consulting professor of medicine at Stanford University since
May 1993. From July 1989 to December 1992, he was an associate professor of
medicine and pathology and served as an associate physician at Washington
University School of Medicine in St. Louis. Dr. Schreiner holds an M.D. from
Harvard Medical School and a Ph.D. in immunology from Harvard University.
ANDREW A. WOLFF, M.D., has served as Vice President of Clinical Research and
Development for the Company since September 1996. From September 1994 to
September 1996, Dr. Wolff served as Vice President of Clinical Research for the
Company. From June 1993 until September 1994, Dr. Wolff served as the Executive
Director of Medical Research and New Molecules Clinical Programs Leader for
Syntex, a pharmaceutical and healthcare
38
<PAGE>
company. In addition, from August 1992 to February 1993, he served as the acting
Associate Director for Europe, Institute for Cardiovascular and Central Nervous
System Clinical Research, Maidenhead, England. From July 1990 until June 1993,
Dr. Wolff served as the Director, Department for Cardiovascular Therapy for
Syntex. Since June 1988, Dr. Wolff has served also as an assistant clinical
professor of medicine in the Cardiology Division of the University of
California, San Francisco. He holds an M.D. from the Washington University
Medical School.
MICHAEL J. STERNS, D.V.M., has served as the Director of Business Development
for the Company since February 1995. From March 1993 until February 1995, Dr.
Sterns served as the Senior Director, Business Development for Microcide
Pharmaceuticals, Inc., a biopharmaceutical company. From October 1990 to March
1993, he served as Director, Business Development for ALZA Corporation, a
pharmaceutical company. Dr. Sterns holds a D.V.M. from the University of
California at Davis and an M.B.A. from the University of California at Berkeley.
SAMUEL D. COLELLA has served as a director of the Company since October 1992.
Since November 1984, Mr. Colella has been a General Partner of Institutional
Venture Partners, a private venture capital firm. He currently serves as
Chairman of the Board of Directors of ONYX Pharmaceuticals, Inc. He also serves
as a director of Genta Incorporated, Imagyn Medical, Inc., Pharmacopeia, Inc.
and Vivus, Inc. Mr. Colella holds a B.S. in business and engineering from the
University of Pittsburgh and an M.B.A. from Stanford University.
THOMAS L. GUTSHALL has served as a director of the Company since December 1994.
Since August 1996, Mr. Gutshall has served as the Chief Executive Officer of
Cepheid Corporation, a diagnostics company. From January 1995 to September 1996,
he served as President and Chief Operating Officer of the Company. From June
1989 until December 1994, Mr. Gutshall served as an Executive Vice President at
Syntex Corporation, a pharmaceutical and healthcare company. Mr. Gutshall earned
a B.S. in chemical engineering from the University of Delaware and completed the
Executive Marketing Management Program at Harvard Business School.
BARBARA MCNEIL, M.D., PH.D., has served as a director of the Company since
December 1994. Since 1990, Dr. McNeil has served as the Ridley Watts Professor
of Health Care Policy at Harvard Medical School. In addition, since July 1988,
she has served as the Chair of the Department of Health Care Policy at Harvard
Medical School. Since 1983, she has been a professor of radiology at both
Harvard Medical School and Brigham and Women's Hospital in Boston. Dr. McNeil
holds an M.D. from Harvard Medical School and a Ph.D. in biological chemistry
from Harvard University.
J. LEIGHTON READ, M.D., has served as a director of the Company since September
1992. Dr. Read founded Aviron, a biopharmaceutical company, and has served as
its Chairman and Chief Executive Officer since April 1992. From July 1991 to
July 1993, Dr. Read was a principal with Interhealth Limited, an investment
partnership. From January 1989 to July 1991, Dr. Read served as a managing
director of Affymax N.V., a biopharmaceutical company, which he co-founded in
1989. Dr. Read holds a B.S. in biology and psychology from Rice University and
an M.D. from the University of Texas Health Science Center at San Antonio.
COSTA G. SEVASTOPOULOS, PH.D., has served as a director of the Company since
October 1992. Since May 1994, Dr. Sevastopoulos has been an independent
consultant and a limited partner of Delphi Ventures I and II, both venture
capital partnerships. From April 1988 to April 1994, he served as a general
partner of Delphi BioVentures, a venture capital partnership, which he
co-founded. Dr. Sevastopoulos currently serves as Chairman of the Board of
Directors of Metra Biosystems, Inc. He holds a B.S. in physics from the
University of Athens, Greece, an M.S. in electrical engineering from the
California Institute of Technology, an M.B.A. from the European Institute of
Business Administration in Fontainebleau, France, and a Ph.D. in molecular
biology from the University of California at Berkeley.
ISAAC STEIN has served as a director of the Company since March 1995. Since its
inception, Mr. Stein has served as the President of Waverly Associates, Inc., a
private investment firm, which he founded in 1983. In addition, Mr. Stein
currently serves as Chairman of Stanford Health Services and is a director of
Stanford University Hospital and a Trustee of Stanford University. From February
1993 to February 1994, Mr. Stein served as a special assistant to the President
of Stanford University. From July 1990 to December 1992, he served as Chairman
of Esprit de Corp., an apparel company, and from March 1991 to February 1992, he
served as its
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<PAGE>
acting President and Chief Executive Officer. Mr. Stein currently serves as a
director of ALZA Corporation and Raychem Corporation. Mr. Stein holds a B.A. in
economics and mathematics from Colgate University, an M.B.A. from Stanford
Business School and a J.D. from Stanford Law School.
BOARD COMPOSITION
The Company currently has authorized seven directors. These directors are
elected to serve until the next annual meeting of stockholders or until their
earlier resignation or removal. In accordance with the terms of the Company's
Restated Certificate of Incorporation, at such time as the Company is no longer
subject to Section 2115 of the California Corporations Code, the terms of office
of the Board of Directors will be divided into three classes: Class I, whose
term will expire at the annual meeting of stockholders to be held in 1997; Class
II, whose term will expire at the annual meeting of stockholders to be held in
1998; and Class III, whose term will expire at the annual meeting of
stockholders to be held in 1999. See "Description of Capital Stock - General."
The Class I directors are Mr. Gutshall and Dr. Sevastopoulos, the Class II
directors are Drs. McNeil and Read, and the Class III directors are Dr. Lange
and Messrs. Colella and Stein. At each annual meeting of stockholders after the
initial classification, the successors to directors whose term will then expire
will be elected to serve from the time of election and qualification until the
third annual meeting following election. In addition, the Company's Restated
Certificate of Incorporation provides that the authorized number of directors
may be changed only by resolution of the Board of Directors. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. This classification of the Board of
Directors may have the effect of delaying or preventing changes in control or
management of the Company. Although directors of the Company may be removed for
cause by the affirmative vote of the holders of a majority of the voting power
of all the then-outstanding shares of voting stock of the Corporation entitled
to vote at an election of directors (the "Voting Stock"), the Company's Restated
Certificate of Incorporation provides that holders of two-thirds of the Voting
Stock must vote to approve the removal of a director without cause.
BOARD COMMITTEES
The Audit Committee of the Company's Board of Directors consists of Messrs.
Colella, Gutshall and Stein and Dr. McNeil. The Audit Committee reviews the
internal accounting procedures of the Company and consults with and reviews the
services provided by the Company's independent auditors.
The Compensation Committee of the Company's Board of Directors currently
consists of Mr. Colella and Drs. Read and Sevastopoulos. The Compensation
Committee reviews and recommends to the Board the compensation and benefits of
all officers of the Company and reviews general policy relating to compensation
and benefits of employees of the Company. The Compensation Committee also
administers the issuance of stock options and other awards under the Company's
stock plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
From the Company's inception through 1994, the Board of Directors made all
determinations with respect to executive officer compensation. In the fiscal
year ended December 31, 1995, a Compensation Committee consisting of Mr.
Colella, Dr. Lange, the Company's Chief Executive Officer, and Drs. Read and
Sevastopoulos, made all determinations relating to executive officer
compensation.
DIRECTOR COMPENSATION
Other than Isaac Stein and Barbara McNeil, who receive $1,000 per meeting
attended, the Company's directors currently do not receive cash compensation for
service on the Board of Directors or any committee thereof, but directors may be
reimbursed for reasonable expenses in connection with attendance at Board and
committee meetings.
In July 1994, the Board of Directors adopted and in July 1995, the stockholders
approved the Non-Employee Directors' Stock Option Plan (the "Directors' Plan").
The Directors' Plan was amended and restated in September 1996, subject to
stockholder approval. The Company has reserved 250,000 shares of Common Stock
for issuance under the Directors' Plan. The Directors' Plan provides for
automatic grants of options to purchase shares of Common Stock to non-employee
directors of the Company ("Non-Employee Directors"). Pursuant to the terms of
the Directors' Plan, each Non-Employee Director is automatically granted an
option to purchase shares of
40
<PAGE>
Common Stock. Commencing with the adoption of the Directors' Plan, each newly
elected Non-Employee Director was granted an option to purchase 1,000 shares of
Common Stock, and on each anniversary of the adoption of the Directors' Plan,
each Non-Employee Director was granted an option to purchase 500 shares. These
options vest at the rate of 1/36 per month. Upon the amendment and restatement
of the Directors' Plan, each Non-Employee Director was granted an option to
purchase 15,000 shares, subject to stockholder approval. Each subsequently
elected Non-Employee Director will also be granted an option to purchase 15,000
shares at his or her election. These options for 15,000 shares vest as to 33.33%
of the shares 12 months from the date of grant, and at the rate of 1/36 per
month thereafter, if the Non-Employee Director provides services to the Company
or its affiliates through the applicable vesting date. In addition, at each
annual meeting of the Company's stockholders after the effectiveness of this
Offering, each Non-Employee Director will be granted an option to purchase 5,000
shares, which will vest 12 months from the date of grant if the Non-Employee
Director provides services to the Company or its affiliates through such date.
As of September 30, 1996, options to purchase 100,000 shares have been granted
under the Directors' Plan.
The exercise price of options granted under the Directors' Plan must equal the
fair market value of the Common Stock on the date of grant; provided, however,
that prior to the September 1996 amendment and restatement of the Directors'
Plan, the exercise price of options granted to any person possessing more than
10% of the total combined voting power of all classes of stock of the Company or
of any of its affiliates was 110% of the fair market value on the date of grant.
No option granted under the Directors' Plan may be exercised after the
expiration of ten years from date it was granted. No option may be transferred
by the optionee other than by will or the laws of descent or distribution,
provided that an optionee may designate a beneficiary who may exercise the
option following the optionee's death. The Directors' Plan will terminate in
September 2006, unless earlier terminated by the Board.
Upon certain changes in control of Company, outstanding options will be assumed
or substituted by the surviving corporation.
In July 1994, the Company entered into a Consulting Agreement for Individual
Consultants with Barbara J. McNeil, M.D., Ph.D., a director of the Company,
pursuant to which Dr. McNeil agreed to serve on the Board of Directors and to
provide other advice and consultation. Under the terms of the agreement, the
Company agreed to pay a fixed fee of $1,000 per day as compensation for Dr.
McNeil's services. In the fiscal year ended December 31, 1995, Dr. McNeil
received $10,000 as compensation for her services. The Company may terminate
this agreement for any reason upon written notice. In addition, in July 1994,
the Board of Directors of the Company granted Dr. McNeil an option to purchase
2,500 shares of Common Stock at an exercise price of $2.50 per share. The option
vests over a three year period. As a result of this option grant, Dr. McNeil did
not receive an initial option to purchase 1,000 shares of Common Stock pursuant
to the Directors' Plan upon joining the Board.
In March 1995, the Company entered into a Consulting Agreement for Individual
Consultants with Isaac Stein, a director of the Company, pursuant to which Mr.
Stein agreed to provide advice and consultation to the Company. As compensation
for his services in the fiscal year ended December 31, 1995, Mr. Stein received
$3,000 and an option to purchase 9,000 shares of Common Stock outside the
Directors' Plan at an exercise price of $2.50 per share. The option vests over a
three year period. The Company may terminate the agreement for any reason upon
written notice.
In September 1996, in consideration for consulting services, the Company granted
an option to purchase 10,000 shares of Common Stock to Mr. Stein and an option
to purchase 5,000 shares of Common Stock to Dr. Sevastopoulos, at an exercise
price of $2.50 per share. The option grants vest over a three year period. In
addition, the Company agreed to pay Dr. Sevastopoulos $30,000 for consulting
services rendered.
See "Management - Employment Agreements and Termination of Employment
Agreements" for description of the Separation and Consulting Agreement with
Thomas L. Gutshall.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware Law, the Company's Restated Certificate of
Incorporation provides that no director of the Company will be personally liable
to the Company or its stockholders for monetary damages for breach of
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fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or to its stockholders, (ii) for acts
or omissions not made in good faith or which involved intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the Delaware Law,
relating to prohibited dividends or distributions or the repurchase or
redemption of stock, or (iv) for any transaction from which the director derives
an improper personal benefit. In addition, the Company's Restated Certificate of
Incorporation provides that any director or officer who was or is a party or is
threatened to be made a party to any action or proceeding by reason of his or
her services to the Company will be indemnified to the fullest extent permitted
by the Delaware Law.
The Company has entered into indemnification agreements with each of its
directors and officers for the indemnification of and advancement of expenses to
such persons to the full extent permitted by law and the Company currently
maintains directors' and officers' liability insurance.
There is no pending litigation or proceeding involving a director or officer of
the Company as to which indemnification is being sought, nor is the Company
aware of any pending or threatened litigation that may result in claims for
indemnification by any director or officer.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation awarded or paid by the
Company during the fiscal year ended December 31, 1995 to its Chief Executive
Officer and the Company's next four most highly compensated executive officers
during the fiscal year ended December 31, 1995 (collectively, the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
----------------------------------------------------------
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
---------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS (#) COMPENSATION(1)
- --------------------------------- ------------- ------------- ------------- -------------
Louis G. Lange, M.D., Ph.D., $250,000 - 55,000 $30,000
Chairman of the Board and Chief
Executive Officer
<S> <C> <C> <C> <C>
George F. Schreiner, M.D., Ph.D. 159,750 - 12,800 26,625
Vice President, Medical Science
and Preclinical Research
Andrew W. Wolff, M.D. 175,500 $17,500 7,500 -
Vice President, Clinical
Research
and Development
Thomas L. Gutshall (2) 211,435 - 77,500 -
President and Chief Operating
Officer
Mark B. Hirsch (3) 182,500 - 23,600 -
Vice President, Corporate
Development
</TABLE>
- ------------------------------
(1) All Other Compensation consists of amounts forgiven on loan obligations.
(2) Mr. Gutshall terminated his employment in September 1996 but continues to
serve as a member of the Company's Board of Directors and as a consultant to
the Company.
(3) Mr. Hirsch terminated his employment with the Company in April 1996.
42
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made during the
fiscal year ended December 31, 1995, to each of the Named Executive Officers:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
INDIVIDUAL GRANTS
----------------------------------------------
PERCENTAGE
OF TOTAL POTENTIAL REALIZABLE
NUMBER OF OPTIONS VALUE AT ASSUMED
SECURITIES GRANTED TO ANNUAL RATES OF STOCK
UNDERLYING EMPLOYEES PRICE APPRECIATION FOR
OPTIONS IN FISCAL EXERCISE OPTION TERM(3)
GRANTED YEAR PRICE EXPIRATION ----------------------
NAME (#) (%)(1) ($/SH)(2) DATE 5% ($) 10% ($)
- ---------------------- ---------- ---------- ---------- ---------- ---------- ----------
Louis G. Lange, M.D., 55,000(4) 14.00% $2.50 06/07/05 $1,027,160 $1,717,026
Ph.D.
<S> <C> <C> <C> <C> <C> <C>
George F. Schreiner, 12,800(4) 3.25 2.50 04/25/05 239,048 399,599
M.D., Ph.D.
Andrew A. Wolff, M.D. 2,500(4) 0.63 2.50 04/25/05 46,689 78,047
5,000(4) 1.27 2.50 12/06/05 93,378 156,093
Thomas L. Gutshall (5) 7,500 1.90 2.50 03/31/99 140,067 234,140
5,000 1.27 2.50 03/31/99 93,378 156,093
65,000 16.54 2.50 03/31/99 1,213,916 2,029,212
Mark B. Hirsch (6) 23,600 6.00 2.50 05/01/96 440,745 736,760
</TABLE>
- ------------------------------
(1) Based on an aggregate of options to purchase 392,986 shares of the Company's
Common Stock granted to employees and directors of, and consultants to, the
Company during fiscal year ended December 31, 1995, including the Named
Executive Officers.
(2) The exercise price per share of each option was equal to the fair market
value of the Common Stock on the date of grant as determined by the Board of
Directors.
(3) The potential realizable value is calculated based on the term of the option
at its time of grant (ten years). It is calculated assuming that the assumed
initial public offering price of $13.00 per share appreciates from the date of
grant at the indicated annual rate compounded annually for the entire term of
the option and the option is exercised and sold on the last day of its term for
the appreciated stock price. No gain to the optionee is possible unless the
stock price increases over the option term.
(4) Twenty-four percent of the option vests one year from the vesting
commencement date, with subsequent vesting at a rate of two percent each
month for 38 months. The option expires ten years from the date of grant or
earlier upon termination of employment.
(5) Mr. Gutshall's option for 7,500 shares is fully vested. Under Mr. Gutshall's
Separation and Consulting Agreement, (i) the 5,000 share option vested as to
2,000 shares through September 2, 1996 and 3,000 shares were repurchased by the
Company for an aggregate purchase price of $7,500; (ii) the 65,000 share option
vested as to 26,000 shares through September 2, 1996 and 39,000 shares were
canceled on September 2, 1996.
(6) In connection with the termination of Mr. Hirsch's employment, the option to
purchase 23,600 shares was canceled on May 1, 1996.
AGGREGATE OPTION EXERCISES IN FISCAL 1995 AND DECEMBER 31, 1995 OPTION VALUES
The following table sets forth for each of the Named Executive Officers the
shares acquired and the value realized on each exercise of stock options during
the fiscal year ended December 31, 1995 and the number and value of securities
underlying unexercised options held by the Named Executive Officers at December
31, 1995:
<TABLE>
<CAPTION>
---------------------------------------------------------------
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT AT
ACQUIRED DECEMBER 31, DECEMBER 31,
ON VALUE 1995(#) 1995($)(1)
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($)(1) UNEXERCISABLE(2) UNEXERCISABLE
- -------------------------- --------- ----------- ----------------- --------------------
Louis G. Lange, M.D.,
Ph.D. 15,000(3) $157,500 145,000/0 $1,603,300/0
<S> <C> <C> <C> <C>
George F. Schreiner, M.D.,
Ph.D. -- -- 53,025/0 608,975/0
Andrew A. Wolff, M.D. -- -- 30,000/0 315,000/0
Thomas L. Gutshall 30,000(3) 315,000 47,500/0 498,750/0
Mark B. Hirsch -- -- 64,025/0 719,875/0
</TABLE>
- ------------------------------
(1) Value realized and value of unexercised in-the-money options is based on a
value of $13.00 per share of the Company's Common Stock, the assumed initial
public offering price, even though at the time of grant the fair market value of
the Common Stock was determined by the Board of Directors to range from $0.80 to
$2.50 per share. Amounts reflected are based on the assumed value minus the
exercise price multiplied by the number of shares acquired on exercise and do
not indicate that the optionee sold such stock.
43
<PAGE>
(2) As of December 31, 1995, of the 145,000, 53,025, 30,000, 47,500 and 64,025
option shares held by Louis G. Lange, M.D., Ph.D., George F. Schreiner,
M.D., Ph.D., Andrew A. Wolff, M.D., Thomas L. Gutshall and Mark B. Hirsch,
respectively, 99,750, 31,143, 24,375, 46,253 and 46,652 option shares,
respectively, were unvested and subject to repurchase by the Company, if
exercised.
(3) As of December 31, 1995, all of these shares were subject to repurchase by
the Company.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AGREEMENTS
In January 1996, the Company entered into a letter agreement with Mark B.
Hirsch. Pursuant to the agreement, the Company accepted Mr. Hirsch's resignation
as Vice President, Corporate Development effective October 31, 1995, but
retained Mr. Hirsch as an employee of the Company through April 30, 1996. Under
the terms of the agreement, Mr. Hirsch was compensated through April 30, 1996 at
the same compensation level in effect prior to his resignation.
The Company entered into a Separation and Consulting Agreement with Thomas L.
Gutshall effective as of September 2, 1996. Pursuant to the agreement, the
Company accepted Mr. Gutshall's resignation as President and Chief Operating
Officer effective September 2, 1996. Mr. Gutshall agreed to continue to serve as
a member of the Company's Board of Directors and to serve as a consultant to the
Company through December 31, 1998. Under the terms of the agreement, Mr.
Gutshall will receive consulting fees starting at $8,750 per month in September
1996 and declining to $3,500 per month effective November 1, 1996 and continuing
at that rate thereafter. In addition, Mr. Gutshall's stock option grant for
5,000 shares vested as to 2,000 shares through September 2, 1996 and 3,000
shares were repurchased by the Company. His stock option grant for 65,000 shares
vested as to 26,000 shares through September 2, 1996 and 39,000 shares were
canceled on September 2, 1996.
Each officer and salaried employee has entered into a standard form of
Employment, Confidential Information and Invention Assignment Agreement which
provides that the employment is at-will, that the employee will not disclose any
confidential information of the Company received during the course of the
employment and that, with certain exceptions, the employee will assign to the
Company any and all inventions conceived or developed during the course of the
employment.
401(K) PLAN
As of October 1, 1993, the Company adopted a tax-qualified employee savings and
retirement plan (the "401(k) Plan") covering the Company's employees. Pursuant
to the 401(k) Plan, eligible employees may elect to reduce their current
compensation by up to the lesser of 15% of their annual compensation or the
statutorily prescribed annual limit ($9,500 in 1996) and have the amount of such
reduction contributed to the 401(k) Plan. The 401(k) Plan provides for
additional matching contributions by the Company in an amount determined by the
Company. To date, the Company has not provided any matching contributions. The
trustees under the 401(k) Plan, at the direction of each participant, invest the
assets of the 401(k) Plan in designated investment options. The 401(k) Plan is
intended to qualify under Section 401 of the Internal Revenue Code of 1986, as
amended (the "Code"), so that contributions to the 401(k) Plan, and income
earned on the 401(k) Plan contributions, are not taxable until withdrawn, and so
that the contributions by the Company will be deductible when made.
STOCK PLANS
1994 EQUITY INCENTIVE PLAN. The Company's 1994 Equity Incentive Plan (the
"Incentive Plan") was adopted by the Board of Directors in February 1994,
approved by the stockholders in March 1994, amended by the Board in February
1995 and April 1995 and subsequently approved by the stockholders in July 1995.
The Incentive Plan was amended in September 1996, subject to stockholder
approval. There are currently 800,000 shares of Common Stock authorized for
issuance under the Incentive Plan.
The Incentive Plan provides for the grant of incentive stock options under the
Code and stock appreciation rights appurtenant thereto, to employees (including
officers and employee-directors) and nonstatutory stock options, restricted
stock purchase awards and stock bonuses to employees, directors and consultants.
The Incentive Plan is administered by the Compensation Committee of the Board of
Directors, which has been delegated the Board's authority to administer the
Plan. The Compensation Committee determines recipients and types of awards to be
granted, including the exercise price, number of shares subject to the award and
the exercisability thereof.
The terms of stock options granted under the Incentive Plan generally may not
exceed 10 years. The exercise price for an incentive stock option cannot be less
than 100% of the fair market value of the Common Stock on
44
<PAGE>
the date of the option grant and the exercise price for a nonstatutory stock
option cannot be less than 85% of the fair market value of the Common Stock on
the date of option grant. Options granted under the Incentive Plan vest at the
rate specified in the option agreement. Options may include provisions allowing
exercise of any part or all of the options prior to full vesting. Any unvested
shares so purchased shall be subject to a repurchase right in favor of the
Company or to any other restriction the Board determines to be appropriate. No
stock option may be transferred by the optionee other than by will or the laws
of descent or distribution, provided that a nonstatutory stock option may be
transferred pursuant to a domestic relations order and the Board of Directors
may grant a nonstatutory stock option that is transferable, and provided further
that an optionee may designate a beneficiary who may exercise the option
following the optionee's death. An optionee whose relationship with the Company
or any related corporation ceases for any reason (other than by death or
permanent and total disability) may exercise options in the period specified by
the Board following such cessation. Options may be exercised for up to twelve
months after an optionee's relationship with the Company and its affiliates
ceases due to disability, and up to eighteen months following an optionee's
death (unless such options expire sooner or later by their terms).
No incentive stock option may be granted to any person who, at the time of the
grant, owns (or is deemed to own) stock possessing more than 10% of the total
combined voting power of the Company or any affiliate of the Company, unless the
option exercise price is at least 110% of the fair market value of the stock
subject to the option on the date of grant, and the term of the option does not
exceed five years from the date of grant. To the extent an optionee would have
the right in any calendar year to exercise for the first time one or more
incentive stock options for shares having an aggregate fair market value (under
all plans of the Company and its affiliates and determined for each share as of
the date the option to purchase the shares was granted) in excess of $100,000,
any such excess options will be treated as nonstatutory stock options. No person
may be granted options and stock appreciation rights covering more than 100,000
shares of Common Stock per calendar year, provided that this limit shall not
apply until the expiration of the transition period under Section 162(m) of the
Code for privately held companies that become publicly held.
Shares subject to stock awards that have expired or otherwise terminated without
having been exercised in full (or vested in the case of restricted stock awards)
shall again become available for the grant of awards under the Incentive Plan.
Shares subject to exercised stock appreciation rights shall not again become
available for the grant of new awards.
The Board of Directors has the authority, with the consent of affected holders,
to reprice outstanding options and stock appreciation rights and to offer
optionees the opportunity to replace outstanding options or stock appreciation
rights with new options or stock appreciation rights for the same or a different
number of shares.
Restricted stock purchase awards granted under the Incentive Plan may be granted
pursuant to a repurchase option in favor of the Company in accordance with a
vesting schedule and at a price determined by the Board of Directors. Stock
bonuses may be awarded in consideration of past services without a purchase
payment. Rights under a stock bonus or restricted stock bonus agreement may not
be transferred except where such assignment is required by law or expressly
authorized by the terms of the applicable stock bonus or restricted stock
purchase agreement. Stock appreciation rights granted under the Incentive Plan
may be tandem rights, concurrent rights or independent rights.
Upon certain changes in control of the Company, not subject to Board approval,
outstanding options shall be fully vested. In addition, outstanding stock awards
shall be assumed, substituted or continued by the surviving corporation or
parent thereof. In the event the surviving corporation or its parent refuses to
assume, substitute or continue such awards, then such awards shall be terminated
if not exercised prior to the change of control.
As of September 30, 1996, options to purchase 649,214 shares of Common Stock had
been granted under the Incentive Plan, at a weighted average exercise price of
$2.49, 75,406 shares of Common Stock had been issued upon the exercise of
options, options to purchase 425,798 shares of Common Stock were outstanding and
298,796 shares remained available for future grant. As of September 30, 1996, no
restricted stock awards, stock appreciation rights or stock bonuses had been
granted under the Incentive Plan.
The Incentive Plan will terminate in September 2006 unless sooner terminated by
the Board of Directors.
45
<PAGE>
1992 STOCK OPTION PLAN. The Company's 1992 Stock Option Plan (the "1992 Stock
Plan") was adopted by the Board of Directors in November 1992, amended in March
1993 and September 1993, approved by its stockholders in November 1993 and
amended in September 1996, subject to stockholder approval. The Company has
reserved 345,000 shares of Common Stock for issuance under the 1992 Stock Plan.
The 1992 Stock Plan provides for grants of incentive stock options to employees
and nonstatutory stock options to employees, directors and consultants of the
Company. Shares subject to options which expire or otherwise terminate without
having been exercised may again be subject to options under the 1992 Stock Plan.
The 1992 Stock Plan is administered by the Compensation Committee of the Board
of Directors, which determines recipients and types of awards to be granted,
including the exercise price, number of shares subject to the award and the
exercisability thereof.
The term of a stock option granted under the 1992 Stock Plan generally may not
exceed 10 years. Options granted pursuant to the 1992 Stock Plan become
exercisable at a rate specified in the option agreement. Options may include
provisions allowing exercise of any part or all of the options prior to full
vesting. Any unvested shares so purchased shall be subject to a repurchase right
in favor of the Company or to any other restriction the Board determines to be
appropriate. The exercise price of options granted under the 1992 Stock Plan is
determined by the Board of Directors; provided that, in the case of an incentive
stock option, the exercise price cannot be less than 100% of the fair market
value of the Common Stock on the date of grant or, in the case of 10%
stockholders, not less than 110% of the fair market value of the Common Stock on
the date of grant, and in the case of a nonstatutory stock option, the exercise
price cannot be less than 85% of the fair market value of the Common Stock on
the date of grant. To the extent an optionee would have the right in any
calendar year to exercise for the first time one or more incentive stock options
for shares having an aggregate fair market value (under all plans of the Company
and its affiliates and determined for each share as of the date the option to
purchase the shares was granted) in excess of $100,000, any such excess options
will be treated as nonstatutory stock options. No option may be transferred by
the optionee other than by will or the laws of descent or distribution, provided
that an optionee may designate a beneficiary who may exercise the option
following the optionee's death. An optionee whose employment with the Company
ceases for any reason (other than by death or permanent and total disability)
may exercise options in the three month period following such termination
(unless such options terminate or expire sooner by their terms). The three month
post-termination exercise period is extended to 12 months for termination due to
death or disability.
Upon certain changes in control of the Company, not subject to Board approval,
outstanding options shall be fully vested and shall be assumed, substituted or
continued by the surviving corporation or parent thereof. In the event the
surviving corporation or its parent refuses to assume, substitute or continue
such options, then such options shall be terminated if not exercised prior to
the change of control.
As of September 30, 1996, options to purchase 448,566 shares of Common Stock had
been granted under the 1992 Stock Plan, at a weighted exercise price of $1.41,
80,428 shares of Common Stock had been issued upon the exercise of options,
options to purchase 263,540 shares of Common Stock were outstanding and 1,032
shares remained available for future grant.
The 1992 Stock Plan will terminate in November 2002, unless terminated sooner by
the Board of Directors.
EMPLOYEE STOCK PURCHASE PLAN. In September 1996, the Company's Board of
Directors approved the Employee Stock Purchase Plan (the "Purchase Plan")
covering an aggregate of 150,000 shares of Common Stock. The Purchase Plan is
intended to qualify as an employee stock purchase plan within the meaning of
Section 423 of the Code. Under the Purchase Plan, the Board of Directors may
authorize participation by eligible employees, including officers, in periodic
offerings following the adoption of the Purchase Plan. The offering period for
any offering will be no more than 27 months. The Board of Directors has not
currently authorized an offering under the Purchase Plan.
Employees are eligible to participate if they are employed by the Company or an
affiliate of the Company designated by the Board of Directors provided that
employees who are not employed at least 20 hours per week or five months per
year may be excluded. Employees who participate in an offering can have up to
15% (or such lower percentage specified by the Board of Directors) of their
earnings withheld pursuant to the Purchase Plan
46
<PAGE>
and applied, on specified dates determined by the Board of Directors, to the
purchase of shares of Common Stock. The price of Common Stock purchased under
the Purchase Plan may not be less than 85% of the lower of the fair market value
of the Common Stock on the commencement date of each offering period or the
relevant purchase date. Employees may end their participation in an offering at
any time during the offering period, and participation will end automatically on
termination of employment with the Company. Rights under the Purchase Plan may
not be transferred by employees other than by will or the laws of descent or
distribution, provided that an employee may designate a beneficiary who may
receive shares and cash, if any, from the employee's account under the Purchase
Plan in the event of such employee's death.
In the event of certain changes of control, the Company and the Board of
Directors has discretion to provide that each right to purchase Common Stock
will be assumed or an equivalent right substituted by the successor corporation,
or the Board may shorten the offering period and provide for all sums collected
by payroll deductions to be applied to purchase stock immediately prior to the
change in control.
The Purchase Plan will terminate at the Board's discretion.
47
<PAGE>
CERTAIN TRANSACTIONS
PRIVATE PLACEMENT TRANSACTIONS
All of the Preferred Stock issued in the Company's private placement
transactions (collectively, the "Private Placement Transactions") will convert
into Common Stock on a 1-for-10 basis upon the closing of the Offering. The
price per share and number of shares presented herein reflect the 1-for-10
reverse stock split of the Company's Common Stock effected in October 1996.
Since January 1993, the Company has issued in Private Placement Transactions
shares of Preferred Stock and warrants as follows: an aggregate of 550,582
shares of Series C Preferred Stock at $12.50 per share in July 1993; an
aggregate of 829,657 shares of Series D Preferred Stock at $20.00 per share and
warrants to purchase an aggregate of 21,926 shares of Series D Preferred Stock
at an exercise price of $20.00 per share in March 1994 and April 1994; an
aggregate of 392,159 shares of Series E Preferred Stock at $20.00 per share and
warrants to purchase an aggregate of 196,078 shares of Series E Preferred Stock
at an exercise price of $20.00 per share in September 1995 and November 1995;
and an aggregate of 653,592 shares of Series G Preferred Stock at $20.00 per
share and warrants to purchase an aggregate of 980,392 shares of Common Stock at
an exercise price of $2.50 per share in March 1996 and May 1996.
The following table summarizes the shares of Preferred Stock and warrants
purchased by executive officers, directors and 5% stockholders of the Company
and persons and entities associated with them in the Private Placement
Transactions:
<TABLE>
<CAPTION>
--------------------------------------------------
SERIES C SERIES D SERIES E SERIES G
PREFERRED PREFERRED PREFERRED PREFERRED
STOCK STOCK STOCK(1) STOCK(2)
----------- ----------- ----------- -----------
INVESTOR
- -------------------------------------------------------
<S> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Louis G. Lange, M.D., Ph.D............................. -- -- -- 1,250
Kathleen A. Stafford................................... -- -- 7,500 2,500
Michael M. Wick, M.D., Ph.D............................ -- -- -- 1,250
Thomas L. Gutshall(3).................................. -- -- 1,500 1,250
J. Leighton Read, M.D.................................. 800 500 -- --
Isaac Stein(4)......................................... -- -- 1,875 1,250
ENTITIES AFFILIATED WITH DIRECTORS
Entities affiliated with Institutional Venture
Management V, L.P.(5)................................. 120,000 40,000 60,000 45,000
OTHER 5% STOCKHOLDERS
Entities Affiliated with BankAmerica Ventures.......... -- -- -- 150,000
Entities affiliated with Delphi Ventures II, L.P.(6)... 59,999 27,999 38,248 26,700
Entities affiliated with Asset Management Associates,
1989, L.P............................................. 60,000 23,000 28,500 38,350
Entities affiliated with Sequoia Capital V............. 100,000 25,500 18,749 6,249
</TABLE>
- ------------------------
(1) Includes 2,500, 500, 625, 20,000, 12,749, 9,500 and 6,249 shares to be
issued to Ms. Stafford, the Gutshall Family Trust, the Stein 1995 Revocable
Trust, entities affiliated with Institutional Venture Management V, L.P.,
entities affiliated with Delphi Ventures II, L.P., entities affiliated with
Asset Management Associates, 1989, L.P. and entities affiliated with Sequoia
Capital V, respectively, upon the exercise of outstanding warrants to purchase
shares of Series E Preferred Stock.
(2) Excludes warrants to purchase 1,875, 3,750, 1,875, 1,875, 1,875, 67,500,
225,000, 40,050, 57,525 and 9,374 shares of Common Stock issued in conjunction
with the private placement of Series G Preferred Stock to Dr. Lange, Ms.
Stafford, Dr. Wick, the Gutshall Family Trust, the Stein 1995 Revocable Trust,
entities affiliated with Institutional Venture Management V, L.P., entities
affiliated with BankAmerica Ventures, entities affiliated with Delphi Ventures,
II, L.P., entities affiliated with Asset Management Associates, 1989, L.P. and
entities affiliated with Sequoia Capital V, respectively. The warrants will be
net exercised upon the closing of the Offering.
48
<PAGE>
(3) Mr. Gutshall claims beneficial ownerhip of the shares and warrants held by
the Gutshall Family Trust.
(4) Mr. Stein claims beneficial ownership of the shares and warrants held by
the Stein 1995 Revocable Trust.
(5) Mr. Colella, a director of the Company, is a general partner of
Institutional Ventures Management V, L.P., the general partner of Institutional
Venture Partners V, L.P. He disclaims beneficial ownership of the shares held by
those entities, except to the extent of his pecuniary interests therein.
(6) Dr. Sevastopoulos, a director of the Company, is a limited partner of
Delphi Management Partners II, which is the general partner of Delphi Ventures
II, L.P. He disclaims beneficial ownership of the shares held by those entities,
except to the extent of his pecuniary interests therein.
LOANS
The Company has provided Louis G. Lange, M.D., Ph.D., Chairman of the Board of
Directors and Chief Executive Officer, with several loans. In August 1992, the
Company provided a loan in the principal amount of $500,000 at an annual
interest rate of 7.0%, pursuant to a promissory note secured by a deed of trust
on Dr. Lange's residence (the "1992 Note"). In June 1993, the Company provided a
loan in the principal amount of $25,000 at an annual interest rate of 5.33%,
pursuant to a promissory note secured by a stock pledge of 2,500 shares of
Common Stock held by Dr. Lange. In June 1995, in connection with the exercise of
an option to purchase Common Stock, the Company provided a loan in the principal
amount of $37,500 at an annual interest rate of 7.31%, pursuant to a promissory
note secured by a pledge of 15,000 shares of Common Stock held by Dr. Lange. In
August 1996, the Company provided a loan to Dr. Lange in the principal amount of
$25,000, at an annual interest rate of 6.84%, pursuant to a promissory note
secured by a pledge of 2,500 shares of Common Stock held by Dr. Lange. As of
September 30, 1996, an aggregate principal amount of $587,500 remained
outstanding on the four notes.
In April 1995, the Company forgave $30,000 in interest due on the notes. In
September 1996, the Company amended all four notes. Under the terms of each
amended note, the loans bear interest at the rate of 6.53% compounded
semi-annually and the outstanding principal amount is due on the earliest of
December 31, 2001, the termination of employment or a change in control. At the
same time, the Company forgave all interest due on the four loans as of December
31, 1995 (estimated at $93,880). In addition, the Company will pay Dr. Lange an
amount necessary to compensate him for any taxes that he may incur due to the
interest forgiveness and the payment of this additional amount as well as the
following amounts for mortgage assistance: $50,000 in 1997, $40,000 in 1998,
$30,000 in 1999, $20,000 in 2000 and $10,000 in 2001.
In connection with the 1992 Note, the Company entered into a letter agreement of
Credit Terms and Conditions with Imperial Bank, dated August 11, 1992, pursuant
to which Imperial Bank provided a loan to the Company in the principal amount of
$500,000, at an annual interest rate equal to the greater of 2.0% per year in
excess of Imperial Bank's prime lending rate or $250 (the "Imperial Loan"). The
loan was guaranteed by Institutional Venture Partners V, L.P. ("IVP") pursuant
to a Continuing Guarantee dated August 11, 1992 (the "IVP Guarantee"). Mr.
Colella, a director of the Company, is a General Partner of IVP. In
consideration for the IVP Guarantee, Dr. Lange executed a Guaranty and Pledge
Agreement dated August 18, 1992 in which he provided a guarantee of
reimbursement and pledged shares in favor of IVP. The Company paid off the
Imperial Loan in September 1996.
Upon the closing of this Offering, Dr. Lange will sell a sufficient number of
shares of Common Stock at the price per share set in the Offering to the Company
to satisfy $150,000 of his $500,000 loan and the tax obligations arising from
such sale.
In August 1995, in connection with the exercise of an option to purchase 30,000
shares of Common Stock, the Company provided a loan to Michael M. Wick, M.D.,
Ph.D., Senior Vice President, Research, in the principal amount of $75,000, at
an annual interest rate of 6.56%, pursuant to a promissory note secured by a
pledge of 7,500 shares of Common Stock held by Dr. Wick. In December 1995, the
Company repurchased the 30,000 shares for an aggregate amount of $75,000.
Payment was made by cancellation of the note.
In June 1995, in connection with the exercise of an option to purchase Common
Stock, the Company provided a loan to Thomas L. Gutshall, a director of the
Company who then served as President and Chief Operating Officer,
49
<PAGE>
in the principal amount of $62,500, at an annual interest rate of 7.31%,
pursuant to a promissory note secured by a pledge of 25,000 shares of Common
Stock held by Mr. Gutshall. Pursuant to a Separation and Consulting Agreement
effective as of September 2, 1996, the Company agreed to amend the note. Under
the terms of the amended note, the loan bears interest at the rate of 6.53%
compounded semi-annually and the outstanding principal amount is due on the
earliest of December 31, 2001, the voluntary termination of association or a
change in control. As of September 30, 1996, an aggregate principal amount of
$62,500 remained outstanding on the note.
In November 1992, the Company provided two loans to George F. Schreiner, M.D.,
Ph.D., Vice President, Medical Science and Preclinical Research, both in the
principal amounts of $75,000, at an annual interest rate of 6.5%. The
outstanding principal amount and accrued interest on the first loan was forgiven
in three equal amounts on the last day of the year of 1993, 1994 and 1995. The
second loan was made pursuant to a promissory note secured by a deed of trust on
Dr. Schreiner's residence. In September 1996, the Company amended the note.
Under the terms of the amended note, the loan bears interest at the rate of
6.53% compounded semi-annually and the outstanding principal amount is due on
the earliest of December 31, 2001, the termination of employment or a change in
control. As of September 30, 1996, an aggregate of $75,000 in principal amount
remained outstanding on the second loan. In December 1992, the Company provided
a third loan to Dr. Schreiner in the principal amount of $50,000, at an annual
interest rate of 6.5%, pursuant to a promissory note secured by a deed of trust
on Dr. Schreiner's residence (the "December Note"). Dr. Schreiner repaid the
outstanding principal amount and accrued interest on the December Note in May
1993.
The forgiveness of the accrued interest on the notes to Dr. Lange and Dr.
Schreiner was accounted for as compensation expense to the related employees, in
the period in which the interest was deemed to have been forgiven.
OTHER TRANSACTIONS/RELATIONSHIPS
In May 1995, the Company entered into a Consulting Agreement with Kathleen A.
Stafford, Chief Financial Officer of the Company. As compensation for her
services under the agreement, Ms. Stafford received $1,900 per week as well as
an option to purchase 10,000 shares of Common Stock at an exercise price of
$2.50 per share, with vesting over a twenty-four month period. The agreement
terminated when Ms. Stafford became Chief Financial Officer on December 1, 1995,
but the option continues to vest.
In April 1993, the Company entered into a Collaborative Research and Development
Agreement with Genta Incorporated and Genta Jago Technologies B.V. (the "Genta
Agreement"). Mr. Colella, a director of the Company, is also a director of Genta
Incorporated. Pursuant to the terms of the Genta Agreement, the parties agreed
to engage in a five-year collaboration to design, develop and commercialize
certain products utilizing the technology which was the subject of a License
Agreement between the Company and Genta Incorporated on the one hand and the
Board of Trustees of the Leland Stanford Junior University on the other hand
(the "Stanford License"). The parties have terminated the collaboration effort,
and the Stanford License has been terminated.
In October 1996, the Company entered into indemnification agreements with its
directors and officers for the indemnification of, and advancement of expenses
to, such persons to the full extent permitted by law. The Company intends to
execute such agreements with its future directors and officers.
The Company believes that the foregoing transactions were in its best interest.
As a matter of policy the transactions were, and all future transactions between
the Company and any of its officers, directors or principal shareholders will
be, approved by a majority of the independent and disinterested members of the
Board of Directors, will be on terms no less favorable to the Company than could
be obtained from unaffiliated third parties and will be in connection with bona
fide business purposes of the Company.
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 30, 1996 and as adjusted
to reflect the sale of the Common Stock being offered hereby by: (i) each
stockholder who is known by the Company to own beneficially more than 5% of the
Common Stock; (ii) each Named Executive Officer of the Company; (iii) each
director of the Company; and (iv) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
-----------------------------------
SHARES BENEFICIALLY OWNED(1)
-----------------------------------
PERCENT PERCENT
PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL HOLDER NUMBER OFFERING OFFERING
- ------------------------------------------------------------------ --------- ----------- -----------
Samuel D. Colella (2) 611,518 13.56% 8.72%
<S> <C> <C> <C>
Entities affiliated with Institutional Venture Management V, L.P.
(3) 594,518 13.23 8.50
3000 Sand Hill Road
Building 2, Suite 290
Menlo Park, CA 94025
Entities affiliated with Delphi Ventures II, L.P. (4) 372,792 8.35 5.35
3000 Sand Hill Road
Building 1, Suite 135
Menlo Park, CA 94025
Entities affiliated with BankAmerica Ventures (5) 331,730 7.45 4.77
950 Tower Lane, Suite 700
Foster City, CA 94404
Entities affiliated with Asset Management Associates, 1989, L.P.
(6) 321,311 7.21 4.62
2275 East Bayshore Road, Suite 150
Palo Alto, CA 94303
Louis G. Lange, M.D., Ph.D. (7) 333,341 7.18 4.67
Entities affiliated with Sequoia Capital V (8) 283,067 6.35 4.07
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
George F. Schreiner, M.D., Ph.D. (9) 68,025 1.51 *
Thomas L. Gutshall (10) 58,978 1.32 *
Andrew A. Wolff, M.D. (11) 52,500 1.17 *
Barbara J. McNeil, M.D., Ph.D. (12) 18,499 * *
J. Leighton Read, M.D. (13) 23,221 * *
Costa G. Sevastopoulos, Ph.D. (14) 21,292 * *
Isaac Stein (15) 40,638 * *
Mark B. Hirsch 24,365 * *
All directors and executive officers as a group (11 persons)(16) 1,353,304 26.87 17.96
</TABLE>
- ------------------------------
* Represents beneficial ownership of less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Beneficial ownership also includes
shares of stock subject to options and warrants currently exercisable or
convertible, or exercisable or convertible within 60 days of the date of this
table. Except as indicated by footnote, and subject to community property laws
where applicable, to the knowledge of the Company, all persons named in the
table above have sole voting and investment power with respect to all shares of
Common Stock, shown as beneficially owned by them. Percentage of beneficial
ownership is based on 4,449,166 shares of Common Stock outstanding as of
September 30, 1996 and 6,949,166 shares of Common Stock outstanding after
completion of the Offering.
(2) Includes 17,000 shares issuable upon the exercise of options, 16,055 of
which would be subject to repurchase by the Company as of November 29,
1996, if issued. Also includes the shares identified in footnote (3) below. Mr.
Colella is a general partner of IVM, the general partner of IVP. Mr. Colella
disclaims beneficial ownership of the shares listed in footnote (3), except to
the extent of his pecuniary interests therein.
51
<PAGE>
(3) Consists of 8,650 shares held by Institutional Ventures Management V, L.P.
("IVM"), 486,350 shares held by Institutional Venture Partners V, L.P.
("IVP"), 1,090 shares to be issued to IVM upon the net exercise of an
outstanding warrant upon the closing of the Offering, 53,428 shares to be issued
to IVP upon the net exercise of an outstanding warrant upon the closing of the
Offering, 775 shares issuable upon the exercise of outstanding warrants held by
IVM exercisable within 60 days of September 30, 1996 and 44,225 shares issuable
upon the exercise of outstanding warrants held by IVP exercisable within 60 days
of September 30, 1996. Mr. Colella, a director of the Company, is a general
partner of IVM. IVM is the general partner of IVP. Mr Colella disclaims
beneficial ownership of the shares held by IVM and IVP, except to the extent of
his pecuniary interests therein.
(4) Consists of 1,764 shares held by Delphi BioInvestments II, L.P.
("BioInvestments"), 325,932 shares held by Delphi Ventures II, L.P.
("Ventures"), 164 shares to be issued to BioInvestments upon the net exercise of
an outstanding warrant upon the closing of the Offering, 32,183 shares to be
issued to Ventures upon the net exercise of an outstanding warrant upon the
closing of the Offering, 64 shares issuable upon the exercise of an outstanding
warrant held by BioInvestments exercisable within 60 days of September 30, 1996
and 12,685 shares issuable upon the exercise of an outstanding warrant held by
Ventures exercisable within 60 days of September 30, 1996. Dr. Sevastopoulos, a
director of the Company, is a limited partner of Delphi Management Partners II,
which is the general partner of BioInvestments and Ventures. Dr. Sevastopoulos
disclaims beneficial ownership of the shares held by BioInvestments and
Ventures, except to the extent of his pecuniary interests therein.
(5) Consists of 15,000 shares held by BA Venture Partners II ("BA"), 135,000
shares held by BankAmerica Ventures ("BankAmerica"), 18,173 shares to be
issued to BA upon the net exercise of an outstanding warrant upon the closing of
this Offering and 163,557 shares to be issued to BankAmerica upon the net
exercise of an outstanding warrant held by BankAmerica upon the closing of this
Offering.
(6) Consists of 247,100 shares held by Asset Management Associates 1989, L.P.
("AMA"), 18,250 shares held by Asset Management Partners ("AMP"), 24,351
shares to be issued to AMA upon the net exercise of an outstanding warrant upon
the closing of the Offering, 22,110 shares to be issued to AMP upon the net
exercise of an outstanding warrant upon the closing of the Offering and 9,500
shares issuable upon the exercise of an outstanding warrant held by AMA
exercisable within 60 days of September 30, 1996.
(7) Includes 195,000 shares issuable upon the exercise of options, 128,266 of
which would be subject to repurchase by the Company as of November 29,
1996, if issued and 1,514 shares to be issued upon the net exercise of an
outstanding warrant upon the closing of the Offering. Also includes 7,500 shares
held in the Louis Lange Family Trust. Dr. Lange disclaims beneficial ownership
of the shares held in the Louis Lange Family Trust, except to the extent of his
pecuniary interests therein.
(8) Consists of 246,652 shares held by Sequoia Capital V, 11,827 shares held by
Sequoia Technology Partners V, 5,000 shares held by Sequoia XXII, 4,000
shares held by Sequoia XXIII, 1,020 shares held by Sequoia XXIV, 750 shares held
by Sequoia 1995 L.L.C., 7,041 shares to be issued to Sequoia Capital V upon the
net exercise of an outstanding warrant upon the closing of the Offering, 226
shares to be issued to Sequoia Technology Partners V upon the net exercise of an
outstanding warrant upon the closing of the Offering, 302 shares to be issued to
Sequoia 1995 upon the net exercise of an outstanding warrant upon the closing of
the Offering, 5,812 shares issuable upon the exercise of an outstanding warrant
held by Sequoia Capital V exercisable within 60 days of September 30, 1996, 187
shares issuable upon the exercise of an outstanding warrant held by Sequoia
Technology Partners V exercisable within 60 days of September 30, 1996 and 250
shares issuable upon the exercise of an outstanding warrant held by Sequoia 1995
exercisable within 60 days of September 30, 1996.
(9) Consists of 68,025 shares issuable upon the exercise of options, 34,276 of
which would be subject to repurchase by the Company as of November 29,
1996, if issued.
(10) Includes 27,714 shares issuable upon the exercise of options, 15,944 of
which would be subject to repurchase by the Company as of November 29, 1996,
if issued. Also includes 2,250 shares held in the Gutshall Family Trust, 1,514
shares to be issued to the Gutshall Family Trust upon the net exercise of an
outstanding warrant upon the closing of the Offering and 500 shares issuable
upon the exercise of an outstanding warrant held in the Gutshall Family Trust
exercisable within 60 days of September 30, 1996.
(11) Consists of 52,500 shares issuable upon the exercise of options, 41,800 of
which would be subject to repurchase by the Company as of November 29, 1996,
if issued.
(12) Includes 16,000 shares issuable upon the exercise of options, 15,777 of
which would be subject to repurchase by the Company as of November 29, 1996,
if issued.
(13) Includes 15,500 shares issuable upon the exercise of options, 15,472 of
which would be subject to repurchase by the Company as of November 29, 1996,
if issued.
(14) Includes 21,000 shares issuable upon the exercise of options, 20,777 of
which would be subject to repurchase by the Company as of November 29, 1996,
if issued.
(15) Includes 26,000 shares issuable upon the exercise of options, 25,777 of
which would be subject to repurchase by the Company as of November 29, 1996,
if issued. Also includes 2,500 shares held in the Stein 1995 Revocable Trust,
1,514 shares to be issued to the Stein 1995 Revocable Trust upon the net
exercise of an outstanding warrant upon the closing of the Offering and 625
shares issuable upon the exercise of an outstanding warrant held in the Stein
1995 Revocable Trust exercisable within 60 days of September 30, 1996.
(16) Includes 586,864 shares issuable upon the exercise of options and warrants
held by all directors and executive officers that are exercisable within 60
days from September 30, 1996, 393,853 of which would be subject to repurchase by
the Company as of November 29,1996, if issued. Also includes 1,514, 1,514,
1,514, 3,028 and 1,514 shares to be issued to Dr. Lange, the Gutshall Family
Trust, the Stein 1995 Revocable Trust, Ms. Stafford and Dr. Wick, respectively,
upon the net exercise of outstanding warrants upon the closing of the Offering.
See footnotes (2), (7) and (9) - (15).
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the closing of this Offering, the authorized capital stock of the Company
will consist of 30,000,000 shares of Common Stock, $.001 par value, and
5,000,000 shares of Preferred Stock, $.001 par value.
The Company may be subject to Section 2115 of the California Corporations Code
("Section 2115"). Section 2115 provides that, regardless of a company's legal
domicile, certain provisions of California corporate law will apply to that
company if the Company meets certain requirements relating to its property,
payroll and sales in California and if more than one-half of its outstanding
voting securities are held of record by persons having addresses in California.
Section 2115 limits the ability of the Company to, among other things, elect a
classified board of directors. The Company will not be subject to Section 2115
(i) at such time as the Company is qualified for trading as a national market
security on the Nasdaq system and has 800 stockholders as of the record date of
its most recent annual meeting or (ii) at the end of any income year during
which a certificate of state connections pursuant to Section 2108 of the
California Corporations Code shall have been filed showing that less than
one-half of its outstanding voting securities are held of record by persons
having addresses in California or that one of the other tests of Section 2115 is
not met. The Company expects that it will no longer be subject to Section 2115
by the record date of its 1997 annual meeting of stockholders.
COMMON STOCK
As of September 30, 1996, there were 4,449,166 shares of Common Stock
outstanding (assuming the conversion of all outstanding Preferred Stock upon the
closing of this Offering) held of record by approximately 220 stockholders.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The holders of
Common Stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors out of funds legally available therefor. See "Dividend
Policy." In the event of a liquidation, dissolution or winding up of the
Company, holders of the Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities. Holders of Common Stock have no
preemptive rights and no right to convert their Common Stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are, and all shares of
Common Stock to be outstanding upon completion of this Offering will be, fully
paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, without any further
vote or action by stockholders. The issuance of Preferred Stock could adversely
affect the voting power of holders of Common Stock and the likelihood that such
holders will receive dividend payments and payments upon liquidation and could
have the effect of delaying, deferring or preventing a change in control of the
Company. The Company has no present plan to issue any shares of Preferred Stock.
WARRANTS
As of September 30, 1996, the Company had outstanding warrants to purchase
570,754 shares of Common Stock at exercise prices ranging from $2.50 to $25.00
per share. In addition, in December 1995, the Company issued a warrant to
purchase 2,500 units at a price of $.50 per unit to Cooley Godward LLP, the
Company's counsel, with each unit consisting of 1 share of Common Stock and one
warrant to purchase 1/2 share of Common Stock at an exercise price of $20.00 per
share. Each warrant is exercisable immediately with the exception of two
warrants to purchase an aggregate of 84,500 shares of Common Stock which are not
exercisable until after September 15, 1997. Each warrant contains provisions for
the adjustment of the exercise price and the aggregate number of shares issuable
upon the exercise of the warrant under certain circumstances, including stock
dividends, stock splits, reorganizations and reclassifications. Each warrant may
be exercised, without the payment of cash, for a
53
<PAGE>
number of shares of Common Stock determined pursuant to a net issue exercise
formula contained in the warrant. Each warrant holder has certain registration
rights. See "Description of Capital Stock - Registration Rights of Certain
Holders." Generally, the warrants expire at various times from September 1997 to
April 2005.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
Following this Offering, holders of 4,030,002 shares of Common Stock and
warrants to purchase 574,504 shares of Common Stock will be entitled to certain
rights with respect to the registration of their shares under the Securities
Act. These rights are provided under the terms of an Investors' Rights
Agreement, dated May 29, 1996, and certain other agreements (the "Agreements").
Pursuant to the terms of the Agreements, if the Company proposes to register any
of its securities under the Securities Act, either for its own account or the
account of others, the holders are entitled to notice of such registration and
are entitled to include, at the Company's expense, their shares of Common Stock;
provided, among other conditions, that the underwriters of any offering have the
right to limit the number of such shares included in such registration or
exclude such shares entirely. The holders may also require the Company, on no
more than one occasion over any twelve month period, at the Company's expense,
to register all or a portion of their shares of Common Stock on Form S-3 when
such form becomes available to the Company, subject to certain conditions and
limitations. Further, holders of 4,030,002 shares of Common Stock and warrants
to purchase 534,504 shares of Common Stock may require the Company, beginning
180 days after the date of the Prospectus, on not more than two occasions, to
file a registration statement under the Securities Act at the Company's expense
with respect to their shares of Common Stock, and the Company is required to use
its best efforts to effect such registration, subject to certain conditions and
limitations. All rights described in this paragraph terminate at such time as
such shares of Common Stock may be sold in the public market.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware Law, an
anti-takeover law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. For purposes of Section 203, a
"business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
The Company's Restated Certificate of Incorporation and Restated Bylaws also
require that, effective upon the closing of this Offering, any action required
or permitted to be taken by stockholders of the Company must be effected at a
duly called annual or special meeting of the stockholders and may not be
effected by a consent in writing. In addition, special meetings of the
stockholders of the Company may be called only by the Board of Directors, the
Chairman of the Board, the Chief Executive Officer of the Company or by any
person or persons holding shares representing at least 10% of the outstanding
capital stock. The Company's Restated Certificate of Incorporation also provides
for a classified Board which will be instituted at such time as the Company is
no longer subject to Section 2115 and specifies that the authorized number of
directors may be changed only by resolution of the Board of Directors. See
"Management - Board Composition." These provisions may have the effect of
deterring hostile takeovers or delaying changes in control or management of the
Company.
TRANSFER AGENT AND REGISTRAR
Norwest Bank Minnesota, N.A. has been appointed as the transfer agent and
registrar for the Company's Common Stock.
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 6,949,166 shares of
Common Stock outstanding, assuming the net exercise of certain outstanding
warrants for Common Stock and the conversion of all outstanding Preferred Stock
but no exercise of other outstanding warrants and options. Of these shares, the
2,500,000 shares sold in this Offering will be freely transferable without
restriction under the Securities Act unless they are held by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act. The
remaining 4,449,166 shares of Common Stock (the "Restricted Shares") held by
officers, directors, employees, consultants and other stockholders of the
Company were sold by the Company in reliance on exemptions from the registration
requirements of the Securities Act and are "restricted securities" within the
meaning of Rule 144 under the Securities Act and may not be sold publicly unless
they are registered under the Securities Act or are sold pursuant to Rule 144 or
another exemption from registration.
The officers, directors, employees and certain stockholders of the Company have
agreed not to sell their shares without the prior written consent of J.P. Morgan
Securities Inc. for a period of 180 days from the date of this Prospectus. Upon
completion of the Offering, 92,785 shares will be eligible for sale in the
public market immediately following the Offering. Beginning 180 days after
commencement of this Offering, 2,481,313 Restricted Shares that are subject to
lock-up agreements (as described below under "Underwriting") will become
eligible for sale in the public market subject to Rule 144 and Rule 701 under
the Securities Act. The remaining 1,875,068 Restricted Shares, which are also
subject to such lock-up agreements, will have been held for less than two years
upon the expiration of such lock-up agreements and will become eligible for sale
under Rule 144 at various dates thereafter as the holding period provisions of
Rule 144 are satisfied.
In general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who has beneficially owned Restricted Shares for at least
two years, including persons who may be deemed "affiliates" of the Company, is
entitled to sell, within any three month period commencing 90 days after this
Offering, a number of shares that does not exceed the greater of 1% of the
number of shares of Common Stock then outstanding (approximately 70,000 shares
immediately after this Offering, assuming no exercise of the Underwriters' over-
allotment option) or the average weekly trading volume of the Common Stock as
reported through the Nasdaq National Market during the four calendar weeks
preceding the filing of a Form 144 with respect to such sale. Sales under Rule
144 are also subject to certain manner of sale provisions and notice
requirements and to the availability of current public information about the
Company. In addition, a person who is not deemed to have been an affiliate of
the Company at any time during the 90 days preceding a sale, and who has
beneficially owned for at least three years the shares proposed to be sold,
would be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above.
Under Rule 701 under the Securities Act, any employee, officer or director of or
consultant to the Company, who is not an affiliate of the Company, and who
purchased shares pursuant to a written compensatory plan or contract, including
the Company's stock option plans, is entitled to sell such shares without having
to comply with the public information, holding period, volume limitation or
notice provisions of Rule 144, and affiliates of the Company are permitted to
sell such shares without having to comply with the Rule 144 holding period
restrictions, in each case commencing 90 days after this Offering.
The Company presently intends to file a registration statement under the
Securities Act on Form S-8 to register approximately 1,415,666 shares of Common
Stock subject to outstanding stock options or reserved for issuance under the
Incentive Plan, the 1992 Stock Plan and the Directors' Plan (the "Plans") as
well as stock options granted outside the Plans and shares reserved for issuance
under the Purchase Plan. As of September 30, 1996, 803,338 shares were issuable
upon exercise of currently outstanding options, all of which are subject to the
lock-up agreements described above. Of these shares, 317,093 will be vested 180
days after commencement of this Offering and eligible for sale, subject, in the
case of sales by affiliates, to the volume, manner of sale, notice and public
information requirements of Rule 144. See "Management - Stock Plans" and
"Management - Directors' Compensation."
As of September 30, 1996, 574,504 shares were issuable upon exercise of
currently outstanding warrants of which 490,004 shares are subject to the
lock-up agreements described above. Of these shares, 186,926 will
55
<PAGE>
become eligible for sale in the public markets subject to Rule 144 beginning 180
days after commencement of this Offering and 303,078 shares will become eligible
for sale subject to Rule 144 at various dates thereafter as the holding
provisions of Rule 144 are satisfied. In addition, 84,500 shares issuable upon
exercise of warrants which are not subject to lock-up agreements, will become
eligible for sale in the public markets beginning after September 15, 1997
pursuant to the terms of the individual warrants, subject to Rule 144.
The holders of 4,030,002 shares of Common Stock and the holders of warrants
exercisable for 574,504 additional shares of Common Stock are entitled to
certain rights with respect to the registration of such shares under the
Securities Act. See "Description of Capital Stock - Registration Rights of
Certain Holders." Registration of such shares under the Securities Act would
result in such shares becoming freely tradable without restriction under the
Securities Act (except for shares purchased by affiliates of the Company)
immediately upon the effectiveness of such registration. If certain of such
holders, by exercising their demand registration rights, cause a larger number
of securities to be registered and sold in the public market, such sales could
have an adverse effect on the market price for the Common Stock. If the Company
were to include in a Company-initiated registration any Registrable Securities
pursuant to the exercise of piggyback registration rights, such sales may have
an adverse effect on the Company's ability to raise needed capital.
Prior to this Offering, there has been no public market for the Common Stock of
the Company. No predictions can be made of the effect if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of a substantial amount of
such shares by existing stockholders or by stockholders purchasing in the
Offering could have a negative impact on the market price of the Common Stock.
56
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date of this Prospectus (the "Underwriting Agreement"), the
Underwriters named below, for whom J.P. Morgan Securities Inc., Invemed
Associates, Inc. and UBS Securities LLC are acting as representatives (the
"Representatives"), have severally agreed to purchase, and the Company has
agreed to sell them, the respective numbers of shares of Common Stock set forth
opposite their names below. Under the terms and conditions of the Underwriting
Agreement, the Underwriters are obligated to take and pay for all such shares of
Common Stock, if any are taken. Under certain circumstances, the commitments of
nondefaulting Underwriters may be increased as set forth in the Underwriting
Agreement.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- --------------------------------------------------------------------------- ------------
<S> <C>
J.P. Morgan Securities Inc.................................................
Invemed Associates, Inc....................................................
UBS Securities LLC.........................................................
------------
Total..................................................................
------------
------------
</TABLE>
The Underwriters propose initially to offer the Common Stock directly to the
public at the price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of per share.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of per share to certain other dealers. After the initial public
offering of the Common Stock, the public offering price and such concession may
be changed.
The Company has granted to the Underwriters an option, expiring at the close of
business on the 30th day after the date of this Prospectus, to purchase up to
375,000 additional shares of Common Stock at the initial public offering price,
less the underwriting discount. The Underwriters may exercise such option solely
for the purpose of covering over-allotments, if any. To the extent the
Underwriters exercise the option, each Underwriter will have a firm commitment,
subject to certain conditions, to purchase approximately the same percentage of
such additional shares as the number set forth next to such Underwriter's name
in the preceding table bears to the total number of shares of Common Stock
offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The Company's officers, directors and certain other stockholders of the Company
have agreed, subject to certain exceptions, not to, directly or indirectly, (i)
sell, grant any option to purchase or otherwise transfer or dispose of any
shares of Common Stock or securities convertible into or exchangeable or
exercisable for shares of Common Stock or file a registration statement under
the Securities Act with respect to the foregoing or (ii) enter into any swap or
other agreement or transaction that transfers, in whole or in part, the economic
consequence of ownership of the Common Stock, without the prior written consent
of J.P. Morgan Securities Inc., for a period of 180 days after the date of this
Prospectus. The foregoing does not prohibit the Company's issuance of shares
pursuant to the exercise of the Underwriters over-allotment option or under the
Incentive Plan, the 1992 Stock Plan, the Directors' Plan or the Purchase Plan.
J.P. Morgan Securities Inc. may, in its sole discretion at any time or from time
to time, without notice, release all or any portion of the shares subject to the
lock-up agreements.
The Underwriters have advised the Company that they do not expect that sales to
accounts over which they exercise discretionary authority will exceed 5% of the
shares offered hereby.
57
<PAGE>
Prior to this Offering, there has been no public market for the Common Stock.
The initial public offering price for the shares of Common Stock offered hereby
will be determined through negotiations among the Company and the Underwriters.
Among the factors to be considered in making such determination are the history
of and the prospects for the industry in which the Company operates, an
assessment of the Company's management, the present operations of the Company,
the historical results of operations of the Company, the prospects for future
earnings of the Company, the general conditions of the securities markets at the
time of the Offering and the prices of similar securities of generally
comparable companies.
There can be no assurance that an active trading market will develop for the
Common Stock or that the Common Stock will trade in the public market subsequent
to the Offering at or above the initial public offering price.
From time to time in the ordinary course of their respective businesses, the
Representatives and their respective affiliates may in the future provide
investment banking and other financial services to the Company and its
affiliates.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Cooley Godward LLP ("Cooley"), Palo Alto, California. Certain legal
matters in connection with this Offering will be passed upon for the
Underwriters by Wilson Sonsini Goodrich & Rosati, a Professional Corporation,
Palo Alto, California. As of the date of this Prospectus, Cooley owns a warrant
to purchase 2,500 units at a price of $.50 per unit with each unit consisting of
1 share of Common Stock and one warrant to purchase 1/2 share of Common Stock at
an exercise price of $20.00 per share. GC&H Investments, a general partnership
formed by the partners of Cooley for investment purposes, owns 18,761 shares of
the Company's Common Stock, 1,514 shares of Common Stock issuable upon the net
exercise of an outstanding warrant upon the closing of the Offering and a
warrant to purchase 875 shares of Series E Preferred Stock, convertible into 875
shares of the Company's Common Stock. Alan C. Mendelson and Deborah A. Marshall,
partners at Cooley, are Secretary and Assistant Secretary of the Company,
respectively.
EXPERTS
The consolidated financial statements of CV Therapeutics, Inc. as of December
31, 1994 and 1995 and for each of the three years in the period ended December
31, 1995 appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein and in the Registration Statement, and are
included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act with
respect to the Common Stock offered hereby (the "Registration Statement"). This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to the Company and such Common Stock, reference is made to the
Registration Statement and the exhibits and schedules thereto filed as a part
thereof. Statements contained herein as to the contents of any documents are not
necessarily complete. In each instance, reference is made to the copy of such
document filed as an exhibit to the Registration Statement, and each such
statement is qualified in its entirety by such reference. Copies of the
Registration Statement, including exhibits and schedules filed therewith, may be
inspected without charge at the Commission's principal office in Washington,
D.C. or obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, The
Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission through the Electronics Data
Gathering, Analysis and Retrieval System. The Company intends to distribute to
its stockholders annual reports containing audited financial statements and will
make available copies of quarterly reports for the first three quarters of each
fiscal year containing unaudited interim financial information.
58
<PAGE>
CV THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................................................... F-2
Consolidated Balance Sheets................................................................................ F-3
Consolidated Statements of Operations...................................................................... F-4
Consolidated Statement of Stockholders' Equity............................................................. F-5
Consolidated Statements of Cash Flows...................................................................... F-7
Notes to Consolidated Financial Statements................................................................. F-9
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
CV Therapeutics, Inc.
We have audited the accompanying consolidated balance sheets of CV Therapeutics,
Inc. (a development stage company) as of December 31, 1994 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1995 and for
the period from inception (December 11, 1990) to December 31, 1995 (not
separately presented herein). These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of CV
Therapeutics, Inc. (a development stage company) at December 31, 1994 and 1995,
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 1995 and for the period from
inception (December 11, 1990) to December 31, 1995 (not separately presented
herein) in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Palo Alto, California
February 23, 1996, except for
Note 10, as to which the date is
October 29, 1996
F-2
<PAGE>
CV THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
------------------------------------------
PRO FORMA
STOCKHOLDERS'
EQUITY AT
DECEMBER 31, SEPTEMBER SEPTEMBER
-------------------- 30, 30,
1994 1995 1996 1996
--------- --------- --------- ---------
IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,742 $ 5,569 $ 6,478
Short-term investments 6,001 - 4,006
Interest receivable and other
current assets 266 221 236
--------- --------- ---------
Total current assets 10,009 5,790 10,720
Notes receivable from officers
and employees 650 625 625
Property and equipment, net 4,487 4,120 3,332
Intangible and other assets,
net of accumulated
amortization of $45, $60 and
$72 at December 31, 1994 and
1995, and September 30, 1996,
respectively 953 913 984
--------- --------- ---------
$ 16,099 $ 11,448 $ 15,661
--------- --------- ---------
--------- --------- ---------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable $ 205 $ 405 $ 557
Accrued liabilities 731 1,549 1,447
Current portion of long-term
debt 1,201 3,341 -
Current portion of capital
lease obligation 186 224 27
--------- --------- ---------
Total current liabilities 2,323 5,519 2,031
Long-term portion of long-term
debt 2,322 3,250 5,000
Long-term portion of capital
lease obligation 376 152 -
Accrued rent 517 723 722
Commitments
Stockholders' equity:
Preferred stock (pro forma),
$0.001 par value, 5,000,000
shares authorized, none
issued and outstanding - - - $ -
Convertible preferred stock,
$0.001 par value, 42,000,000
preferred shares authorized
(none pro forma), issuable
in series; 21,549,445,
25,471,045 and 32,382,015
convertible preferred shares
issued and outstanding at
December 31, 1994 and 1995,
and September 30, 1996,
respectively; at amounts
paid in; aggregate
liquidation preference of
$37,516 and $51,338 at
December 31, 1995 and
September 30, 1996,
respectively 28,591 36,388 50,130 -
Common stock, $0.001 par
value, 30,000,000 shares
authorized; 254,197, 368,081
and 418,083 shares issued
and outstanding at December
31, 1994 and 1995, and
September 30, 1996,
(4,449,166 - pro forma)
respectively, less 95,000
shares held in treasury; at
amounts paid in 37 258 2,663 52,793
Warrants to purchase
preferred stock (common
stock - pro forma) 495 544 1,225 1,225
Notes receivable issued for
stock (25) (125) (171) (171)
Deferred compensation - - (2,311) (2,311)
Deficit accumulated during
the development stage (18,537) (35,261) (43,628) (43,628)
--------- --------- --------- ---------
Total stockholders' equity 10,561 1,804 7,908 $ 7,908
--------- --------- --------- ---------
---------
$ 16,099 $ 11,448 $ 15,661
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
F-3
<PAGE>
CV THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCEPTION
NINE MONTHS ENDED (DECEMBER 11,
YEAR ENDED DECEMBER 31, SEPTEMBER 30, 1990)
------------------------------- -------------------- SEPTEMBER 30,
1993 1994 1995 1995 1996 1996
--------- --------- --------- --------- --------- ----------------
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
License revenue $ - $ - $ - $ - $ 250 $ 250
Operating expenses:
Research and development 4,731 8,823 12,856 10,099 5,834 33,411
General and
administrative 947 2,802 3,402 2,367 2,186 9,766
--------- --------- --------- --------- --------- ----------------
Total operating expenses 5,678 11,625 16,258 12,466 8,020 43,177
--------- --------- --------- --------- --------- ----------------
Loss from operations (5,678) (11,625) (16,258) (12,466) (7,770) (42,927)
Interest income 182 526 416 338 383 1,551
Interest expense (21) (268) (882) (626) (980) (2,229)
--------- --------- --------- --------- --------- ----------------
Net loss $ (5,517) $ (11,367) $ (16,724) $ (12,754) $ (8,367) $(43,605)
--------- --------- --------- --------- --------- ----------------
--------- --------- --------- --------- --------- ----------------
Pro forma net loss per
share $ (4.33) $ (3.37) $ (1.78)
--------- --------- ---------
--------- --------- ---------
Shares used in computing
pro forma net loss per
share 3,861 3,780 4,708
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
F-4
<PAGE>
CV THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM INCEPTION (DECEMBER 11, 1990) TO SEPTEMBER 30, 1996
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------
CONVERTIBLE
PREFERRED STOCK
--------------------
WARRANTS DEFICIT
SHARES TO NOTES ACCUMULATED
--------- COMMON STOCK PURCHASE RECEIVABLE DURING THE
IN THOUSANDS, EXCEPT SHARE AND PER -------------------- PREFERRED FROM DEFERRED DEVELOPMENT
SHARE AMOUNTS AMOUNT AMOUNT STOCK OFFICERS COMPENSATION STAGE
--------- SHARES --------- ---------- ---------- ---------- ----------
---------
Issuance of common stock to founders at
$0.01 per share in January 1991 for
cash - - 250,000 $ 2 - - - -
Issuance of common stock to investors
and consultants at $0.60 per share in
April 1992 for cash - - 28,500 17 - - - -
Issuance of Series A convertible
preferred stock at $0.80 per share to
investors in October 1992 for cash and
conversion of bridge loans of $1,198,
net of $2 of issuance costs 7,746,973 6,195 - - - - - -
Issuance of common stock to investors
at $0.60 per share in October and
November 1992 for cash and conversion
of bridge loans of $5 - - 12,036 7 - - - -
Repurchase of the Company's common
stock from investors at $0.60 per
share in November 1992 for cash - - (40,000) - - - - (23)
Repurchase of the Company's common
stock at $0.60 per share in November
1992 in exchange for a warrant to
purchase 250,000 shares of Series A
preferred stock at $0.80 per share - - (25,000) (15) 15 - - -
Net loss - - - - - - - (1,630)
--------- --------- --------- --------- ---------- ---------- ---------- ----------
Balances at December 31, 1992 7,746,973 6,195 225,536 11 15 - - (1,653)
Issuance of common stock to investors
at approximately $0.80 per share in
April 1993 for cash, net of repurchase - - 10,938 9 - - - -
Sale of warrant in April 1993 to Genta
to purchase 1,000,000 shares of Series
B preferred stock at $2.50 per share,
for cash - - - - 480 - - -
Issuance of Series C convertible
preferred stock at $1.25 per share to
investors in July 1993 for cash, net
of $34 of issuance costs 5,505,865 6,848 - - - - - -
Notes receivable from officers for
exercise of certain stock options - - - - - (25) - -
Net loss - - - - - - - (5,517)
--------- --------- --------- --------- ---------- ---------- ---------- ----------
Balances at December 31, 1993 13,252,838 13,043 236,474 20 495 (25) - (7,170)
Exercise of stock options at $0.80,
$2.00 and $2.50 per share during the
year for cash - - 17,723 17 - - - -
Issuance of Series D preferred stock at
$2.00 per share to investors in March
and April 1994 for cash, net of $1,045
of issuance costs 8,296,607 15,548 - - - - - -
Net loss - - - - - - - (11,367)
--------- --------- --------- --------- ---------- ---------- ---------- ----------
Balances at December 31, 1994 (carried
forward) 21,549,445 $28,591 254,197 $ 37 $ 495 (25) - $(18,537)
<CAPTION>
<S> <C>
TOTAL
IN THOUSANDS, EXCEPT SHARE AND PER STOCKHOLDERS'
SHARE AMOUNTS EQUITY
----------
Issuance of common stock to founders at
$0.01 per share in January 1991 for
cash $ 2
Issuance of common stock to investors
and consultants at $0.60 per share in
April 1992 for cash 17
Issuance of Series A convertible
preferred stock at $0.80 per share to
investors in October 1992 for cash and
conversion of bridge loans of $1,198,
net of $2 of issuance costs 6,195
Issuance of common stock to investors
at $0.60 per share in October and
November 1992 for cash and conversion
of bridge loans of $5 7
Repurchase of the Company's common
stock from investors at $0.60 per
share in November 1992 for cash (23)
Repurchase of the Company's common
stock at $0.60 per share in November
1992 in exchange for a warrant to
purchase 250,000 shares of Series A
preferred stock at $0.80 per share -
Net loss (1,630)
----------
Balances at December 31, 1992 4,568
Issuance of common stock to investors
at approximately $0.80 per share in
April 1993 for cash, net of repurchase 9
Sale of warrant in April 1993 to Genta
to purchase 1,000,000 shares of Series
B preferred stock at $2.50 per share,
for cash 480
Issuance of Series C convertible
preferred stock at $1.25 per share to
investors in July 1993 for cash, net
of $34 of issuance costs 6,848
Notes receivable from officers for
exercise of certain stock options (25)
Net loss (5,517)
----------
Balances at December 31, 1993 6,363
Exercise of stock options at $0.80,
$2.00 and $2.50 per share during the
year for cash 17
Issuance of Series D preferred stock at
$2.00 per share to investors in March
and April 1994 for cash, net of $1,045
of issuance costs 15,548
Net loss (11,367)
----------
Balances at December 31, 1994 (carried
forward) $ 10,561
</TABLE>
See accompanying notes.
F-5
<PAGE>
CV THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
PERIOD FROM INCEPTION (DECEMBER 11, 1990) TO SEPTEMBER 30, 1996
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------
CONVERTIBLE
PREFERRED STOCK
--------------------
WARRANTS DEFICIT
SHARES TO NOTES ACCUMULATED
--------- COMMON STOCK PURCHASE RECEIVABLE DURING THE
IN THOUSANDS, EXCEPT SHARE AND PER -------------------- PREFERRED FROM DEFERRED DEVELOPMENT
SHARE AMOUNTS AMOUNT AMOUNT STOCK OFFICERS COMPENSATION STAGE
--------- SHARES --------- ---------- ---------- ---------- ----------
---------
Balances at December 31, 1994 (brought
forward) 21,549,445 $28,591 254,197 $ 37 $ 495 $ (25) - $(18,537)
Exercise of stock options at $0.80,
$2.00 and $2.50 per share during the
year for cash - - 143,884 296 - - - -
Issuance of units consisting of one
share of Series E preferred stock
and one warrant to purchase half of
one share of Series E preferred
stock at $2.00 per share. In October
and November 1995, 3,921,600 units
were issued at $2.00 per unit for
cash, net of $46 of issuance costs 3,921,600 7,797 - - - - - -
Issuance of warrant in December 1995
to the Company's counsel to purchase
25,000 units consisting of one share
of Series E preferred stock and one
warrant to purchase half of one
share of Series E preferred stock at
$2.00 per share at $0.05 per unit
for legal services rendered - - - - 49 - - -
Repurchase of the Company's common
stock from investors at $2.50 per
share in December 1995 in exchange
for cancellation of a promissory
note - - (30,000) (75) - - - -
Notes receivable issued to officers
for exercise of certain stock
options - - - - - (100) - -
Net loss - - - - - - - (16,724)
--------- --------- --------- --------- ---------- ---------- ---------- ----------
Balances at December 31, 1995 25,471,045 36,388 368,081 258 544 (125) - (35,261)
Exercise of stock options at prices
ranging from $0.80 to $2.50 per
share for cash and notes (unaudited) - - 53,002 91 - - - -
Issuance of units consisting of one
share of Series E preferred stock
and one warrant to purchase one-half
of one share of Series E preferred
stock for $2.00 per share. In March,
1996 375,000 units were sold at
$2.00 per unit in consideration for
an up-front license fee owed to
Syntex (U.S.A.) Inc. (unaudited) 375,000 750 - - - - - -
Issuance of units consisting of one
share of Series G convertible
preferred stock and one warrant to
purchase 0.15 of one share of common
stock at $20.00 per share. In March
and May 1996, 6,535,970 units were
sold for $2.00 per unit in cash, net
of $80,000 of issuance cost
(unaudited) 6,535,970 12,992 - - - - - -
Value ascribed to warrant as a result
of change in terms of the warrant,
causing a new measurement date for
accounting purposes (unaudited) - - - - 160 - - -
Warrant issued in connection with
debt financing in September 1996.... - - - - 521 - - -
Repurchase of the Company's common
stock from investor's in September
1995 at $2.50 per share............. - - (3,000) (8) - - - -
Notes receivable from officers for
exercise of certain stock options
(unaudited) - - - - - (46) - -
Deferred compensation related to
grants of certain stock options
(unaudited) - - - 2,322 - - (2,322) -
Amortization of deferred compensation
(unaudited)......................... - - - - - - 11 -
Net loss (unaudited) - - - - - - - (8,367)
--------- --------- --------- --------- ---------- ---------- ---------- ----------
Balances at September 30, 1996
(unaudited) 32,382,015 $ 50,130 418,083 $ 2,663 $ 1,225 $ (171) $ (2,311) $(43,628)
--------- --------- --------- --------- ---------- ---------- ---------- ----------
--------- --------- --------- --------- ---------- ---------- ---------- ----------
<CAPTION>
<S> <C>
TOTAL
IN THOUSANDS, EXCEPT SHARE AND PER STOCKHOLDERS'
SHARE AMOUNTS EQUITY
----------
Balances at December 31, 1994 (brought
forward) $ 10,561
Exercise of stock options at $0.80,
$2.00 and $2.50 per share during the
year for cash 296
Issuance of units consisting of one
share of Series E preferred stock
and one warrant to purchase half of
one share of Series E preferred
stock at $2.00 per share. In October
and November 1995, 3,921,600 units
were issued at $2.00 per unit for
cash, net of $46 of issuance costs 7,797
Issuance of warrant in December 1995
to the Company's counsel to purchase
25,000 units consisting of one share
of Series E preferred stock and one
warrant to purchase half of one
share of Series E preferred stock at
$2.00 per share at $0.05 per unit
for legal services rendered 49
Repurchase of the Company's common
stock from investors at $2.50 per
share in December 1995 in exchange
for cancellation of a promissory
note (75)
Notes receivable issued to officers
for exercise of certain stock
options (100)
Net loss (16,724)
----------
Balances at December 31, 1995 1,804
Exercise of stock options at prices
ranging from $0.80 to $2.50 per
share for cash and notes (unaudited) 91
Issuance of units consisting of one
share of Series E preferred stock
and one warrant to purchase one-half
of one share of Series E preferred
stock for $2.00 per share. In March,
1996 375,000 units were sold at
$2.00 per unit in consideration for
an up-front license fee owed to
Syntex (U.S.A.) Inc. (unaudited) 750
Issuance of units consisting of one
share of Series G convertible
preferred stock and one warrant to
purchase 0.15 of one share of common
stock at $20.00 per share. In March
and May 1996, 6,535,970 units were
sold for $2.00 per unit in cash, net
of $80,000 of issuance cost
(unaudited) 12,992
Value ascribed to warrant as a result
of change in terms of the warrant,
causing a new measurement date for
accounting purposes (unaudited) 160
Warrant issued in connection with
debt financing in September 1996.... 521
Repurchase of the Company's common
stock from investor's in September
1995 at $2.50 per share............. (8)
Notes receivable from officers for
exercise of certain stock options
(unaudited) (46)
Deferred compensation related to
grants of certain stock options
(unaudited) -
Amortization of deferred compensation
(unaudited)......................... 11
Net loss (unaudited) (8,367)
----------
Balances at September 30, 1996
(unaudited) $ 7,908
----------
----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
CV THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
----------------------------------------------------------------
INCEPTION
(DECEMBER
11, 1990)
NINE MONTHS ENDED TO
YEAR ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER
------------------------------- -------------------- 30,
IN THOUSANDS 1993 1994 1995 1995 1996 1996
--------- --------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss $ (5,517) $(11,367) $(16,724) $(12,754) $(8,367) $(43,607)
Adjustments to
reconcile net loss
to net cash used in
operating
activities:
Amortization of
deferred
compensation...... - - - - 11 11
Depreciation and
amortization 167 672 1,102 820 822 2,804
Write off of
warrant issued
under capital
lease - - - - 160 160
Forgiveness of
notes receivable 75 25 25 - - 200
Issuance of stock
warrant for legal
services received - - 49 - - 49
Issuance of
preferred stock
and warrant for
payment of license
fee - - - - 750 750
Change in assets
and liabilities:
Other current
assets (155) 19 45 (136) (15) (236)
Intangible and
other assets (164) (739) 24 (52) 438 (535)
Accounts payable,
accrued rent and
other accrued
liabilities 55 1,091 1,224 1,503 49 2,728
--------- --------- --------- --------- --------- ---------
Net cash used in
operating activities (5,539) (10,299) (14,255) (10,619) (6,152) (37,676)
--------- --------- --------- --------- --------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of
short-term
investments - (51,900) (1,202) - (4,006) (57,108)
Maturity of
short-term
investments (93) 45,899 7,203 6,001 - 53,102
Capital expenditures - (4,067) (719) (716) (23) (5,314)
Notes receivable from
officers and
employees - - - - - (825)
Cash received from
disposal of asset - 5 - - - 5
--------- --------- --------- --------- --------- ---------
Net cash provided by
(used in) investing
activities (93) (10,063) 5,282 5,285 (4,029) (10,140)
--------- --------- --------- --------- --------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES
Payments on capital
lease obligation (44) (150) (186) - (349) (729)
Borrowings under
long-term debt (200) 3,571 4,148 3,847 5,000 13,219
Repayments of
long-term debt - (348) (1,080) (581) (6,591) (8,218)
Proceeds from
issuances of common
stock (and bridge
loans subsequently
converted into
common stock), net
of repurchases (16) 17 121 187 38 186
Proceeds from
issuance of warrant 480 - - - - 480
Proceeds from bridge
loans - - - - - 1,198
Proceeds from
issuance of
convertible
preferred stock 6,848 15,548 7,797 5,051 12,992 48,182
Payments to
stockholders to
repurchase the
Company's common
stock - - - - - (24)
--------- --------- --------- --------- --------- ---------
Net cash provided by
financing activities 7,068 18,638 10,800 8,504 11,090 54,294
--------- --------- --------- --------- --------- ---------
Net (decrease)
increase in cash and
cash equivalents 1,436 (1,724) 1,827 3,170 909 6,478
Cash and cash
equivalents at
beginning of period 4,030 5,466 3,742 3,742 5,569 -
--------- --------- --------- --------- --------- ---------
Cash and cash
equivalents at end
of period $ 5,466 $ 3,742 $ 5,569 $ 6,912 $ 6,478 $ 6,478
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
F-7
<PAGE>
CV THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------
INCEPTION
(DECEMBER
11, 1990)
NINE MONTHS ENDED TO
YEAR ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER
------------------------------- -------------------- 30,
IN THOUSANDS 1993 1994 1995 1995 1996 1996
--------- --------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
SUPPLEMENTAL
DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid for
interest $ 50 $ 287 $ 883 $ 610 $ 755 $ 2,258
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Conversion of bridge
loans into Series A
convertible
preferred stock $ - $ - $ - $ - $ - $ 1,198
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Conversion of bridge
loans into common
stock $ - $ - $ - $ - $ - $ 5
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Acquisition of
property and
equipment under
capital leases $ 683 $ 73 $ - $ - $ - $ 756
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Notes receivable from
officers in
connection with
exercise of certain
stock options $ 25 $ - $ 100 $ 100 $ 21 $ 146
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Issuance of warrants
in connection with
debt financing...... $ - $ - $ - $ - $ 681 $ 681
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
See accompanying notes.
F-8
<PAGE>
CV THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
CV Therapeutics, Inc. (the "Company"), a development stage biopharmaceutical
company, was incorporated in the State of Delaware on December 11, 1990 to focus
exclusively on the application of molecular cardiology to the discovery,
development and commercialization of novel, small molecule drugs for the
treatment of chronic cardiovascular diseases. The Company's primary activities
since incorporation have been establishing its offices and research facilities,
recruiting personnel, conducting research and development, performing business
and financial planning and raising capital.
Since inception, the Company has accumulated a deficit of approximately $43.6
million. Management expects to incur additional losses to complete product
development, and commercialization, as necessary, and recognizes the need to
raise additional funds from outside sources. In March and May 1996 the Company
successfully consummated an equity financing transaction which raised
approximately $13.0 million and has completed a refinancing of its existing debt
obligations (see Note 5). Management believes that it will be able to obtain
additional funds through either public or private equity or debt financings,
collaborative and other arrangements with corporate partners or from other
sources. If adequate funds are not available, the Company may be required to
reduce its level of spending, or eliminate one or more of its research and
development programs.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, CV Therapeutics International, which was
incorporated in December 1993 in the Cayman Islands. All significant
intercompany balances have been eliminated.
INTERIM FINANCIAL INFORMATION
The financial information at September 30, 1996 and for the nine months ended
September 30, 1995 and 1996 is unaudited but includes all adjustments
(consisting only of normal recurring adjustments) which the Company considers
necessary for a fair presentation of the financial position at such date and the
operating results and cash flows for those periods. Results for the nine months
ended September 30, 1996 are not necessarily indicative of results for the
entire year.
RESEARCH AND DEVELOPMENT
Research and development expenses consist of costs incurred for independent
research and development. These costs include direct and research-related
overhead expenses.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with a maturity from date of
purchase of three months or less to be cash equivalents. Cash equivalents
consist primarily of money market funds. All other liquid investments are
classified as short-term investments. Short-term investments at December 31,
1994 consist primarily of auction market preferred stock, money market capital
notes, and bank notes. At September 30, 1996, all short-term investments are in
U.S. government bonds. The Company limits its concentration of risk by
diversifying its investments among a variety of issuers.
Management determines the appropriate classification of investment securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. At December 31, 1994 and 1995 and September 30, 1996, all investment
securities are designated as available-for-sale. Available-for-sale securities
are carried at fair value, with the unrealized gains and losses reported in
stockholders' equity. The amortized cost of debt securities in this category is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in interest income.
F-9
<PAGE>
CV THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The cost of securities sold is based on the specific identification method.
Interest and dividends on securities classified as available-for-sale are
included in interest income.
Realized gains and losses and declines in value judged to be other than
temporary for available-for-sale securities are included in the statement of
operations. There have been no such transactions through December 31, 1995.
DEPRECIATION AND AMORTIZATION
Property and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is provided using the straight-line method over the
estimated useful lives of the respective assets, generally three to five years.
Leasehold improvements are amortized over the lesser of the lease term or the
estimated useful lives of the related assets, generally two to three years.
Organization costs are amortized over a period of five years.
REVENUE RECOGNITION
Revenues related to license agreements with noncancelable, nonrefundable terms
and no significant future obligations are recognized upon execution of the
agreements. Milestone payments will be recognized pursuant to collaborative
agreements upon the achievement of specified milestones.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
NET LOSS PER SHARE
Except as noted below, historical net loss per share is computed using the
weighted average number of common shares outstanding. Common equivalent shares
are excluded from the computation as their effect is antidilutive, except that,
pursuant to the Securities and Exchange Commission ("SEC") Staff Accounting
Bulletins, common and common equivalent shares issued during the 12-month period
prior to the initial filing of the proposed offering at prices below the assumed
public offering price have been included in the calculation as if they were
outstanding for all periods presented (using the treasury stock method for stock
options at the estimated public offering price).
Historical net loss per share information is as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
IN THOUSANDS, EXCEPT PER ------------------------------- --------------------
SHARE AMOUNTS 1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
Net loss per share $(3.58) $(7.32) $(10.20) $(7.85) $(4.95)
<S> <C> <C> <C> <C> <C>
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Shares used in computing net
loss per share 1,540 1,553 1,640 1,625 1,691
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
Pro forma net loss per share has been computed as described above and also gives
effect to the conversion of convertible preferred shares not included above that
will automatically convert upon completion of the Company's initial public
offering (using the if-converted method) from the original date of issuance.
UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY
If the offering contemplated by this Prospectus is consummated, all of the
convertible preferred stock outstanding as of the closing date will
automatically be converted into 3,238,185 shares of common stock, based on the
F-10
<PAGE>
CV THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
shares of convertible preferred stock outstanding as of September 30, 1996. In
addition, 792,898 shares will be issued in connection with the net exercise of
certain warrants upon the closing of the initial public offering. Pro forma
stockholders' equity at September 30, 1996, as adjusted for the conversion of
preferred stock and the net exercise of certain warrants, is disclosed on the
balance sheet.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 is effective for fiscal years beginning
after December 15, 1995. Under SFAS 123, stock-based compensation expense is
measured using either the intrinsic-value method as prescribed by Accounting
Principle Board Opinion No. 25 or the fair-value method described in SFAS 123.
The Company plans to implement SFAS 123 in 1996 using the intrinsic-value
method; accordingly, there will be no effect upon adopting SFAS 123 on the
Company's financial position or results of operations.
2. LICENSE AND COLLABORATION AGREEMENTS
GENTA INCORPORATED
In January 1993, the Company, along with Genta Incorporated (collectively
referred to as "Licensees"), entered into a worldwide license agreement with the
Board of Trustees of the Leland Stanford Junior University ("Stanford"). Under
the terms of the agreement, Stanford granted the Licensees rights with respect
to certain patents to make, use and sell products for the treatment of coronary
restenosis and other vascular and associated human conditions. In consideration
for these patent rights, the Licensees paid a $100,000 licensing fee upon
signing the agreement. The Licensees provided for certain nonrefundable annual
royalties and nonrefundable milestone royalties over the term of the agreement,
and royalties on net sales of licensed products.
On June 28, 1996, the Company and Stanford agreed upon the terms pursuant to
which the January 1993 license agreement referred to above was terminated.
GENTA/GENTA JAGO TECHNOLOGIES B.V.
On April 9, 1993, the Company entered into a five-year research and development
collaboration with Genta, Incorporated ("Genta") and Genta Jago Technologies
B.V. ("GJT") to design, develop and commercialize certain products utilizing the
technology which is the subject of the Stanford license agreement described
above. The agreement obligated the Company, Genta and GJT to jointly fund
certain research costs.
In connection with this agreement, Genta acquired a warrant to purchase
1,000,000 shares of the Company's Series B preferred stock at $2.50 per share
(100,000 shares of common stock at $25.00 per share on an as-if converted
basis). The purchase price for the warrant was $0.48 per underlying share or
$480,000 (100,000 shares of common stock at $4.80 on an as-if converted basis).
The warrant is exercisable immediately and expires on April 7, 2003.
As stated above, in June 1996, the Company and Stanford agreed upon the terms
pursuant to which the license terminated and, consequently, there are no further
obligations to perform under this collaboration agreement. Although the
agreements with Genta and GJT have not been terminated, the Company believes
that neither party is currently pursuing the collaborative research.
UNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC.
In June 1994, the Company entered into a license agreement with the University
of Florida Research Foundation, Inc. ("UFRFI") under which the Company received
exclusive worldwide rights with respect to certain
F-11
<PAGE>
CV THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
2. LICENSE AND COLLABORATION AGREEMENTS (CONTINUED)
patents to develop adenosine A(1) receptor antagonists and agonists for the
detection, prevention and treatment of human and animal diseases. In
consideration for the license, the Company paid UFRFI an initial license fee and
is obligated to pay royalties based on net sales of products which utilize the
licensed technology.
Pursuant to the agreement, the Company must exercise commercially reasonable
efforts to develop and commercialize one or more products covered by the
licensed technology and is obligated to meet milestones in completing certain
preclinical work. In the event the Company fails to reach those milestones,
UFRFI may convert the exclusive license into a non-exclusive license. As part of
the license agreement with UFRFI, the Company entered into a research agreement
with the University of Florida.
SYNTEX (U.S.A.) INC.
In March 1996, the Company entered a license agreement with Syntex (U.S.A.) Inc.
("Syntex"), which is an indirect subsidiary of Roche Holding Limited, pursuant
to which the Company was granted an exclusive license in certain territories
under Syntex patents and know-how for the sale of products incorporating the
licensed technology, in exchange for an up front license fee, milestone payments
and royalties. In consideration for the up front license fee of $750,000, the
Company issued to Syntex 375,000 shares of Series E preferred stock and a five
year warrant to purchase 187,500 shares of Series E preferred stock at $2.00 per
share (18,750 shares of common stock at $20.00 per share on an as-if converted
method).
BAYER AG
On May 7, 1996, the Company entered a License Agreement with Bayer AG in the
area of inflammatory diseases. Pursuant to this agreement, the Company has
granted Bayer AG an exclusive worldwide license under the Company's patents and
know-how to research, develop and market products incorporating the licensed
technology. In exchange for the license, the Company received a $250,000 up
front non-refundable license fee and is entitled to receive milestone payments
and royalties in the future.
3. INVESTMENTS
The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>
-------------------------------------
ESTIMATED FAIR VALUE
-------------------------------------
DECEMBER 31,
------------------------ SEPTEMBER
IN THOUSANDS 1994 1995 30, 1996
----------- ----------- -----------
Cash equivalents:
<S> <C> <C> <C>
Money market funds $1,072 $5,701 $5,175
Commercial paper 1,983 - -
----------- ----------- -----------
3,055 5,701 5,175
Short-term investments:
U. S. government bonds - - 4,006
Auction market preferred stock 4,000 - -
Money market capital notes 1,000 - -
Bank notes 1,001 - -
----------- ----------- -----------
$9,056 $5,701 $9,181
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
As of December 31, 1995 and September 30, 1996, the difference between the fair
value and the amortized cost of available-for-sale securities was insignificant.
F-12
<PAGE>
CV THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
3. INVESTMENTS (CONTINUED)
As of December 31, 1994 and September 30, 1996, the average contractual maturity
was approximately three months and six months, respectively, with no single
investment's maturity exceeding one year. Excluded from short-term investments
above is $700,000 and $713,000 of certificates of deposit at December 31, 1994
and 1995, respectively, held as collateral against loans and which is included
in "Intangibles and other assets" on the balance sheet.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
-------------------------------------
DECEMBER 31,
------------------------ SEPTEMBER
IN THOUSANDS 1994 1995 30, 1996
----------- ----------- -----------
Machinery and equipment $ 2,220 $ 2,407 $ 2,419
<S> <C> <C> <C>
Furniture and fixtures 425 556 568
Leasehold improvements 2,662 3,064 3,063
----------- ----------- -----------
5,307 6,027 6,050
Less accumulated depreciation and
amortization (820) (1,907) (2,718)
----------- ----------- -----------
----------- ----------- -----------
$ 4,487 $ 4,120 $ 3,332
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Property and equipment include $756,000 recorded under capital leases at
December 31, 1994, 1995, and September 30, 1996. Accumulated amortization
related to leased assets totaled $275,000, $500,000 and $685,000 at December 31,
1994 and 1995, and September 30, 1996, respectively.
F-13
<PAGE>
CV THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
-----------------------------------------
<S> <C> <C> <C>
DECEMBER 31,
---------------------------- SEPTEMBER
IN THOUSANDS 1994 1995 30, 1996
------------- ------------- -----------
Corporate loan at 9.0%, principal
and interest due January 1, 1997,
subject to the Company's right of
deferral $ - $ - $2,000
Corporate loan at 9.0%, principal
payments in equal installments
monthly beginning April 1, 1998
through September 1, 1999. Interest
due monthly subject to rights of
deferral - - 3,000
Corporate term loan at 15.03%,
interest only until December 31,
1995, followed by monthly
installments through December 31,
1997 - 4,000 -
Bank term loan at prime, plus 3.0%,
which is subject to periodic reset,
due in monthly installments through
December 31, 1997 1,714 1,143 -
Bank term loan at prime, plus 2.5%,
which is subject to periodic reset,
due in monthly installments through
December 31, 1997 1,436 1,226 -
Bank note at prime, plus 2%, which
is subject to periodic reset, due
in quarterly installments through
June 30, 1997 250 150 -
Other 123 72 27
------ ------ -----------
3,523 6,591 5,027
Less current portion (1,201) (3,341) (27)
------ ------ -----------
Long-term portion $ 2,322 $ 3,250 $5,000
------ ------ -----------
------ ------ -----------
</TABLE>
The indebtedness to banks is secured by interests in equipment, furniture and
fixtures.
The carrying value of the corporate term loan approximates fair value at
December 31, 1995 and September 30, 1996. The fair value of the corporate term
loan was estimated using discounted cash flow analysis, based on the incremental
borrowing rates currently available to the Company for borrowings with similar
terms and maturity.
On September 27, 1996, the Company completed a refinancing of its existing debt
obligations with $5.0 million of debt financing from entities associated with
Hambrecht & Quist Group. (the H&Q Debt Financings). The H&Q Debt Financings
consist of a $3.0 million term loan which bears interest at the rate of 9.0% per
annum, secured by all of the assets of the Company, and has a final maturity in
September 1999, and a $2.0 million term loan which bears interest at 9.0% per
annum due January 1, 1997. The Company has the option on or before December 31,
1996 to convert the $2.0 million term loan to an equipment lease which would
bear interest at the rate of 9.0% per annum and would have a final maturity in
September 1999. The Company intends to convert the term loan into an equipment
lease if it does not complete its initial public offering by December 31, 1996.
Therefore, the term loan has been classified as long term in the balance sheet
at September 30, 1996. If the Company does not raise a minimum of $13.0 million
in gross proceeds through the sale of equity securities, the Company can elect
to defer payments under either the term loan (or the equipment lease) until
March 1998 and
F-14
<PAGE>
CV THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
5. LONG-TERM DEBT (CONTINUED)
minimum subsequent payments would total $3.2 million in 1998 and $1.8 million in
1999. Otherwise, maximum payments could total $2.0 million, $1.7 million and
$1.3 million in 1997, 1998 and 1999, respectively. Also, see Note 8.
6. LEASES
The Company leases certain equipment and furniture under noncancelable capital
leases. The Company leases its facilities under noncancelable operating leases.
The facilities lease expires February 2002 and includes an option to renew the
lease for an additional five years. In October 1995, the Company entered into a
noncancelable sublease agreement whereby it leased additional space to two
separate companies for eight months and 17 months, respectively. Aggregate
future minimum rentals to be received as of December 31, 1995 totaled $487,000.
Following is a schedule of future minimum lease payments at December 31, 1995,
net of sublease rentals in 1996 and 1997:
<TABLE>
<CAPTION>
------------------------
<S> <C> <C>
OPERATING CAPITAL
IN THOUSANDS LEASES LEASES
----------- -----------
Year ending December 31,
1996 $ 653 $ 264
1997 1,069 159
1998 1,193 -
1999 1,244 -
2000 1,254 -
Thereafter 1,499 -
----------- -----
Total minimum payments required $ 6,912 423
-----------
-----------
Less amount representing interest (47)
-----
Present value of future lease payments 376
Less current portion (224)
-----
Noncurrent portion $ 152
-----
-----
</TABLE>
Rent expense, net of sublease rentals, for the years ended December 31, 1993,
1994 and 1995, for the nine months ended September 30, 1995 and 1996 and for the
periods from inception (December 11, 1990) to September 30, 1996 was
approximately $123,000, $662,000, $840,000, $578,000, $305,000 and $1,958,000,
respectively.
7. RELATED PARTY TRANSACTIONS
During 1992 and 1993, the Company issued loans to certain of the Company's
officers and employees related to relocation, purchases of stock and other
purposes of which loans aggregating $675,000, $750,000 and $796,000 were
outstanding at December 31, 1994 and 1995, and September 30, 1996, respectively.
These loans bear interest at 5.33% to 7.31% per annum. The amounts are repayable
from December 31, 1997 to June 8, 2005. As of September 30, 1996 loans for
$625,000 are secured by personal residences, and loans for the remaining
$171,000 are secured by the individuals' common stock. As of December 31, 1994,
1995 and September 30, 1996, loans for $25,000, $125,000 and $171,000 related to
the purchase of common stock and have been included in stockholders' equity. The
Company forgave $91,500 and $47,400 of accrued interest in the year
F-15
<PAGE>
CV THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
ended December 31, 1995 and the nine months ended September 30, 1996,
respectively, on several of these notes. The forgiveness was accounted for as
compensation expense to the related employees in the period in which the
interest was deemed to have been forgiven.
8. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
Preferred stock as of September 30, 1996 consists of the following ($0.001 par
value):
<TABLE>
<CAPTION>
----------------------------------
SHARES
SHARES ISSUED AND LIQUIDATION
AUTHORIZED OUTSTANDING PREFERENCE
---------- ---------- ----------
Series A 8,000,000 7,746,973 6,197,578
<S> <C> <C> <C>
Series B 1,000,000 - -
Series C 6,000,000 5,505,865 6,882,331
Series D 12,500,000 8,296,607 16,593,214
Series E 7,500,000 4,296,600 8,593,200
Series G 7,000,000 6,535,970 13,071,940
---------- ---------- ----------
Total 42,000,000 32,382,015 51,338,263
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Preferred stockholders are entitled to noncumulative dividends at the rate of
$0.08, $0.25, $0.125, $0.20, $0.20 and $0.20 per annum, for each share of Series
A, Series B, Series C, Series D, Series E and Series G preferred stock
outstanding, respectively, if declared by the board of directors, payable in
preference to common stock dividends. No dividends have been declared or paid by
the Company.
Pursuant to the Company's Restated Certificate of Incorporation, as amended, the
liquidation preference includes all declared but unpaid dividends, if any. None
have been declared to date. After payment has been made to the preferred
stockholders, holders of the common stock and preferred stock shall receive the
remaining assets. Such assets shall be distributed ratably among such holders in
proportion to the shares of stock held by them.
Each share of preferred stock votes equally with shares of common stock on an
"if-converted" basis at any annual or special meeting of the Company, and may
act by written consent in the same manner as the common stock. Series A, Series
B (if and when issued) Series C, Series D, Series E and Series G preferred
stockholders have the right of first refusal with respect to additional equity
financings the Company undertakes.
Each share of preferred stock is convertible at any time at the option of the
holder. After giving effect to the reverse stock split which occurred on October
29, 1996, the conversion ratio is 1-for-10. Conversion of the preferred stock is
automatic upon the closing of an initial public offering with gross proceeds in
excess of $10,000,000. See Note 10. The Company has reserved 3,238,185 shares of
its common stock for the conversion of its outstanding preferred stock.
If the Company issues stock for a price per share less than the Series E
conversion price, then the Series E and Series G conversion prices shall be
reduced to the amount equal to the consideration per share for which such
additional shares of stock are issued. This provision shall terminate upon the
first to occur of the closing of an initial public offering in excess of
$10,000,000 or a merger, reorganization or sale of substantially all of the
assets of the Company or the closing of the Company's next financing of at least
$5,000,000.
F-16
<PAGE>
CV THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
COMMON STOCK
In November 1992, the Company repurchased 40,000 shares of its common stock from
its founders for $0.60 per share. The original purchase price was recorded as a
reduction to common stock, at stated cost, and the excess over the original
purchase price, or $23,600, was recorded in the caption "deficit accumulated
during the development stage."
1992 STOCK OPTION PLAN
The Company has reserved 345,000 common shares for issuance under its revised
1992 Stock Option Plan which provides for common stock options to be granted to
employees (including consultants, officers, and directors). The exercise price
of each incentive stock option shall be not less than the 100% of the fair value
of the stock subject to the option on the date the option is granted. The
exercise price of each nonstatutory stock option shall be not less than 85% of
the fair value of the stock subject to the option on the date the option is
granted. All options are to have a term not greater than 10 years from the date
of grant. Options are exercisable upon vesting, which is generally ratable over
a five-year period, unless otherwise approved by the board of directors.
1994 EQUITY INCENTIVE PLAN
In February 1994, the Company's board of directors adopted the 1994 Equity
Incentive Plan. Under the Plan, up to 500,000 shares of the Company's common
stock may be granted to employees of and consultants to the Company and its
affiliates. The Plan allows for the grant of incentive stock options,
nonstatutory stock options, stock bonuses, rights to purchase restricted stock
and stock appreciation rights. Options granted under this plan expire no later
than 10 years from the date of grant. The exercise price of each incentive stock
option shall be not less than 100% of the fair value of the stock subject to the
option on the date the option is granted. The exercise price of each
nonstatutory option shall be not less than 85% of the fair value of the stock
subject to the option on the date the option is granted. The vesting provisions
of individual options may vary but in each case will provide for vesting of at
least 20% of the total number of shares subject to the option per year.
NON-EMPLOYEE DIRECTOR'S STOCK OPTION PLAN
In September 1994, the Company's board of directors adopted the Non-Employee
Director's Stock Option Plan. Under the Plan, options for up to 20,000 shares of
common stock may be granted to directors of the Company who is not otherwise an
employee of or consultant to the Company or of any affiliate of the Company.
Options granted under this plan expire no later than 10 years from the date of
grant. The exercise price of each option shall be the fair value of the stock
subject to such option on the date such option is granted. The options generally
vest in increments over a period of three years from the date of grant.
Outside of Stock Option Plans, from May 1993 through June 1995 the Company
granted options to purchase 85,500 shares of Common Stock to employees and
consultants. The exercise prices ranged from $0.80 to $2.50 per share, which
exercise prices represent the fair value of common stock at the respective grant
dates. The stock option terms vary between the individual grants and were
approved by the board of directors.
F-17
<PAGE>
CV THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes option activity under all plans:
<TABLE>
<CAPTION>
-----------------------------------------------
OUTSTANDING OPTIONS
SHARES -----------------------------------
IN THOUSANDS, EXCEPT PER AVAILABLE NUMBER OF PRICE PER AGGREGATE
SHARE AMOUNTS FOR GRANT SHARES SHARE PRICE
---------- ---------- ----------- ----------
Shares authorized 299 - $ - -
<S> <C> <C> <C> <C>
Options granted (184) 184 0$.80-$0-88 $ 150
---------- ---------- ----------
Balance at December 31,
1992 115 184 0$.80-$0.88 150
Shares authorized 74 - $ - -
Options granted (123) 123 0$.80-$1.30 120
Options canceled 9 (9) $ 0.80 (7)
Options exercised - - $ 0.80 -
---------- ---------- ----------
Balance at December 31,
1993 75 298 0$.80-$1.30 263
Shares authorized 238 - $ - -
Options granted (230) 230 2$.00-$2.50 542
Options canceled 9 (9) 0$.80-$2.00 (8)
Options exercised - (18) 0$.80-$2.50 (17)
---------- ---------- ----------
Balance at December 31,
1994 92 501 0$.80-$2.50 780
Shares authorized 340 - $ - -
Options granted (393) 393 $ 2.50 982
Options canceled 37 (37) 0$.80-$2.50 (62)
Options exercised - (144) 0$.80-$2.50 (296)
---------- ---------- ----------- ----------
Balance at December 31,
1995 76 713 0$.80-$2.50 1,404
Shares authorized 529 - $ - -
Options granted (348) 348 $ 2.50 871
Options canceled 202 (202) $0.80-2.50 (446)
Options repurchased 3 (3) 2.50 (8)
Options exercised - (53) 0$.80-$2.50 (83)
---------- ---------- ----------- ----------
Balance at September 30,
1996 462 803 0$.80-$2.50 $1,738
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
</TABLE>
At December 31, 1994 and 1995 and September 30, 1996, options to purchase
144,679, 203,613 and 284,459 common shares were exercisable, respectively. At
September 30, 1996, the Company has reserved 1,480,500 shares of authorized
common stock for issuance under all plans.
In March and June 1996, options to purchase 8,835 and 40,505 shares were granted
at $2.50 per share. Deferred compensation of $172,000 was recorded on these
option grants based on the deemed fair value of common stock of approximately
$6.25. In September 1996, the Company granted options to purchase a total of
296,500 shares at an exercise price of $2.50 per share and additional deferred
compensation of approximately $2,150,000 was recorded based on the deemed fair
value of common stock of approximately $9.75.
WARRANTS
In connection with the sale of Series A preferred stock, the Company acquired
25,000 shares of its common stock from an investor for $0.60 per share by
issuing a warrant to purchase 250,000 shares of the Company's Series A preferred
stock at $0.80 per share (25,000 shares of common stock at $8.00 per share on an
as-if-converted
F-18
<PAGE>
CV THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
basis). This warrant is exercisable immediately and expires at the earlier of
September 8, 1997 or an initial public offering in excess of $7,500,000 at an
offering price of not less than $5.00 per share as adjusted for any stock
dividends, stock split, recapitalization or consolidation of the Company's
common stock. As of December 31, 1995, 25,000 shares of common stock have been
reserved for the exercise of this warrant.
In connection with the equipment lease entered into in 1993, the Company issued
a warrant to purchase 2,812 shares of the Company's common stock at $8.00 per
share. This warrant is exercisable immediately and expires at the earlier of
March 18, 1999 or an initial public offering in excess of $7,500,000 or a merger
or consolidation of the Company with or into another corporation or entity. As
of December 31, 1995, 2,812 shares of the Company's common stock have been
reserved for the exercise of the warrant.
In connection with the 1993 facility lease, the Company issued warrants to
purchase 30,000 shares of the Company's Series C preferred stock at $1.25 per
share (3,000 shares of common stock at $12.50 per share on an as-if-converted
basis). The warrants expired in August 1996.
In connection with the sale of Series D preferred stock, the Company issued
warrants to purchase 219,266 shares of the Company's Series D preferred stock at
$2.00 per share (21,926 shares of common stock at $20.00 per share on an
as-if-converted basis).
In connection with the corporate term loan obtained in April 1995, the Company
issued warrants to purchase 400,000 shares of the Company's Series D preferred
stock at $2.50 per share (40,000 shares of common stock at $25.00 per share on
an as-if-converted basis). The warrant is exercisable immediately and expires on
April 24, 2005. As of December 31, 1995, 40,000 shares of common stock have been
reserved for the exercise of the warrant. In June 1996, the warrant agreement
was amended to change the exercise price of the warrants from $25.00 per share
to $8.90 per share, in exchange for the elimination of certain loan covenants.
This change in terms resulted in a new measurement date for the warrants for
accounting purposes, and, therefore, a value of $160,000 has been recorded in
June 1996 based on the deemed fair value of the warrants at that date. The
warrant value was initially amortized over the remaining life of the loan.
However, on September 30, 1996, the Company repaid the remaining balance of the
loan and expensed the unamortized portion of the warrant value at that date. The
warrants are exercisable immediately and expire on March 23, 1999. As of
December 31, 1995, 21,926 shares of common stock have been reserved for the
exercise of the warrants.
In connection with the sale of Series E preferred stock, the Company issued
warrants to purchase 1,960,800 shares of the Company's Series E preferred stock
at $2.00 per share (196,078 shares of common stock at $20.00 per share on an
as-if-converted basis). The warrants are exercisable immediately and expire at
the earlier of September 7, 2000, an initial public offering of common stock at
an offering price of not less than $5.00 per share as adjusted for any stock
dividends, combinations or stock split with respect to such stock or a merger,
reorganization or sale of substantially all of the assets of the Company. As of
December 31, 1995, 196,078 shares of common stock have been reserved for the
exercise of the warrants.
In 1995, the Company issued its corporate attorneys a warrant to purchase 25,000
units consisting of one share of the Company's Series E preferred stock (2,500
shares of common stock on an as-if converted basis) and one warrant to purchase
half of one share of Series E preferred stock for $2.00 per share (1,250 shares
of common stock at $20.00 per share on an as-if-converted basis). The warrant
was issued in lieu of payment for legal services rendered totaling $48,750 and
is separately disclosed in the statement of stockholders' equity. The warrant is
exercisable immediately and expires at the earlier of December 2000 or upon the
consummation of a qualified initial public offering, as defined in the related
agreement. Shares of common stock totaling 3,750 have been reserved for issuance
upon exercise of the warrant.
F-19
<PAGE>
CV THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
In connection with the sale of Series G preferred stock in March and May 1996,
the Company issued warrants to purchase 980,392 shares of common stock at $2.50
per share. These warrants expire March 28, 1999 or at the closing of a qualified
initial public offering, as defined in the related agreement.
In September 1996, in connection the debt financing described in Note 5, the
Company issued five year warrants to purchase 84,500 shares of common stock at
an exercise price of $20.00 per share, and five year warrants to purchase 84,500
shares of common stock at an exercise price of $2.50 per share. These warrants
were valued at $521,000 based on the value of common stock on the date of the
transaction and based on the terms of the respective warrant agreements.
The following table summarizes the warrants outstanding as of September 30, 1996
(on an as-if converted basis):
<TABLE>
<CAPTION>
-------------------------------------------------------------
DATE OF ISSUED FOR EXERCISE NUMBER OF
ISSUANCE UNDERLYING STOCK PRICE WARRANTS
- -------------------------- ------------------------------------- ----------- ---------
October 1992 Series A preferred stock $ 8.00 25,000
<S> <C> <C> <C>
April 1993 Series B preferred stock $ 25.00 100,000
March and April 1994 Series D preferred stock $ 20.00 21,926
April 1995 Series D preferred stock $ 8.90 40,000
September and November
1995 Series E preferred stock $ 20.00 196,078
December 1995 Series E preferred stock $ 20.00 3,750
March 1996 Series E preferred stock $ 20.00 18,750
September 1996 Common stock $ 20.00 84,500
September 1996 Common stock $ 2.50 84,500
---------
Total 574,504
</TABLE>
Common stock to be issued on the net exercise of outstanding warrants, upon the
closing of an initial public offering, assuming an initial offering price of
$13.00 per share:
<TABLE>
<CAPTION>
March 1993 Common Stock $ 8.00 2,812
<S> <C> <C> <C>
March and May 1996 Common Stock $ 2.50 980,392
---------
983,204
---------
---------
Less shares due to net exercise (190,306)
---------
Expected shares to be net exercised 792,898
---------
Total warrants outstanding as of September 30, 1996 1,367,402
---------
---------
</TABLE>
9. INCOME TAXES
As of December 31, 1995, the Company had federal net operating loss
carryforwards of approximately $32,000,000. The Company also had research and
development tax credit carryforwards of approximately $1,200,000. The difference
between the federal net operating loss carryforwards and the accumulated deficit
relates to losses generated by the Company's wholly owned subsidiary, CV
Therapeutics, International. The net operating loss and credit carryforwards
will expire at various dates beginning on 2007 through 2010, if not utilized.
Utilization of the net operating losses and credits may be subject to an annual
limitation due to the ownership change limitations provided by the Internal
Revenue Code of 1986 and similar state provisions. The annual limitation may
result in the expiration of net operating losses and credits before utilization.
F-20
<PAGE>
CV THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
9. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and the amount used for income tax purposes. Significant components of the
Company's deferred tax assets as of December 31 are as follows:
<TABLE>
<CAPTION>
-----------------------
DECEMBER 31,
-----------------------
IN THOUSANDS 1994 1995
----------- ----------
Net operating loss carryforward $ 5,400 $11,600
<S> <C> <C>
Research credits (expiring 2007-2010) 800 1,700
Capitalized research and development 800 800
Other, net - 100
----------- ----------
Total deferred tax assets 7,000 14,200
Valuation allowance for deferred tax assets (7,000) (14,200)
----------- ----------
Total $ - $ -
----------- ----------
----------- ----------
</TABLE>
The valuation allowance increased by $4,000,000, during the year ended December
31, 1994.
10. SUBSEQUENT EVENTS
In September 1996, the board of directors authorized management of the Company
to file a registration statement with the SEC permitting the Company to sell
shares of its common stock to the public. If the initial public offering is
closed under the terms presently anticipated, all of the preferred stock
outstanding will automatically convert into 3,238,185 shares of common stock.
Unaudited pro forma stockholders' equity, as adjusted for the assumed conversion
of the preferred stock, is set forth on the balance sheet.
Also in September 1996, the board of directors of the Company authorized a
1-for-10 reverse stock split, in which ten shares of common stock were exchanged
for one share of common stock. Following stockholder approval, the stock split
was effected on October 29, 1996. Effective upon the closing of the initial
public offering, the Company will become authorized to issue 5,000,000 shares of
$0.001 par value preferred stock and 30,000,000 shares of $0.001 par value
common stock. All par value, share and per share amounts, as well as the
dividend and liquidation preferences for preferred stock, included in the
accompanying financial statements have been retroactively adjusted to reflect
the reverse stock split.
In September 1996, the board of directors adopted the Employee Stock Purchase
Plan, the amended and restated Non-Employee Directors' Stock Option Plan and the
amended and restated 1992 Stock Option Plan and the amended and restated 1994
Equity Incentive Plan. In September 1996, the stockholders approved such plans.
A total of 1,545,000 shares of common stock have been reserved for issuance
thereunder, subject to stockholder approval.
On August 25, 1996, a promissory note was executed in favor of the Company by an
officer, for $25,000, bearing interest at 6.84%, per annum. The principal is due
and payable on August 25, 2001. The note is secured by a pledge of shares of the
Company's common stock.
F-21
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than underwriting
discounts and commissions, payable by the registrant in connection with the
distribution of the Common Stock being registered. All amounts are estimated,
except the SEC Registration Fee, the NASD Filing Fee and the Nasdaq National
Market Filing Fee:
<TABLE>
<S> <C>
SEC Registration Fee 13,639
NASD Filing Fee 4,525
Nasdaq National Market Filing Fee 33,880
Blue Sky Fees and Expenses 15,000
Accounting Fees 140,000
Legal Fees and Expenses 325,000
Transfer Agent and Registrar Fees 10,000
Directors and Officers Insurance 175,000
Printing and Engraving 175,000
Miscellaneous 32,956
Total $ 925,000
---------
---------
</TABLE>
- ------------------------
ITEM 14 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Restated Certificate of Incorporation provides that directors
of the Registrant shall not be personally liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director, to
the fullest extent permitted by the General Corporation Law of the State of
Delaware. The Registrant's Restated Bylaws provide for indemnification of
officers and directors to the full extent and in the manner permitted by
Delaware law. Section 145 of the Delaware General Corporation Law makes
provision for such indemnification in terms sufficiently broad to cover officers
and directors under certain circumstances for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act").
The Registrant has entered into indemnification agreements with each officer and
director which provide indemnification under certain circumstances for acts and
omissions which may not be covered by any directors' and officers' liability
insurance.
The form of Underwriting Agreement, to filed as Exhibit 1.1 to the Registration
Statement, provides for indemnification of the Registrant and its controlling
persons against certain liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since September 1, 1993, the Company has sold and issued the following
unregistered securities:
(1) Since September 1, 1993, the Company has granted stock options to
purchase 1,014,080 shares of Common Stock to a total of 107 employees,
consultants and non-employee directors at a weighted average exercise price
of $2.41 per share pursuant to the 1992 Stock Plan, the Incentive Plan, the
Directors' Plan, as well as outside these plans.
(2) In September 1993, the Company issued warrants to purchase 30,000
shares of Series C Preferred Stock, convertible into 3,000 shares of Common
Stock, at a pre-conversion exercise price of $1.25 per share to two
accredited investors. Both warrants have expired.
(3) In March and April 1994, the Company issued and sold 8,296,607 shares
of Series D Preferred Stock, convertible into 829,657 shares of Common
Stock, to a total of 94 accredited investors, including one director and two
officers, for cash in the aggregate amount of $16,593,214. In connection
with the private placement, the Company paid commissions to the placement
agent equal to $802,251.18 and issued warrants to purchase 219,266 shares of
Series D Preferred Stock, convertible into 21,926 shares of Common Stock, at
a pre-conversion exercise price of $2.00 per share.
II-1
<PAGE>
(4) In April 1995, the Company issued warrants to purchase an aggregate of
500,000 shares of Series D Preferred Stock, convertible into an aggregate of
50,000 shares of Common Stock, at a pre-conversion exercise price of $2.50
per share to two accredited investors pursuant to the terms of a Loan and
Security Agreement, dated April 24, 1995, as amended March 8, 1996. These
warrants were amended and restated in August 1996 to purchase 100,000 and
300,000 shares of Series D Preferred Stock, convertible into 10,000 and
30,000 shares of Common Stock, at a pre-conversion exercise price of $.89
per share.
(5) In September and November 1995, the Company issued and sold 3,921,600
shares of Series E Preferred Stock, convertible into 392,159 shares of
Common Stock, and warrants to purchase 1,960,800 shares of Series E
Preferred Stock, convertible into 196,078 shares of Common Stock at a
pre-conversion exercise price of $2.00 per share to a total of 37 accredited
investors, including one director and one individual who was an officer and
a director, for cash in the aggregate amount of $7,843,200.
(6) In December 1995, the Company issued a warrant to purchase 25,000 units
at a price of $.50 per unit, with each unit consisting of 1 share of Series
E Preferred Stock, convertible into 2,500 shares of Common Stock, and one
warrant to purchase 1/2 share of Series E Preferred Stock, convertible into
1,250 shares of Common Stock, at a pre-conversion exercise price of $2.00
per share to Cooley Godward LLP, in connection with cancellation of accounts
payable.
(7) In March 1996, the Company issued and sold 375,000 shares of Series E
Preferred Stock, convertible into 37,500 shares of Common Stock, and
warrants to purchase 187,500 shares of Series E Preferred Stock, convertible
into 18,750 shares of Common Stock, at a pre-conversion exercise price of
$2.00 per share to an accredited investor pursuant to the terms of a License
Agreement dated March 27, 1996.
(8) In March and May 1996, the Company issued and sold 6,535,970 shares of
Series G Preferred Stock, convertible into 653,592 shares of Common Stock,
and warrants to purchase 980,392 shares of Common Stock, convertible into
980,392 shares of Common Stock, at an exercise price of $2.50 per share to a
total of 64 accredited investors, including one director, three officers and
two individuals who were officers and directors, for cash in the aggregate
amount of $13,071,940.
(9) In September 1996, the Company issued warrants to purchase an aggregate
of 84,500 shares of Common Stock, at an exercise price of $20.00 per share,
and warrants to purchase an aggregate of 84,500 shares of Common Stock, at
an exercise price of $2.50 per share, to two accredited investors in
connection with a $5.0 million debt financing and pursuant to the terms of a
Common Stock Warrant Purchase Agreement.
The share amounts set forth give effect to the Company's 1-for-10 reverse stock
split of the Company's Common Stock effected in October 1996. The sales and
issuances of securities in the transactions described in paragraphs (2)-(9) were
deemed to be exempt from registration under the Securities Act by virtue of
Section 4(2), Regulation D or Regulation S promulgated thereunder. With respect
to the grant of stock options described in paragraph (1), an exemption from
registration was unnecessary in that none of the transactions involved a "sale"
of securities as such term is used in Section 2(3) of the Securities Act.
Appropriate legends are affixed to the stock certificate issued in the
aforementioned transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. All recipients received adequate
information about the Company or had access, through employment or other
relationships, to such information.
ITEM 16 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<C> <S>
1.1 Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Registrant, as amended.
3.2+ Bylaws of the Registrant.
3.3 Certificate of Amendment of the Restated Certificate of Incorporation of the
Registrant.
3.4+ Restated Certificate of Incorporation of the Registrant to be effective upon closing
of the Offering.
3.5+ Restated Bylaws of the Registrant to be effective upon the closing of the Offering.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
4.1 Reference is made to Exhibits 3.1 through 3.5.
4.2+ Specimen Common Stock Certificate.
5.1+ Opinion of Cooley Godward LLP as to legality of the Common Stock.
10.1+ 1992 Stock Option Plan, as amended.
10.2+ 1994 Equity Incentive Plan, as amended.
10.3+ Non-Employee Directors' Stock Option Plan, as amended.
10.4+ Form of Incentive Stock Option Grant.
10.5+ Form of Non-Incentive Stock Option Grant.
10.6+ Employee Stock Purchase Plan.
10.7 Amended and Restated Promissory Note for $500,000 between Registrant and Louis G.
Lange, M.D., Ph.D., effective as of September 23, 1996.
10.8 Amended and Restated Promissory Note between Registrant and George F. Schreiner,
M.D., Ph.D., effective as of September 23, 1996.
10.9 Separation and Consulting Agreement between Registrant and Thomas L. Gutshall,
effective as of September 2, 1996.
10.10+ Form of Indemnification Agreement between Registrant and its directors and officers.
10.11+ Amended and Restated Investor Rights Agreement between the Registrant and the
stockholders named therein, dated May 29, 1996.
10.12+ Form of Series A Preferred Stock Warrant, and amendment thereto.
10.13+ Amended and Restated Series B Preferred Stock Warrant to Genta Incorporated.
10.14+ Form of Series D Preferred Stock Warrant to Alex Brown & Sons Incorporated.
10.15+ Form of Amended and Restated Series D Preferred Stock Warrant.
10.16+ Form of Series E Preferred Stock Warrant.
10.17+ Series E Preferred Stock Warrant to Cooley Godward LLP.
10.18+ Series E Preferred Stock Warrant to Syntex (U.S.A.) Inc.
10.19+ Form of Common Stock Warrant issued in connection with the Company's Series G private
financing.
10.20+ Common Stock Warrant to Lease Management Services, Inc.
10.21+ License Agreement between the Registrant and University of Florida Research
Foundation, Inc., dated June 27, 1994.*
10.22+ Research Agreement between the Registrant and University of Florida, dated June 27,
1994.*
10.23+ License Agreement between Registrant and Syntex (U.S.A.) Inc., dated March 27, 1996.*
10.24+ License Agreement between Registrant and Bayer AG, dated May 7, 1996.*
10.25+ Lease Agreement between Registrant and Matadero Creek, dated August 6, 1993 and
addendum thereto; Letter Amendment to Lease Agreement, dated June 30, 1994 and
Second Amendment to Lease Agreement, dated June 30, 1994.
10.26 Amended and Restated Promissory Note for $37,500 between Registrant and Louis G.
Lange, M.D., Ph.D., effective as of September 23, 1996.
10.27 Amended and Restated Promissory Note for $25,000 between Registrant and Louis G.
Lange, M.D., Ph.D., effective as of September 23, 1996.
10.28 Amended and Restated Promissory Note for $25,000 between Registrant and Louis G.
Lange, M.D., Ph.D., effective as of September 23, 1996.
10.29 Amended and Restated Promissory Note between Registrant and Thomas L. Gutshall,
effective as of September 23, 1996.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.30+ Master Lease Agreement between Registrant and Hambrecht & Quist Guaranty Finance,
LLC, dated September 27, 1996.
10.31+ Finance Agreement between Registrant and Hambrecht & Quist Guaranty Finance, LLC,
dated September 27, 1996.
10.32+ Business Loan Agreement between Registrant and Hambrecht & Quist Guaranty Finance,
LLC, dated September 27, 1996.
10.33+ Business Loan Agreement between Registrant and Hambrecht & Quist Transition Capital,
LLC, dated September 27, 1996.
10.34+ Promissory Note between Registrant and Hambrecht & Quist Guaranty Finance, LLC, dated
September 27, 1996.
10.35+ Promissory Note between Registrant and Hambrecht & Quist Transition Capital, LLC,
dated September 27, 1996.
10.36+ Security Agreement between Registrant and Hambrecht & Quist Guaranty Finance, LLC,
dated September 27, 1996.
10.37+ Security Agreement between Registrant and Hambrecht & Quist Transition Capital, LLC,
dated September 27, 1996.
10.38+ Form of Common Stock Warrant exercisable immediately, dated September 27, 1996.
10.39+ Form of Common Stock Warrant, dated September 27, 1996.
11.1 Statement re computation of net loss per share.
23.1 Consent of Ernst & Young LLP, Independent Auditors (see page II-7).
23.2+ Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1+ Power of Attorney.
27.1+ Financial Data Schedule.
</TABLE>
- ------------------------
+ Previously filed.
* Confidential treatment is being sought for portions of this exhibit.
(b) Financial Statement Schedules
Consolidated Schedules are omitted because they are not applicable, or because
the information is included in the Financial Statements or the Notes thereto.
ITEM 17. UNDERTAKINGS.
A. The Registrant hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
B. Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
C. The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, CV Therapeutics,
Inc. has duly caused this Amendment to Registration Statement to be signed on
its behalf, by the undersigned, thereunto duly authorized, in the City of Palo
Alto, County of Santa Clara, State of California, on October 29, 1996.
CV THERAPEUTICS, INC.
By: __________/S/____LOUIS G. LANGE, M.D., PH.D._________
Louis G. Lange, M.D., Ph.D.
Chairman of the Board and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT TO
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ---------------------------------- ---------------------
<C> <S> <C>
Chairman of the Board & Chief
/S/LOUIS G. LANGE, M.D., PH.D. Executive Officer (Principal October 29, 1996
Louis G. Lange, M.D., Ph.D. Executive Officer)
/S/KATHLEEN A. STAFFORD Chief Financial Officer (Principal
Kathleen A. Stafford Financial and Accounting Officer) October 29, 1996
*
Samuel D. Colella Director October 29, 1996
*
Thomas L. Gutshall Director October 29, 1996
*
Barbara J. McNeil, M.D., Ph.D. Director October 29, 1996
*
Costa G. Sevastopoulos, Ph.D. Director October 29, 1996
*
J. Leighton Read, M.D. Director October 29, 1996
*
Isaac Stein Director October 29, 1996
*By: /S/LOUIS G. LANGE, M.D., PH.D.
Louis G. Lange, M.D., Ph.D.
*By: /S/KATHLEEN A. STAFFORD
Kathleen A. Stafford
</TABLE>
II-6
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
February 23, 1996 (except for Note 10, as to which the date is October 29,
1996), in the Registration Statement (Form S-1, No. 333-12675) and related
Prospectus of CV Therapeutics, Inc. for the registration of 2,875,000 shares of
common stock.
/s/ ERNST & YOUNG LLP
Palo Alto, California
October 29, 1996
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- --------- --------------------------------------------------------------------------------------------
<C> <S> <C>
1.1 Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Registrant, as amended.
3.2+ Bylaws of the Registrant.
3.3 Certificate of Amendment of the Restated Certificate of Incorporation of the Registrant.
3.4+ Restated Certificate of Incorporation of the Registrant to be effective upon closing of the
Offering.
3.5+ Restated Bylaws of the Registrant to be effective upon the closing of the Offering.
4.1 Reference is made to Exhibits 3.1 through 3.5.
4.2+ Specimen Common Stock Certificate.
5.1+ Opinion of Cooley Godward LLP as to legality of the Common Stock.
10.1+ 1992 Stock Option Plan, as amended.
10.2+ 1994 Equity Incentive Plan, as amended.
10.3+ Non-Employee Directors' Stock Option Plan, as amended.
10.4+ Form of Incentive Stock Option Grant.
10.5+ Form of Non-Incentive Stock Option Grant.
10.6+ Employee Stock Purchase Plan.
10.7 Amended and Restated Promissory Note for $500,000 between Registrant and Louis G. Lange,
M.D., Ph.D., effective as of September 23, 1996.
10.8 Amended and Restated Promissory Note between Registrant and George F. Schreiner, M.D.,
Ph.D., effective as of September 23, 1996.
10.9 Separation and Consulting Agreement between Registrant and Thomas L. Gutshall, effective as
of September 2, 1996.
10.10+ Form of Indemnification Agreement between Registrant and its directors and officers.
10.11+ Amended and Restated Investor Rights Agreement between the Registrant and the stockholders
named therein, dated May 29, 1996.
10.12+ Form of Series A Preferred Stock Warrant, and amendment thereto.
10.13+ Amended and Restated Series B Preferred Stock Warrant to Genta Incorporated.
10.14+ Form of Series D Preferred Stock Warrant to Alex Brown & Sons Incorporated.
10.15+ Form of Amended and Restated Series D Preferred Stock Warrant.
10.16+ Form of Series E Preferred Stock Warrant.
10.17+ Series E Preferred Stock Warrant to Cooley Godward LLP.
10.18+ Series E Preferred Stock Warrant to Syntex (U.S.A.) Inc.
10.19+ Form of Common Stock Warrant issued in connection with the Company's Series G private
financing.
10.20+ Common Stock Warrant to Lease Management Services, Inc.
10.21+ License Agreement between the Registrant and University of Florida Research Foundation,
Inc., dated June 27, 1994.*
10.22+ Research Agreement between the Registrant and University of Florida, dated June 27, 1994.*
10.23+ License Agreement between Registrant and Syntex (U.S.A.) Inc., dated March 27, 1996.*
10.24+ License Agreement between Registrant and Bayer AG, dated May 7, 1996.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- --------- --------------------------------------------------------------------------------------------
10.25+ Lease Agreement between Registrant and Matadero Creek, dated August 6, 1993 and addendum
thereto; Letter Amendment to Lease Agreement, dated June 30, 1994 and Second Amendment to
Lease Agreement, dated June 30, 1994.
<C> <S> <C>
10.26 Amended and Restated Promissory Note for $37,500 between Registrant and Louis G. Lange,
M.D., Ph.D., effective as of September 23, 1996.
10.27 Amended and Restated Promissory Note for $25,000 between Registrant and Louis G. Lange,
M.D., Ph.D., effective as of September 23, 1996.
10.28 Amended and Restated Promissory Note for $25,000 between Registrant and Louis G. Lange,
M.D., Ph.D., effective as of September 23, 1996.
10.29 Amended and Restated Promissory Note between Registrant and Thomas L. Gutshall, effective as
of September 23, 1996.
10.30+ Master Lease Agreement between Registrant and Hambrecht & Quist Guaranty Finance, LLC, dated
September 27, 1996.
10.31+ Finance Agreement between Registrant and Hambrecht & Quist Guaranty Finance, LLC, dated
September 27, 1996.
10.32+ Business Loan Agreement between Registrant and Hambrecht & Quist Guaranty Finance, LLC,
dated September 27, 1996.
10.33+ Business Loan Agreement between Registrant and Hambrecht & Quist Transition Capital, LLC,
dated September 27, 1996.
10.34+ Promissory Note between Registrant and Hambrecht & Quist Guaranty Finance, LLC, dated
September 27, 1996.
10.35+ Promissory Note between Registrant and Hambrecht & Quist Transition Capital, LLC, dated
September 27, 1996.
10.36+ Security Agreement between Registrant and Hambrecht & Quist Guaranty Finance, LLC, dated
September 27, 1996.
10.37+ Security Agreement between Registrant and Hambrecht & Quist Transition Capital, LLC, dated
September 27, 1996.
10.38+ Form of Common Stock Warrant exercisable immediately, dated September 27, 1996.
10.39+ Form of Common Stock Warrant, dated September 27, 1996.
11.1 Statement re computation of net loss per share.
23.1 Consent of Ernst & Young LLP, Independent Auditors (see page II-7).
23.2+ Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1+ Power of Attorney.
27.1+ Financial Data Schedule.
</TABLE>
- ------------------------
+ Previously filed.
* Confidential treatment is being sought for portions of this exhibit.
<PAGE>
DRAFT OF OCTOBER 29, 1996
FORM OF UNDERWRITING AGREEMENT
CV THERAPEUTICS, INC.
2,875,000 Shares of Common Stock
Underwriting Agreement
, 1996
----------
J.P. Morgan Securities Inc.
Invemed Associates, Inc.
UBS Securities Inc.
As Representatives of several underwriters
listed in Schedule I hereto
c/o J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260
Ladies and Gentlemen:
CV Therapeutics, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell to the several Underwriters listed in Schedule I hereto (the
"Underwriters"), for whom you are acting as representatives(the
"Representatives") an aggregate of 2,500,000 shares of Common Stock, par value
$.001 per share, of the Company (the "Underwritten Shares") and, for the sole
purpose of covering over-allotments in connection with the sale of the
Underwritten Shares, at the option of the Underwriters, up to an additional
375,000 shares of Common Stock, of the Company (the "Option Shares"). The
Underwritten Shares and the Option Shares are herein referred to as the
"Shares". The shares of Common Stock of the Company to be outstanding after
giving effect to the sale of the Shares are herein referred to as the "Stock".
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Securities Act"), a registration
statement, including a prospectus, relating to the Shares. The registration
statement as amended at the time when it shall become effective including
information (if any) deemed to be part of the registration statement at the time
of effectiveness pursuant to Rule 430A under the Securities Act, is referred to
in this Agreement as the "Registration Statement", and the prospectus in the
form first used to confirm sales of Shares is referred to in this Agreement as
the "Prospectus". If the Company has filed an abbreviated registration
statement pursuant to Rule 462(b) under the Securities Act (the
<PAGE>
"Rule 462 Registration Statement"), then any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462 Registration
Statement.
The Company hereby agrees with the Underwriters as follows:
1. The Company agrees to issue and sell the Underwritten Shares to the
several Underwriters as hereinafter provided, and each Underwriter, upon the
basis of the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees to purchase, severally and not jointly,
from the Company the respective number of Underwritten Shares set forth opposite
such Underwriter's name in Schedule I hereto at a purchase price per share (the
"Purchase Price") of $ .
------------
In addition, the Company agrees to issue and sell the Option Shares to the
several Underwriters as hereinafter provided, and the Underwriters on the basis
of the representations and warranties herein contained, but subject to the
conditions hereinafter stated, shall have the option to purchase, severally and
not jointly, from the Company up to an aggregate of 375,000 Option Shares at the
Purchase Price, for the sole purpose of covering over-allotments (if any) in the
sale of Underwritten Shares by the several Underwriters.
If any Option Shares are to be purchased, the number of Option Shares to be
purchased by each Underwriter shall be the number of Option Shares which bears
the same ratio to the aggregate number of Option Shares being purchased as the
number of Underwritten Shares set forth opposite the name of such Underwriter in
Schedule I hereto (or such number increased as set forth in Section 9 hereof)
bears to the aggregate number of Underwritten Shares being purchased from the
Company by the several Underwriters, subject, however, to such adjustments to
eliminate any fractional Shares as the Representatives in their sole discretion
shall make.
The Underwriters may exercise the option to purchase the Option Shares at
any time (but not more than once) on or before the thirtieth day following the
date of this Agreement, by written notice from the Representatives to the
Company. Such notice shall set forth the aggregate number of Option Shares as
to which the option is being exercised and the date and time when the Option
Shares are to be delivered and paid for which may be the same date and time as
the Closing Date (as hereinafter defined), but shall not be earlier than the
Closing Date nor later than the tenth full Business Day (as hereinafter defined)
after the date of such notice (unless such time and date are postponed in
accordance with the provisions of Section 9 hereof). Any such notice shall be
given at least two Business Days prior to the date and time of delivery
specified therein.
2. The Company understands that the Underwriters intend (i) to make a
public offering of the Shares as soon after (A) the Registration Statement has
become effective and (B) the parties hereto have executed and delivered this
Agreement, as in the judgment of the Representatives is advisable and (ii)
initially to offer the Shares upon the terms set forth in the Prospectus.
-2-
<PAGE>
3. Payment for the Shares shall be made by wire transfer in immediately
available funds to the account specified by the Company to the Representatives,
no later than noon the Business Day (as defined below) prior to the Closing Date
(as defined below), in the case of the Underwritten Shares, on _______________,
1996, or at such other time on the same or such other date, not later than the
fourth Business Day after the date of this Agreement or thereafter, as the
Representatives and the Company may agree upon in writing or, in the case of the
Option Shares, on the date and time specified by the Representatives in the
written notice of the Underwriters' election to purchase such Option Shares.
The time and date of such payment for the Underwritten Shares is referred to
herein as the "Closing Date" and the time and date for such payment for the
Option Shares, if other than the Closing Date, are herein referred to as the
"Additional Closing Date". As used herein, the term "Business Day" means any
day other than a day on which banks are permitted or required to be closed in
New York City.
Payment for the Shares to be purchased on the Closing Date or the
Additional Closing Date, as the case may be, shall be made against delivery to
the Representatives for the respective accounts of the several Underwriters
(including, without limitation, by "full-fast" electronic transfer by Depository
Trust Company) of the Shares to be purchased on such date registered in such
names and in such denominations as the Representatives shall request in writing
not later than two full Business Days prior to the Closing Date or the
Additional Closing Date, as the case may be, with any transfer taxes payable in
connection with the transfer to the Underwriters of the Shares duly paid by the
Company. The certificates for the Shares will be made available for inspection
and packaging by the Representatives at the office of J.P. Morgan Securities
Inc. set forth above not later than 1:00 P.M., New York City time, on the
Business Day prior to the Closing Date or the Additional Closing Date, as the
case may be.
4. The Company represents and warrants to each Underwriter that:
(a) no order preventing or suspending the use of any preliminary
prospectus has been issued by the Commission, and the preliminary prospectus
filed as part of the Registration Statement complied, at the time the
Registration Statement was declared effective, in all material respects with the
Securities Act, and did not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in conformity
with information relating to any Underwriter furnished to the Company in writing
by such Underwriter through the Representatives expressly for use therein;
(b) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose has been instituted
or, to the knowledge of the Company, threatened by the Commission; and the
Registration Statement and Prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) comply, or will
comply, as the case may be, in all material respects with the Securities Act and
do not and will not, as of the applicable effective date as to the Registration
Statement and any amendment thereto and as of the date of the Prospectus and any
amendment or supplement thereto,
-3-
<PAGE>
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and the Prospectus, as amended or supplemented, if applicable,
at the Closing Date or Additional Closing Date, as the case may be, will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; except that the foregoing
representations and warranties shall not apply to statements or omissions in the
Registration Statement or the Prospectus made in reliance upon and in conformity
with information relating to any Underwriter furnished to the Company in writing
by such Underwriter through the Representatives expressly for use therein;
(c) the financial statements, and the related notes thereto, included
in the Registration Statement and the Prospectus present fairly the consolidated
financial position of the Company as of the dates indicated and the results of
its operations and changes in its consolidated cash flows for the periods
specified; and said financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis, and the
supporting schedules included in the Registration Statement present fairly the
information required to be stated therein;
(d) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, with the exception of option
grants made to employees of or consultants to the Company, there has not been
any change in the capital stock or long-term debt of the Company, or any
material adverse change, in or affecting the general affairs, business,
prospects, management, financial position, stockholders' equity or results of
operations of the Company, otherwise than as set forth or contemplated in the
Prospectus; and except as set forth or contemplated in the Prospectus the
Company has not entered into any transaction or agreement (whether or not in the
ordinary course of business) material to the Company;
(e) the Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of its jurisdiction of
incorporation, with power and corporate authority to own its properties and
conduct its business as described in the Prospectus, and has been duly qualified
as a foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases properties,
or conducts any business, so as to require such qualification, other than where
the failure to be so qualified or in good standing would not have a material
adverse effect on the Company;
(f) the Company does not own or control, directly or indirectly, any
interest in any other corporation, association, or other business entity;
(g) this Agreement has been duly authorized, executed and delivered
by the Company;
(h) the Company has an authorized capitalization as set forth in the
Prospectus and such authorized capital stock conforms as to legal matters to the
description thereof set forth in the Prospectus, and all of the outstanding
shares of capital stock of the Company have been duly
-4-
<PAGE>
authorized and validly issued, are fully-paid and non-assessable and are not
subject to any pre-emptive or similar rights; and, except as described in or
expressly contemplated by the Prospectus, there are no outstanding rights
(including, without limitation, pre-emptive rights), warrants or options to
acquire, or instruments convertible into or exchangeable for, any shares of
capital stock or other equity interest in the Company or any of its
subsidiaries, or any contract, commitment, agreement, understanding or
arrangement of any kind relating to the issuance of any capital stock of the
Company or any such subsidiary, any such convertible or exchangeable securities
or any such rights, warrants or options;
(i) the Shares to be issued and sold by the Company hereunder have
been duly authorized, and, when issued and delivered to and paid for by the
Underwriters in accordance with the terms of this Agreement, will be duly issued
and will be fully paid and non-assessable and will conform to the descriptions
thereof in the Prospectus; and the issuance of the Shares is not subject to any
preemptive or similar rights;
(j) the Company is not, nor with the giving of notice or lapse of
time or both would be, in violation of or in default under, its Certificate of
Incorporation or By-Laws or any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company is a party or by
which it or any of its properties is bound, except for violations and defaults
which individually and in the aggregate are not material to the Company; the
issue and sale of the Shares and the performance by the Company of its
obligations under this Agreement and the consummation of the transactions
contemplated herein will not conflict with or result in a breach of any of the
terms or provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument which is material
to the Company to which the Company is a party or by which the Company or any of
its subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will any such action result
in any violation of the provisions of the Certificate of Incorporation or the
By-Laws of the Company or any applicable law or statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction over
the Company, its subsidiaries or any of their respective properties; and no
consent, approval, authorization, order, license, registration or qualification
of or with any such court or governmental agency or body is required for the
issue and sale of the Shares or the consummation by the Company of the
transactions contemplated by this Agreement, except such consents, approvals,
authorizations, orders, licenses, registrations or qualifications as have been
obtained under the Securities Act and as may be required by the National
Association of Securities Dealers, Inc. (the "NASD"), under state securities or
Blue Sky Laws in connection with the purchase and distribution of the Shares by
the Underwriters;
(k) other than as set forth or contemplated in the Prospectus, there
are no legal or governmental investigations, actions, suits or proceedings
pending or, to the knowledge of the Company, threatened against or affecting the
Company or any of its properties or to which the Company is or may be a party or
to which any property of the Company is or may be the subject which, if
determined adversely to the Company, could individually or in the aggregate
have, or reasonably be expected to have, a material adverse effect on the
general affairs, business, prospects, management, financial position,
stockholders' equity or results of operations of the Company, and, to
-5-
<PAGE>
the best of the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others; and there are
no statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or Prospectus or to be filed as exhibits
to the Registration Statement that are not described or filed as required;
(l) the Company owns no real property, has good and marketable title
to all personal property owned by it, in each case free and clear of all liens,
encumbrances and defects except such as are described or referred to in the
Prospectus or such as do not materially affect the value of such property and do
not interfere with the use made or proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings held under
lease by the Company and its subsidiaries are held by them under valid, existing
and enforceable leases with such exceptions as are not material and do not
interfere with the use made or proposed to be made of such property and
buildings by the Company or its subsidiaries;
(m) The Company owns or possesses adequate licenses or other rights
to use all patents, copyrights, trademarks, service marks, trade names,
technology and know-how (collectively, the "Intellectual Property") necessary
(in any material respect) to conduct its business in the manner described in the
Prospectus or otherwise not material, the Company is not obligated to pay a
royalty, grant a license, or provide other consideration to any third party in
connection with its patents, copyrights, trademarks, service marks, trade names,
or technology other than as disclosed in the Prospectus, and, except as
disclosed in the Prospectus, the Company and its subsidiaries have not received
any notice of infringement or conflict with (and the Company knows of no
infringement or conflict with) asserted rights of others with respect to the
Intellectual Property which could reasonably be expected to result in any
material adverse effect upon the Company or its subsidiaries and, except as
disclosed in the Prospectus, the discoveries, inventions, products or processes
of the Company referred to in the Prospectus do not, to the best knowledge of
the Company, infringe or conflict with any right or patent of any third party,
or any discovery, invention, product or process which is the subject of a patent
application filed by any third party, known to the Company which could have a
material adverse effect on the Company or its subsidiaries. Other than Syntex,
the University of Florida Research Foundation, Inc. and Bayer AG, to the extent
described in the Prospectus under the caption "Business -- Licenses and
Collaborations," no third party including any academic or governmental
organization, possesses rights to the Intellectual Property which, if exercised,
could enable such third party to develop products competitive to those of the
Company or could have a material adverse effect on the ability of the Company to
conduct its business in the manner described in the Prospectus.
(n) no relationship, direct or indirect, exists between or among the
Company on the one hand, and the directors, officers, stockholders, customers or
suppliers of the Company on the other hand, which is required by the Securities
Act to be described in the Registration Statement and the Prospectus which is
not so described;
(o) no person has the right to require the Company to register any
securities for offering and sale under the Securities Act by reason of the
filing of the Registration Statement with the Commission or the issue and sale
of the Shares;
-6-
<PAGE>
(p) the Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company" or entity "controlled"
by an "investment company", as such terms are defined in the Investment Company
Act of 1940, as amended (the "Investment Company Act");
(q) the Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida) relating to doing business
with the Government of Cuba or with any person or affiliate located in Cuba;
(r) Ernst & Young LLP, who have certified certain financial
statements of the Company, are independent public accountants as required by the
Securities Act;
(s) the Company has filed all federal, state, local and foreign tax
returns which have been required to be filed and have paid all taxes shown
thereon and all assessments received by it to the extent that such taxes have
become due and are not being contested in good faith; and, except as disclosed
in the Registration Statement and the Prospectus, there is no tax deficiency
which has been or might reasonably be expected to be asserted or threatened
against the Company;
(t) the Company has not taken nor will it take, directly or
indirectly, any action designed to, or that might be reasonably expected to,
cause or result in stabilization or manipulation of the price of the Common
Stock;
(u) the Company owns, possesses or has obtained all licenses,
permits, certificates, consents, orders, approvals and other authorizations
from, and has made all declarations and filings with, all federal, state, local
and other governmental authorities (including foreign regulatory agencies), all
self-regulatory organizations and all courts and other tribunals, domestic or
foreign, necessary to own or lease, as the case may be, and to operate its
properties and to carry on its business as conducted as of the date hereof, and
the Company not has received any actual notice of any proceeding relating to
revocation or modification of any such license, permit, certificate, consent,
order, approval or other authorization, except as described in the Registration
Statement and the Prospectus; and the Company is in compliance with all laws and
regulations relating to the conduct of its business as conducted as of the date
hereof; the Company is not in violation of any foreign, state or local law,
order, rule, regulation, writ, injunction or decree of any court or governmental
agency or body, including, but not limited to, the United States Food and Drug
Administration (the "FDA"); all of the descriptions in the Registration
Statement and Prospectus of the legal and governmental proceedings by or before
the FDA or any foreign, state or local government body exercising comparable
authority are true, complete and accurate in all material respects;
(v) the human clinical trials conducted by the Company or in which
the Company has participated that are described in the Registration Statement
and Prospectus, or the results of which are referred to in the Registration
Statement and Prospectus, and, to the best of the Company's knowledge, such
studies and tests conducted on behalf of the Company, were and, if still
pending, are being, conducted in accordance with experimental protocols,
procedures and controls pursuant to accepted professional scientific standards;
the descriptions of the results of such studies, tests and
-7-
<PAGE>
trials contained in the Registration Statement and Prospectus are accurate and
complete in all material respects; and the Company has not received any notices
or correspondence from the FDA or any other governmental agency requiring the
termination, suspension or modification of any clinical trials conducted by, or
on behalf of, the Company or in which the Company has participated that are
described in the Registration Statement and Prospectus or the results of which
are referred to in the Registration Statement and Prospectus;
(w) there are no existing or, to the best knowledge of the Company,
threatened labor disputes with the employees of the Company which are likely to
have a material adverse effect on the Company;
(x) the Company (i) is in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"),
(ii) has received all permits, licenses or other approvals required of them
under applicable Environmental Laws to conduct their respective businesses and
(iii) is in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a material adverse effect on the Company;
(y) in the ordinary course of its business, the Company conducts a
periodic review of the effect of Environmental Laws on the business, operations
and properties of the Company, in the course of which it identifies and
evaluates associated costs and liabilities (including, without limitation, any
capital or operating expenditures required for clean-up, closure of properties
or compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties). On the basis of such review, the Company has reasonably
concluded that such associated costs and liabilities would not, singly or in the
aggregate, have a material adverse effect on the Company; and
(z) each employee benefit plan, within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended, ("ERISA") that
is maintained, administered or contributed to by the Company or any of its
affiliates for employees or former employees of the Company and its affiliates
has been maintained in compliance with its terms and the requirements of any
applicable statutes, orders, rules and regulations, including but not limited to
ERISA and the Internal Revenue Code of 1986, as amended, ("Code"). No
prohibited transaction, within the meaning of Section 406 of ERISA or Section
4975 of the Code has occurred with respect to any such plan excluding
transactions effected pursuant to a statutory or administrative exemption. For
each such plan which is subject to the funding rules of Section 412 of the Code
or Section 302 of ERISA no "accumulated funding deficiency" as defined in
Section 412 of the Code has been incurred, whether or not waived, and the fair
market value of the assets of each such plan (excluding for these purposes
accrued but unpaid contributions) exceeded the present value of all benefits
accrued under such plan determined using reasonable actuarial assumptions.
-8-
<PAGE>
5. The Company covenants and agrees with each of the several Underwriters
as follows:
(a) to use its best efforts to cause the Registration Statement to
become effective at the earliest possible time and, if required, to file the
final Prospectus with the Commission within the time periods specified by Rule
424(b) and Rule 430A under the Securities Act and to furnish copies of the
Prospectus to the Underwriters in New York City prior to 10:00 a.m., New York
City time, on the Business Day next succeeding the date of this Agreement in
such quantities as the Representatives may reasonably request;
(b) to deliver, at the expense of the Company, to the Representatives
four (4) signed copies of the Registration Statement (as originally filed) and
each amendment thereto, in each case including exhibits, and, upon request, to
each other Underwriter a conformed copy of the Registration Statement (as
originally filed) and each amendment thereto, in each case without exhibits and,
during the period mentioned in paragraph (e) below, to each of the Underwriters
as many copies of the Prospectus (including all amendments and supplements
thereto) as the Representatives may reasonably request;
(c) before filing any amendment or supplement to the Registration
Statement or the Prospectus, whether before or after the time the Registration
Statement becomes effective, to furnish to the Representatives a copy of the
proposed amendment or supplement for review and not to file any such proposed
amendment or supplement to which the Representatives reasonably object;
(d) to advise the Representatives promptly, and to confirm such
advice in writing (i) when the Registration Statement has become effective, (ii)
when any amendment to the Registration Statement has been filed or becomes
effective, (iii) when any supplement to the Prospectus or any amended Prospectus
has been filed and to furnish the Representatives with copies thereof, (iv) of
any request by the Commission for any amendment to the Registration Statement or
any amendment or supplement to the Prospectus or for any additional information,
(v) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus or the Prospectus or the
initiation or threatening of any proceeding for that purpose, (vi) of the
occurrence of any event, within the period referenced in paragraph (e) below, as
a result of which the Prospectus as then amended or supplemented would include
an untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
and (vii) of the receipt by the Company of any notification with respect to any
suspension of the qualification of the Shares for offer and sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; and to use its best efforts to prevent the issuance of any such stop
order, or of any order preventing or suspending the use of any preliminary
prospectus or the Prospectus, or of any order suspending any such qualification
of the shares, or notification of any such order thereof and, if issued, to
obtain as soon as possible the withdrawal thereof;
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<PAGE>
(e) if, during such period of time after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters a
prospectus relating to the Shares is required by law to be delivered in
connection with sales by the Underwriters or any dealer, any event shall occur
as a result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if it is necessary to
amend or supplement the Prospectus to comply with law, forthwith to prepare and
furnish, at the expense of the Company, to the Underwriters and to the dealers
(whose names and addresses the Representatives will furnish to the Company) to
which Shares may have been sold by the Representatives on behalf of the
Underwriters and to any other dealers upon request, such amendments or
supplements to the Prospectus as may be necessary so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be misleading or
so that the Prospectus will comply with law;
(f) to endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as the Representatives shall
reasonably request and to continue such qualification in effect so long as
reasonably required for distribution of the Shares; PROVIDED that the Company
shall not be required to file a general consent to service of process in any
jurisdiction;
(g) to make generally available to its security holders and to the
Representatives as soon as practicable an earnings statement covering a period
of at least twelve months beginning with the first fiscal quarter of the Company
occurring after the effective date of the Registration Statement, which shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 of
the Commission promulgated thereunder;
(h) so long as the Shares are outstanding, to furnish to the
Representatives copies of all reports or other communications (financial or
other) furnished to holders of the Shares, and copies of any reports and
financial statements furnished to or filed with the Commission or any national
securities exchange;
(i) for a period of 180 days after the date of the initial public
offering of the Shares not to (i) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase or otherwise transfer or dispose
of, directly or indirectly, any shares of Stock or any securities convertible
into or exercisable or exchangeable for Stock or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the Stock, whether any such transaction described
in clause (i) or (ii) above is to be settled by delivery of Stock or such other
securities, in cash or otherwise without the prior written consent of J.P.
Morgan, other than the Shares to be sold hereunder and any shares of Stock of
the Company issued upon the exercise of options or warrants outstanding as of
the date hereof and additional options granted under the Company's 1994 Equity
Incentive Plan, as amended, 1992 Stock Option Plan, as amended or Non-Employee
Directors' Stock Option Plan, and any shares of Stock issued under the Employee
Stock Purchase Plan;
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<PAGE>
(j) to use the net proceeds received by the Company from the sale of
the Shares pursuant to this Agreement in the manner specified in the Prospectus
under the caption "Use of Proceeds";
(k) to use its best efforts to list for quotation the Shares on the
National Association of Securities Dealers Automated Quotations National Market
(the "Nasdaq National Market");
(l) to file with the Commission such reports on Form SR as may be
required by Rule 463 under the Securities Act;
(m) whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be paid all
costs and expenses incident to the performance of its obligations hereunder,
including without limiting the generality of the foregoing, all costs and
expenses (i) incident to the preparation, issuance, execution and delivery of
the Shares, (ii) incident to the preparation, printing and filing under the
Securities Act of the Registration Statement, the Prospectus and any preliminary
prospectus (including in each case all exhibits, amendments and supplements
thereto), (iii) incurred in connection with the registration or qualification of
the Shares under the laws of such jurisdictions as the Representatives may
designate (including fees of counsel for the Underwriters and its
disbursements), (iv) in connection with the listing of the Shares on the Nasdaq
National Market, (v) related to the filing with, and clearance of the offering
by, the National Association of Securities Dealers, Inc., (vi) in connection
with the printing (including word processing and duplication costs) and delivery
of this Agreement, the Preliminary and Supplemental Blue Sky Memoranda and the
furnishing to the Underwriters and dealers of copies of the Registration
Statement and the Prospectus, including mailing and shipping, as herein
provided, (vii) any expenses incurred by the Company in connection with a "road
show" presentation to potential investors, (viii) the cost of preparing stock
certificates and (ix) the cost and charges of any transfer agent and any
registrar.
6. The several obligations of the Underwriters hereunder to purchase the
Shares on the Closing Date or the Additional Closing Date, as the case may be,
are subject to the performance by the Company of its obligations hereunder and
to the following additional conditions:
(a) the Registration Statement shall have become effective (or if a
post-effective amendment is required to be filed under the Securities Act, such
post-effective amendment shall have become effective) not later than 5:00 P.M.,
New York City time, on the date hereof; and no stop order suspending the
effectiveness of the Registration Statement or any post-effective amendment
shall be in effect, and no proceedings for such purpose shall be pending before
or threatened by the Commission; the Prospectus shall have been filed with the
Commission pursuant to Rule 424(b) within the applicable time period prescribed
for such filing by the rules and regulations under the Securities Act and in
accordance with Section 5(a) hereof; and all requests for additional information
shall have been complied with to the satisfaction of the Representatives;
-11-
<PAGE>
(b) the representations and warranties of the Company contained
herein are true and correct on and as of the Closing Date or the Additional
Closing Date, as the case may be, as if made on and as of the Closing Date or
the Additional Closing Date, as the case may be, and the Company shall have
complied with all agreements and all conditions on its part to be performed or
satisfied hereunder at or prior to the Closing Date or the Additional Closing
Date, as the case may be;
(c) since the respective dates as of which information is given in
the Prospectus, with the exception of option grants to employees of or
consultants to the Company, there shall not have been any change in the capital
stock or long-term debt of the Company or any material adverse change in or
affecting the general affairs, business, prospects, management, financial
position, stockholders' equity or results of operations of the Company,
otherwise than as set forth or contemplated in the Prospectus, the effect of
which in the judgment of the Representatives makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the Shares on
the Closing Date or the Additional Closing Date, as the case may be, on the
terms and in the manner contemplated in the Prospectus; and the Company has not
sustained since the date of the latest audited financial statements included in
the Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus;
(d) the Representatives shall have received on and as of the Closing
Date or the Additional Closing Date, as the case may be, a certificate of an
executive officer of the Company, with specific knowledge about the Company's
financial matters, satisfactory to the Representatives to the effect set forth
in subsections (a) and (b) (with respect to the respective representations,
warranties, agreements and conditions of the Company) of this Section and to the
further effect that there has not occurred any material adverse change in or
affecting the general affairs, business, prospects, management, financial
position, stockholders' equity or results of operations of the Company and its
subsidiaries taken as a whole from that set forth or contemplated in the
Prospectus, as amended or supplemented if applicable;
(e) Cooley Godward LLP, counsel for the Company, shall have furnished
to the Representatives their written opinion, dated the Closing Date or the
Additional Closing Date, as the case may be, in form and substance satisfactory
to the Representatives, to the effect that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its jurisdiction of
incorporation, corporate with power and authority to own its properties and
conduct its business as described in the Prospectus;
(ii) the Company has been duly qualified as a foreign
corporation for the transaction of business and to the best of such counsel's
knowledge is in good standing under the laws of each other jurisdiction in which
it owns or leases properties, or conducts any business, so as to require such
qualification, other than where the failure to be so qualified or in good
standing would not have a material adverse effect on the Company taken as a
whole;
-12-
<PAGE>
(iii) to the best of such counsel's knowledge, there are no
legal or governmental investigations, actions, suits or proceedings pending or,
to the best of such counsel's knowledge, threatened against or affecting the
Company or any of its properties; and such counsel does not know of any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or Prospectus or to be filed as exhibits
to the Registration Statement that are not described or filed as required;
(iv) this Agreement has been duly authorized, executed and
delivered by the Company;
(v) the authorized capital stock of the Company conforms
as to legal matters to the description thereof contained in the Prospectus;
(vi) the shares of capital stock of the Company
outstanding prior to the issuance of the Shares have been duly authorized and
are validly issued, fully paid and non-assessable;
(vii) the Shares have been duly authorized, and when
delivered to and paid for the Underwriters in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable and the
issuance of the Shares is not subject to any preemptive or to the best of such
counsel's knowledge similar rights;
(viii) the statements in the Prospectus under "Business --
Licenses and Collaborations," "Certain Transactions," "Shares Eligible for
Future Sale," "Description of Capital Stock," and in the Registration Statement
in Items 14 and 15, insofar as such statements constitute a summary of the terms
of the Stock, legal matters, documents or proceedings referred to therein,
fairly present the information required to be presented under the Securities
Act & Rules with respect to such terms, legal matters, documents or proceedings;
(ix) such counsel is of the opinion that the Registration
Statement and the Prospectus and any amendments and supplements thereto (other
than the financial statements and related schedules and financial and
statistical data derived therefrom and included therein, as to which such
counsel need express no opinion) comply as to form in all material respects with
the requirements of the Securities Act and Rules; such counsel believes that
(other than the financial statements and related schedules and financial and
statistical data derived therefrom and included therein, as to which such
counsel need express no belief) the Registration Statement and the prospectus
included therein at the time the Registration Statement became effective did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and that the Prospectus, as amended or supplemented, if applicable,
does not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
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<PAGE>
(x) The Company is not, nor, or with the giving of notice
or lapse of time or both would be, in violation of or in default under, its
Certificate of Incorporation or By-Laws or, to the best knowledge of such
counsel, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to which the Company is a party or by which it or
any of its properties is bound, except for violations and defaults which
individually and in the aggregate are not material to the Company; the issue and
sale of the Shares being delivered on the Closing Date or the Additional Closing
Date, as the case may be; the performance by the Company of its obligations
under this Agreement and the consummation of the transactions contemplated
herein will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, the Certificate of Incorporation
or the By-Laws of the Company or any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument known to such counsel to which the
Company is a party or by which the Company is bound or to which any of the
property or assets of the Company is subject, nor will any such action result in
any violation of the provisions of or any applicable law or statute or any
order, rule or regulation of any court or governmental agency so far as is known
to such counsel or body having jurisdiction over the Company or any of its
properties; other than as may be required under state securities or Blue Sky
laws in connection with the purchase and distribution of the Shares by the
Underwriters as to which such counsel need express no opinion;
(xi) no consent, approval, authorization, order, license,
registration or qualification of or with any court or governmental agency or
body is required for the issue and sale of the Shares or the consummation of the
other transactions contemplated by this Agreement, except such consents,
approvals, authorizations, orders, licenses, registrations or qualifications as
have been obtained under the Securities Act and; as may be required under state
securities or Blue Sky laws in connection with the purchase and distribution of
the Shares by the Underwriters as to which such counsel need express no opinion;
(xii) the Company is not and, after giving effect to the
offering and sale of the Shares, will not be an "investment company", as such
terms are defined in the Investment Company Act;
In rendering such opinions, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
the States of California and Delaware, to the extent such counsel deems proper
and to the extent specified in such opinion, if at all, upon an opinion or
opinions (in form and substance reasonably satisfactory to Underwriters'
counsel) of other counsel reasonably acceptable to the Underwriters' counsel,
familiar with the applicable laws; (B) as to matters of fact, to the extent such
counsel deems proper, on certificates of responsible officers of the Company and
certificates or other written statements of officials of jurisdictions having
custody of documents respecting the corporate existence or good standing of the
Company. The opinion of such counsel for the Company shall state that the
opinion of any such other counsel upon which they relied is in form satisfactory
to such counsel and, in such counsel's opinion, the Underwriters and they are
justified in relying thereon. With respect to the matters to be covered in
subparagraph (x) above counsel may state their opinion and belief is based upon
their participation in the preparation of the Registration Statement and the
Prospectus and any amendment or supplement thereto and review and discussion of
the contents thereof but is without independent check or verification except as
specified.
-14-
<PAGE>
The opinion of Cooley Godward LLP described above and the opinions of
Saliwanchik & Saliwanchik, Heller Ehrman White & McAuliffe and McDonnell,
Boehnen, Hulbert & Berghoff, Ltd. described below each shall be rendered to the
Underwriters at the request of the Company and shall so state therein;
(f) Saliwanchik & Saliwanchik, special intellectual property counsel
for the Company, shall have furnished to the Representatives their written
opinion, dated the Closing Date or the Additional Closing Date, as the case may
be, in form and substance satisfactory to the Representatives, to the effect
that:
(i) such counsel represents the University of Florida in
certain matters relating to intellectual property, including patents, trade
secrets and certain trademark matters, related the CVT-124;
(ii) such counsel is familiar with CVT-124 as used by the
Company in its business and the manner of its use and has read the portions of
the Registration Statement and the Prospectus entitled "Risk Factors --
Intellectual Property" and "Business -- Intellectual Property" (collectively,
the "Intellectual Property Portion");
(iii) the Intellectual Property Portion contains accurate
descriptions of the patent applications filed in the United States and outside
the United States related to CVT-124 (the "CVT-124 Applications") and issued and
allowed patents related to CVT-124 (the "CVT-124 Patents") licensed to the
Company by the University of Florida, each of which CVT-124 Applications and
CVT-124 Patents shall be listed on exhibits to such opinion, and fairly
summarizes the legal matters, documents and proceedings relating thereto;
(iv) based upon a review of the third party rights made known
to counsel and discussions with scientific personnel of the Company and the
University of Florida, such counsel is not aware of any valid United States or
foreign patent, that is or would be infringed by the activities of the Company
in the manufacture, use or sale of any presently proposed product, the
technologies employed by the Company or the method of their use in any presently
proposed product, each as described in the Prospectus and solely as the
foregoing relates to CVT-124;
(v) such counsel has reviewed the CVT-124 Applications, which
CVT-124 Applications are described in the Intellectual Property Portion, and in
the opinion of such counsel the CVT-124 Applications have been properly prepared
and filed, and are being diligently pursued by the University of Florida, and
the inventions described in the CVT-124 Applications are licensed to the
Company;
(vi) to such counsel's knowledge, no entity or individual other
than the Company and the University of Florida has any right or claim in any of
the inventions, the CVT-124 Patents, the CVT-124 Applications, or any patent to
be issued therefrom, and in such counsel's opinion each of the CVT-124
Applications discloses patentable subject matter;
-15-
<PAGE>
(vii) such counsel is aware of no pending or threatened claim,
suit, judicial or governmental proceedings relating to the CVT-124 Patents or
the CVT-124 Applications or the subject matter therein, based upon review of the
CVT-124 Patents and the CVT-124 Applications, such counsel is not aware of any
rights of third parties to any of the inventions described in the CVT-124
Patents or the CVT-124 Applications which could reasonably be expected to
materially affect the ability of the Company to conduct its business as
described in the Prospectus, including the commercialization of its products
currently under development; and
(viii) such counsel has no reason to believe that the information
contained in the Intellectual Property Portion of the Registration Statement or
the Prospectus, solely as the foregoing relates to the CVT-124 Patents and CVT-
124 Applications, at the time it became effective contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading or
that, at the Closing Date, the information contained in the Intellectual
Property Portion of the Prospectus or any amendment or supplement to the
Intellectual Property Portion of the Prospectus, solely as the foregoing relates
to the CVT-124 Patents and CVT-124 Applications, contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading;
(g) Heller Ehrman White & McAuliffe, intellectual property counsel to
Syntex, on behalf of the Company, shall have furnished to the Representatives
their written opinion, dated the Closing Date or the Additional Closing Date, as
the case may be, in form and substance satisfactory to the Representatives, to
the effect that:
(i) such counsel represents Syntex in certain matters relating
to intellectual property, including patents, trade secrets and certain trademark
matters, related to Ranolazine;
(ii) such counsel is familiar with Ranolazine use and has read
the portions of the Registration Statement and the Prospectus entitled "Risk
Factors -- Intellectual Property" and "Business -- Intellectual Property"
(collectively, the "Intellectual Property Portion");
(iii) the Intellectual Property Portion contains accurate
descriptions of the patent applications filed in the United States and outside
the United States related to Ranolazine (the "Ranolazine Applications") and
issued and allowed patents related to Ranolazine (the "Ranolazine Patents")
licensed to the Company by Syntex, each of which Ranolazine Applications and
Ranolazine Patents shall be listed on exhibits to such opinion, and fairly
summarizes the legal matters, documents and proceedings relating thereto;
(iv) such counsel has reviewed the Ranolazine Applications,
which Ranolazine Applications are described in the Intellectual Property
Portion, and in the opinion of such counsel the Ranolazine Applications have
been properly prepared and filed, and are being diligently pursued by Syntex,
and the inventions described in the Ranolazine Applications are licensed to the
Company;
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<PAGE>
(v) to such counsel's knowledge, no entity or individual other
than the Company and Syntex has any right or claim in any of the inventions, the
Ranolazine Patents, the Ranolazine Applications, or any patent to be issued
therefrom, and in such counsel's opinion each of the Ranolazine Applications
discloses patentable subject matter;
(vi) such counsel is aware of no pending or threatened claim,
suit, judicial or governmental proceedings relating to the Ranolazine Patents or
the Ranolazine Applications or the subject matter therein, based upon review of
the Ranolazine Patents and the Ranolazine Applications, such counsel is not
aware of any rights of third parties to any of the inventions described in the
Ranolazine Patents or the Ranolazine Applications; and
(vii) such counsel has no reason to believe that the information
contained in the Intellectual Property Portion of the Registration Statement or
the Prospectus, solely as the foregoing relates to the Ranolazine Patents and
the Ranolazine Applications, at the time it became effective contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading or that, at the Closing Date, the information contained in the
Intellectual Property Portion of the Prospectus or any amendment or supplement
to the Intellectual Property Portion of the Prospectus, solely as the foregoing
relates to the Ranolazine Patents and the Ranolazine Applications, contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; and
(h) McDonnell, Boehnen, Hulbert & Berghoff, Ltd., intellectual
property counsel for the Company, shall have furnished to the Representatives
their written opinion, dated the Closing Date or the Additional Closing Date, as
the case may be, in form and substance satisfactory to the Representatives, to
the effect that:
(i) such counsel represents the Company in certain matters
relating to intellectual property, including patents, trade secrets and certain
trademark matters, related to the Company's products under development as
described in the Prospectus, other than CVT-124 and Ranolazine;
(ii) such counsel is familiar with the foregoing technology and
products as used by the Company in its business and the manner of its use and
has read the portions of the Registration Statement and the Prospectus entitled
"Risk Factors -- Intellectual Property" and "Business -- Intellectual Property"
(collectively, the "Intellectual Property Portion");
(iii) the Intellectual Property Portion contains accurate
descriptions of the patent applications filed in the United States and outside
the United States related to the foregoing technology and products (the "Company
Applications") and issued and allowed patents related to the foregoing
technology and products (the "Company Patents") and patents licensed to the
Company, each of which Company Applications and Company Patents shall be listed
on exhibits to such opinion, and fairly summarizes the legal matters, documents
and proceedings relating thereto;
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<PAGE>
(iv) based upon a review of the third party rights made known
to counsel and discussions with scientific personnel of the Company, such
counsel is not aware of any valid United States or foreign patent, that is or
would be infringed by the activities of the Company in the manufacture, use or
sale of any presently proposed product, the technologies employed by the Company
or the method of their use in any presently proposed product, each as described
in the Prospectus and as such are related to the foregoing technology and
products;
(v) such counsel has reviewed the Company Applications, which
Company Applications are described in the Intellectual Property Portion, and in
the opinion of such counsel the Company Applications have been properly prepared
and filed, and are being diligently pursued by the Company, and the inventions
described in the Company Applications are owned by, assigned or licensed to the
Company;
(vi) to such counsel's knowledge, no other entity or individual
has any right or claim in any of the inventions, the Company Patents, the
Company Applications, or any patent to be issued therefrom, and in such
counsel's opinion each of the Company Applications discloses patentable subject
matter;
(vii) such counsel is aware of no pending or threatened claim,
suit, judicial or governmental proceedings relating to the Company Patents or
the Company Applications or the subject matter therein, based upon review of the
Company Patents and the Company Applications, such counsel is not aware of any
rights of third parties to any of the inventions described in the Company
Patents or the Company Applications which could reasonably be expected to
materially affect the ability of the Company to conduct its business as
described in the Prospectus, including the commercialization of its products
currently under development; and
(viii) such counsel has no reason to believe that the information
contained in the Intellectual Property Portion of the Registration Statement or
the Prospectus at the time it became effective contained any untrue statement of
a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or that, at
the Closing Date, the information contained in the Intellectual Property Portion
of the Prospectus or any amendment or supplement to the Intellectual Property
Portion of the Prospectus contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(i) on the effective date of the Registration Statement and the
effective date of the most recently filed post-effective amendment to the
Registration Statement and also on the Closing Date or Additional Closing Date,
as the case may be, Ernst & Young LLP shall have furnished to you letters, dated
the respective dates of delivery thereof, in form and substance satisfactory to
you, containing statements and information of the type customarily included in
accountants' "comfort letters" to underwriters with respect to the financial
statements and certain financial information contained in the Registration
Statement and the Prospectus;
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<PAGE>
(j) the Representatives shall have received on and as of the Closing
Date or Additional Closing Date, as the case may be, an opinion of Wilson
Sonsini Goodrich & Rosati, Professional Corporation, counsel to the
Underwriters, with respect to the due authorization and valid issuance of the
Shares, the Registration Statement, the Prospectus and other related matters as
the Representatives may reasonably request, and such counsel shall have received
such papers and information as they may reasonably request to enable them to
pass upon such matters;
(k) the Shares to be delivered on the Closing Date or Additional
Closing Date, as the case may be, shall have been approved for listing on the
Nasdaq National Market;
(l) on or prior to the Closing Date or Additional Closing Date, as
the case may be, the Company shall have furnished to the Representatives such
further certificates and documents as the Representatives shall reasonably
request; and
(m) the "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain stockholders, officers and directors
of the Company relating to sales and certain other dispositions of shares of
Stock or certain other securities, delivered to you on or before the date
hereof, shall be in full force and effect on the Closing Date or Additional
Closing Date, as the case may be.
7. The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages and liabilities (including, without
limitation, the legal fees and other expenses incurred in connection with any
suit, action or proceeding or any claim asserted) caused by any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) or any preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through the Representatives expressly for use therein.
Each Underwriter agrees, severally and not jointly, to indemnify and hold
harmless the Company, its directors, its officers who sign the Registration
Statement and each person who controls the Company within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act to the same extent
as the foregoing indemnity from the Company to each Underwriter, but only with
reference to information relating to such Underwriter furnished to the Company
in writing by such Underwriter through the Representatives expressly for use in
the Registration Statement, the Prospectus, any amendment or supplement thereto,
or any preliminary prospectus.
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<PAGE>
If any suit, action, proceeding (including any governmental or regulatory
investigation), claim or demand shall be brought or asserted against any person
in respect of which indemnity may be sought pursuant to either of the two
preceding paragraphs, such person (the "Indemnified Person") shall promptly
notify the person against whom such indemnity may be sought (the "Indemnifying
Person") in writing, and the Indemnifying Person, upon request of the
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may designate in such proceeding and shall pay the fees and
expenses of such counsel related to such proceeding. In any such proceeding,
any Indemnified Person shall have the right to retain its own counsel, but the
fees and expenses of such counsel shall be at the expense of such Indemnified
Person unless (i) the Indemnifying Person and the Indemnified Person shall have
mutually agreed to the contrary, (ii) the Indemnifying Person has failed within
a reasonable time to retain counsel reasonably satisfactory to the Indemnified
Person or (iii) the named parties in any such proceeding (including any
impleaded parties) include both the Indemnifying Person and the Indemnified
Person and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It
is understood that the Indemnifying Person shall not, in connection with any
proceeding or related proceeding in the same jurisdiction, be liable for the
fees and expenses of more than one separate firm (in addition to any local
counsel) for all Indemnified Persons, and that all such fees and expenses shall
be reimbursed as they are incurred. Any such separate firm for the Underwriters
and such control persons of Underwriters shall be designated in writing by J.P.
Morgan Securities Inc. and any such separate firm for the Company, its
directors, its officers who sign the Registration Statement and such control
persons of the Company shall be designated in writing by the Company. The
Indemnifying Person shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the Indemnifying Person agrees to
indemnify any Indemnified Person from and against any loss or liability by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an Indemnified Person shall have requested an Indemnifying Person
to reimburse the Indemnified Person for fees and expenses of counsel as
contemplated by the second and third sentences of this paragraph, the
Indemnifying Person agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such Indemnifying Person of the
aforesaid request and (ii) such Indemnifying Person shall not have reimbursed
the Indemnified Person in accordance with such request prior to the date of such
settlement. No Indemnifying Person shall, without the prior written consent of
the Indemnified Person, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Person is or could have been a
party and indemnity could have been sought hereunder by such Indemnified Person,
unless such settlement includes an unconditional release of such Indemnified
Person from all liability on claims that are the subject matter of such
proceeding.
If the indemnification provided for in the first and second paragraphs of
this Section 7 is unavailable to an Indemnified Person in respect of any losses,
claims, damages or liabilities referred to therein, then each Indemnifying
Person under such paragraph, in lieu of indemnifying such Indemnified Person
thereunder, shall contribute to the amount paid or payable by such Indemnified
Person as a result of such losses, claims, damages or liabilities (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other
-20-
<PAGE>
hand from the offering of the Shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and the
Underwriters on the other in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same respective proportions as the net proceeds from the offering (before
deducting expenses) received by the Company and the total underwriting discounts
and the commissions received by the Underwriters, in each case as set forth in
the table on the cover of the Prospectus, bear to the aggregate public offering
price of the Shares. The relative fault of the Company on the one hand and the
Underwriters on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by PRO RATA
allocation (even if the Underwriters were treated as one entity for such
purposes) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses incurred by such Indemnified Person in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall an
Underwriter be required to contribute any amount in excess of the amount by
which the total price at which the Shares underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages that
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective number of Shares set forth opposite their names in Schedule I hereto,
and not joint.
The remedies provided for in this Section 7 are not exclusive and shall not
limit any rights or remedies which may otherwise be available to any indemnified
party at law or in equity.
The indemnity and contribution agreements contained in this Section 7 and
the representations and warranties of the Company set forth in this Agreement
shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
any Underwriter or any person controlling any Underwriter or by or on behalf of
the Company, its officers or directors or any other person controlling the
Company and (iii) acceptance of and payment for any of the Shares.
-21-
<PAGE>
8. Notwithstanding anything herein contained, this Agreement (or the
obligations of the several Underwriters with respect to the Option Shares) may
be terminated in the absolute discretion of the Representatives, by notice given
to the Company, if after the execution and delivery of this Agreement and prior
to the Closing Date (or, in the case of the Option Shares, prior to the
Additional Closing Date) (i) trading generally shall have been suspended or
materially limited on or by, as the case may be, any of the New York Stock
Exchange or the American Stock Exchange, the National Association of Securities
Dealers, Inc., the Chicago Board Options Exchange, the Chicago Mercantile
Exchange or the Chicago Board of Trade, (ii) trading of any securities of or
guaranteed by the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities, or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in the judgment of the Representatives, is material and adverse and which,
in the judgment of the Representatives, makes it impracticable to market the
Shares being delivered at the Closing Date or the Additional Closing Date, as
the case may be, on the terms and in the manner contemplated in the Prospectus.
9. This Agreement shall become effective upon the later of (x) execution
and delivery hereof by the parties hereto and (y) release of notification of the
effectiveness of the Registration Statement (or, if applicable, any post-
effective amendment) by the Commission.
If on the Closing Date or the Additional Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase Shares
which it or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of Shares to be purchased on such date, the other Underwriters
shall be obligated severally in the proportions that the number of Shares set
forth opposite their respective names in Schedule I bears to the aggregate
number of Underwritten Shares set forth opposite the names of all such non-
defaulting Underwriters, or in such other proportions as the Representatives may
specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; PROVIDED
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to Section 1 be increased pursuant to this Section 9 by an
amount in excess of one-ninth of such number of Shares without the written
consent of such Underwriter. If on the Closing Date or the Additional Closing
Date, as the case may be, any Underwriter or Underwriters shall fail or refuse
to purchase Shares which it or they have agreed to purchase hereunder on such
date, and the aggregate number of Shares with respect to which such default
occurs is more than one-tenth of the aggregate number of Shares to be purchased
on such date, and arrangements satisfactory to the Representatives and the
Company for the purchase of such Shares are not made within 36 hours after such
default, this Agreement (or the obligations of the several Underwriters to
purchase the Option Shares, as the case may be) shall terminate without
liability on the part of any non-defaulting Underwriter or the Company. In any
such case either you or the Company shall have the right to postpone the Closing
Date (or, in the case of the Option Shares, the Additional Closing Date), but in
no event for longer than seven days, in order that the required changes, if any,
in the Registration Statement and in the Prospectus or in any other documents or
arrangements may be
-22-
<PAGE>
effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
10. If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement or any condition of the Underwriters' obligations cannot be fulfilled,
the Company agrees to reimburse the Underwriters or such Underwriters as have so
terminated this Agreement with respect to themselves, severally, for all out-of-
pocket expenses (including the fees and expenses of its counsel) reasonably
incurred by the Underwriter in connection with this Agreement or the offering
contemplated hereunder.
11. This Agreement shall inure to the benefit of and be binding upon the
Company, the Underwriters, any controlling persons referred to herein and their
respective successors and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person, firm or
corporation any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision herein contained. No purchaser of Shares from
any Underwriter shall be deemed to be a successor by reason merely of such
purchase.
12. Any action by the Underwriters hereunder may be taken by the
Representatives jointly or by J.P. Morgan Securities Inc. alone on behalf of the
Underwriters, and any such action taken by the Representatives jointly or by
J.P. Morgan Securities Inc. alone shall be binding upon the Underwriters. All
notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be given to the
Representatives, c/o J.P. Morgan Securities Inc., 60 Wall Street, New York, New
York 10260 (telefax: (212) 648-5705); Attention: Syndicate Department. Notices
to the Company shall be given to it at 3172 Porter Drive, Palo Alto, CA 94304
(telefax: (415) 858-0390); Attention: President, with a copy to Cooley Godward
LLP, 3000 El Camino Real, Palo Alto, CA 94306; Attention: Alan C. Mendelson,
Esq.
13. This Agreement may be signed in counterparts, each of which shall be
an original and all of which together shall constitute one and the same
instrument.
14. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to the conflicts of
laws provisions thereof.
-23-
<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return four counterparts hereof.
Very truly yours,
CV THERAPEUTICS, INC.
By:
------------------------------------
Title:
Accepted: , 1996
---------
J.P. Morgan Securities Inc.
Invemed Associates, Inc.
UBS Securities Inc.
Acting severally on behalf
of themselves and the
several Underwriters listed
in Schedule I hereto.
By: J.P. Morgan Securities Inc.
Acting on behalf of itself and the
several Underwriters listed in
Schedule I hereto.
By:
-------------------------------
Title:
-24-
<PAGE>
SCHEDULE I
NUMBER OF SHARES
UNDERWRITER TO BE PURCHASED
- -------------------------------------------------- -------------------------
J.P. Morgan Securities Inc.. . . . . . . . . . . .
Invemed Associates, Inc. . . . . . . . . . . . . .
UBS Securities Inc.. . . . . . . . . . . . . . . .
Total:
-----------------------
-----------------------
<PAGE>
Exhibit 3.1
CERTIFICATE OF AMENDMENT OF
RESTATED CERTIFICATE OF INCORPORATION OF
CV THERAPEUTICS, INC.
CV THERAPEUTICS, INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware, does hereby certify as
follows:
FIRST: The name of the corporation is CV THERAPEUTICS, INC. The
corporation was originally incorporated under the name of CHOLESTEREX, INC.
SECOND: The Certificate of Incorporation of the corporation was filed
by the Secretary of State on December 11, 1990. The Restated Certificate of
Incorporation of the corporation was filed by the Secretary of State on March
29, 1996 (the "Restated Certificate").
THIRD: The following amendment to the Restated Certificate was duly
adopted in accordance with the provisions of Sections 141(f) and 242 of the
General Corporation Law of the State of Delaware (the "General Corporation
Law") by resolutions duly adopted by the Board of Directors of this
Corporation and was approved by the stockholders as provided in Section 228
of the General Corporation Law, and written notice has been given to the
stockholders as provided in Section 228(d) of the General Corporation Law.
FOURTH: Sections A and B of Article Fourth of the Restated Certificate
are hereby deleted in their entirety and replaced with the following:
"A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation is authorized to issue is one hundred
ten million (110,000,000) shares. Sixty-eight million (68,000,000) shares
shall be Common Stock, each having a par value of one tenth of one cent
($.001). Forty-two million (42,000,000) shares shall be Preferred Stock,
each having a par value of one tenth of one cent ($.001).
B. Eight million (8,000,000) of the authorized shares of Preferred
Stock are hereby designated "Series A Preferred Stock" (the "Series A
Preferred"). One million (1,000,000) of the authorized shares of Preferred
Stock are hereby designated "Series B Preferred Stock" (the "Series B
Preferred"). Six million (6,000,000) of the authorized shares of Preferred
Stock are hereby designated "Series C Preferred Stock" (the "Series C
Preferred"). Twelve million, five hundred thousand (12,500,000) of the
authorized shares of Preferred Stock are hereby designated "Series D
Preferred Stock" (the "Series D Preferred"). Seven million five hundred
thousand (7,500,000) of the authorized shares of Preferred Stock are hereby
designated "Series E Preferred Stock" (the "Series E Preferred"). Seven
million (7,000,000) of the authorized shares of Preferred Stock are hereby
designated "Series G Preferred Stock" (the "Series G Preferred")."
FIFTH: Section C.1.(vi) of Article Fourth of the Restated Certificate
is hereby deleted in its entirety and replaced with the following:
<PAGE>
"(vi) with respect to the Series G Preferred, $.20 per annum on each
outstanding share of Series G Preferred (as adjusted for any stock dividends,
combinations or splits with respect to such shares)."
In Witness Whereof, CV THERAPEUTICS, INC. has caused this Restated
Certificate of Incorporation to be signed by its Chief Executive Officer and
attested to by its Secretary this 23rd day of May, 1996.
CV THERAPEUTICS, INC.
By: /s/ Louis G. Lange, M.D., Ph.D.
--------------------------------
Louis G. Lange, M.D., Ph.D.
Chief Executive Officer
ATTEST:
/s/ Alan C. Mendelson
- ---------------------------
Alan C. Mendelson
Secretary
2.
<PAGE>
Exhibit A
RESTATED CERTIFICATE OF INCORPORATION OF
CV THERAPEUTICS, INC.
I.
The name of the Corporation is CV THERAPEUTICS, INC.
II.
The registered agent and the address of the registered office in the State
of Delaware are:
The Prentice Hall-Corporation System, Inc.
32 Loockerman Square
Dover, Delaware 19901
County of Kent
III.
The purpose of this Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the Delaware General Corporation
Law.
IV.
A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation is authorized to issue is one hundred
million (100,000,000) shares. Sixty million (60,000,000) shares shall be
Common Stock, each having a par value of one tenth of one cent ($.001).
Forty million (40,000,000) shares shall be Preferred Stock, each having a par
value of one tenth of one cent ($.001).
B. Eight million (8,000,000) of the authorized shares of Preferred
Stock are hereby designated "Series A Preferred Stock" (the "Series A
Preferred"). One million (1,000,000) of the authorized shares of Preferred
Stock are hereby designated "Series B Preferred Stock" (the "Series B
Preferred"). Six million (6,000,000) of the authorized shares of Preferred
Stock are hereby designated "Series C Preferred Stock" (the "Series C
Preferred"). Twelve million, five hundred thousand (12,500,000) of the
authorized shares of Preferred Stock are hereby designated "Series D
Preferred Stock" (the "Series D Preferred"). Seven million five hundred
thousand (7,500,000) of the authorized shares of Preferred Stock are hereby
designated "Series E Preferred Stock" (the "Series E Preferred"). Five
million of the authorized shares of Preferred Stock are hereby designated
"Series G Preferred Stock" (the "Series G Preferred").
1.
<PAGE>
C. The rights, preferences, privileges, restrictions and other
matters relating to the Preferred Stock are as follows:
1. DIVIDEND RIGHTS.
(a) Holders of Preferred Stock, in preference to the holders of
any other stock of the Corporation ("Junior Stock"), shall be entitled to
receive, when, as and if declared by the Board of Directors, but only out of
funds that are legally available therefor, cash dividends at the rate of:
(i) with respect to the Series A Preferred, $.08 per annum
on each outstanding share of Series A Preferred (as adjusted for any stock
dividends, combinations or splits with respect to such shares);
(ii) with respect to the Series B Preferred, $.25 per annum
on each outstanding share of Series B Preferred (as adjusted for any stock
dividends, combination or splits with respect to such shares);
(iii) with respect to the Series C Preferred, $.125 per annum
on each outstanding share of Series C Preferred (as adjusted for any stock
dividends, combinations or splits with respect to such shares);
(iv) with respect to the Series D Preferred, $.20 per annum
on each outstanding share of Series D Preferred (as adjusted for any stock
dividends, combinations or splits with respect to such shares);
(v) with respect to the Series E Preferred, $.20 per annum
on each outstanding share of Series E Preferred (as adjusted for any stock
dividends, combinations or splits with respect to such shares); and
(vi) with respect to the Series G Preferred, $.20 per annum
on each outstanding share of Series E Preferred (as adjusted for any stock
dividends, combinations or splits with respect to such shares).
Such dividends shall not be cumulative and no right shall accrue to holders
of shares of Preferred Stock by reason of the fact that dividends on such
shares are not declared in any prior year, nor shall any undeclared or
unpaid dividend bear or accrue interest. Each share of Preferred Stock shall
rank on parity with every other share of Preferred Stock, irrespective of
series, with regard to dividends, and no dividends shall be paid, declared
or set apart for payment on the shares of any series of Preferred Stock
unless at the same time a dividend for the same percentage of the respective
dividend rates shall also be paid, declared or set apart for payment, as the
case may be, on the shares of Preferred Stock of each other series then
outstanding.
2.
<PAGE>
(b) So long as any shares of Preferred Stock shall be outstanding,
no dividend, whether in cash or property, shall be paid or declared, nor
shall any other distribution be made, on any Junior Stock, nor shall any
shares of any Junior Stock of the Corporation be purchased, redeemed, or
otherwise acquired for value by the Corporation (except for acquisitions of
Common Stock by the Corporation from the founders of the Corporation or
pursuant to agreements with employees or consultants which permit the
Corporation to repurchase such shares upon termination of employment or
consulting relationship or in exercise of the Corporation's right of first
refusal upon a proposed transfer) until all accrued but unpaid dividends on
the Preferred Stock shall have been paid or declared and set apart. In the
event dividends are paid on any share of Common Stock, an additional
dividend shall be paid with respect to all outstanding shares of Preferred
Stock in an amount for each such share of Preferred Stock equal to the
aggregate amount of such dividends for all shares of Common Stock into which
each such share of Preferred Stock could then be converted. The provisions
of this Section 1(b) shall not, however, apply to (i) a dividend payable in
Common Stock, (ii) the acquisition of shares of any Junior Stock in exchange
for shares of any other Junior Stock, or (iii) any repurchase of any
outstanding securities of the Corporation that is unanimously approved by
the Corporation's Board of Directors.
2. VOTING RIGHTS.
(a) Except as otherwise provided herein or as required by law,
the Preferred Stock shall be voted equally with the shares of the Common
Stock of the Corporation and not as a separate class, at any annual or
special meeting of stockholders of the Corporation, and may act by written
consent in the same manner as the Common Stock, in either case upon the
following basis: each holder of shares of Preferred Stock shall be entitled
to such number of votes as shall be equal to the whole number of shares of
Common Stock into which such holder's aggregate number of shares of
Preferred Stock are convertible (pursuant to Section 4 hereof) immediately
after the close of business on the record date fixed for such meeting or the
effective date of such written consent.
(b) In addition to any other vote or consent required herein or
by law, so long as at least 400,000 shares of Preferred Stock remain
outstanding, the vote or written consent of the holders of a majority of the
outstanding Preferred Stock shall be necessary for effecting or validating
the following actions:
(i) Any amendment, alteration, or repeal of any provision of
the Certificate of Incorporation or the Bylaws of the Corporation that
affects adversely the voting powers, preferences or other special rights or
qualifications, limitations or restrictions of the Preferred Stock;
(ii) Any authorization or any increase, whether by
reclassification or otherwise, in the authorized amount of any class of
shares or series of equity securities of the Corporation ranking on a parity
with or prior to the Preferred Stock in right of dividends, voting or
liquidation preference or any increase in the authorized number of shares of
Common Stock;
3.
<PAGE>
(iii) Any agreement to sell, lease or otherwise dispose
of all or substantially all of the assets, property or business of the
Corporation, or to merge or consolidate the Corporation with any person, or
permit any other person to merge into it, or any other reorganization except
for mergers, consolidations or reorganizations in which, after giving effect
to the merger, consolidation, or reorganization, the holders of the
Corporation's outstanding capital stock immediately preceding such merger
own at least fifty percent (50%) of the outstanding capital stock of the
surviving corporation;
(iv) Any act or thing which would result in taxation of the
holders of Preferred Stock under Section 305 of the Internal Revenue Code of
1986, as amended; or
(v) Any redemption of, or payment of dividends with respect
to, Junior Stock (other than a repurchase of Junior Stock from the founders
of the Corporation or pursuant to the exercise of any contractual or other
legal rights of first refusal or repurchase, or any repurchase of any
outstanding securities of the Corporation that is unanimously approved by the
Corporation's Board of Directors).
3. LIQUIDATION RIGHTS.
(a) Upon any liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, before any distribution or
payment shall be made to the holders of any Junior Stock, (i) the holders of
Series G Preferred shall be entitled to be paid out of the assets of the
Corporation, in preference to the holders of all remaining series of
Preferred Stock and holders of Common Stock, an amount per share equal to
the sum of $2.00 and all declared but unpaid dividends on such shares to the
date of such payment, (ii) the holders of Series E Preferred shall be
entitled to be paid out of the assets of the Corporation, in preference to
the holders of Series A Preferred, the holders of Series B Preferred, the
holders of Series C Preferred, the holders of Series D Preferred and the
holders of Common Stock, an amount per share equal to the sum of $2.00 and
all declared but unpaid dividends on such shares to the date of such payment,
and (iii) the holders of Series A Preferred, the holders of Series B
Preferred, the holders of Series C Preferred and the holders of Series D
Preferred shall be entitled to be paid out of the assets of the Corporation,
in preference to the holders of Common Stock, an amount per share equal to
the sum of (x) $0.80, $2.50, $1.25 and $2.00, respectively, and (y) all
declared but unpaid dividends on such shares to the date of such payment.
(b) After the payment of the full liquidation preference of the
Preferred Stock as set forth in Section 3(a) above, the holders of the
Common Stock and the Preferred Stock shall receive the remaining assets.
Such assets shall be distributed ratably among such holders in proportion to
the shares of Common Stock held by them and which they have the right to
acquire upon conversion of shares of Preferred Stock held by them.
(c) The following events shall be considered a liquidation under
this Section 3:
4.
<PAGE>
(i) any merger or reorganization of the Corporation with or
into any other corporation or other entity or person in which transaction
the Corporation's stockholders immediately prior to such transaction own
immediately after such transaction less than 50% of the equity securities of
the surviving corporation or its parent; or
(ii) a sale, lease or other disposition of all or
substantially all of the assets of the Corporation.
(d) If, upon any liquidation, distribution, or winding up, the
assets of the Corporation shall be insufficient to make payment in full to
all holders of Series G Preferred, then such assets shall be distributed
among the holders of Series G Preferred at the time outstanding, ratably in
proportion to the full amounts to which they would otherwise be respectively
entitled. If, upon any liquidation, distribution, or winding up, the assets
of the Company shall be insufficient to make payment in full to all other
holders of Preferred Stock after satisfying the obligations to the holders
of Series G Preferred, then such assets shall be distributed among the
holders of Series E Preferred at the time outstanding, ratably in proportion
to the full amounts to which they would otherwise be respectively entitled.
If, upon any liquidation, distribution, or winding up, the assets of the
Corporation shall be insufficient to make payment in full to all other
holders of Preferred Stock after satisfying the obligations to the holders
of Series G and E Preferred, then such assets shall be distributed among the
holders of Series A Preferred, Series B Preferred, Series C Preferred and
Series D Preferred at the time outstanding, pari passu and ratably in
proportion to the full amounts to which they would otherwise be respectively
entitled.
(e) Any securities to be delivered to the holders of the
Preferred Stock and Common Stock upon a merger, reorganization or sale of
all or substantially all of the assets of the Corporation shall be valued as
follows:
(i) if traded on a securities exchange, the value shall be
deemed to be the average of the closing prices of the securities on such
exchange over the 30-day period ending three (3) business days prior to the
closing;
(ii) if actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid prices over the 30-day period
ending three (3) business days prior to the closing; and
(iii) if there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the Corporation and
the holders of not less than a majority of the outstanding shares of
Preferred Stock, provided that if the Corporation and the holders of a
majority of the outstanding shares of Preferred Stock are unable to reach
agreement, then by independent appraisal by an investment banker hired and
paid by the Corporation, but acceptable to the holders of a majority of the
outstanding shares of Preferred Stock.
5.
<PAGE>
4. CONVERSION RIGHTS.
The holders of the Preferred Stock shall have the following rights
with respect to the conversion of the Preferred Stock into shares of Common
Stock:
(a) OPTIONAL CONVERSION. Subject to and in compliance with the
provisions of this Section 4, any shares of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred, Series E Preferred or
Series G Preferred may, at the option of the holder, be converted at any time
into fully-paid and nonassessable shares of Common Stock. The number of
shares of Common Stock to which a holder of Series A Preferred shall be
entitled upon conversion shall be the product obtained by multiplying the
"Series A Conversion Rate" then in effect (determined as provided in Section
4(b)) by the number of shares of Series A Preferred being converted. The
number of shares of Common Stock to which a holder of Series B Preferred
shall be entitled upon conversion shall be the product obtained by
multiplying the "Series B Conversion Rate" then in effect (determined as
provided in Section 4(b)) by the number of shares of Series B Preferred being
converted. The number of shares of Common Stock to which a holder of Series
C Preferred shall be entitled upon conversion shall be the product obtained
by multiplying the "Series C Conversion Rate" then in effect (determined as
provided in Section 4(b)) by the number of shares of Series C Preferred being
converted. The number of shares of Common Stock to which a holder of Series
D Preferred shall be entitled upon conversion shall be the product obtained
by multiplying the "Series D Conversion Rate" then in effect (determined as
provided in Section 4(b)) by the number of shares of Series D Preferred being
converted. The number of shares of Common Stock to which a holder of Series
E Preferred shall be entitled upon conversion shall be the product obtained
by multiplying the "Series E Conversion Rate" then in effect (determined as
provided in Section 4(b)) by the number of shares of Series E Preferred being
converted. The number of shares of Common Stock to which a holder of Series
G Preferred shall be entitled upon conversion shall be the product obtained
by multiplying the "Series G Conversion Rate" then in effect (determined as
provided in Section 4(b)) by the number of shares of Series G Preferred being
converted.
(b) CONVERSION RATE. The conversion rate in effect at any time
for conversion of the Series A Preferred (the "Series A Conversion Rate")
shall be the quotient obtained by dividing $0.80 by the "Series A Conversion
Price," calculated as provided in Section 4(c). The conversion rate in
effect at any time for conversion of the Series B Preferred (the "Series B
Conversion Rate") shall be the quotient obtained by dividing $1.25 by the
"Series B Conversion Price," calculated as provided in Section 4(c). The
conversion rate in effect at any time for conversion of the Series C
Preferred (the "Series C Conversion Rate") shall be the quotient obtained by
dividing $1.25 by the "Series C Conversion Price," calculated as provided in
Section 4(c). The conversion rate in effect at any time for conversion of
the Series D Preferred (the "Series D Conversion Rate") shall be the quotient
obtained by dividing $2.00 by the "Series D Conversion Price," calculated as
provided in Section 4(c). The conversion rate in effect at any time for
conversion of the Series E Preferred (the "Series E Conversion Rate") shall
be the quotient obtained by dividing $2.00 by the "Series E Conversion
Price," calculated as provided in Section 4(c). The conversion rate in
effect at any time for conversion of the Series G
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Preferred (the "Series G Conversion Rate") shall be the quotient obtained by
dividing $2.00 by the "Series G Conversion Price," calculated as provided in
Section 4(c).
(c) CONVERSION PRICE. The conversion price for the Series A
Preferred shall initially be $0.80 (the "Series A Conversion Price"). The
conversion price of the Series B Preferred shall initially be $1.25 (the
"Series B Conversion Price"). The conversion price for the Series C
Preferred shall initially be $1.25 (the "Series C Conversion Price"). The
conversion price for the Series D Preferred shall initially be $2.00 (the
"Series D Conversion Price"). The conversion price for the Series E
Preferred shall initially be $2.00 (the "Series E Conversion Price"). The
conversion price for the Series G Preferred shall initially be $2.00 (the
"Series E Conversion Price"). Such initial Series A Conversion Price, Series
B Conversion Price, Series C Conversion Price, Series D Conversion Price,
Series E Conversion Price and Series G Conversion Price (the "Conversion
Prices") shall be adjusted from time to time in accordance with this Section
4. All references to the Conversion Prices herein shall mean the Conversion
Prices as so adjusted.
(d) MECHANICS OF CONVERSION. Each holder of Preferred Stock who
desires to convert the same into shares of Common Stock pursuant to this
Section 4 shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or any transfer agent for the
Preferred Stock, and shall give written notice to the Corporation at such
office that such holder elects to convert the same. Such notice shall state
the number of shares of Preferred Stock being converted. Thereupon, the
Corporation shall promptly issue and deliver at such office to such holder a
certificate or certificates for the number of shares of Common Stock to which
such holder is entitled and shall promptly pay in cash or, to the extent
sufficient funds are not then legally available therefor, in Common Stock (at
the Common Stock's fair market value determined by the Board of Directors as
of the date of such conversion), any declared and unpaid dividends on the
shares of Preferred Stock being converted. Such conversion shall be deemed
to have been made at the close of business on the date of such surrender of
the certificates representing the shares of Preferred Stock to be converted,
and the person entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder of
such shares of Common Stock on such date.
(e) ADJUSTMENTS TO CONVERSION PRICES FOR CERTAIN DILUTING ISSUES.
(i) SPECIAL DEFINITIONS. For purposes of this Section 4, the
following definitions apply:
(1) "OPTIONS" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(2) "ORIGINAL ISSUE DATE" shall mean the date on which a
share of Series G Preferred Stock was first issued.
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(3) "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares (other than Common Stock and Series A Preferred, Series
B Preferred, Series C Preferred, Series D Preferred, Series E Preferred or
Series G Preferred) or other securities convertible into or exchangeable for
Common Stock.
(4) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all
shares of Common Stock issued (or, pursuant to Section 4(e)(iii), deemed to
be issued) by the Corporation after the Original Issue Date, other than
shares of Common Stock issued or issuable:
(A) upon exercise of any outstanding warrant to
purchase Common Stock or Preferred Stock;
(B) upon conversion of any shares of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series
E Preferred or Series G Preferred;
(C) to officers, directors or employees of, or
consultants to, the Corporation pursuant to stock option plans, stock
purchase plans or equity incentive plans or agreements on terms approved by
the Board of Directors;
(D) to investors in connection with the Series G
Preferred Stock financing approved by the Company's Board of Directors;
(E) to financial institutions providing lease
financing or debt financing to the Company on terms approved by the Company's
Board of Directors;
(F) as a dividend or distribution on the shares
excluded from the definition of Additional Shares of Common Stock by the
foregoing clauses (A), (B), (C), (D), (E) or this clause (F); or
(G) for which adjustment of the Series B, Series C,
Series D, Series E or Series G Conversion Price is made pursuant to Section
4(f)-(j), inclusive.
(5) "QUALIFIED PUBLIC OFFERING" shall mean the sale of
the Corporation's Common Stock in an underwritten public offering registered
under the Securities Act of 1933, as amended (the "Act"), other than a
registration relating solely to a transaction under Rule 145 under such Act
(or any successor thereto) or to an employee benefit plan of the Corporation,
at a public offering price per share (before underwriting discounts,
commissions and fees) of not less than $2.00 per share of Common Stock (as
adjusted for any stock dividends, combinations or splits with respect to such
stock) and the aggregate gross offering proceeds (before underwriting
discounts, commissions and fees) of which exceed $10,000,000.
8.
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(ii) NO ADJUSTMENT OF CONVERSION PRICE. Any provision herein
to the contrary notwithstanding, no adjustment in the Series G Conversion
Price, Series E Conversion Price, Series D Conversion Price, Series C
Conversion Price, Series B Conversion Price, or the Series A Conversion Price
shall be made in respect of the issuance of Additional Shares of Common Stock
unless the consideration per share (determined pursuant to Section 4(e)(v)
hereof) for an Additional Share of Common Stock issued or deemed to be issued
by the Corporation is less than the Series G Conversion Price, Series E
Conversion Price, Series D Conversion Price, Series C Conversion Price,
Series B Conversion Price, or the Series A Conversion Price, respectively, in
effect on the date of, and immediately prior to, such issue.
(iii) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK. In
the event the Corporation at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities then
entitled to receive any such Options or Convertible Securities (other than
Options or Convertible Securities described in Section 4(e)(i)(4)(A), or (C)
above), then the maximum number of shares (as set forth in the instrument
relating thereto without regard to any provisions contained therein designed
to protect against dilution) of Common Stock issuable upon the exercise of
such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities and Options, shall
be deemed to be Additional Shares of Common Stock issued as of the time of
such issue or, in case such a record date shall have been fixed, as of the
close of business on such record date, provided that in any such case in
which Additional Shares of Common Stock are deemed to be issued:
(1) no further adjustments in the Conversion Price for
the Series G, E, D, C, B or A Preferred shall be made upon the subsequent
issue of Convertible Securities or shares of Common Stock upon the exercise
of such Options or conversion or exchange of such Convertible Securities;
(2) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or decrease or
increase in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Series G Conversion Price, Series E
Conversion Price, Series D Conversion Price, Series C Conversion Price,
Series B Conversion Price, or the Series A Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such
increase or decrease insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities (PROVIDED, HOWEVER,
that no such adjustment of the Series G Conversion Price, Series E Conversion
Price, Series D Conversion Price, Series C Conversion Price, Series B
Conversion Price or Series A Conversion Price shall affect Common Stock
previously issued upon conversion of the Series G, E, D, C, B or A Preferred);
9.
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(3) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which
shall not have been exercised, the Series G Conversion Price, Series E
Conversion Price, Series D Conversion Price, Series C Conversion Price,
Series B Conversion Price or Series A Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(A) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued
were the shares of Common Stock, if any, actually issued upon the exercise of
such Options or the conversion or exchange of such Convertible Securities and
the consideration received therefor was the consideration actually received
by the Corporation for the issue of all such Options, whether or not
exercised, plus the consideration actually received by the Corporation upon
such exercise, or for the issue of all such Convertible Securities which were
actually converted or exchanged, plus the additional consideration, if any,
actually received by the Corporation upon such conversion or exchange, and
(B) in the case of Options for Convertible
Securities only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received
by the Corporation for the issue of all such Options, whether or not
exercised, plus the consideration deemed to have been received by the
Corporation (determined pursuant to Section 4(e)(v)) upon the issue of the
Convertible Securities with respect to which such Options were actually
exercised;
(4) no readjustment pursuant to clause (2) or (3) above
shall have the effect of increasing the Series G Conversion Price, Series E
Conversion Price, Series D Conversion Price, Series C Conversion Price,
Series B Conversion Price or Series A Conversion Price to an amount which
exceeds the lower of (a) the Series G Conversion Price Series E Conversion
Price, Series D Conversion Price, Series C Conversion Price, Series B
Conversion Price or Series A Conversion Price, respectively, on the original
adjustment date, or (b) the Series G Conversion Price, Series E Conversion
Price, Series D Conversion Price, Series C Conversion Price, Series B
Conversion Price or Series A Conversion Price, respectively, that would have
resulted from any issuance of Additional Shares of Common Stock between the
original adjustment date and such readjustment date;
(5) in the case of any Options which expire by their
terms not more than 30 days after the date of issue thereof, no adjustment of
the Series G Conversion Price, Series E Conversion Price, Series D Conversion
Price, Series C Conversion Price, Series B Conversion Price or Series A
Conversion Price shall be made until the expiration or exercise of all such
Options, whereupon such adjustment shall be made in the same manner provided
in clause (3) above.
10.
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iv. ADJUSTMENT OF SERIES G CONVERSION PRICE AND SERIES E
CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK.
(1) (A) With respect solely to the Series G Preferred
and Series E Preferred, in the event the Corporation at any time after the
Original Issue Date shall issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section
4(e)(iii) other than the issuance of stock dividends), without consideration
or for a consideration per share less than the Series E Conversion Price in
effect on the date of and immediately prior to such issue, then and in such
event, the Series G Conversion Price and Series E Conversion Price shall be
reduced, concurrently with such issue, to the amount equal to the
consideration per share for which such Additional Shares of Common Stock are
issued.
(B) The effectiveness of Section 4(e)(iv)(1)(A)
shall terminate immediately upon the first to occur of (a) the closing of a
Qualified Public Offering; (b) a merger, reorganization or sale of
substantially all of the assets of the Corporation in which the stockholders
of the Corporation immediately prior to the transaction possess less than 50%
of the voting securities of the surviving entity (or its parent, if any); or
(c) the date of the closing of the Corporation's next financing of at least
$5,000,000 of new equity securities (other than in corporate partnering
transactions) at a price per share of at least $2.00 (as adjusted for any
stock dividends, combinations or splits with respect to such stock).
v. DETERMINATION OF CONSIDERATION. For purposes of this
Section 4(e), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(1) CASH AND PROPERTY. Such consideration shall:
(A) insofar as it consists of cash, be computed at
the aggregate amount of cash received by the Corporation excluding amounts
paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board; and
(C) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above,
as determined in good faith by the Board.
(2) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been
11.
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issued pursuant to Section 4(e)(iii), relating to Options and Convertible
Securities shall be determined by dividing;
(A) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options
or Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without
regard to any provision contained therein designed to protect against
dilution) payable to the Corporation upon the exercise of such Options or the
conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such Convertible
Securities by
(B) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein designed to protect against dilution) issuable
upon the exercise of such Options or conversion or exchange of such
Convertible Securities.
f. ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Corporation shall at any time or from time to time after the Original Issue
Date effect a subdivision of the outstanding Common Stock, the Conversion
Prices in effect immediately before that subdivision shall be proportionately
decreased. Conversely, if the Corporation shall at any time or from time to
time after the Original Issue Date combine the outstanding shares of Common
Stock into a smaller number of shares, the Conversion Prices in effect
immediately before the combination shall be proportionately increased. Any
adjustment under this Section 4(f) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
g. ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND DISTRIBUTIONS. If
the Corporation at any time or from time to time after the Original Issue
Date makes, or fixes a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, in each such event the Conversion Prices
that are then in effect shall be decreased as of the time of such issuance
or, in the event such record date is fixed, as of the close of business on
such record date, by multiplying the Conversion Prices then in effect by a
fraction (i) the numerator of which is the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance
or the close of business on such record date, and (ii) the denominator of
which is the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on
such record date plus the number of shares of Common Stock issuable in
payment of such dividend or distribution; PROVIDED, HOWEVER, that if such
record date is fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Conversion
Prices shall be recomputed accordingly as of the close of business on such
record date and thereafter the Conversion Prices shall be adjusted pursuant
to this Section 4(g) to reflect the actual payment of such dividend or
distribution.
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h. ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. If the
Corporation at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, in each such
event provision shall be made so that the holders of the Preferred Stock
shall receive upon conversion thereof, in addition to the number of shares of
Common Stock receivable thereupon, the amount of other securities of the
Corporation which they would have received had their Preferred Stock been
converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including
the conversion date, retained such securities receivable by them as aforesaid
during such period, subject to all other adjustments called for during such
period under this Section 4 with respect to the rights of the holders of the
Preferred Stock or with respect to such other securities by their terms.
i. ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION.
If at any time or from time to time after the Original Issue Date, the Common
Stock issuable upon the conversion of the Preferred Stock is changed into the
same or a different number of shares of any class or classes of stock or
other securities or property, whether by recapitalization, reclassification
or otherwise (other than a subdivision or combination of shares or stock
dividend or a reorganization, merger, consolidation or sale of assets
provided for elsewhere in this Section 4 or in Section 3(c)), in any such
event each holder of Preferred Stock shall have the right thereafter to
convert such stock into the kind and amount of stock and other securities and
property receivable upon such recapitalization, reclassification or other
change by holders of the maximum number of shares of Common Stock into which
such shares of Preferred Stock could have been converted immediately prior to
such recapitalization, reclassification or change, all subject to further
adjustment as provided herein or with respect to such other securities or
property by the terms thereof.
j. ADJUSTMENT FOR CAPITAL REORGANIZATIONS. If at any time or
from time to time after the Original Issue Date, there is a capital
reorganization of the Common Stock (other than a recapitalization,
subdivision, combination, reclassification, exchange or substitution of
shares provided for elsewhere in this Section 4 or in Section 3(c)), as a
part of such capital reorganization provision shall be made so that the
holders of the Preferred Stock shall thereafter be entitled to receive upon
conversion of the Preferred Stock the number of shares of stock or other
securities or property of the Corporation to which a holder of the number of
shares of Common Stock deliverable upon conversion would have been entitled
on such capital reorganization, subject to adjustment in respect of such
stock or securities by the terms thereof. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
4 with respect to the rights of the holders of Preferred Stock after the
capital reorganization to the end that the provisions of this Section 4
(including adjustment of the Conversion Prices then in effect and the number
of shares issuable upon conversion of the Preferred Stock) shall be
applicable after that event and be as nearly equivalent as practicable.
k. CERTIFICATE OF ADJUSTMENT. In each case of an adjustment or
readjustment of the Conversion Prices for the number of shares of Common
Stock or other securities issuable
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upon conversion of the Preferred Stock, if the Preferred Stock is then
convertible pursuant to this Section 4, the Corporation, at its expense,
shall compute such adjustment or readjustment in accordance with the
provisions hereof and prepare a certificate showing such adjustment or
readjustment, and shall mail such certificate, by first class mail, postage
prepaid, to each registered holder of Preferred Stock at the holder's address
as shown in the Corporation's books. The certificate shall set forth such
adjustment or readjustment, showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (i) such
adjustments and readjustments, (ii) the Conversion Prices, and (iii) the
number of shares of Common Stock and the amount, if any, of other property
which at the time would be received upon the conversion of such holder's
shares.
l. NOTICES OF RECORD DATE. Upon (i) any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or (ii) any capital reorganization of the
Corporation, any reclassification or recapitalization of the capital stock of
the Corporation, any merger or consolidation of the Corporation with or into
any other corporation, or any transfer of all or substantially all the assets
of the Corporation to any other person, or any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, the Corporation
shall mail to each holder of Preferred Stock at least twenty (20) days prior
to the record date specified therein a notice specifying (1) the date on
which any such record is to be taken for the purpose of such dividend or
distribution and a description of such dividend or distribution, (2) the date
on which any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to become
effective, and (3) the date, if any, that is to be fixed as to when the
holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up.
m. AUTOMATIC CONVERSION.
(i) Each share of Preferred Stock shall automatically be
converted into shares of Common Stock, based on the then-effective Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price,
Series D Conversion Price, Series E Conversion Price and Series G Conversion
Price, as applicable, at any time upon the affirmative vote of the holders of
a majority of the outstanding shares of the Preferred Stock, or immediately
upon the closing of a Qualified Public Offering. Upon such automatic
conversion, any declared and unpaid dividends shall be paid in accordance
with the provisions of Section 4(g).
(ii) Upon the occurrence of the event specified in paragraph
(i) above, the outstanding shares of Preferred Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent; PROVIDED, HOWEVER, that the
Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless the certificates
evidencing such shares of Preferred Stock are either
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delivered to the Corporation or its transfer agent as provided below, or the
holder notifies the Corporation or its transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement satisfactory to
the Corporation to indemnify the Corporation from any loss incurred by it in
connection with such certificates. Upon the occurrence of such automatic
conversion of the Preferred Stock, the holders of Preferred Stock shall
surrender the certificates representing such shares at the office of the
Corporation or any transfer agent for the Preferred Stock. Thereupon, there
shall be issued and delivered to such holder promptly at such office and in
its name as shown on such surrendered certificate or certificates, a
certificate or certificates for the number of shares of Common Stock into
which the shares of Preferred Stock surrendered were convertible on the date
on which such automatic conversion occurred, and the Corporation shall
promptly pay in cash or, at the option of the Corporation, Common Stock (at
the Common Stock's fair market value determined by the Board as of the date
of such conversion), or, at the option of the Corporation, both, all declared
and unpaid dividends on the shares of Preferred Stock being converted, to and
including the date of such conversion.
n. FRACTIONAL SHARES. No fractional shares of Common Stock shall
be issued upon conversion of Preferred Stock. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share
of Preferred Stock by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of any fractional share, the Corporation shall,
in lieu of issuing any fractional share, pay cash equal to the product of
such fraction multiplied by the Common Stock's fair market value (as
determined by the Board of Directors) on the date of conversion.
o. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Preferred Stock, such number of
its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of the Preferred Stock. If at any
time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Preferred Stock, the Corporation will take such corporate action as may, in
the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose.
p. NOTICES. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of the Preferred Stock shall
be deemed given upon the earlier of actual receipt or five (5) days after the
same has been deposited in the United States mail, by certified or registered
mail, return receipt requested, postage prepaid, and addressed to each holder
of record at the address of such holder appearing on the books of the
Corporation.
q. PAYMENT OF TAXES. The Corporation will pay all taxes (other
than taxes based upon income) and other governmental charges that may be
imposed with respect to the issue or delivery of shares of Common Stock upon
conversion of shares of Preferred Stock, excluding any tax or other charge
imposed in connection with any transfer involved in the issue
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and delivery of shares of Common Stock in a name other than that in which the
shares of Preferred Stock so converted were registered.
r. NO DILUTION OR IMPAIRMENT. The Corporation shall not amend
its Certificate of Incorporation or participate in any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, for the purpose of avoiding or
seeking to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but shall at all times in
good faith assist in carrying out all such action as may be reasonably
necessary or appropriate in order to protect the conversion rights of the
holders of the Preferred Stock against dilution or other impairment.
5. NO REISSUANCE OF PREFERRED STOCK. No share or shares of Preferred
Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall acquire
the status of undesignated shares of Preferred Stock.
V.
For the management of the business and for the conduct of the affairs of
the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided that:
a. The management of the business and the conduct of the affairs of
the Corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
by the Board of Directors in the manner provided in the Bylaws.
b. The Board of Directors may from time to time make, amend,
supplement or repeal the Bylaws; PROVIDED, HOWEVER, that the stockholders may
change or repeal any Bylaw adopted by the Board of Directors by the
affirmative vote of the holders of a majority of the voting power of all of
the then outstanding shares of the capital stock of the Corporation
(considered for this purpose as one class); and, PROVIDED FURTHER, that no
amendment or supplement to the Bylaws adopted by the Board of Directors shall
vary or conflict with any amendment or supplement thus adopted by the
stockholders.
c. The directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
d. Following the effectiveness of the registration of any class of
securities of the Corporation pursuant to the requirements of the Securities
Exchange Act of 1934, as amended, no action shall be taken by the
stockholders of the Corporation except at an annual or special meeting of
stockholders called in accordance with the Bylaws and no action shall be
taken by the stockholders by written consent.
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e. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in
the Bylaws of the Corporation.
VI.
A director of the Corporation shall, to the full extent not prohibited
by the Delaware General Corporation Law, as the same exists or may hereafter
be amended, not be liable to the Corporation or its stockholders for monetary
damages for breach of his or her fiduciary duty as a director.
VII.
No holder of shares of stock of the Corporation shall have any
preemptive or other right, except as such rights are expressly provided by
contract, to purchase or subscribe for or receive any shares of any class, or
series thereof, of stock of the Corporation, whether now or hereafter
authorized, or any warrants, options, bonds, debentures or other securities
convertible into, exchangeable for or carrying any right to purchase any
share of any class, or series thereof, of stock; but such additional shares
of stock and such warrants, options, bonds, debentures or other securities
convertible into, exchangeable for or carrying any right to purchase any
shares of any class, or series thereof, of stock may be issued or disposed of
by the Board of Directors to such persons, and on such terms and for such
lawful consideration, as in its discretion it shall deem advisable or as the
Corporation shall have by contract agreed.
17.
<PAGE>
Exhibit 3.3
CV THERAPEUTICS, INC.
CERTIFICATE OF AMENDMENT OF
RESTATED CERTIFICATE OF INCORPORATION,
OF CV THERAPEUTICS, INC.
CV THERAPEUTICS, INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware, does hereby certify as
follows:
FIRST: The name of the corporation is CV THERAPEUTICS, INC. The
corporation was originally incorporated under the name of CHOLESTEREX, INC.
SECOND: The Certificate of Incorporation of the corporation was filed
by the Secretary of State on December 11, 1990. The Restated Certificate of
Incorporation of the corporation was filed by the Secretary of State on March
29, 1996 (the "Restated Certificate"). A Certificate of Amendment of the
Restated Certificate of Incorporation was filed by the Secretary of State on
May 28, 1996 (the "Certificate of Amendment").
THIRD: The following amendment to the Restated Certificate was duly
adopted in accordance with the provisions of Sections 141(f) and 242 of the
General Corporation Law of the State of Delaware (the "General Corporation
Law") by resolutions duly adopted by the Board of Directors of this
Corporation and was approved by the stockholders as provided in the General
Corporation Law.
FOURTH: Sections A and B of Article Fourth of the Restated Certificate,
as amended by the Certificate of Amendment, are hereby deleted in their
entirety and replaced with the following:
"A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation is authorized to issue is one hundred
ten million (110,000,000) shares. Sixty-eight million (68,000,000) shares
shall be Common Stock, each having a par value of one tenth of one cent
($.001). Forty-two million (42,000,000) shares shall be Preferred Stock,
each having a par value of one tenth of one cent ($.001). Upon the filing of
this Certificate of Amendment, every ten (10) shares of Common Stock
outstanding shall be combined into one share of Common Stock; provided,
however, that the Corporation shall issue no fractional shares of Common
Stock, but shall instead pay to any stockholder who would be entitled to
receive a fractional share as a result of the actions set forth herein a sum
in cash equal to the fair market value of such fractional share.
B. Eight million (8,000,000) of the authorized shares of Preferred
Stock are hereby designated "Series A Preferred Stock" (the "Series A
Preferred"). One million (1,000,000) of the authorized shares of Preferred
Stock are hereby designated "Series B Preferred Stock" (the "Series B
Preferred"). Six million (6,000,000) of the authorized shares of Preferred
Stock are hereby designated "Series C Preferred Stock" (the "Series C
Preferred"). Twelve million, five hundred thousand (12,500,000) of the
authorized shares of Preferred Stock are hereby designated "Series D Preferred
Stock" (the "Series D Preferred"). Seven million five hundred thousand
1.
<PAGE>
(7,500,000) of the authorized shares of Preferred Stock are hereby designated
"Series E Preferred Stock" (the "Series E Preferred"). Seven million
(7,000,000) of the authorized shares of Preferred Stock are hereby designated
"Series G Preferred Stock" (the "Series G Preferred")."
FIFTH: Section C.4(e)(i)(5) of Article Fourth of the Restated
Certificate, as amended by the Certificate of Amendment, are hereby deleted
in their entirety and replaced with the following:
"(5) "QUALIFIED PUBLIC OFFERING" shall mean the sale of the
Corporation's Common Stock in an underwritten public offering registered
under the Securities Act of 1933, as amended (the "Act"), other than a
registration relating solely to a transaction under Rule 145 under such Act
(or any successor thereto) or to an employee benefit plan of the Corporation,
the aggregate gross offering proceeds (before underwriting discounts,
commissions and fees) of which exceed $10,000,000.
IN WITNESS WHEREOF, CV THERAPEUTICS, INC. has caused this Certificate of
Amendment of Restated Certificate of Incorporation, as amended, to be signed
by its Chief Executive Officer and attested to by its Secretary this 29 day
of October, 1996.
CV THERAPEUTICS, INC.
By: /s/ Louis G. Lange, M.D., Ph.D.
--------------------------------
Louis G. Lange, M.D., Ph.D.
Chief Executive Officer
ATTEST:
/s/ Alan C. Mendelson
- ---------------------------
Alan C. Mendelson
Secretary
2.
<PAGE>
Exh. 10.7
AMENDED AND RESTATED
PROMISSORY NOTE
$500,000.00 September 23, 1996
Palo Alto, California
FOR VALUE RECEIVED, Louis G. Lange and Linda S. Lange, each an
individual resident in the State of California ("Borrowers"), hereby
unconditionally promise to pay to the order of CV Therapeutics, Inc., a
Delaware corporation ("Lender"), in lawful money of the United States of
America and in immediately available funds, the principal sum of Five Hundred
Thousand Dollars ($500,000.00) together with accrued and unpaid interest
thereon, payable on the dates and in the manner set forth below.
This Promissory Note amends and restates the Promissory Note given by
Borrowers to the Lender dated August 17, 1992.
1. PRINCIPAL REPAYMENT. All outstanding principal, together with all
accrued and unpaid interest thereon, shall be due and payable on the earlier
to occur of: (i) December 31, 2001, or (ii) the effective date of any of the
following: (a) the voluntary termination of the employment of Louis G. Lange
with Lender; (b) the termination of employment of Louis G. Lange with Lender
for Justifiable Cause (as defined in the employment offer letter dated April
30, 1992); or (c) a merger, sale of assets or other reorganization involving
Lender in which the shareholders of Lender prior to such transaction own,
after such transaction, less than 50% of the outstanding voting securities of
the surviving corporation or its parent.
2. INTEREST RATE. Borrowers further promise to pay interest on the
outstanding principal amount hereof from December 31, 1995 until payment in
full, at the annual rate of six and 53/100 (6.53%), compounded semi-annually,
or the maximum rate permissible by law (which under the laws of the State of
California shall be deemed to be the laws relating to permissible rates of
interest on commercial loans), whichever is less. Accrued and unpaid
interest shall be payable annually in arrears on December 31 of each year
beginning December 31, 1996 and shall be calculated on the basis of a 360-day
year for the actual number of days elapsed.
3. PLACE OF PAYMENT. All amounts payable hereunder shall be payable
at the office of Lender, 3172 Porter Drive, Palo Alto, CA 94034, unless
another place of payment shall be specified in writing by Lender.
4. APPLICATION OF PAYMENTS. Any payment on this Note shall be applied
first to accrued interest, and thereafter to the outstanding principal
balance hereof.
5. SECURED NOTE. This Note is secured by the collateral identified
and described as security therefor in the Deed of Trust dated August 18,
1992, executed by and delivered by Borrowers, as trustor, to First American
Title Insurance Company, as trustee, for the benefit
1.
<PAGE>
of Lender and recorded as instrument no. 92140432 on August 31, 1992 in the
Official Records of San Mateo County, California.
6. DEFAULT. Borrower's failure to pay timely any of the principal,
interest or other amount due under this Note on the date the same becomes due
and payable shall constitute a default under this Note. Upon the occurrence
of a default hereunder, all unpaid principal, accrued interest and other
amounts owing hereunder shall, at the option of Lender, be immediately
collectible by Lender pursuant to applicable law.
7. WAIVER. Borrower waives presentment and demand for payment, notice
of dishonor, protest and notice of protest of this Note, and shall pay all
costs of collection when incurred, including, without limitation, reasonable
attorneys' fees, costs and other expenses. The right to plead any and all
statutes of limitations as a defense to any demands hereunder is hereby
waived to the full extent permitted by law.
8. GOVERNING LAW. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of California, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
9. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to
the benefit of and be binding on any successor to Borrower and shall extend
to any holder hereof.
BORROWERS:
/s/ Louis G. Lange, M.D., Ph.D.
---------------------------------------
Louis G. Lange, M.D., Ph.D.
/s/ Linda S. Lange
--------------------------------------
Linda S. Lange
2.
<PAGE>
Exh. 10.8
AMENDED AND RESTATED
PROMISSORY NOTE
$75,000 September 23, 1996
Palo Alto, California
FOR VALUE RECEIVED, George F. Schreiner and Kathryn M. Schreiner, each
an individual resident of the State of California ("Borrowers"), hereby
unconditionally promise to pay to the order of CV Therapeutics, Inc., a
Delaware corporation ("Lender"), in lawful money of the United States of
America and in immediately available funds, the principal sum of Seventy-five
Thousand Dollars ($75,000.00) together with accrued and unpaid interest
thereon, payable on the dates and in the manner set forth below.
This Promissory Note amends and restates the Promissory Note given by
the Borrowers to the Lender dated November 27, 1992.
1. PRINCIPAL REPAYMENT. All outstanding principal, together with all
accrued and unpaid interest thereon, shall be due and payable on the earlier
to occur of: (i) December 31, 2001, or (ii) the effective date of any of the
following: (a) the voluntary termination of the employment of George F.
Schreiner with Lender; (b) the termination of employment of George F.
Schreiner with Lender for Justifiable Clause (as defined in the employment
offer letter dated August 6, 1992); or (c) a merger, sale of assets or other
reorganization involving Lender in which the shareholders of Lender prior to
such transaction own, after such transaction, less than 50% of the
outstanding voting securities of the surviving corporation or its parent.
2. INTEREST RATE. Borrowers further promise to pay interest on the
outstanding principal amount hereof from December 31, 1995 until payment in
full, at the annual rate of six and 53/100 percent (6.53%), compounded
semi-annually, or the maximum rate permissible by law (which under the laws
of the State of California shall be deemed to be the laws relating to
permissible rates of interest on commercial loans), whichever is less.
Accrued and unpaid interest shall be payable annually in arrears on December
31 of each year beginning December 31, 1996 and shall be calculated on the
basis of a 360-day year for the actual number of days elapsed.
3. PLACE OF PAYMENT. All amounts payable hereunder shall be payable
at the office of Lender, 3172 Porter Drive, Palo Alto, CA 94034, unless
another place of payment shall be specified in writing by Lender.
4. APPLICATION OF PAYMENTS. Any payment on this Note shall be applied
first to accrued interest, and thereafter to the outstanding principal
balance hereof.
5. SECURED NOTE. This Note is secured by the collateral identified
and described as security therefor in the Deed of Trust dated November 23,
1992, executed by and delivered by
1.
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Borrowers, as trustor, to California Land Title Company of Santa Clara
County, as trustee, for the benefit of Lender and recorded in the Official
Records of Santa Clara County, California.
6. Default. Borrower's failure to pay timely any of the principal,
interest, or other amount due under this Note on the date the same becomes
due and payable shall constitute a default under this Note. Upon the
occurrence of a default hereunder, all unpaid principal, accrued interest and
other amounts owing hereunder shall, at the option of Lender, be immediately
collectible by Lender pursuant to applicable law.
7. WAIVER. Borrower waives presentment and demand for payment, notice
of dishonor, protest and notice of this Note, and shall pay all costs of
collection when incurred, including, without limitation, reasonable
attorney's fees, costs and other expenses. The right to plead any and all
statutes of limitations as a defense to any demands hereunder is hereby
waived to the full extent permitted by law.
8. GOVERNING LAW. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of California, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
9. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to
the benefit of and be binding on any successor to Borrower and shall extend
to any holder hereof.
BORROWERS:
/s/ George F. Schreiner
-------------------------------------
George F. Schreiner
/s/ Kathryn M. Schreiner
-------------------------------------
Kathryn M. Schreiner
2.
<PAGE>
SEPARATION AND CONSULTING AGREEMENT
This SEPARATION AND CONSULTING AGREEMENT ("Agreement") is made and
entered into by and between THOMAS L. GUTSHALL ("Mr. Gutshall") and CV
THERAPEUTICS, INC. (the "Company"), as of the Separation Date provided for in
paragraph 1 herein.
W I T N E S S E T H
WHEREAS, Mr. Gutshall has tendered his resignation as Chief Operating
Officer, President and all other positions he may hold with the Company,
other than membership on the Company's Board of Directors and Committees
thereof, which is not affected by this agreement, and wishes to enter into a
consulting relationship with the Company;
WHEREAS, the Company has accepted Mr. Gutshall's resignation as Chief
Operating Officer, President and all other positions he may hold with the
Company, and wishes to provide Mr. Gutshall with certain benefits in
consideration of his service to the Company and the promises and covenants of
Mr. Gutshall as contained herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is agreed by and between the parties hereto as follows:
1. RESIGNATION. Mr. Gutshall has tendered and the Company has accepted
Mr. Gutshall's resignation as Chief Operating Officer, President and all other
positions he may hold with the Company, effective September 2, 1996 ("Separation
Date").
2. ACCRUED SALARY AND VACATION. The Company will pay Mr. Gutshall all
accrued unpaid salary, and all accrued but unused vacation earned prior to
the Separation Date, subject to standard payroll deductions and withholdings.
Mr. Gutshall is entitled to this payment regardless of whether he signs this
Agreement.
3. EXPENSE REIMBURSEMENT. Within thirty (30) business days of the
Separation Date, Mr. Gutshall will submit his final documented expense
reimbursement statement reflecting all business expenses he incurred through
the Separation Date, if any, for which he seeks reimbursement. The Company
shall reimburse Mr. Gutshall's expenses pursuant to Company policy and
regular business practice. In addition, during the Consulting Period defined
below in Paragraph 5, the Company will reimburse Mr. Gutshall, upon his
provision of proper documentation, for reasonable expenses actually incurred
by him in the course of consulting services performed by him at the Company's
request.
4. BOARD OF DIRECTOR MEMBERSHIP. The Company will reimburse Mr.
Gutshall, upon provision of proper documentation, for reasonable expenses
actually incurred by him as a director in attending Board meetings on the same
terms as other non-employee directors.
1.
<PAGE>
5. CONSULTING AGREEMENT. Mr. Gutshall shall serve as a consultant to
the Company under the terms specified below. The consulting relationship
shall commence on the Separation Date and continue through December 31, 1998
("Consulting Period").
(a) CONSULTING SERVICES. Mr. Gutshall agrees to provide
consulting services to the Company in any area of his expertise upon request
by a duly authorized officer of the Company, including, but not limited to,
manufacturing and the identification and consummation of relationships with
potential corporate partners and/or collaborators, including without
limitation, Astra Merck, Inc. and Kissei Pharmaceuticals, Ltd. of Japan. He
agrees to exercise the highest degree of professionalism and utilize his
expertise and creative talents in performing these services. Mr. Gutshall
agrees to make himself available to perform such consulting services
throughout the Consulting Period, up to a maximum of two and one-half (2 1/2)
days per week for the first month of the Consulting Period, up to a maximum
of two (2) days per week for the second month of the Consulting Period and up
to a maximum of one (1) day per week for the remaining twenty-six (26) months
of the Consulting Period. Mr. Gutshall agrees to travel and attend
additional meetings as mutually agreed at such compensation as may be
mutually agreed upon in writing with a duly authorized officer of the Company.
(b) CONSULTING FEES AND BENEFITS.
i. CONSULTING FEES. During the first month of the
Consulting Period, Mr. Gutshall shall receive eight thousand, seven hundred
and fifty dollars ($8,750) per month, during the second month of the
Consulting Period, Mr. Gutshall shall receive seven thousand dollars ($7,000)
per month and during the remaining twenty-six (26) months of the Consulting
Period, Mr. Gutshall shall receive three thousand, five hundred dollars
($3,500) per month.
ii. TAXES AND WITHHOLDING. As a consultant, the Company will
not withhold from the Consulting Fees any amount for taxes, social security
or other payroll deductions. The Company will issue Mr. Gutshall a Form 1099
with respect to his Consulting Fees. Mr. Gutshall acknowledges that he will
be entirely responsible for payment of any such taxes, and he hereby
indemnifies and saves harmless the Company from any liability for any taxes,
penalties or interest which may be assessed by any taxing authority.
iii. STOCK OPTION EXERCISE. The agreements relating to Mr.
Gutshall's options to purchase Company stock shall be amended as described
herein. Mr. Gutshall exercised his option to purchase fifty thousand
(50,000) shares of Company stock, subject to a Company purchase option. As
of September 2, 1996, this purchase option shall lapse as to twenty thousand
(20,000) shares and thirty thousand (30,000) of the shares subject to the
Company's purchase option shall be purchased by the Company for seven
thousand five hundred dollars ($7,500). Mr. Gutshall exercised his option to
purchase six hundred fifty thousand (650,000) shares of Company stock as to
two hundred fifty thousand (250,000) shares. As of September 2, 1996, (i)
the Company's purchase option with respect to the two hundred fifty thousand
(250,000) shares received upon exercise shall lapse in its entirety, (ii) the
option shall
2.
<PAGE>
be vested as to ten thousand (10,000) shares and (iii) the option shall be
canceled as to three hundred ninety thousand (390,000) shares. The
post-termination exercise period under all of Mr. Gutshall's options shall be
extended until ninety days following the end of the Consulting Period. Mr.
Gutshall acknowledges that by virtue of receiving an extension of the
exercise period, his incentive stock options may no longer be treated as
such, but instead may be treated for tax purposes as if they were not
incentive stock options. Mr. Gutshall also acknowledges that an extension of
the exercise period may be considered a "purchase" under Section 16 of the
Securities Exchange Act of 1934, as amended.
iv. HEALTH INSURANCE. To the extent provided by law and by
the Company's group health insurance plans, Mr. Gutshall will be eligible,
after the Separation Date, to continue his health insurance benefits under
the federal COBRA law, at his own expense for up to eighteen (18) months and,
later, to convert to an individual policy if he wishes. Mr. Gutshall will be
provided with a separate notice of his COBRA rights.
v. OTHER COMPENSATION. Except as expressly provided herein,
Mr. Gutshall acknowledges that he will not receive (nor is he entitled to)
any additional compensation, severance or benefits (including, but not
limited to, life insurance and disability insurance).
(c) LIMITATIONS ON AUTHORITY. Mr. Gutshall shall have no
responsibilities or authority as a consultant to the Company other than as
provided for above. Mr. Gutshall hereby agrees not to represent or purport
to represent the Company in any manner whatsoever to any third party unless
authorized by the Company, in writing, to do so.
(d) OTHER WORK ACTIVITIES. Throughout the Consulting Period,
Mr. Gutshall retains the right to engage in employment, consulting, or other
work relationships in addition to his work for the Company. The Company will
make reasonable arrangements to enable Mr. Gutshall to perform his work for the
Company at such times and in such a manner so that it will not interfere with
other activities in which he may engage. In order to protect the trade secrets
and confidential and proprietary information of the Company, Mr. Gutshall agrees
that, during the Consulting Period, he will not obtain employment, perform work
for any business entity, or engage in any other work activity which is in
competition, or is preparing to compete, with the Company ("Competitive
Activity"). For purposes of this paragraph, the holding of less than one
percent (1%) of the outstanding voting securities of any firm or business
organization in competition with the Company shall not constitute activities or
services precluded by this paragraph. Mr. Gutshall agrees to notify the
Company, in writing, at least ten (10) business days prior to engaging in any
work other than for the Company in any business area in which the Company is
currently, or can reasonably be expected to be, involved. In the event that Mr.
Gutshall is informed by the Company that any such work constitutes Competitive
Activity, and he subsequently engages in such Competitive Activity, the
Company's obligation to pay Mr. Gutshall consulting fees shall cease immediately
and any extension to the exercise date of his stock options, if granted, shall
cease and the Consulting Period shall end immediately. The
3.
<PAGE>
Company shall not seek to recover any fees or benefits provided to Mr.
Gutshall prior to his engagement in Competitive Activity, and such
Competitive Activity shall not be considered a breach of this Agreement.
6. LOAN TERM EXTENSION. The Company agrees to extend, until December
31, 2001, the term for repayment of that certain Promissory Note, in the
amount of $62,500, dated June 8, 1995 and executed by Mr. Gutshall, provided
however that the interest rate on such Promissory Note shall be increased to
the extent necessary to avoid Mr. Gutshall's receipt of imputed income
attributable to a below market loan.
7. NONSOLICITATION. Mr. Gutshall agrees that during the Consulting
Period and for one (1) year thereafter, he will not, either directly or
through others, solicit or attempt to solicit any employee, consultant, or
independent contractor of the Company to terminate his or her relationship
with the Company in order to become an employee, consultant or independent
contractor to or for any other person or entity.
8. COMPANY PROPERTY. Within fifteen (15) days of the Separation Date,
Mr. Gutshall agrees to return to the Company all Company documents (and all
copies thereof) and other Company property in his possession, or his control,
including, but not limited to, Company files, notes, drawings, records,
business plans and forecasts, financial information, specifications,
computer-recorded information, tangible property, credit cards,
identification badges and keys; and, any materials of any kind which contain
or embody any proprietary or confidential material of the Company (and all
reproductions thereof); provided that Mr. Gutshall shall retain an entry card
until such time as he is requested to return it to the Company. Mr. Gutshall
agrees that, as of the Separation Date, he will neither use nor possess
Company property, except such property which any officer or the Board
specifically authorizes him to use or possess for the sole purpose of
performing his duties under this Agreement. Mr. Gutshall further agrees that
he will return all property provided to him pursuant to the preceding
sentence, upon completion of the specific project for which he was authorized
to possess such property or on the Separation Date, whichever first occurs.
9. PROPRIETARY INFORMATION OBLIGATIONS. Mr. Gutshall hereby
acknowledges that he will continue to abide by the obligations of his
Employment, Confidential Information and Invention Assignment Agreement,
attached hereto as Exhibit A, including, but not limited to, his obligations
to refrain from unauthorized use or disclosure of the Company's proprietary
information.
10. NONDISPARAGEMENT. Mr. Gutshall and the Company agree that neither
party will at any time disparage the other in any manner likely to be harmful
to the other party, its business reputation, or the personal or business
reputation of its directors, shareholders, and employees, provided that each
party shall respond accurately and fully to any question, inquiry, or request
for information when required by legal process.
4.
<PAGE>
11. CONFIDENTIALITY. The provisions of this Agreement shall be held in
strictest confidence by Mr. Gutshall and the Company and shall not be
publicized or disclosed in any manner whatsoever. Notwithstanding the
prohibition in the preceding sentence: (a) Mr. Gutshall may disclose this
Agreement, in confidence, to his immediate family; (b) the parties may
disclose this Agreement in confidence to their respective attorneys,
accountants, auditors, tax preparers, and financial advisors; (c) the Company
may disclose this Agreement as necessary to fulfill standard or legally
required corporate reporting or disclosure requirements; and (d) the parties
may disclose this Agreement insofar as such disclosure may be necessary to
enforce its terms or as otherwise required by law. In particular (and
without limitation), Mr. Gutshall agrees not to discuss this Agreement with
present or former Company employees or other personnel, except to the extent
necessary to explain his consulting relationship with the Company or to carry
out his duties under this Agreement.
12. RELEASE OF CLAIMS. Except as otherwise set forth in this
Agreement, Mr. Gutshall hereby releases, acquits and forever discharges the
Company, its officers, directors, agents, attorneys, servants, employees,
shareholders, successors, assigns and affiliates, of and from any and all
claims, liabilities, demands, causes of action, costs, expenses, attorneys
fees, damages, indemnities and obligations of every kind and nature, in law,
equity, or otherwise, known and unknown, suspected and unsuspected, disclosed
and undisclosed, arising out of or in any way related to agreements, events,
acts or conduct at any time prior to and including the execution date hereof,
including but not limited to: any and all such claims and demands directly or
indirectly arising out of or in any way connected with Mr. Gutshall's
employment with the Company or the termination of that employment; claims or
demands related to salary, bonuses, commissions, stock, stock options, or any
other ownership interests in the Company, vacation pay, fringe benefits,
expense reimbursements, sabbatical benefits, severance benefits, or any other
form of compensation; claims pursuant to any federal, state or local law or
cause of action including, but not limited to, the federal Civil Rights Act
of 1964, as amended; the federal Age Discrimination in Employment Act of
1967, as amended ("ADEA"); the federal Americans with Disabilities Act of
1990; the California Fair Employment and Housing Act, as amended; tort law;
contract law; wrongful discharge; discrimination; fraud; defamation;
emotional distress; and breach of the implied covenant of good faith and fair
dealing.
13. ADEA WAIVER. Mr. Gutshall acknowledges that he is knowingly and
voluntarily waiving and releasing any rights he may have under the ADEA. He
also acknowledges that the consideration given for the waiver in the above
paragraph is in addition to anything of value to which he was already
entitled. He further acknowledges that he has been advised by this writing
that: (a) his waiver and release do not apply to any claims that may arise
after he signs this Agreement; (b) he has the right to consult with an
attorney prior to executing this Agreement; (c) he has twenty-one (21) days
within which to consider this Agreement (although he may choose to
voluntarily execute this Agreement earlier); and (d) he has seven (7) days
following the execution of this Agreement to revoke the Agreement.
5.
<PAGE>
14. SECTION 1542 WAIVER. Mr. Gutshall acknowledges that he has read
and understands Section 1542 of the Civil Code of the State of California
which reads as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
Mr. Gutshall hereby expressly waives and relinquishes all rights and benefits
under that section and any law or legal principle of similar effect in any
jurisdiction with respect to the release granted in this Agreement.
15. NO ADMISSIONS. It is understood and agreed by Mr. Gutshall and the
Company that this Agreement represents a compromise settlement of various
matters, and that the promises and payments in consideration of this
Agreement shall not be construed to be an admission of any liability or
obligation by either party to the other party or to any other person.
16. ENTIRE AGREEMENT. This Agreement, including Exhibit A, constitutes
the complete, final and exclusive embodiment of the entire agreement between
Mr. Gutshall and the Company with regard to the subject matter hereof. It is
entered into without reliance on any promise or representation, written or
oral, other than those expressly contained herein. It may not be modified
except in a writing signed by Mr. Gutshall and a duly authorized officer of
the Company. Each party has carefully read this Agreement, has been afforded
the opportunity to be advised of its meaning and consequences by his or its
respective attorneys, and signed the same of his or its own free will.
17. SUCCESSORS AND ASSIGNS. This Agreement shall bind the heirs,
personal representatives, successors, assigns, executors, and administrators
of each party, and inure to the benefit of each party, its heirs, successors
and assigns. However, because of the unique and personal nature of Mr.
Gutshall's duties under this Agreement, Mr. Gutshall agrees not to delegate
the performance of his duties under this Agreement.
18. APPLICABLE LAW. This Agreement shall be deemed to have been
entered into and shall be construed and enforced in accordance with the laws
of the State of California as applied to contracts made and to be performed
entirely within California.
19. SEVERABILITY. If a court of competent jurisdiction determines that
any term or provision of this Agreement is invalid or unenforceable, in whole or
in part, then the remaining terms and provisions hereof shall be unimpaired.
Such court will have the authority to modify or replace the invalid or
unenforceable term or provision with a valid and enforceable term or
6.
<PAGE>
provision that most accurately represents the parties' intention with respect
to the invalid or unenforceable term or provision.
20. SECTION HEADINGS. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
21. COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which shall be deemed an original, all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly authorized and caused this
Agreement to be executed as follows:
THOMAS L. GUTSHALL, CV THERAPEUTICS, INC.,
an individual a corporation
/s/ Thomas L. Gutshall By: /s/ Louis G. Lange
- -------------------------- --------------------------------
Thomas L. Gutshall Louis G. Lange
Chairman and Chief Executive Officer
Date: October 24 , 1996 Date: October 24 , 1996
-------------------- -------------------
7.
<PAGE>
EXHIBIT A
EMPLOYMENT, CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT
<PAGE>
CV THERAPEUTICS, INC.
EMPLOYMENT, CONFIDENTIAL INFORMATION AND
INVENTION ASSIGNMENT AGREEMENT
As a condition of my employment with CV Therapeutics, Inc., its subsidiaries,
affiliates, successors or assigns (together the "Company"), and in consideration
of my employment with the Company and my receipt of the compensation now and
hereafter paid to me by Company, I agree to the following:
1. AT-WILL EMPLOYMENT. I understand and acknowledge that my employment
with the Company is for an unspecified duration and constitutes "at-will"
employment. I acknowledge that this employment relationship may be terminated
at any time, with or without good cause or for any or no cause, at the option
either of the Company or myself, with or without notice.
2. CONFIDENTIAL INFORMATION.
(a) COMPANY INFORMATION. I agree at all times during the term of my
employment and thereafter, to hold in strictest confidence, and not to use,
except for the benefit of the Company, or to disclose to any person, firm or
corporation without written authorization of the Board of Directors of the
Company, any Confidential Information of the Company. I understand that
"Confidential Information" means any Company proprietary information, technical
data, trade secrets or know-how, including, but not limited to, research,
product plans, products, services, customer lists and customers (including, but
not limited to, customers of the Company on whom I called or with whom I became
acquainted during my term of my employment), markets, software, developments,
inventions, processes, formulas, proprietary materials and biologics,
technology, designs, drawings, engineering, hardware configuration information,
marketing, finances or other business information disclosed to me by the Company
either directly or indirectly in writing, orally or by drawings or observation
of materials, parts, equipment, or research experiments. I further understand
that Confidential Information does not include any of the foregoing items which
has become publicly known and made generally available through no wrongful act
of mine or of others who were under confidentiality obligations as to the item
or items involved.
(b) FORMER EMPLOYER INFORMATION. I agree that I will not, during my
employment with the Company, improperly use or disclose any proprietary
information or trade secrets of any former or concurrent employer or other
person or entity and that I will not bring onto the premises of the Company
<PAGE>
any unpublished document or proprietary information belonging to any such
employer, person or entity unless consented to in writing by such employer,
person or entity.
(c) THIRD PARTY INFORMATION. I recognize that the Company has
received and in the future will receive from third parties their confidential or
proprietary information subject to a duty on the Company's part to maintain the
confidentiality of such information and to use it only for certain limited
purposes. I agree to hold all such confidential or proprietary information in
the strictest confidence and not to disclose it to any person, firm or
corporation or to use it except as necessary in carrying out my work for the
Company consistent with the Company's agreement with such third party.
3. INVENTIONS.
(a) INVENTIONS RETAINED AND LICENSED. I have attached hereto, as
Exhibit A, a list describing all inventions, original works of authorship,
developments, improvements, and trade secrets which were made by me prior to my
employment with the Company (collectively referred to as "Prior Inventions"),
which belong to me, which relate to the Company's proposed business, products or
research and development, and which are not assigned to the Company hereunder;
or, if no such list is attached, I represent that there are no such Prior
Inventions. If in the course of my employment with the Company, I incorporate
into a Company product, process or machine a Prior Invention owned by me or in
which I have an interest, the Company is hereby granted and shall have a
nonexclusive, royalty-free, irrevocable, perpetual, worldwide license to make,
have made, modify, use and sell such Prior Invention as part of or in connection
with such product, process or machine.
(b) ASSIGNMENT OF INVENTIONS. I agree that I will promptly make
full written disclosure to the Company, will hold in trust for the sole right
and benefit of the Company, and hereby assign to the Company, or its designee,
all my right, title, and interest in and to any and all inventions, original
works of authorship, developments, concepts, improvements or trade secrets,
whether or not patentable or registrable under copyright or similar laws, which
I may solely or jointly conceive or develop or reduce to practice, or cause to
be conceived or developed or reduced to practice, during the period of time I am
in the employ of the Company (collectively referred to as "Inventions"), except
as provided in Section 3 (f) below. I further acknowledge that all original
works of authorship which are made by me (solely or jointly with others) within
the scope of and during the period of my employment with the Company and which
are protectible by copyright are "works made for hire," as that term is defined
in the United States Copyright Act.
<PAGE>
(c) INVENTIONS ASSIGNED TO THE UNITED STATES. I agree to assign to
the United States government all my right, title, and interest in and to any and
all Inventions whenever such full title is required to be in the United States
by a contract between the Company and the United States or any of its agencies.
(d) MAINTENANCE OF RECORDS. I agree to keep and maintain adequate
and current written records of all Inventions made by me (solely or jointly with
others) during the term of my employment with the Company. The records will be
in the form of notes, sketches, drawings, and any other format that may be
specified by the Company. The records will be available to and remain the sole
property of the Company at all times.
(e) PATENT AND COPYRIGHT REGISTRATIONS. I agree to assist the
Company, or its designee, at the Company's expense, in every proper way to
secure the Company's rights in the Inventions and any copyrights, patents, mask
work rights or other intellectual property rights relating thereto in any and
all countries, including the disclosure to the Company of all pertinent
information and data with respect thereto, the execution of all applications,
specifications, oaths, assignments and all other instruments which the Company
shall deem necessary in order to apply for and obtain such rights and in order
to assign and convey to the Company, its successors, assigns and nominees the
sole and exclusive rights, title and interest in and to such Inventions, and any
copyrights, patents, mask work rights or other intellectual property rights
relating thereto. I further agree that my obligation to execute or cause to be
executed, when it is in my power to do so, any such instrument or papers shall
continue after the termination of this Agreement. If the Company is unable
because of my mental or physical incapacity or for any other reason to secure my
signature to apply for or to pursue any application for any United States or
foreign patents or copyright registrations covering Inventions or original works
of authorship assigned to the Company as above, then I hereby irrevocably
designate and appoint the Company and its duly authorized officers and agents as
my agent and attorney in fact, to act for and in my behalf and stead to execute
and file any such applications and to do all other lawfully permitted acts to
further the prosecution and issuance of letters patent or copyright
registrations thereon with the same legal force and effect as if executed by me.
(f) EXCEPTION TO ASSIGNMENTS. I understand that the provisions of
this Agreement requiring assignment of Inventions to the Company do not apply to
any invention which qualifies fully under the provisions of California Labor
Code section 2870 (attached hereto as Exhibit B). I will advise the Company
promptly in writing of any inventions that I believe meet the
<PAGE>
criteria in California Labor Code Section 2870 and not otherwise disclosed on
Exhibit A.
4. CONFLICTING EMPLOYMENT. I agree that, during the term of my
employment with the Company, I will not engage in any other employment,
occupation, consulting or other business activity directly related to the
business in which the Company is now involved or becomes involved during the
term of my employment, nor will I engage in any other conduct or activities that
conflict with my obligations to the Company or is not in the best interests of
the Company.
5. RETURNING COMPANY DOCUMENTS. I agree that, at the time of leaving
the employ of the Company, I will deliver to the Company (and will not keep in
my possession, recreate or deliver to anyone else) any and all devices, records,
data, notes, reports, proposals, lists, correspondence, specifications,
drawings, blueprints, sketches, materials, equipment, other documents or
property, or reproductions of any aforementioned items developed by me pursuant
to my employment with the Company or otherwise belonging to the Company, its
successors or assigns. In the event of the termination of my employment, I
agree to sign and deliver the "Termination Certification" attached hereto as
Exhibit C.
6. NOTIFICATION OF NEW EMPLOYER. In the event that I leave the employ
of the Company, I hereby grant consent to notification by the Company to my new
employer about my rights and obligations under this Agreement.
7. SOLICITATION OF EMPLOYEES AND CUSTOMER. I acknowledge and agree
that (i) the identity and particular skills, experience and comparison levels of
employees of the Company, and (ii) the identity, appropriate knowledge of
personnel, product requirements, and price sensitivity of customers of the
Company, is not publicly available information and constitutes valuable trade
secrets of the Company. Accordingly, I agree that for a period of (12) months
immediately following the termination of my relationship with the Company for
any reason, whether with or without cause, I shall not either directly or
indirectly without the consent of the Company:
(a) solicit, induce, recruit or encourage any of the Company's
employees to leave their employment, or take away such employees, or attempt to
solicit, induce, recruit, encourage or take away employees of the Company,
either for myself or for any other person or entity; or
(b) solicit or accept the business of any customer of the Company,
which business is competitive with any significant part of the business
conducted
<PAGE>
by the Company or any subsidiary or affiliate thereof at the time of the
termination of my employment or as contemplated to be conducted by the Company
at such time.
8. CONFLICT OF INTEREST GUIDELINES. I agree to diligently adhere to
the Conflict of Interest Guidelines attached as Exhibit D hereto.
9. REPRESENTATIONS. I agree to execute any proper oath or verify any
proper document required to carry out the terms of this Agreement. I represent
that my performance of all the terms of this Agreement will not breach any
agreement to keep in confidence proprietary information acquired by me in
confidence or in trust prior to my employment by the Company. I have not
entered into, and I agree I will not enter into, any oral or written agreement
in conflict herewith.
10. ARBITRATION AND EQUITABLE RELIEF.
(a) ARBITRATION. Except as provided in Section 10(b) below, I agree
that any dispute or controversy arising out of or relating to any
interpretation, construction, performance or breach of this Agreement, shall be
settled by arbitration to be held in Santa Clara County, California, in
accordance with the rules then in effect of the American Arbitration
Association. The arbitrator may grant injunctions or other relief in such
dispute or controversy. The decision of the arbitrator shall be final,
conclusive and binding on the parties to the arbitration. Judgment may be
entered on the arbitrator's decision in any court having jurisdiction. The
Company and I shall each pay one-half of the costs and expenses of such
arbitration, and each of us shall separately pay our counsel fees and expenses.
(b) EQUITABLE REMEDIES. I agree that it would be impossible or
inadequate to measure and calculate the Company's damages from any breach of the
covenants set forth in Sections 2, 3, 5 and 7 herein. Accordingly, I agree that
if I breach any of such Sections, the Company will have available, in addition
to any other right or remedy available, the right to obtain an injunction from a
court of competent jurisdiction restraining such breach or threatened breach and
to specific performance of any such provision of this Agreement. I further
agree that no bond or other security shall be required in obtaining such
equitable relief and I hereby consent to the issuance of such injunction and to
the ordering of specific performance.
11. GENERAL PROVISIONS.
<PAGE>
(a) GOVERNING LAW; CONSENT TO PERSONAL JURISDICTION. This Agreement
will be governed by the laws of the State of California. I hereby expressly
consent to the personal jurisdiction of the state and federal courts located in
California for any lawsuit filed there against me by the Company arising from or
relating to this Agreement.
(b) ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement and understanding between the Company and me relating to the subject
matter herein and merges all prior discussions between us. No modification of
or amendment to this Agreement, nor any waiver of any rights under this
Agreement, will be effective unless in writing signed by the party to be
charged. Any subsequent change or changes in my duties, salary or compensation
will not affect the validity or scope of this Agreement.
(c) SEVERABILITY. If one or more of the provisions in this
Agreement are deemed void by law, then the remaining provisions will continue in
full force and effect.
(d) SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my
heirs, executors, administrators and other legal representatives and will be for
the benefit of the Company, its successors, and assigns.
Date: 1-4-95
--------------------
/s/ Thomas L. Gutshall
-------------------------------------
Signature
Thomas L. Gutshall
-------------------------------------
Name of Employee (typed or printed)
CV Therapeutics, Inc.
By /s/ Louis Lange
-----------------------------
Title CEO
--------------------------
Date 1/4/95
---------------------------
<PAGE>
EXHIBIT A
LIST OF PRIOR INVENTIONS
AND ORIGINAL WORKS OF AUTHORSHIP
Identifying Number
Title Date or Brief Description
- ---------------- -------------- ------------------------
No inventions or improvements
- ------
Additional Sheets Attached
- ------
Signature of Employee: /s/ Thomas L. Gutshall
----------------------------
Print Name of Employee: Thomas L. Gutshall
---------------------------
Date: 1-4-95
-----------------------
<PAGE>
EXHIBIT B
CALIFORNIA LABOR CODE SECTION 2870
EMPLOYMENT AGREEMENTS; ASSIGNMENT OF RIGHTS
"(a) Any provision in an employment agreement which provides that an employee
shall assign, or offer to assign, any of his or her rights in an invention to
his or her employer shall not apply to an invention that developed entirely on
his or her own time without using the employer's equipment, supplies,
facilities, or trade secret information except for those inventions that either:
(1) Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer.
(2) Result from any work performed by the employee for the employer.
(b) To the extent a provision in the employment agreement purports to require
an employee to assign an invention otherwise excluded from being required to be
assigned under subdivision (a), the provision is against the public policy of
this state and is unenforceable."
<PAGE>
EXHIBIT C
CV THERAPEUTICS, INC.
TERMINATION CERTIFICATION
This is to certify that I do not have in my possession, nor have I failed to
return, any devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, drawings, blueprints, sketches, materials,
equipment, other documents or property, or reproductions of any aforementioned
items belonging to CV Therapeutics, Inc., its subsidiaries, affiliates,
successors or assigns, except where authorized in writing.
I further certify that I have complied with all the terms of the CV Therapeutics
Employment, Confidential Information and Invention Assignment Agreement signed
by me, including the reporting of any inventions and original works of
authorship (as defined therein)), conceived or made by me (solely or jointly
with others) covered by that agreement.
I further agree that, in compliance with the Employment, Confidential
Information and Invention Assignment Agreement, I will preserve as confidential
all trade secrets, confidential knowledge, data or other proprietary information
relating to products, processes, know-how, designs, formulas, developmental or
experimental work, computer programs, data bases, other original works of
authorship, customer lists, business plans, financial information or other
subject matter pertaining to any business of CV Therapeutics or any of its
employees, clients, consultants, or licensees.
I further agree that in compliance with the Employment, Confidential Information
and Invention Assignment Agreement, for twelve (12) months from this date: (a)
I will not hire any employees of the Company and will not solicit, induce,
recruit or encourage any of the Company's employees to leave their employment;
(b) I will not solicit or accept the business of any customer of the Company,
which business is competitive with any significant part of the business
conducted by the Company or any subsidiary or affiliate thereof at the time of
termination of my employment or as contemplated to be conducted by the Company
at such time.
Date:
-------------------------
----------------------------------
(Employee's Signature)
----------------------------------
(Type/Print Employee's Name)
<PAGE>
EXHIBIT D
CONFLICT OF INTEREST GUIDELINES
It is the policy of CV Therapeutics to conduct its affairs in strict compliance
with the letter and spirit of the law and to adhere to the highest principles of
business ethics. Accordingly, all officers, employees and independent
contractors must avoid activities which are in conflict, or give the appearance
of being in conflict, with these principles and with the interests of the
company. The following are potentially compromising situations that must be
avoided. Any exceptions must be reported to the Chief Executive Officer and
written approval for continuation must be obtained.
1. Revealing confidential information to outsiders or misusing confidential
information. Unauthorized divulging of information is a violation of this
policy whether or not for personal gain and whether or not harm to the
company is intended. (The Employment, Confidential Information and
Invention Assignment Agreement elaborates on this principle and is a
binding agreement.)
2. Accepting or offering substantial gifts, excessive entertainment, favors or
payments which may be deemed to constitute undue influence or otherwise be
improper or embarrassing to CV Therapeutics.
3. Participating in civic or professional organizations that might involve
divulging confidential information of the company.
4. Initiating or approving personnel actions affecting reward or punishment of
employees or applicants where there is a family relationship or is or
appears to be a personal or social involvement.
5, Initiating or approving any form of personal or social harassment of
employees.
6. Investing or holding outside directorship in suppliers, customers, or
competing companies, including financial speculations, where such
investment or directorship might influence in any manner a decision or
course of action of the company.
7. Borrowing from or lending to employees, customers or suppliers.
8. Acquiring real estate of interest to CV Therapeutics.
<PAGE>
9. Improperly using or disclosing to the company any proprietary information
or trade secrets of any former or concurrent employer or other person or
entity with whom obligations of confidentiality exist.
10. Unlawfully discussing prices, costs, customers, sales or markets with
competing companies or their employees.
11. Making any unlawful agreement with distributors with respect to prices.
12. Improperly using or authorizing the use of any inventions that are the
subject of patent claims of any other person or entity.
13. Engaging in any conduct that is not in CV Therapeutics' best interest.
Each officer, employee and independent contractor must take every necessary
action to ensure compliance with these guidelines and to bring problem areas to
the attention of higher management for review. Violations of this conflict of
interest policy may result in discharge without warning.
<PAGE>
Exh. 10.26
AMENDED AND RESTATED
PROMISSORY NOTE
$37,500 September 23, 1996
Palo Alto, California
FOR VALUE RECEIVED, Louis G. Lange, an individual resident in the State
of California ("Borrower"), hereby unconditionally promises to pay to the
order of CV Therapeutics, Inc., a Delaware corporation ("Lender"), in lawful
money of the United States of America and in immediately available funds, the
principal sum of Thirty-Seven Thousand Five Hundred Dollars ($37,500.00)
together with accrued and unpaid interest thereon, payable on the dates and
in the manner set forth below.
This Promissory Note amends and restates the Promissory Note given by
Borrower to the Lender dated June 8, 1995.
1. PRINCIPAL REPAYMENT. All outstanding principal, together with all
accrued and unpaid interest thereon, shall be due and payable on the earlier
to occur of: (i) December 31, 2001, or (ii) the effective date of any of the
following: (a) the voluntary termination of Borrower's employment with
Lender; (b) the termination of Borrower's employment with Lender for
Justifiable Cause (as defined in Borrower's employment letter dated April 30,
1992); or (c) a merger, sale of assets or other reorganization involving
Lender in which the shareholders of Lender prior to such transaction own,
after such transaction, less than 50% of the outstanding voting securities of
the surviving corporation or its parent.
2. INTEREST. Borrower further promises to pay interest on the
outstanding principal amount hereof from December 31, 1995 until payment in
full, at the annual rate of six and 53/100 percent (6.53%), compounded
semi-annually, or the maximum rate permissible by law (which under the laws
of the State of California shall be deemed to be the laws relating to
permissible rates of interest on commercial loans), whichever is less.
Accrued and unpaid interest shall be payable annually in arrears on December
31 of each year beginning December 31, 1996 and shall be calculated on the
basis of a 360-day year for the actual number of days elapsed.
3. PLACE OF PAYMENT. All amounts payable hereunder shall be payable
at the office of Lender, 3172 Porter Drive, Palo Alto, California 94304,
unless another place of payment shall be specified in writing by Lender.
4. APPLICATION OF PAYMENTS. Any payment on this Note shall be applied
first to accrued interest, and thereafter to the outstanding principal
balance hereof.
1.
<PAGE>
5. SECURED NOTE. The full amount of this Note is secured by a pledge
of shares of Common Stock of Lender owned by Borrower, pursuant to the terms
and provisions of the Pledge Agreement dated as of June 8, 1995.
6. DEFAULT. Borrower's failure to pay timely any of the principal,
interest or other amounts due under this Note on the date the same becomes
due and payable shall constitute a default under this Note. Upon the
occurrence of a default hereunder, all unpaid principal, accrued interest and
other amounts owing hereunder shall, at the option of Lender, be immediately
collectible by Lender pursuant to applicable law.
7. WAIVER. Borrower waives presentment and demand for payment, notice
of dishonor, protest and notice of protest of this Note, and shall pay all
costs of collection when incurred, including, without limitation, reasonable
attorneys' fees, costs and other expenses. The right to plead any and all
statutes of limitations as a defense to any demands hereunder is hereby
waived to the full extent permitted by law.
8. GOVERNING LAW. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of California, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
9. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to
the benefit of and be binding on any successor to Borrower and shall extend
to any holder hereof.
BORROWER:
/s/ Louis G. Lange, M.D., Ph.D.
------------------------------------
Louis G. Lange, M.D., Ph.D.
2.
<PAGE>
Exh. 10.27
AMENDED AND RESTATED
PROMISSORY NOTE
$25,000 September 23, 1996
Palo Alto, California
FOR VALUE RECEIVED, Louis G. Lange, an individual resident in the State
of California ("Borrower"), hereby unconditionally promises to pay to the
order of CV Therapeutics, Inc., a Delaware corporation ("Lender"), in lawful
money of the United States of America and in immediately available funds, the
principal sum of Twenty-Five Thousand Dollars ($25,000.00) together with
accrued and unpaid interest thereon, payable on the dates and in the manner
set forth below.
This Promissory Note amends and restates the Promissory Note given by
Borrower to the Lender dated August 25, 1996.
1. PRINCIPAL REPAYMENT. All outstanding principal, together with all
accrued and unpaid interest thereon, shall be due and payable on the earlier
to occur of: (i) December 31, 2001, or (ii) the effective date of any of the
following: (a) the voluntary termination of Borrower's employment with Lender;
(b) the termination of Borrower's employment with Lender for Justifiable
Cause (as defined in Borrower's employment letter dated April 30, 1992); or
(c) a merger, sale of assets or other reorganization involving Lender in
which the shareholders of Lender prior to such transaction own, after such
transaction, less than 50% of the outstanding voting securities of the
surviving corporation or its parent.
2. INTEREST. Borrower further promises to pay interest on the
outstanding principal amount hereof from August 25, 1996 until payment in
full, at the annual rate of six and 53/100 percent (6.53%), compounded
semi-annually, or the maximum rate permissible by law (which under the laws
of the State of California shall be deemed to be the laws relating to
permissible rates of interest on commercial loans), whichever is less.
Accrued and unpaid interest shall be payable annually in arrears on December 31
of each year beginning December 31, 1996 and shall be calculated on the
basis of a 360-day year for the actual number of days elapsed.
3. PLACE OF PAYMENT. All amounts payable hereunder shall be payable
at the office of Lender, 3172 Porter Drive, Palo Alto, California 94304,
unless another place of payment shall be specified in writing by Lender.
4. APPLICATION OF PAYMENTS. Any payment on this Note shall be
applied first to accrued interest, and thereafter to the outstanding
principal balance hereof.
5. SECURED NOTE. The full amount of this Note is secured by a pledge
of shares of Common Stock of Lender owned by Borrower, pursuant to the terms
and provisions of the Pledge Agreement dated as of August 25, 1996.
1.
<PAGE>
6. DEFAULT. Borrower's failure to pay timely any of the principal,
interest or other amount, due under this Note on the date the same becomes
due and payable shall constitute a default under this Note. Upon the
occurrence of a default hereunder, all unpaid principal, accrued interest
and other amounts owing hereunder shall, at the option of Lender, be
immediately collectible by Lender pursuant to applicable law.
7. WAIVER. Borrower waives presentment and demand for payment,
notice of dishonor, protest and notice of protest of this Note, and shall
pay all costs of collection when incurred, including, without limitation,
reasonable attorneys' fees, costs and other expenses. The right to plead
any and all statutes of limitations as a defense to any demands hereunder is
hereby waived to the full extent permitted by law.
8. GOVERNING LAW. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of California, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
9. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure
to the benefit of and be binding on any successor to Borrower and shall
extend to any holder hereof.
BORROWER:
Louis G. Lange, M.D., Ph.D.
------------------------------------
Louis G. Lange, M.D., Ph.D.
2.
<PAGE>
Exh. 10.28
AMENDED AND RESTATED
PROMISSORY NOTE
$25,000 September 23, 1996
Palo Alto, California
FOR VALUE RECEIVED, Louis G. Lange, an individual resident in the State
of California ("Borrower"), hereby unconditionally promises to pay to the
order of CV Therapeutics, Inc., a Delaware corporation ("Lender"), in lawful
money of the United States of America and in immediately available funds, the
principal sum of Twenty-Five Thousand Dollars ($25,000.00) together with
accrued and unpaid interest thereon, payable on the dates and in the manner
set forth below.
This Promissory Note amends and restates the Promissory Note given by
Borrower to the Lender dated June 13, 1993.
1. PRINCIPAL REPAYMENT. All outstanding principal, together with all
accrued and unpaid interest thereon, shall be due and payable on the earlier
to occur of: (i) December 31, 2001, or (ii) the effective date of any of the
following: (a) the voluntary termination of Borrower's employment with
Lender; (b) the termination of Borrower's employment with Lender for
Justifiable Cause (as defined in Borrower's employment letter dated April 30,
1992); or (c) a merger, sale of assets or other reorganization involving
Lender in which the shareholders of Lender prior to such transaction own,
after such transaction, less than 50% of the outstanding voting securities of
the surviving corporation or its parent.
2. INTEREST. Borrower further promises to pay interest on the
outstanding principal amount hereof from December 31, 1995 until payment in
full, at the annual rate of six and 53/100 percent (6.53%), compounded
semi-annually, or the maximum rate permissible by law (which under the laws
of the State of California shall be deemed to be the laws relating to
permissible rates of interest on commercial loans), whichever is less.
Accrued and unpaid interest shall be payable annually in arrears on December
31 of each year beginning December 31, 1996 and shall be calculated on the
basis of a 360-day year for the actual number of days elapsed.
3. PLACE OF PAYMENT. All amounts payable hereunder shall be payable
at the office of Lender, 3172 Porter Drive, Palo Alto, CA 94034, unless
another place of payment shall be specified in writing by Lender.
4. APPLICATION OF PAYMENTS. Any payment on this Note shall be applied
first to accrued interest, and thereafter to the outstanding principal
balance hereof.
1.
<PAGE>
5. SECURED NOTE. The full amount of this Note is secured by a pledge
of shares of Common Stock of Lender owned by Borrower, pursuant to the terms
and provisions of the Pledge Agreement dated as of June 13, 1993 between the
undersigned and the Company.
6. DEFAULT. Borrower's failure to pay timely any of the principal,
interest or other amounts due under this Note on the date the same becomes
due and payable shall constitute a default under this Note. Upon the
occurrence of a default hereunder, all unpaid principal, accrued interest and
other amounts owing hereunder shall, at the option of Lender, be immediately
collectible by Lender pursuant to applicable law.
7. WAIVER. Borrower waives presentment and demand for payment, notice
of dishonor, protest and notice of protest of this Note, and shall pay all
costs of collection when incurred, including, without limitation, reasonable
attorneys' fees, costs and other expenses. The right to plead any and all
statutes of limitations as a defense to any demands hereunder is hereby
waived to the full extent permitted by law.
8. GOVERNING LAW. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of California, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
9. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to
the benefit of and be binding on any successor to Borrower and shall extend
to any holder hereof.
BORROWER:
/s/ Louis G. Lange, M.D., Ph.D.
------------------------------------
Louis G. Lange, M.D., Ph.D.
2.
<PAGE>
Exh. 10.29
AMENDED AND RESTATED
PROMISSORY NOTE
$62,500 September 23, 1996
Palo Alto, California
FOR VALUE RECEIVED, Thomas Gutshall, an individual resident in the
State of California ("Borrower"), hereby unconditionally promises to pay to
the order of CV Therapeutics, Inc., a Delaware corporation ("Lender"), in
lawful money of the United States of America and in immediately available
funds, the principal sum of Sixty Two Thousand Five Hundred Dollars
($62,500.00) together with accrued and unpaid interest thereon, payable on
the dates and in the manner set forth below.
This Promissory Note amends and restates the Promissory Note given by
Borrower to the Lender dated June 8, 1995.
1. PRINCIPAL REPAYMENT. All outstanding principal, together with all
accrued and unpaid interest thereon, shall be due and payable on the earlier
to occur of: (i) December 31, 2001, or (ii) the effective date of any of the
following: (a) the voluntary termination of Borrower's association with
Lender, or (b) a merger, sale of assets or other reorganization involving
Lender in which the shareholders of Lender prior to such transaction own,
after such transaction, less than 50% of the outstanding voting securities of
the surviving corporation or its parent.
2. INTEREST. Borrower further promises to pay interest on the
outstanding principal amount hereof from June 8, 1995 until payment in full,
at the annual rate of six and 53/100 percent (6.53%), compounded
semi-annually, or the maximum rate permissible by law (which under the laws
of the State of California shall be deemed to be the laws relating to
permissible rates of interest on commercial loans), whichever is less.
Accrued and unpaid interest shall be payable annually in arrears on December
31 of each year beginning December 31, 1996 and shall be calculated on the
basis of a 360-day year for the actual number of days elapsed.
3. PLACE OF PAYMENT. All amounts payable hereunder shall be payable
at the office of Lender, 3172 Porter Drive, Palo Alto, California 94304,
unless another place of payment shall be specified in writing by Lender.
4. APPLICATION OF PAYMENTS. Any payment on this Note shall be applied
first to accrued interest, and thereafter to the outstanding principal
balance hereof.
5. SECURED NOTE. The full amount of this Note is secured by a pledge
of shares of Common Stock of Lender owned by Borrower pursuant to the terms
and provisions of the Pledge Agreement dated as of June 8, 1995.
1.
<PAGE>
6. DEFAULT. Borrower's failure to pay timely any of the principal,
interest or other amounts due under this Note on the date the same becomes
due and payable shall constitute a default under this Note. Upon the
occurrence of a default hereunder, all unpaid principal, accrued interest and
other amounts owing hereunder shall, at the option of Lender, be immediately
collectible by Lender pursuant to applicable law.
7. WAIVER. Borrower waives presentment and demand for payment, notice
of dishonor, protest and notice of protest of this Note, and shall pay all
costs of collection when incurred, including, without limitation, reasonable
attorneys' fees, costs and other expenses. The right to plead any and all
statutes of limitations as a defense to any demands hereunder is hereby
waived to the full extent permitted by law.
8. GOVERNING LAW. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of California, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
9. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to
the benefit of and be binding on any successor to Borrower and shall extend
to any holder hereof.
BORROWER:
/s/ Thomas Gutshall
------------------------------------
Thomas Gutshall
2.
<PAGE>
EXHIBIT 11.1
CV THERAPEUTICS, INC.
COMPUTATION OF NET LOSS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
Historical:
Weighted average common stock outstanding:................ 235 248 335 320 386
Shares related to Staff Accounting Bulletins Nos. 55, 64
and 83:
Stock Options......................................... 340 340 340 340 340
Warrants.............................................. 965 965 965 965 965
--------- --------- --------- --------- ---------
Total shares used in calculating net loss per share......... 1,540 1,553 1,640 1,625 1,691
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net loss.................................................... $ (5,517) $ (11,367) $ (16,724) $ (12,754) $ (8,367)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net loss per share.......................................... $ (3.58) $ (7.32) $ (10.20) $ (7.85) $ (4.95)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma:
Shares used in calculating net loss per share (per
above)................................................... 1,640 1,625 1,691
Preferred Stock if-converted:............................. 2,221 2,155 3,017
--------- --------- ---------
Total shares used in calculating pro forma net loss
per share.................................................. 3,861 3,780 4,708
--------- --------- ---------
--------- --------- ---------
Net loss.................................................... $ (16,724) $ (12,754) $ (8,367)
--------- --------- ---------
--------- --------- ---------
Pro forma net loss per share................................ $ (4.33) $ (3.37) $ (1.78)
--------- --------- ---------
--------- --------- ---------
</TABLE>
